In Canada, a loan guarantee or surety is a type of legal contract whereby a party (the guarantor) agrees to be responsible for repayment of a loan, in the event that the primary borrower defaults. The guarantee can be for all or only a portion of the original debt.
What Happens When the Borrower Defaults?
In many cases, when the borrower defaults on the loan, the lender looks to the guarantor for payment. Typically, the lender will send a written demand for payment, and if that is not forthcoming, commence a legal action.
Types of Breach of Guarantee Cases
In Ontario and Canada law there are several types of breach of guarantee that affect both consumers and businesses:
Breach of Personal Guarantee: Frequently required from small business owners in order for them to obtain business financing. In the event the business is later unable to pay, the guarantor remains responsible to the lender for repayment.
Breach of Title Guarantee
Breach of Consumer Guarantee
Breach of Bank Guarantee
Breach of Performance Guarantee
Are any Defences Available in Breach of Guarantee Suits?
A number of defences may be available to defeat a creditor’s breach of guarantee claim. For instance, defences of set off, mitigation and even negligence in certain cases may apply. See e.g. Uigade v. Bank of Montreal, 2008 CanLII 64684 (ON SC). Likewise, defences may be available where conduct of the lender has increased either the risk of default, or the liability of the borrower, and by extension, the guarantor.
What should you do if you are involved in a breach of guarantee claim?
For anyone involved with a breach of guarantee claim, it is important to promptly obtain good legal advice from a trusted and experienced Ontario business lawyer.
For Creditors: there is a limited time to commence a legal action.
For Debtors: early intervention by a lawyer may limit the amount of money you are responsible for paying.
Michael’s Law Firm has experience handling breach of guarantee claims for both creditors and debtors and with end results of favorable remedies for breach of guarantee.
Call 647-495-8995 to speak with one of our business litigation lawyers in Hamilton or Toronto today.