As a general rule, when a person signs a contract, he or she accepts the terms of the contract and agrees to be bound by them. The words used in the contract typically demonstrate the obligations that the person takes on by signing the contract. A common obligation that is often the subject of litigation is money owing by a person who signs a personal guarantee.
A recent decision of the Ontario Court of Appeal, Global Food Traders Inc. v. Massalin (2015), serves as a reminder that the courts have adopted a strict approach in upholding personal guarantees, even if the word “guarantee” is not used in the agreement. Where the language used in the agreement is clear that a personal guarantee is being provided, and where there is insufficient evidence to demonstrate that the signing party did not understand what was being signed, the courts have not been reluctant to uphold the obligation to honour the guarantee.
In this case, two companies entered into a purchase agreement whereby company A sold trademarks and customer base to company B. Company B consisted of a sole officer and director, Mr. C, who signed the purchase agreement. The purchase agreement included an obligation on Mr. C to provide company A with funds to cover any bounced or NSF cheques, within 3 days. Company B’s cheques were ultimately not honoured by Mr. C upon demand.
Mr. C denied that the agreement contained a personal guarantee, however failed to offer an explanation as to what other meaning could be given to the relevant section, or why he signed the agreement in his personal capacity. While the wording at issue was somewhat vague and did not include the word “guarantee”, the court held that there could be no other interpretation to the section that suggested that it was anything other than a personal guarantee. The court also held that there could be no other interpretation with respect to what the parties were agreeing to when the agreement was executed.
For further information on personal guarantees, please feel free to contact the writer Caitlin Cardill by email at [email protected] or by phone at 613-563-6689.