CmB magazine cmba-achc.ca spring 2017 | 53
e case provides guidance on the
following three areas concerning guarantees.
Reasonable Time to Pay
A debtor is entitled to a reasonable
time to pay, aer demand is made by the
creditor. How long is "reasonable" depends
on the circumstances and the conduct of the
parties, before and aer demand. e creditor
is not entitled to arbitrarily fix a deadline
for repayment.
In this case, the corporation was given
a reasonable time to pay aer the demands
for payment were made. Aer issuing the
demand letter, the bank took no steps to
enforce the demand for many months.
You should not take from this that you
are required to give a debtor many months
to pay. e time given may have been
excessive in this case. e time should be
reasonable based on the circumstances.
Preconditions to Making a Demand
on the Guarantee
Preconditions are determined by applying the
agreement between the parties. Lenders are
not required to exhaust their recourse against
the primary debtor before pursuing their
enforcement rights against the guarantor.
In this case, the parties specifically agreed
and so 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. Further, the parties
agreed that the guarantor would make payment
upon receipt of a written demand from the bank.
Equitable Discharge
e guarantor is guaranteeing a specific
contract. Any material variation of the terms
of the contract between the creditor and
the principal debtor to the prejudice of the
guarantor, without the guarantor's consent, will
discharge the guarantor from the guarantee.
It is for the guarantor to show that the bank
somehow caused the corporation's default.
In this case, the bank played no role in
the corporation's excessive borrowings, its
breach of the tangible net worth requirement,
its refusal to submit its accounts receivable
reports or its continuing failures to cure its
defaults despite the bank's warnings.
Takeaway
e position of creditor or lender is not all-
powerful in relation to the debtor or borrower.
e lender needs to:
n
give a reasonable time, aer demand, for the
loan to be repaid;
n
satisfy any contractual preconditions before
making a demand on the guarantee; and
n
to avoid releasing the guarantor, not alter the
agreement with the debtor without the consent
of the guarantor.
