The appellant bank extended credit to a family company, secured by personal guarantees from family members and a corporate debenture.
After the company exceeded its credit limits, the parties reached an agreement where the bank would continue financing specific projects in exchange for additional capital and guarantees.
The bank breached this agreement by dishonouring cheques, demanding immediate payment, and appointing a receiver, which forced the company into bankruptcy.
The Supreme Court of Canada held that the bank's breach of the modified loan agreement materially increased the guarantors' risk and impaired their security, entitling them to a total discharge from their guarantees.
