rules of repayment
52 | spring 2017 cmba-achc.ca CmB magazine
T
he Ontario Court of Appeal
in Toronto-Dominion Bank
v. Konga, 2016 ONCA 976
provides some important
points concerning guarantors'
obligations and rights. We will look at what it
has to say about:
n
how much time a creditor must give a debtor
to pay once a demand is made;
n
what preconditions must be met before the
creditor is entitled to demand repayment; and
n
what will cause a guarantor to be equitably
discharged from the guarantee (that is,
released from the guarantee out of fairness).
Facts of the Case
A company had credit facilities with a bank.
Its director/CEO/majority shareholder
unconditionally, irrevocably, under an
unlimited and continuing guarantee, guaranteed
all present and future obligations owed by the
company to the bank. e guarantor agreed
pay upon receipt of a written demand from the
bank. He also agreed the bank was not required
to exhaust its recourse against the company
or under any security before being entitled to
demand payment from the guarantor.
e bank claimed that the company had
breached the terms of the loan agreement,
including: being overdrawn on its line of credit,
not maintaining the agreed-upon tangible net
worth of the company, and not providing its
accounts receivable listings to the bank although
it had agreed to do so. e company was not in
arrears in making payments.
e bank simultaneously demanded
payment forthwith from the company
and the guarantor of all indebtedness and
liability owing by the company to the bank.
e demand letter gave the company
10 days from the date of the letter to pay
the indebtedness.
Three criteria for enforcing a guarantee
By Ray Basi, LL.B., staff, Education and PoLicy REviEw
Satisfaction
not
Guaranteed
