Court File and Parties

COURT FILE NO.: 28296/19 DATE: 2021-03-01

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

BARRY JAMES GALLANT Plaintiff – and – 556614 ONTARIO INC. and MIRANDA BAILEY also known as MIRANDA WENDOVER BAILEY Defendants

Counsel: Allison Farley, for the Plaintiff Benjamin E. Jefferies, for the Defendants

HEARD: January 28, 2021 and Written Submissions

VARPIO J.

Reasons for Decision on Summary Judgment

[1] I heard a pair of summary judgment motions filed by both the plaintiff and the defendant to determine whether a personal guarantee is enforceable by a mortgagee (the plaintiff, Mr. James Gallant) as against a guarantor (the defendant, Ms. Miranda Bailey).

[2] The facts are not in dispute. On June 28, 2013, a charge was registered evidencing that Roto-Gro Inc. (“Roto-Gro”) had lent money to 556614 Ontario Inc. (“556614”). This loan was secured via mortgage as against a golf course in Sault Ste. Marie, Ontario. Mr. Gallant was a principal of Roto-Gro and the mortgage in question was ultimately assigned to him in his personal capacity. The numbered company was a closely held family company. Ms. Bailey was the Secretary and Treasurer of 556614 in June of 2013.

[3] Ms. Bailey swore an affidavit wherein she affixed the charge registered against the property. The charge describes a $400,000 mortgage for a one-year term at 10% per annum. The last payment was scheduled for June 28, 2014. Counsel for the plaintiff quite fairly advised that as a result of certain payments and other issues unrelated to the instant motion, the amounts owing on the mortgage – should Ms. Bailey be found to be liable for same – is $82,223.88.

[4] Mr. Gallant swore an affidavit wherein he attached a copy of the signed mortgage agreement. He deposed that “[a]s I was providing a mortgage loan to a corporation that was unknown to me, the personal guarantee by Bailey was of the utmost importance”. The signed mortgage agreement had a space where a guarantor could be named but that space was left blank. Nonetheless, the signed mortgage agreement was signed by Ms. Bailey twice, once for the numbered company as an officer, once as a personal guarantor.

[5] The signed mortgage agreement contains the following clause:

Special Clauses: Clauses in the mortgage as listed on Schedule A and attached herein.

[6] Also affixed to Mr. Gallant’s was a separate sheet entitled Schedule of Mortgage Terms (“Mortgage Schedule”). The Mortgage Schedule contains the following paragraph:

The Guarantor hereto covenants, promises and agrees as principal debtor and not as surety, to and with the Mortgage and his heirs and assigns the principal sum of the money herby [sic] secured, together with interest thereon on the dates and times and in the manner above limited and provided for payment hereof and shall observe, fulfill and keep all covenants, provisions, conditions, agreements and stipulations herein before set forth on part of the Mortgagor. [emphasis added]

[7] No affiant deposed that the Schedule of Mortgage Terms is “Schedule A” as described in the signed mortgage agreement. The Mortgage Schedule is an undated document and is unsigned. The evidence and counsel’s submissions make clear to me, however, that the Mortgage Schedule was part of the mortgage package that was signed by Ms. Bailey on June 24, 2013. Both parties accept that they are governed by, inter alia, the provisions of the Mortgage Schedule.

[8] On June 27, 2013, Ms. Bailey, as guarantor, and Mr. Daniel G. Wendover, President of 556613, signed an Acknowledgement addressed to Roto-Gro regarding the mortgage:

We, the undersigned, being the mortgagor and the guarantor of the Mortgage, hereby acknowledge receiving a copy of Standard Charge Terms No. 200033 before signing the Mortgage, and we understand that the said Standard Charge Terms are incorporated by reference into the Mortgage.

[9] The accompanying Set of Standard Charge Terms filed by Dye & Durham Co. Inc. (“Standard Terms”), contain the following preamble:

The following Set of Standard Charge Terms shall be applicable to documents registered in electronic format under Part III of the Land Registration Reform Act, R.S.O. 1990, c. L.4 as amended (the “Land Registration Reform Act”) and shall be deemed to be included in every electronically registered charge in which this Set of Standard Charge Terms is referred to by its filing number, as provided in Section 9 of the Land Registration Reform Act, except to the extent that the provisions of this Set of Standard Charge Terms are modified by additions, amendments or deletions in the schedule. Any charge in an electronic format of which this Set of Standard Charge Terms forms a part by reference to the above-noted filing number in such charge shall hereinafter be referred to as the “Charge”. [Emphasis added.]

[10] The Standard Terms also contain the following clauses:

19. No extension of time given by the Chargee to the Chargor or anyone claiming under him, or any other dealing by the Chargee with the owner of the land or of any part thereof, shall in any way affect or prejudice the rights of the Chargee against the Chargor or any other person liable for the payment of the money secured by the Charge, and the Charge may be renewed by an agreement in waiting at maturity for any term with or without an increased rate of interest notwithstanding that there may be subsequent encumbrances. It shall not be necessary to deliver for registration any such agreement in order to retain priority for the Charge so altered over any instrument delivered for registration subsequent to the Charge. Provided that nothing contained in this paragraph shall confer any right of renewal upon the Chargor.

20. Each party named in the Charge as a Guarantor hereby agrees with the Chargee as follows:

    (a) In consideration of the Chargee advancing all or part of the Principal Amount to the Chargor, and in consideration of the sum of TWO DOLLARS ($2.00) of lawful money of Canada now paid by the Chargee to the Guarantor (the receipt and sufficiency whereof are hereby acknowledged), the Guarantor does hereby absolutely and unconditionally guarantee to the Chargee, and its successors, the due and punctual payment of all principal moneys, interest and other moneys owing on the security of the Charge and observance and performance of the covenants, agreements, terms and conditions hereon contained by the Chargor, and the Guarantor, for himself and his successors, covenants with the Chargee that, if the Chargor shall at any time make default in the due and punctual payment of any moneys payable hereunder, the Guarantor will pay all such moneys to the Chargee without any demand being required to be made.

    (b) Although as between the Guarantor and the Chargor, the Guarantor is only surety for the payment by the Chargor of the moneys hereby guaranteed, as between the Guarantor and the Chargee, the Guarantor shall be considered as primarily liable therefor and it is hereby further expressly declared that no release or releases of any portion of portions of the land; no indulgence shown by the Chargee in respect of any default by the Chargor or any successor thereof which may arise under the Charge; no extension or extensions granted by the Chargee to the Chargor or any successor thereof for payment of the moneys hereby secured or for the doing, observing or performing of any covenant, agreement, term or condition herein contained to be done, observed or performed by the Chargor or any successor thereof; no variation in or departure from the provisions of the Charge; no release of the Chargor or any other thing whatsoever whereby the Guarantor as surely only would or might have been released shall in any way modify, alter, vary or in any way prejudice the Chargee or affect the liability of the Guarantor in any way under this covenant, which shall continue and be binding on the Guarantor, and as well alter as before maturity of the Charge and both before alter default and judgment, until the said moneys are fully paid and satisfied.

    (c) Any payment by the Guarantor of any moneys under this guarantee shall not in any event be taken to affect the liability of the Chargor for payment thereof but such liability shall remain unimpaired and enforceable by the Guarantor against the Chargor and the Guarantor shall, to the extent of any such payments made by him, in addition to all other remedies, be subrogated as against the Chargor to all the rights, privileges and powers to which the Chargee was entitled prior to payment by the Guarantor; provided, nevertheless, that the guarantor shall not be entitled in any event to rank for payment against the lands in competition with the Chargee and shall not, unless and until the whole of the principal, interest and other moneys owing on the security of the Charge shall have been paid, be entitled to any rights or remedies whatsoever in subrogation to the Chargee.

    (d) All covenants, liabilities and obligations entered into or imposed hereunder upon the Guarantor shall be equally binding upon his successors. Where more than one party is named as a Guarantor all such covenants, liabilities and obligations shall be joint and several.

The Chargee may vary any agreement or arrangement with or release the Guarantor, or any one or more of the Guarantors if more than one party is named as Guarantor, and grant extensions of time or otherwise deal with the Guarantor and his successors without any consent on the part of the Chargor or any other Guarantor or any successor thereof. [Emphasis added.]

[11] Ms. Bailey swore an affidavit in the matter wherein she stated:

I agreed to personally guarantee the mortgage on the understanding that the mortgage was for a term of one (1) year only. I also understood that my personal guarantee could not be amended or extended without my written consent. My agreement to personally guarantee the mortgage was premised on my understanding in this regard. I would not have personally guaranteed the mortgage had I understood that my personal guarantee could be amended or extended by agreement between 556614 and Roto-Gro, only, and without notice to me.

[12] In approximately June 2015, Ms. Bailey ceased her involvement with 556614. In the meantime, 556614 made some mortgage payments and the mortgage was extended on multiple occasions. These extensions were made without notice to Ms. Bailey. The final extension extended the mortgage to 2020 but, in March of 2019, 556614 ceased making monthly payments and defaulted. Mr. Gallant, who had by this time been assigned the mortgage in his personal capacity, brought a lawsuit as against the defendants in December 2019. Only Ms. Bailey defended the suit and both parties filed the instant summary judgment motions. Both parties seek rulings as to whether Mr. Gallant can enforce Ms. Bailey’s guarantee.

Position of the Parties

[13] Mr. Gallant takes the position that the guarantee is fully enforceable as against Ms. Bailey in so far as the Standard Charge Terms clearly enable the mortgagee to extend the mortgage without Ms. Bailey’s consent and without affecting the enforceability of the guarantee. As such, her personal guarantee remains valid.

[14] Ms. Bailey takes the position that the guarantee is unenforceable because:

1. The guarantee does not state that Ms. Bailey shall be bound by the guarantee regardless of changes in the terms of the mortgage;
2. Ms. Bailey did not waive her common law or equitable rights, either as a principal or as a guarantor;
3. The mortgage was materially altered when it was extended, thereby extending Ms. Bailey’s exposure to liability;
4. Ms. Bailey was given no notice regarding the extensions; and/or
5. The Standard Terms are superceded by the Mortgage Schedule such that Ms. Bailey only guaranteed the mortgage for a twelve month term, ending June 28, 2014.

[15] Ms. Bailey quite fairly conceded through counsel that, if paragraph 24 of the Standard Terms is found to be applicable to the mortgage, she is liable to pay the mortgage shortfall.

Analysis

Summary Judgment

[16] The parties agree that summary judgment is an appropriate tool in the circumstances. Summary judgment powers under Rule 20 of the Rules of Civil Procedure were described in Hryniak v. Mauldin, 2014 SCC 7. In Hryniak, the unanimous Supreme Court of Canada stated that at paras 66 to 68:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

Inquiring first as to whether the use of the powers under Rule 20.04(2.1) will allow the dispute to be resolved by way of summary judgment, before asking whether the interest of justice requires that those powers be exercised only at trial, emphasizes that these powers are presumptively available, rather than exceptional, in line with the goal of proportionate, cost-effective and timely dispute resolution. As well, by first determining the consequences of using the new powers, the benefit of their use is clearer. This will assist in determining whether it is in the interest of justice that they be exercised only at trial.

While summary judgment must be granted if there is no genuine issue requiring a trial, the decision to use either the expanded fact-finding powers or to call oral evidence is discretionary. The discretionary nature of this power gives the judge some flexibility in deciding the appropriate course of action. This discretion can act as a safety valve in cases where the use of such powers would clearly be inappropriate. There is always the risk that clearly unmeritorious motions for summary judgment could be abused and used tactically to add time and expense. In such cases, the motion judge may choose to decline to exercise her discretion to use those powers and dismiss the motion for summary judgment, without engaging in the full inquiry delineated above.

[17] As will be seen below, given that this matter is purely a question of contractual interpretation, there is no genuine issue for trial. It is arguable that this matter ought to have been determined via application in any event.

Parol Evidence Rule

[18] As noted above, Mr. Gallant and Ms. Bailey deposed with respect to their beliefs and intentions regarding the personal guarantee. This testimony, which I accept since it has not been challenged in any way, is nonetheless not relevant to my determination. The Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53, [2014] 2 S.C.R. 633 re-examined the principles regarding contractual interpretation. The parties did not provide me with Sattva at first instance and I therefore asked for further submissions regarding same. At paras. 47 and 48 of Sattva, the court stated:

Regarding the first development, the interpretation of contracts has evolved towards a practical, common-sense approach not dominated by technical rules of construction. The overriding concern is to determine "the intent of the parties and the scope of their understanding" (Jesuit Fathers of Upper Canada v. Guardian Insurance Co. of Canada, 2006 SCC 21, [2006] 1 S.C.R. 744, at para. 27, per LeBel J.; see also Tercon Contractors Ltd. v. British Columbia (Transportation and Highways), 2010 SCC 4, [2010] 1 S.C.R. 69, at paras. 64-65, per Cromwell J.). To do so, a decision-maker must read the contract as a whole, giving the words used their ordinary and grammatical meaning, consistent with the surrounding circumstances known to the parties at the time of formation of the contract. Consideration of the surrounding circumstances recognizes that ascertaining contractual intention can be difficult when looking at words on their own, because words alone do not have an immutable or absolute meaning:

No contracts are made in a vacuum: there is always a setting in which they have to be placed... In a commercial contract it is certainly right that the court should know the commercial purpose of the contract and this in turn presupposes knowledge of the genesis of the transaction, the background, the context, the market in which the parties are operating. (Reardon Smith Line, at p. 574, per Lord Wilberforce)

The meaning of words is often derived from a number of contextual factors, including the purpose of the agreement and the nature of the relationship created by the agreement (see Moore Realty Inc. v. Manitoba Motor League, 2003 MBCA 71, 173 Man. R. (2d) 300, at para. 15, per Hamilton J.A.; see also Hall, at p. 22; and McCamus, at pp. 749-50). As stated by Lord Hoffmann in Investors Compensation Scheme Ltd. v. West Bromwich Building Society, [1998] 1 All E.R. 98 (H.L.):

The meaning which a document (or any other utterance) would convey to a reasonable man is not the same thing as the meaning of its words. The meaning of words is a matter of dictionaries and grammars; the meaning of the document is what the parties using those words against the relevant background would reasonably have been understood to mean. [p. 115] [Emphasis added.]

[19] At paragraphs 56 to 58 of the same decision, the court described the limits of evidence regarding “surrounding circumstances”:

The Role and Nature of the "Surrounding Circumstances"

I now turn to the role of the surrounding circumstances in contractual interpretation and the nature of the evidence that can be considered. The discussion here is limited to the common law approach to contractual interpretation; it does not seek to apply to or alter the law of contractual interpretation governed by the Civil Code of Québec.

While the surrounding circumstances will be considered in interpreting the terms of a contract, they must never be allowed to overwhelm the words of that agreement (Hayes Forest Services, at para. 14; and Hall, at p. 30). The goal of examining such evidence is to deepen a decision-maker's understanding of the mutual and objective intentions of the parties as expressed in the words of the contract. The interpretation of a written contractual provision must always be grounded in the text and read in light of the entire contract (Hall, at pp. 15 and 30-32). While the surrounding circumstances are relied upon in the interpretive process, courts cannot use them to deviate from the text such that the court effectively creates a new agreement (Glaswegian Enterprises Inc. v. B.C. Tel Mobility Cellular Inc. (1997), 101 B.C.A.C. 62).

The nature of the evidence that can be relied upon under the rubric of "surrounding circumstances" will necessarily vary from case to case. It does, however, have its limits. It should consist only of objective evidence of the background facts at the time of the execution of the contract (King, at paras. 66 and 70), that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting. Subject to these requirements and the parol evidence rule discussed below, this includes, in the words of Lord Hoffmann, "absolutely anything which would have affected the way in which the language of the document would have been understood by a reasonable man" (Investors Compensation Scheme, at p. 114). Whether something was or reasonably ought to have been within the common knowledge of the parties at the time of execution of the contract is a question of fact. [Emphasis added.]

[20] The court then examined the parol evidence rule at paras. 59 and 60:

Considering the Surrounding Circumstances Does Not Offend the Parol Evidence Rule

It is necessary to say a word about consideration of the surrounding circumstances and the parol evidence rule. The parol evidence rule precludes admission of evidence outside the words of the written contract that would add to, subtract from, vary, or contradict a contract that has been wholly reduced to writing (King, at para. 35; and Hall, at p. 53). To this end, the rule precludes, among other things, evidence of the subjective intentions of the parties (Hall, at pp. 64-65; and Eli Lilly & Co. v. Novopharm Ltd., [1998] 2 S.C.R. 129, at paras. 54-59, per Iacobucci J.). The purpose of the parol evidence rule is primarily to achieve finality and certainty in contractual obligations, and secondarily to hamper a party's ability to use fabricated or unreliable evidence to attack a written contract (United Brotherhood of Carpenters and Joiners of America, Local 579 v. Bradco Construction Ltd., [1993] 2 S.C.R. 316, at pp. 341-42, per Sopinka J.). The parol evidence rule does not apply to preclude evidence of the surrounding circumstances. Such evidence is consistent with the objectives of finality and certainty because it is used as an interpretive aid for determining the meaning of the written words chosen by the parties, not to change or overrule the meaning of those words. The surrounding circumstances are facts known or facts that reasonably ought to have been known to both parties at or before the date of contracting; therefore, the concern of unreliability does not arise.

Some authorities and commentators suggest that the parol evidence rule is an anachronism, or, at the very least, of limited application in view of the myriad of exceptions to it (see for example Gutierrez v. Tropic International Ltd. (2002), 63 O.R. (3d) 63 (C.A.), at paras. 19-20; and Hall, at pp. 53-64). For the purposes of this appeal, it is sufficient to say that the parol evidence rule does not apply to preclude evidence of surrounding circumstances when interpreting the words of a written contract. [Emphasis added.]

[21] It is clear, therefore, that Mr. Gallant and Ms. Bailey’s evidence regarding their intentions and subjective views is not a relevant consideration for the summary judgment motions. Instead, I am to look at the written contract in context of the surrounding circumstances known to both parties in order to determine the meaning of the contract. Neither affiant provided much evidence regarding the circumstances of the making of the contract other than their subjective intentions. As such, I am limited in what I can consider.

Contractual Interpretation of Guarantees

[22] The Supreme Court of Canada considered the position of guarantors under the common law and in equity in Manulife Bank of Canada v. Conlin, [1996] 2 S.C.R. 416. Writing for the majority of the court, Cory J. stated at para 2:

It has long been clear that a guarantor will be released from liability on the guarantee in circumstances where the creditor and the principal debtor agree to a material alteration of the terms of the contract of debt without the consent of the guarantor. The principle was enunciated by Cotton L.J. in Holme v. Brunskill (1878), 3 Q.B.D. 495 (C.A.), at pp. 505-6, in this way:

The true rule in my opinion is, that if there is any agreement between the principals with reference to the contract guaranteed, the surety ought to be consulted, and that if he has not consented to the alteration, although in cases where it is without inquiry evident that the alteration is unsubstantial, or that it cannot be otherwise than beneficial to the surety, the surety may not be discharged; yet, that if it is not self-evident that the alteration is unsubstantial, or one which cannot be prejudicial to the surety, the Court . . . will hold that in such a case the surety himself must be the sole judge whether or not he will consent to remain liable notwithstanding the alteration, and that if he has not so consented he will be discharged.

This rule has been adopted in a number of Canadian cases. See for example Bank of Montreal v. Wilder, [1986] 2 S.C.R. 551, at p. 562. [Emphasis added.]

[23] The law recognizes that different rules apply when someone provides a guarantee for little or no compensation. When dealing with such guarantors, also known as “accommodation sureties”, the courts are especially strict with regard to the interpretation of contracts. [1] At para. 10 of Manulife v. Conlin, Cory J. stated:

As well, this Court has stated that the surety is a favoured creditor in the eyes of the law whose obligation should be strictly examined and strictly enforced. This appears from the reasons of Davis J. in Holland-Canada Mortgage Co. v. Hutchings, [1936] S.C.R. 165, at p. 172:

A surety has always been a favoured creditor in the eyes of the law. His obligation is strictly examined and strictly enforced.

He goes on to say:

“It must always be recollected," said Lord Westbury in Blest v. Brown (1862), 4 De G. F. & J. 367, at 376,

in what manner a surety is bound. You bind him to the letter of his engagement. Beyond the proper interpretation of that engagement you have no hold upon him. He receives no benefit and no consideration. He is bound, therefore, merely according to the proper meaning and effect of the written engagement that he entered into. If that written engagement is altered in a single line, no matter whether it be altered for his benefit, no matter whether the alteration be innocently made, he has a right to say, "The contract is no longer that for which I engaged to be surety; you have put an end to the contract that I guaranteed, and my obligation, therefore, is at an end."

Apart from any express stipulation to the contrary, where the change is in respect of a matter that cannot "plainly be seen without inquiry to be unsubstantial or necessarily beneficial to the surety," . . . the surety, if he has not consented to remain liable notwithstanding the alteration, will be discharged whether he is in fact prejudiced or not.

Those comments are as true today as they were at the time they were written.

[24] Cory J. then discussed the need for strict rules of interpretation at paras 11 and 12:

The appellant contends that this principle of interpretation has been abandoned and for that proposition relies upon the reasons of this Court in Bauer, supra. I cannot agree with this submission. The issue in that case was whether a particular clause within the guarantee was an exemption clause and thus subject to the special rules of construction applying to those clauses. It was held that the clause in question was not, in fact, an exemption clause. The general question as to whether the scope of surety obligations should be construed strictly was not explicitly addressed by the Court. It is also significant that the Alberta Court of Appeal in Alberta Opportunity Co. v. Schinnour, 1990 ABCA 359, [1991] 2 W.W.R. 624, found that the clause they were considering was analogous to that in issue in Bauer. Nonetheless they determined, correctly in my view, that it should be interpreted in accordance with the general rules of construction. Those rules should, in my view, include the contra proferentem rule and thus will be generally applicable to guarantee or surety clauses.

The position set out in Holland-Canada Mortgage Co., supra, was confirmed in Citadel General Assurance Co. v. Johns-Manville Canada Inc., [1983] 1 S.C.R. 513. At p. 521 of that case, it was said that "accommodation sureties" are those who entered into the guarantee "in the expectation of little or no remuneration and for the purpose of accommodating others or of assisting others in the accomplishment of their plans". The protection offered to this class of guarantors was explained also at p. 521:

In respect of them, the law has been astute to protect them by strictly construing their obligations and limiting them to the precise terms of the contract of surety.

[25] Thus, with respect to ambiguity in interpretation, Cory J. stated as follows at paras 15 and 16:

It follows that if there is a doubt or ambiguity as to the construction or meaning of the clauses binding the guarantor in this case, they must be strictly interpreted and resolved in favour of the guarantor. Further, as a result of the favoured position of guarantors, the clauses binding them must be strictly construed.

Finally, when the guarantee clause is interpreted, it must be considered in the context of the entire transaction. This flows logically from the bank's position that the renewal agreement was an integral part of the original contract of guarantee. This position I believe is correct. It follows that fairness demands that the entire transaction be considered and this must include the terms and arrangements for the renewal agreement.

[26] As noted in paragraph 6 of these reasons, the guarantee clause in the Mortgage Schedule purported to make Ms. Bailey a principal debtor as opposed to a mere guarantor. It should also be noted, however, that the guarantee in Conlin also purported to convert the guarantor’s status from one of mere guarantor to a principal debtor. At para. 19 of Conlin, Cory J. stated:

In Canadian Imperial Bank of Commerce v. Patel (1990), 72 O.R. (2d) 109 (H.C.), at p. 119, it was held that a principal debtor clause converts a guarantor into a full-fledged principal debtor. I agree with this conclusion. If the guarantor is to be treated as a principal debtor and not as a guarantor, then the failure of the bank to notify the respondent of the renewal agreement and the new terms of the contract must release him from his obligations since he is not a party to the renewal. This conclusion does not require recourse to equitable rules regarding material variation of contracts of surety. It is simply apparent from the contract that a principal debtor must have notice of material changes and consent to them. Of course, a guarantor who, by virtue of a principal debtor clause, has a right to notice of material changes, may, by the terms of the contract, waive these rights. However, in the absence of a clear waiver of these rights, such a guarantor must be given notice of the material changes and, if he is to be bound, consent to them.

[27] At paras. 23 to 26 of Conlin, Cory J. considered the mortgagee’s position that the mortgage renewals were, in fact, extensions of the original mortgage. On the facts of Conlin, Cory J. rejected that position. The renewal agreements in Conlin were standard form agreements and, pursuant to which, Cory J. found that the new agreements were in fact new agreements at paras 25 and 26:

The standard form [renewal agreement] indicates that many variations in the original mortgage are to be agreed upon. For example, the mortgagor can select the length of the term of the loan; the rate of interest is to be agreed upon between the mortgagor and the lending institution. If the renewal agreement is no more than the extension of the original mortgage, the mischief that that position creates becomes obvious. What if the renewal provided for an extension of the term to 25 years at a substantially increased rate of interest? What if the situation with regard to the security had changed remarkably as a result of new zoning regulations or a new building code or there had been a marked change of use in the surrounding lands? To say that despite the changed circumstances the guarantor is, beyond the strict terms of the agreement, bound without any notice to an indefinite guarantee of a mortgage containing substantial changes in the term of the loan and the interest rate is worrisome indeed.

Further, it is significant that the renewal agreement states that the terms of the old mortgage will form part of the agreement. By doing so it indicates that this is a new agreement rather than merely an extension of an old agreement. This serves to strengthen my view that the respondent was no longer bound by the terms of the original guarantee upon the execution without notice to him of the renewal agreement.

Application to the Facts

[28] In the case before me, as was rightly conceded by Ms. Bailey’s counsel, if I determine that paras. 19 and 24 of the Standard Terms apply to Ms. Bailey’s guarantee, Mr. Gallant is entitled to enforce the guarantee.

[29] This is where Mr. Gallant’s position fails. It must be noted that the language of the Mortgage Schedule was clear regarding the time-limited nature of the guarantee. Specifically, Ms. Bailey agreed:

as principal debtor and not as surety, to and with the Mortgage and his heirs and assigns the principal sum of the money herby [sic] secured, together with interest thereon on the dates and times and in the manner above limited and provided for payment hereof and shall observe, fulfill and keep all covenants, provisions, conditions, agreements and stipulations herein before set forth on part of the Mortgagor. [emphasis added]

[30] It is therefore clear that on June 24, 2013, Ms. Bailey agreed to guarantee a stream of payments that was to last for 12 months on the dates and times and in the manner described within the Mortgage Schedule. Four days later, the parties to the mortgage agreed to incorporate the Standard Terms into the mortgage via Acknowledgement. The Acknowledgment states that the parties were in possession of the Standard Terms prior to signing the Mortgage Schedule. The Standard Terms states that the Standard Terms apply “except to the extent... [that they] are modified by additions, amendments or deletions...”.

[31] I must, therefore, determine whether the words “on the dates and times and in the manner above limited” in the Mortgage Schedule constitute an “amendment” to the schedule of Standard Terms. As per para 15. of Conlin, “if there is a doubt or ambiguity as to the construction or meaning of the clauses binding the guarantor in this case, they must be strictly interpreted and resolved in favour of the guarantor”.

[32] In this instance, there is certainly ambiguity. The language of the Mortgage Schedule guarantee is clear and specific. Also, there is no language in the Mortgage Schedule – or anywhere else, for that matter – that this specificity was to be subject to any modification. As per the Mortgage Schedule, Ms. Bailey guaranteed that certain payments would be made for a specified duration (that is, twelve months), nothing more.

[33] The Standard Terms, on the other hand, are ambiguous given the language in the preamble. As noted above, the preamble of the Standard Terms states that the Standard Terms apply “except to the extent that the provisions of this Set of Standard Charge Terms are modified by additions, amendments or deletions in the schedule”. As such, the Standard Terms contemplate that parties may modify the Standard Terms as they see fit.

[34] Thus, when in possession of the Standard Terms (which are subject to modification), the parties agreed to the Mortgage Schedule which creates a guarantee for a specific duration only. No extension of that guarantee is contemplated by the Mortgage Schedule. I am therefore satisfied on the balance of probabilities that the Mortgage Schedule amended the Standard Terms because:

a. The parties were in possession of the Standard Terms prior to signing the Mortgage Schedule; b. While the Standard Terms allow for extensions of the mortgage without affecting the enforceability of any guarantee, the Standard Terms contemplate that they may be amended; and c. The Mortgage Schedule defines a specific time-limited guarantee.

[35] Accordingly, Ms. Bailey’s liability under the guarantee terminated on or about June 28, 2014, after the expiration of the term described in the Mortgage Schedule. As such, Mr. Gallant cannot enforce Ms. Bailey’s guarantee since it had expired by the time of default in March 2019.

Conclusion

[36] Mr. Gallant’s summary judgment motion is hereby dismissed. Ms. Bailey’s summary judgment motion is hereby granted. Mr. Grant’s action is therefore dismissed.

Costs

[37] The parties may provide me with their costs submissions in writing in no more than 3 pages (exclusive of attachments) within 30 days of the release of these reasons.

Varpio J.

Released: March 1, 2021

Footnotes

[1] It was not argued, for obvious reasons, that Ms. Bailey was anything other than an accommodation surety. She signed the guarantee to support her family and she received only two dollars as quid pro quo for said guarantee.