Background
The Bank of Montreal (BMO) sued to enforce a personal guarantee provided by Peter Harvey for a $350,000 overdraft credit facility extended to Sirius Power Corp. Mr. Harvey, an independent contractor for Sirius, agreed to co-sign for the loan. At a meeting with a BMO loan officer, Mr. Harvey claimed he agreed to be the guarantor only on two conditions: that he be given dual signing authority for any withdrawal over $5,000, and that he receive immediate online access to monitor the account. The BMO officer agreed to set these measures up.
Mr. Harvey signed the standard-form guarantee, which included a clause stating it was the “entire agreement” and was unconditional. He also provided a Certificate of Independent Legal Advice. The funds were made available to Sirius on November 18, 2021. However, due to administrative requirements and delays, Mr. Harvey did not gain online access to the account until December 21, 2021. By that time, the company’s sole director, Mr. Saidani, had already overdrawn the account beyond its limit, including a cheque larger than $5,000 that he alone had signed.
Mr. Harvey argued the guarantee was unenforceable. He claimed BMO misrepresented that he would have signing authority and was negligent in allowing withdrawals before his account controls were in place. The motion judge granted summary judgment in favour of BMO, finding that the bank’s agreement to set up access and signing authority was not a condition precedent to the funds being available. Mr. Harvey appealed.
The Court’s Holding
The Court of Appeal for Ontario dismissed the appeal, upholding the motion judge’s decision to enforce the guarantee. The court found no error in the lower court’s conclusion that the verbal assurances given by the BMO officer did not constitute legally binding conditions precedent that had to be met before the guarantee was effective. The panel emphasized that the written guarantee, which Mr. Harvey signed after receiving independent legal advice, contained an “entire agreement” clause and explicitly stated that it was without conditions. This written contract superseded any prior verbal discussions.
The court rejected the misrepresentation claim for the same reason. Since there was no binding promise that the credit line would be withheld until the safeguards were in place, there was no misrepresentation by the bank. The court also dismissed the negligence claim. It held that the original argument—that it was negligent to release the funds before setting up the safeguards—was simply a re-packaging of the failed “conditions precedent” argument. The court refused to consider a new theory of negligence raised on appeal (that the one-month delay itself was negligent), noting that it was not pleaded or properly argued at the initial hearing and could not be introduced for the first time on appeal.
Key Takeaways
- A signed, written guarantee containing an “entire agreement” clause and a statement that it is unconditional will supersede prior verbal assurances from bank staff.
- Guarantors cannot easily escape liability by claiming they relied on verbal conditions if those conditions are not written into the final loan and guarantee documents.
- Courts will generally not consider new legal arguments or theories of liability on appeal that were not properly raised and argued before the lower court.
Why It Matters
This decision reinforces the critical importance of the written word in commercial lending agreements. It serves as a stark reminder to guarantors that any conditions they wish to rely on must be explicitly included in the text of the guarantee itself. Verbal promises or informal understandings with bank officers provide little to no protection if they are contradicted by the clear language of the signed contract. For financial institutions, the ruling affirms their ability to rely on standard-form, unconditional guarantees, especially when the guarantor has obtained a Certificate of Independent Legal Advice. The case underscores the principle that parties are bound by the documents they sign.