Bank of Montreal v. Javed, 2016 ONCA 49:
[19] What is the effect of the Bank’s breach
of its contractual disclosure obligation? Mr. Shah argues that the guarantee
must be discharged. I disagree.
[20] A guarantee is a contract, and the
ordinary principles of contract law apply to a creditor’s breach. Consequently,
only the most serious misconduct on the part of the creditor will discharge a
guarantee. Some examples from the cases
include: a creditor acting in bad faith toward the surety; the creditor
concealing material information at the inception of the guarantee; where the
creditor causes or connives the default of the principal debtor; or where there
is a variation in the terms of the contract between the creditor and the
principal debtor of a type that would prejudice the interests of the surety:
Bank of India v. Trans Continental Commodity Merchants Ltd. & Patel, [1982]
1 Lloyd's Rep. 506 (Q.B. Com. Ct.), at p. 515, aff'd [1983] 2 Lloyd's Rep. 298
(C.A.) at p. 302; Bank of Montreal v. Wilder, [1986] 2 S.C.R. 551; Pax
Management Ltd. v. Canadian Imperial Bank of Commerce, [1992] 2 S.C.R. 998;
Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415.
[21] In Pax Management, Iacobucci J. held, at
para. 42, p. 1021:
A guarantor should not be
discharged from the obligation which he or she has undertaken except by acts
which have some impact on the magnitude or likelihood of the materialization of
that risk. Other objectionable or wrongful conduct by the creditor towards the
guarantor should be dealt with by causes of action that are otherwise
appropriate such as the tort of deceit or breach of fiduciary duty.
[22] Kevin McGuiness notes in The Law of
Guarantee, 3d ed. (Markham, Ont.: LexisNexis Canada Inc., 2013) at s. 12.2 (p.
1001):
Usually, the measure of a surety’s
damage where the creditor breaches the terms of the principal contract can be
equated with a degree of prejudice suffered as a result of the breach in much
of the same way as the prejudice suffered by the principal can be so
quantified. Where such quantification is
practical, then in order to compensate the surety adequately for the breach –
and also to deter creditors from committing such breaches – the surety should
obtain a partial release from liability under the guarantee to the extent of
the amounts so quantified.
[23] In this case, as in Pax Management, the
breach by the Bank of its contractual disclosure obligation to Mr. Shah was not
sufficiently serious to give rise to a right of rescission in his favour. The
breach then comes down to a question of damages based on proven prejudice to
the guarantor.
[24] The reasonableness of this approach is
reinforced by the law’s expectation, in general terms, that the guarantor, not
the creditor, is responsible for monitoring the debtor’s behaviour. As McGuiness observes, at p. 948: “there is
no general duty of active diligence imposed by law upon the creditor; as a
person who has given the guarantee, it is the surety’s business, rather than
the creditor’s to see that the principal performs the guaranteed obligation.”
Further, at p. 363, he states: “[t]he assumption that has guided the courts is
that in most cases, sureties have a superior ability to that of the creditor to
monitor the performance of the principal.”
[25] There is no evidence that Mr. Shah
sought any information from the Company regarding the state of its indebtedness
to the Bank and was refused. In his affidavit on the motion, Mr. Shah claims
only that if he had been aware of the amount of the loan, he could have somehow
saved the business or convinced his business partner to sell assets in order to
repay the loan. These claims were entirely abstract and speculative. Mr. Shah
adduced no evidence to substantiate them.
[26] The appellants, therefore, did not
discharge their positive obligation to prove damages for the Bank’s breach, and
consequently are not entitled to any set-off against or reduction in the amount
owed on the guarantee.
No comments:
Post a Comment