Research Paper Number

22/2015

View the research paper on SSRN here.

Document Type

Article

Publication Date

2015

Abstract

This paper provides an overview of when a surety may be released from his or her obligations under a guarantee following a material variation to the principal lending contract. Part I frames the overall discussion by reviewing the role and importance of guarantees in contemporary commerce, outlining the central tenets of guarantee obligations, and distinguishing them as a subset of indemnities. Part II reviews how sureties have traditionally enjoyed a favoured status at law as well as what, in law, is considered to constitute a material variation. Part III introduces and sets out a longstanding rule governing the liability of sureties following a material variation to the principal contract. Part III examines the decisions of the Supreme Court of Canada in Manulife Bank of Canada v Conlin and the Ontario Court of Appeal in Bank of Montreal v Negin and illustrates how the courts, under similar factual circumstances, arrived at conflicting outcomes. Part III summarizes the jurisprudence in Ontario following these decisions to show that most decisions have distinguished the Supreme Court of Canada’s judgment in Conlin on the grounds that later guarantees have not been prone to the same inconsistencies. This argument is bolstered by an in-depth review of the Ontario Court of Appeal’s recent decision in Royal Bank of Canada v Samson Management & Solutions, wherein the Court distinguished that case from Conlin and held the surety liable under her guarantee.

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