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GUARANTEES AND INDEMNITIES - Defences

Thursday, August 27, 2020 @ 7:42 AM  


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Appeal by the plaintiff from an order dismissing the appellant’s application for summary judgment for possession and sale of the respondent wife’s Ontario property. The respondent spouses guaranteed the indebtedness of a Florida corporation to the appellant. The wife granted a mortgage over her Ontario property as collateral security for the corporation’s indebtedness to the appellant. The corporation went bankrupt and defaulted under the loan. The U.S. court found that the respondents’ guarantee was valid and enforceable. The respondents did not appear to have argued before the U.S. court that the wife’s guarantee was the product of undue influence. The motion judge concluded that the mortgage on the Ontario property was not enforceable because it was the product of presumed undue influence on the wife by the husband, the appellant had constructive notice thereof, and it did not adequately ensure that the wife received independent legal advice before she agreed to the mortgage.

HELD: Appeal allowed. The motion judge erred in his articulation and application of the doctrine of presumption of undue influence. The motion judge considered only the nature of the relationship between the spouses and failed to consider the nature of the transaction between them. The wife had a significant interest in the corporation. This was not a transaction which, from a business point of view, was of no benefit to her. The relationship between the spouses in which the motion judge found the wife unquestioningly complied with all requests by her husband to sign documents, when coupled with the nature of the transaction between them, did not justify an inference that the mortgage was procured by the undue influence of the husband over the wife. Even if a presumption of undue influence did arise such that the appellant was put on notice to ensure the wife was entering into the transaction freely, the appellant did so by inquiring of both attorneys representing both spouses whether everything that was stated in the guarantee had been explained to them, including the statement in the guarantee that it was explained to them by an independent solicitor, and both counsel confirmed that this was the case for both spouses. On these facts, this inquiry was sufficient to protect the appellant from the wife’s assertion of presumed undue influence.

JGB Collateral, LLC v. Rochon, [2020] O.J. No. 3075, Ontario Court of Appeal, P.S. Rouleau, A. Hoy and C.W. Hourigan JJ.A., July 17, 2020. Digest No. TLD-August242020007