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GUARANTEES AND INDEMNITIES - Guarantee - Liability of guarantor

Thursday, July 20, 2017 @ 8:24 AM  

Lexis Advance® Quicklaw®
Appeal by the plaintiff, Royal Bank of Canada (Bank), from a decision dismissing its motion for summary judgment on the basis that there was a genuine issue requiring a trial regarding misrepresentation. The respondent, MJL Enterprises Inc. (MJL), borrowed $75,000 from the Bank by way of a Loan Agreement supported by several security documents, including personal guarantees of the individual respondents, which were limited to $75,000. When MJL defaulted and failed to respond to the Bank’s demand for payment, the Bank commenced the present action against MJL and the guarantors. The guarantors argued that they were led to believe that the appellant would provide financing of $150,000, $75,000 of which was to have been made available immediately and the other $75,000 at a later date. Based on the representation, they signed the General Security Agreement and the personal guarantees. They argued that two days later, the Bank reneged on the agreement and advanced only $75,000. The motions judge accepted that evidence.

HELD: Appeal allowed. The motions judge erred in law in his interpretation and application of the law of misrepresentation, and made a palpable and overriding error of fact in finding that the appellant represented to the respondents that they would receive financing of $150,000. The evidence was that the respondents were informed by email that the financing would be $75,000 and were given the opportunity to accept or reject the financing. They accepted it by signing the Loan Agreement for $75,000 the next day. It was an error of law to hold, on the facts of the present case, that either innocent misrepresentation or negligent misrepresentation could constitute a genuine issue for trial. The respondents did nothing to disaffirm any of the documents they signed, including the guarantees. That fact alone was fatal to a claim of innocent misrepresentation. It could not be seriously contended in the present case that either guarantor was misled as to the nature of the contract they were signing. There was no evidence that they did not know they were signing a guarantee. The agreement was in no way unconscionable.

Royal Bank of Canada v. MJL Enterprises Inc., [2017] P.E.I.J. No. 17, Prince Edward Island Court of Appeal, D.H. Jenkins C.J.P.E.I., M.M. Murphy and J.K. Mitchell JJ.A., May 30, 2017. Digest No. TLD-July172017008