



COURT OF APPEAL
    FOR ONTARIO

CITATION: Royal
    Bank of Canada v. Samson Management & Solutions Ltd., 2013
    ONCA 313

DATE: 20130513

DOCKET: C55749

MacPherson, Cronk and Lauwers JJ.A.

BETWEEN

Royal Bank of Canada

Appellant

and

Samson Management & Solutions Ltd., Jason
    Brasseur and
Cheryl Cusack

Respondent

Catherine Francis, for the appellant

H. Richard Bennett, for the respondent

Heard: January 9, 2013

On appeal from the judgment of Justice Bruce A. Glass of
    the Superior Court of Justice, dated June 20, 2012, with reasons reported at 2012
    ONSC 3612, [2012] O.J. No. 3149.

Lauwers
    J.A.:

[1]

This appeal concerns the enforceability of a standard form bank
    guarantee. The motion judge granted summary judgment to the Royal Bank of
    Canada (RBC or the Bank) against the debtor Samson Management and Solutions
    Ltd. (Samson), and against its principal, Jason Brasseur, on his personal
    guarantee. He refused to grant RBC summary judgment against the respondent
    Cheryl Cusack on her personal guarantee; instead he granted her summary
    judgment on her cross-motion to dismiss RBCs action against her.

[2]

RBC appeals. For the reasons set out below, I would allow the appeal and
    grant RBC summary judgment against Ms. Cusack for $250,000 plus interest as
    determined under the guarantee, and costs.

The Facts

[3]

Ms. Cusack is Mr. Brasseurs spouse. In 2005, she signed a continuing
    guarantee for the indebtedness of Mr. Brasseurs business, Samson, to RBC for
    $150,000. At the time, the loan agreement between RBC and Samson was for a
    credit facility in the amount of $150,000, secured by a general security
    agreement granting the Bank a first-ranking security interest in Samsons
    assets, and Mr. Brasseurs personal continuing guarantee in the amount of
    $150,000. By their terms, the personal guarantees covered present and future
    liabilities of Samson, and were not tied to any specific loan between RBC and
    Samson. Ms. Cusack received independent legal advice before signing the
    guarantee.

[4]

In 2006, RBC agreed to increase Samsons operating line of credit to
    $250,000.  Ms. Cusack and Mr. Brasseur each gave fresh personal guarantees, for
    $250,000, to RBC that covered Samsons present and future liabilities. These were
    also continuing guarantees and were not tied to any specific loan between RBC
    and Samson.

[5]

Ms. Cusack acknowledged that she received independent legal advice before
    signing the fresh guarantee. The letter of independent legal advice signed by her
    lawyer provided:

I have been consulted by
CHERYL CUSACK
(the
    Obligant) as to the liability which the Obligant would incur by taking the
    following action, vis., signing or endorsing the following.
FORM 812, GUARANTEE AND
    POSTPONEMENT OF CLAIM IN THE AMOUNT OF $250,000.00 SIGNED BY CHERYL CUSACK
.

for the purpose of securing the liabilities, whether past,
    present or future, of
SAMSON
    MANAGEMENT SOLUTIONS LTD.
(the Customer) to the Bank.

I have advised the Obligant fully as to the effect of
    that action and the liability which the Obligant would incur by taking it, and
    the manner in which that liability could be enforced. The Obligant understands
    the nature and effect of and the liability which would arise from the taking by
    the Obligant of that action.  I have given this advice to the Obligant as
    Solicitor for and in the Obligants interest only, and without regard to or
    consideration for the interests of the Customer or of the Bank.  I have not
    given any legal advice either to the Customer or to the Bank in connection with
    this matter. [Emphasis in original.]

[6]

Ms. Cusack signed the following acknowledgement on the letter of
    independent legal advice: I hereby acknowledge that all the statements made in
    the foregoing letter are true and correct.  In her cross-examination, Ms.
    Cusacks counsel confirmed on her behalf that this acknowledgment was true.
    She also testified that she was guaranteeing a loan limit, not a specific
    loan.

[7]

In 2008, the amount covered by the loan agreement between RBC and Samson
    was increased to $500,000. RBC did not request a new guarantee from Ms. Cusack
    but did obtain a new personal guarantee from Mr. Brasseur in the amount of
    $500,000. The 2008 loan document stated that the new loan agreement supersedes
    and cancels the 2006 agreement, and also stated that Security for the
    Borrowings and all other obligations of the Borrower to the Bank included Mr.
    Brasseurs 2008 guarantee for $500,000 and Ms. Cusacks 2006 guarantee in the
    amount of $250,000.  The 2008 loan agreement changed some loan terms: it set a
    term that funds advanced could be up to 75% of Samsons accounts receivable and
    also imposed compulsory reporting conditions on Samson.

[8]

In 2009, the loan amount between RBC and Samson was again increased to
    $750,000.  Mr. Brasseur signed a new personal guarantee for $750,000. As in
    2008, RBC did not request a new guarantee from Ms. Cusack but left in place her
    2006 guarantee for $250,000.

[9]

RBC did not have any contact with Ms. Cusack at any time. She never saw
    any of the loan agreements between RBC and Samson. RBC provided the guarantee
    forms to Mr. Brasseur who gave them to Ms. Cusack along with the form for
    independent legal advice. As I have said, she consulted a lawyer for
    independent legal advice before signing each of the guarantees and the
    acknowledgement that she received the advice.

[10]

The
    business failed in or about 2011. RBC made demands on Mr. Brasseur and Ms.
    Cusack under their guarantees  his 2009 guarantee and her 2006 guarantee  before
    bringing this action. At issue on this appeal is the enforceability of Ms.
    Cusacks 2006 guarantee.

[11]

I
    accept the motion judges finding that there is no genuine issue requiring a
    trial and there are no material facts in dispute.

The Decision under Appeal

[12]

The
    motion judge found on the evidence that Ms. Cusack provided the guarantees to
    RBC in 2005 and 2006 as an accommodation surety to assist her husband in
    obtaining the loan for his business.
Ms. Cusack
    stated in her affidavit that: While I did receive money from Samson from
    approximately 2004 to 2011, these payments were not wages and were solely for
    the purpose of income splitting and reducing Jasons taxable income.


[13]

The
    motion judge dismissed RBCs motion for summary judgment against Ms. Cusack and
    granted her summary judgment dismissing RBCs action against her on the
    following basis, at paras. 35 and 40:

I conclude that Ms. Cusack did not waive her rights in equity
    or in common law as a principal debtor or as a guarantor . . . .

. . .

The guarantee of Ms. Cusack is unenforceable. There were
    material changes without her being given notice or consenting to them. There
    was an obligation on Royal to apprise Ms. Cusack of changes to the loan
    liability so that she would be aware of a change to her risk or prejudice . . .
    .

[14]

The
    motion judge relied on the decision of the Supreme Court of Canada in
Manulife Bank of Canada v. Conlin
,

[1996]
    3 S.C.R. 415. The core of his reasoning is found in two propositions. First, he
    held that the material alteration rule in
Conlin
applied to Ms. Cusacks guarantee, largely because of the principal debtor
    clause (at paras. 31-35). Second, he held that there were material alterations
    in the underlying loan arrangements that Ms. Cusack did not know about or
    accept (at paras. 26-27, 36-37). The motion judge did not analyze the language
    of the RBC guarantee in his reasons.

The Issues

[15]

There
    is a single issue in this case, although it raises the ancillary issues
    discussed below: Did Ms. Cusack contract out of the protection provided to a guarantor
    by the common law and equity?

Analysis

[16]

The
    parties agree that the basic governing law is set out in
Conlin
, although they disagree on the implications
    for the result in this case. Cory J. expressed the material alteration rule at
    para 2 of
Conlin
:

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.

[17]

That
    said, Cory J. noted at para. 4 of
Conlin
that a guarantor can contract out of the protection provided by the common law:

Generally, it is open to parties to make their own
    arrangements. It follows that a surety can contract out of the protection
    provided to a guarantor by the common law or equity. See for example
Bauer
    v. Bank of Montreal
, [1980] 2 S.C.R. 102, at p. 107. The Ontario Court of
    Appeal, correctly in my view, added that any contracting out of the equitable
    principle must be clear. See
First City Capital Ltd. v. Hall
(1993), 11
    O.R. (3d) 792 (C.A.), at p. 796.

See also
Bank of
    Montreal v. Negin
(1996), 31 O.R. (3d) 321 (C.A.).

[18]

Cory
    J. added, at para. 6, of
Conlin
:
    The issue as to whether a surety remains liable will be determined by
    interpreting the contract between the parties and determining the intention of
    the parties as demonstrated by the words of the contract and the events and
    circumstances surrounding the transaction as a whole.

[19]

I
    agree with the motion judge that the alterations in the loan arrangements made
    between RBC and Samson over time increased the risk to which Ms. Cusack was
    exposed by her guarantee, even though her financial exposure was capped at
    $250,000. At common law these alterations in the loan arrangements would have
    resulted in her discharge from liability under the guarantee in the absence either
    of her consent, or of clear language in the guarantee permitting RBC and Samson
    to make the alterations without her consent.

[20]

Because
    Ms. Cusack was never approached by RBC for her consent to the alterations, the
    case falls to be determined by the language of the guarantee in the context of
    the transaction as a whole.

[21]

Did
    Ms. Cusack contract out of the protection provided to a guarantor by the common
    law and equity?

[22]

In
    my view, the application of the language in the guarantee in the context leads
    to the conclusion that Ms. Cusack contracted out of the protection provided by
    the common law, and is therefore liable under her guarantee.

The Language of the Guarantee and its Context

[23]

The
    language of the guarantee is very broad and is plainly designed to ensure that the
    guarantor does contract out of the ordinary protections of the common law as
Conlin
acknowledged was permissible.

[24]

The
    first paragraph on the first page of the guarantee is critical. It provides
    that Ms. Cusack will pay on demand to RBC: all debts and liabilities, present
    or future, direct or indirect, absolute or contingent, mature or not, at any
    time owing by Samson to RBC, or remaining unpaid by the customer to the
    Bank, heretofore or hereafter incurred or arising andincurred by or arising
    from agreement or dealings between the Bank and the customer This clause
    makes it clear that RBC could increase the amount of its loan to Samson and Ms.
    Cusack would remain liable under the guarantee. The letter of independent legal
    advice, acknowledged by Ms. Cusack, reinforced this fact by stating that the
    guarantee was: for the purpose of securing the liabilities, whether past,
    present or future, of
SAMSON.

The continuing
    obligation was also clearly expressed in clause (2), which provides:

(2)     This guarantee shall be a continuing
    guarantee and shall cover all the liabilities, and it shall apply to and secure
    any ultimate balance due or remaining unpaid to the Bank.

[25]

Various
    numbered clauses in the guarantee expressly permit RBC to take actions that
    might or would otherwise be material alterations affecting the enforceability
    of the guarantee at common law and equity, such as giving more time for
    payment, renewing the loan arrangements, increasing the interest rate, changing
    the maturity date of any loan, and introducing new terms and conditions in
    respect of the borrowing. Clause (1) provides:

(1)     The Bank may grant time, renewals,
    extensions, indulgences, releases and discharges to, take securities (which
    word as used herein includes securities taken by the Bank from the Customer and
    others, monies which the customer has on deposit with the Bank, other assets of
    the Customer held by the Bank in safekeeping or otherwise, and other
    guarantees) from and give the same and any or all existing securities up to,
    abstain from taking securities from, or perfecting securities of, cease or
    refrain from giving credit or making loans or advances to, or change any term
    or condition applicable to the liabilities, including without limitation, the
    rate of interest or maturity date, if any, or introduce new terms and
    conditions with regard to the liabilities, or accept compositions from and
    otherwise deal with, the customer and others and with all securities as the
    Bank may see fit, and may apply all moneys at any time received from the
    customer or others or from securities upon such part of the liabilities as the
    Bank deems best and change any such application in whole or in part from time
    to time as the Bank may see fit, the whole without in any way limiting or
    lessening the liability of the undersigned under this guarantee, and no loss of
    or in respect of any securities received by the Bank from the customer or
    others, whether occasioned by the fault of the Bank or otherwise, shall in any
    way limit or lessen the liability of the undersigned under this guarantee.

[26]

The range of Samsons liabilities to which the guarantee applies is
    very broad. As noted, the first paragraph of the guarantee defines liabilities
    to include

all debts and liabilities, present
    or future, direct or indirect, absolute or contingent, mature or not, at any
    time owing by Samson to RBC, or remaining unpaid by the customer to the Bank,
    heretofore or hereafter incurred or arising andincurred by or arising from
    agreement or dealings between the Bank and the customer

[27]

This
    comprehensive understanding
of the term, liabilities, is
    reinforced by clause (8):

(8)     All monies, advances, renewals,
    credits and credit facilities in fact borrowed or obtained from the Bank shall
    be deemed to form part of the liabilities, notwithstanding any lack or
    limitation of status or of power, incapacity or disability of the customer or
    of the directors, partners or agents of the customer, or that the customer may
    not be a legal or suable entity, or any irregularity, defect or informality in
    the borrowing or obtaining of such monies, advances, renewals, credits or
    credit facilities, or any other reason, similar or not, the whole whether known
    to the Bank or not.

[28]

The
    guarantee is what is known as a continuing all accounts guarantee. This is an
    important contextual consideration.
The difference between a
    specific guarantee and a continuing or all accounts guarantee is suggested
    by the terms themselves, and was explained by Swinton J. in
Granata Family Trust v. Royal Bank
,
[2000] O.J. No. 4239, at para. 9 and following.
At para. 12 she distinguished
Conlin
in the context of such a guarantee
:

Turning to the documents in issue in this case, one finds a
    very different fact situation from
Conlin
. The language of the guarantee
    indicates that it was to be an all accounts guarantee. It was meant to be a
    continuing one for debts of Robertson Foods already incurred, or those which
    would be incurred subsequently. Specifically, the guarantor agrees to guarantee
    "all debts and liabilities, present or future ... at any time owing"
    by Robertson Foods Inc. "heretofore or hereafter incurred or
    arising". Moreover, the guarantee "shall be a continuing guarantee
    and shall cover all the liabilities" due to the bank. As well, the
    guarantee provides that all monies borrowed from the bank shall be deemed to
    form part of the liabilities, notwithstanding certain circumstances, including
    any irregularity, defect or informality in the borrowing. Nevertheless, the
    liability of the guarantor is limited to $1.5 million, which was less than the
    amount available to the borrower under the original Credit Agreement.

[29]

The guarantee language in this case is virtually
    identical.

[30]

In
Royal Bank of Canada v. Adecon Transport
    Inc.
, [2004] O.J. No. 6249 (S.C.), Echlin J. considered the RBC
    form of guarantee. He found, at para. 12, that the defendants had provided personal
    continuing all accounts guarantees.  Echlin J.
found, at para. 14, that RBC
had no duty to
    inform the guarantor about future credit facilities, and that the onus was on
    the guarantor to inquire about the state of accounts. He found, at para. 15, that
    the subsequent loan obligations were not material alterations to the principal
    contract but were contemplated by the parties.

[31]

In this case, the
    motion judge sought to distinguish
Adecon
,
at para. 30: 
With respect to Ms. Cusack, one
    might distinguish the facts from those in the
Adecon Transport
case (
supra
)
    because the 2008 loan agreement cancelled and superseded the 2006 loan
    agreement.
Adecon
, the motion judge noted at para. 29, was dealing
    with a development contemplated by the parties in the guarantee, being additional
    loan facilities which could be considered to be future liabilities as set out
    in the guarantee.

[32]

In my view, with respect, there is
    no difference in substance between the facts in
Adecon
and the facts in
    this case. The purpose of a continuing all accounts guarantee is to allow the
    customer and the lender to alter their business arrangements without having to
    involve the guarantor.

[33]

I turn now to consider
    more closely the motion judges reasoning.

The Principal Debtor
    Clause and the Material Alteration Rule

[34]

The motion judge invoked the reasoning of
    the Supreme Court of Canada in
Conlin
.  In that case Manulife Bank of Canada
    entered into a mortgage with Dina Conlin for $275,000 for three years bearing
    interest at 11.5 percent.  The mortgage was guaranteed by John Conlin, the
    mortgagors husband, and his company Conlin Engineering and Planning Limited. 
    The Conlins marriage ended, and just before the mortgage was to mature, Dina
    Conlin entered into a renewal agreement that renewed the mortgage for a
    further three-year term at a yearly interest rate of 13 percent.  The form
    provided a signature line for a guarantor but only Dina Conlin signed it and
    the guarantors did not receive notice of the renewal.  In March 1992 she
    defaulted and eventually the bank pursued the guarantors.

[35]

The motion judge relied particularly on para. 19 of
Conlin
, which provided
:

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
.
[Emphasis added.]

[36]

The majority in
Conlin
concluded that
    although the guarantee permitted the bank to provide an extension of time to
    the mortgagor, the provision was not broad enough to permit the bank to enter
    into a renewal agreement without involving the guarantor (at para. 23).

[37]

In
    this case, the motion judge noted, at paras. 33 and 34:

At paragraph 19 of [
Conlin
], the Supreme Court also took
    into account that a principal debtor clause will convert a guarantor into a
    full-fledged principal debtor. Should that development occur, then failing to
    notify the guarantor of new terms in a contract will release the person from
    the obligations because the individual will not be a party to the new terms.

With the 2006 guarantee signed by Ms. Cusack, paragraph 8 makes
    provision for her to become a principal debtor should Royal not be able to
    recover any sum of money on the guarantee. The natural inference with Ms.
    Cusack is that she could be a principal debtor and she had not been given any
    notice of material changes.

[38]

I would, with respect, distinguish
Conlin
on four
    bases.  First, the last two sentences of para. 19 of
Conlin
which
    the motion judge cited, set out above, lead the court back to the central issue
    in this case, which is whether Ms. Cusack contracted out of the common law
    protections for a guarantor. Para. 19 of
Conlin
therefore adds little to the analysis,
    but in fact begs the question before this court.

[39]

Second, in
Conlin
the context of the loan was quite different; the guarantee
    in
Conlin
applied to a single mortgage transaction for a house purchase,
    rather than to a continuing all accounts guarantee. By contrast, Ms. Cusack
    acknowledged her understanding that the guarantee was meant to capture ongoing business
    financing in which money would be advanced by the Bank and paid back by the
    borrower from time to time.  This is the basis on which Swinton J.
    distinguished
Conlin
in
Granata
    Family Trust
and her logic applies
    equally to this case.

[40]

Third, the
Conlin
case turned on whether the
    terms of the guarantee allowed the bank and the mortgagor to enter into a
    renewal agreement.  The majority concluded that it did not, so the guarantee
    was unenforceable because the renewal agreement was a material alteration.  The
    language at issue in the guarantee in this case permitted RBC to advance more
    money to Samson.

[41]

Fourth, the language of the principal debtor clause in
Conlin
is quite different from the language in clause (8) of
    the guarantee in this case.  In
Conlin
the guarantors were identified as principal debtors from
    the outset.  In this case, the clause provided for the conversion of the
    guarantor into a principal debtor only for enforcement purposes if the borrower
    defaulted and the guarantee for some other reason became unenforceable against
    the guarantor as a guarantee.

Royal Bank v. Bruce Industrial Sales Ltd.

[42]

Ms. Cusack seeks to reinforce the motion judges reasoning about
    the proper application of the material alteration rule in
Conlin
by
    invoking
the decision of this court in
Royal Bank v. Bruce Industrial Sales Ltd.
(1998), 40 O.R. (3d) 307.  In that case, the appellants were former
    employees and shareholders of Bruce. They gave guarantees in the principal
    amount of $128,000 with interest at Royal Banks prime rate plus 1.5 percent. 
    The guarantees applied to a revolving operating loan for $125,000 and a fixed
    term loan for $100,000.

[43]

Bruce terminated the guarantors employment with
    the company on March 6, 1991, and on March 26, 1991 they notified the bank in
    writing that they were determining their liability as guarantors under
    paragraph 4 of the guarantee (para. 7). Moldaver J.A. noted, at para. 18, that
    the ordinary effect of giving a notice of determination is that:

the appellants would not be responsible for
    post-determination advances made to the company [A]fter receiving the notice
    of determination, it was entirely for the bank to decide whether it was willing
    to take the risk of advancing additional funds to the company, albeit without
    the protection afforded by the appellants guarantees.

[44]

But Moldaver J.A. noted at para. 9 of
Bruce
that upon receiving
    the notice of determination, the bank immediately converted the revolving loan
    into a fixed loan, with this catastrophic effect on the guarantors: By
    converting the revolving operating loan into a fixed loan, the bank effectively
    nullified that term of the principal loan agreement which required the bank to
    apply credit balances in the companys current account, rounded to the nearest
    $10,000, in repayment of the operating loan (para. 15). Had the bank continued
    to apply credit balances in the companys current account in repayment of the
    operating loan, the amount outstanding on that loan would have declined to
    $5,000 reducing the exposure on the guarantees by $90,000 (para 16).

[45]

Moldaver J.A. put the issue at para. 19: 
The
    real question is whether it was open to the bank to convert the operating loan
    from revolving to fixed without losing its right to look to the appellants on
    their guarantees, at least in so far as they related to the $95,000.00 owing on
    that loan as of March 27, 1991.

[46]

In converting the revolving loan into a fixed
    loan in
Bruce
, the bank relied on language in clause (1) of the guarantee
    that is somewhat similar to the language of clause (1) of the guarantee at
    issue in this case quoted above:

(1) The Bank may grant time, renewals, extensions, indulgences,
    releases and discharges to, take securities (which word as used herein includes
    other guarantees) from and give the same and any or all existing securities up
    to, abstain from taking securities from or from perfecting securities of, cease
    or refrain from giving credit or making loans or advances to, accept
    compositions from and
otherwise deal with, the customer and others and with
    all securities as the Bank may see fit
,[Emphasis by Moldaver J.A.]

[47]

Moldaver J.A. found that the underlined wording,
    which he called the blanket provision, did not authorize the Bank to change
    the revolving loan into a fixed loan.  He gave three reasons for this holding at
    paras. 39-41:

First, the language used in the so-called "blanket"
    provision is vague, imprecise and general. It can scarcely be described as the
    "very clear wording" to which Professor McGuiness refers [in
The
    Law of Guarantee
, 2nd Edition (Scarborough, Ontario: Carswell, 1996) at
    546-47] . Surely, if clause (1) of the guarantee agreement was meant to
    provide the bank with the unqualified right to make material changes to the
    principal loan agreement, it could have been drafted in simple and precise
    terms to reflect this. The fact that it was not weighs against the bank.

Secondly, in attempting to discern the purpose and effect of
    the "blanket" provision, the provision must be considered in the
    overall context of clause (1). Significantly, because the provision finds its
    place at the tail-end of a series of specified permissible alterations, it
    ought not to be construed as authorizing radical changes to the principal
    contract. In this respect, the following passage from McGuiness, at p. 546, is
    apposite:

As a working premise, the courts are reluctant to construe
    broad and general provisions of uncertain scope and obscure purpose as
    authorizing radical changes to the principal contract, especially where there
    are specific provisions authorizing particular types of changes that might
    fairly be said to be covered by the broader provision concerned. The basic
    principle of interpretation applied in such cases would seem to be one of
expressio
    unius est exclusio alterius
.

Thirdly, taking into account the facts and circumstances
    surrounding the loan transaction as a whole, there is nothing to suggest that
    in providing their guarantees, the appellants intended to confer upon the bank
    the unqualified right to materially alter the principal loan agreement.

[48]

As a result, the court in
Bruce
concluded
    that the guarantee did not permit the bank to convert the loan from a revolving
    loan to a fixed loan (para. 43).

[49]

Ms. Cusack argues that the effect of this courts
    decision in
Bruce
is that the doctrine of material alteration addressed by the
    Supreme Court of Canada in
Conlin
applies to a continuing all accounts guarantee.  I would agree, but
    that is not the end of the analysis, it is the beginning. The court must, as
    the Supreme Court noted in
Conlin
, consider the words of the guarantee
    in context.

[50]

In assessing the applicability of
Bruce
, the
    context is critical. Implicit in Moldaver J.A.s analysis is the recognition
    that the banks approach would have permitted the bank to completely defeat the
    purpose of limiting the guarantors liability that was the function of the
    determination clause. Or, putting it differently, the general language of the
    blanket provision should not be permitted to overcome the guarantor-protective
    express language of the determination clause. No such issue is found in the
    words of the guarantee in this case, or in the context. The notice of
    determination was the critical contextual factor in
Bruce
. Ms. Cusack
    did not invoke the determination clause in this case, and RBC is not relying on
    the blanket provision in the current version of the guarantee.

The Alleged Material Alterations

[51]

There is a lurking
    terminological conundrum in the cases on material alteration.  Sometimes the
    court says that the challenged alteration is a material alteration that
    therefore triggers the
Conlin
rule and makes the guarantee unenforceable.  Sometimes, as
    in
Adecon,
the court determines
    that, because the challenged alteration was authorized by the words of the
    guarantee, it is not a material alteration and the material alteration rule
    does not apply.

[52]

Analytically, it seems to
    me that there are two distinct steps in the logical sequence that should be
    taken to preserve clarity.  The first step is to consider whether the challenged
    alteration to the underlying loan arrangement is a material alteration as a
    matter of law quite apart from any possible authorizing language in the guarantee. 
    The second step is to consider whether the language of the guarantee permits
    the material alteration.

[53]

Bruce
is
instructive on how the court should approach the task set
    by
Conlin
of interpreting a guarantee.
I observe that
    if RBC had renewed the principal loan agreement in
Bruce
(which was not
    possible on the language of the guarantee in
Conlin
), the guarantors would have had no
    valid objection. This follows from the statement of Moldaver J.A. in
Bruce
,
    at para. 59:
Clause (1) of the guarantee agreement entitled the bank to
    renew the principal loan agreement. It did not permit the bank to do so at an
    increased rate of interest.
In
Bruce
, the court found
    that an increase in the interest rate from Royal Bank prime plus 2.25 percent
    to Royal Bank prime plus 2.5 percent was a material change to the principal
contract
    that entitled the appellants to be discharged from liability for the term loan
    because it was not expressly authorized.  (I note that a change in the interest
    rate is now expressly provided for in the RBC guarantee,
perhaps
    as a result of
Bruce
).

[54]

In this case, the motion judge found that the
    increases in the amount of the debt guaranteed (para. 27, 39), and in the more
    stringent report against performance ratio requirements (para. 27) were
    material alterations that triggered the rule in
Conlin
.

[55]

The
    motion judge was troubled by the increase in Samsons indebtedness, pointing
    out at para. 39 that: the Samson debt was three times what it was when Ms. Cusack
    provided the $250,000 guarantee. As noted, I agree with the motion judge that for
    Ms. Cusack the result was a greater potential for her to have to pay (para.
    27).

[56]

In support of his finding that the increase in Samsons borrowing
    was a material alteration, the motion judge noted that RBCs witness, Paul
    Keppen, acknowledged in cross-examination that when the loan agreement between
    Samson and RBC for $500,000 was created in 2008, the 2006 loan agreement for $250,000
    was terminated; the 2008 loan agreement expressly superseded and cancelled the
    preceding one although the 2009 agreement did not expressly supersede and
    cancel the 2008 agreement.

The motion
    judge was troubled that RBC did not seek a new guarantee each time the loan
    increased, noting, at para. 16, that the usual practice of Royal was to obtain
    a new guarantee when terminating one loan agreement and creating a new one.

[57]

With respect, there is no support in the evidence for this
    finding.

RBCs witness, Mr. Keppen did
    not testify as to a usual Bank practice. Mr. Keppen acknowledged that while it
    might have been prudent for RBC to have had new guarantees from Ms. Cusack when
    the loan agreements for $500,000 and $750,000 were created, he asserted that
    doing so was not necessary. I would agree; it was open to the Bank to leave the
    2006 guarantee, which capped Ms. Cusacks exposure at $250,000, in place.

[58]

There is a parallel here to
Adecon
, where the defendants urged Echlin J. to take into account internal
    bank documentation that suggested a preferable manner of dealing with such
    guarantee matters as a bank practice.  Echlin J. decided, however, that the
    internal documentation was not determinative of the interpretation of the
    language of the guarantee, which he found, at paras. 16, 17 and 21, to be clear
    and without ambiguity. I would apply the same logic here.

[59]

As noted, I agree with the motion judge that the
    increases in the amount of the debt guaranteed and in the more stringent
    performance requirements were material alterations, but that is the first step
    of the analysis.

[60]

The
    second step is to consider the language of the guarantee. It expressly
    permitted an increase in the amount loaned to Samson, and the prospect of an
    increase in future liabilities was expressly acknowledged by Ms. Cusack in her
    endorsement on the letter of independent legal advice. She knew and accepted
    that Samsons indebtedness to RBC could increase in the future even though her
    guarantee was limited.
This is the advice that her
    lawyer confirmed that he gave Ms. Cusack in the letter of independent legal
    advice and that she acknowledged receiving.

[61]

Parties are entitled to make their own arrangements, and a
    guarantors decision to contract out of the protection provided by the common
    law or equity will usually be respected by the courts so long as the
    contracting-out language is clear and unambiguous:
Conlin
, at para. 4.


[62]

In
Toronto-Dominion Bank v. Schrage
(2009), 64 B.L.R. (4th) 277, at para.
    15, Strathy J. cautioned that guarantees are invariably drawn by the lender
    ... typically on standard forms and afford no opportunity for negotiations by
    the guarantor.  They usually result in broad surrender of the guarantors legal
    and equitable rights.  Courts will look for clear and unambiguous language,
    and may, when traditional defences to the enforcement of a guarantee, including
    those based on equitable principles such as unconscionability require, refuse
    to enforce such a provision.  See also
British Columbia (Attorney General)
    v. Malik
, 2009 BCCA 202, 91 B.C.L.R. (4
th
) 87, at para. 49.
    There is, however, no basis for invoking such equitable principles in this
    case.

[63]

In
    my view, while the subsequent advances by RBC to Samson were material
    alterations to the principal loan contract, they were contemplated by the
    parties, permitted by the clear language of the guarantee, and inherent in
a continuing all accounts guarantee that contemplates increases in the
    size of the underlying indebtedness

. Further,
clause (1) of the guarantee expressly permitted RBC to change the
    terms of the borrowing, which would include changes in performance standards.

[64]

Thus, despite the material alterations in
    the underlying loan arrangements, Ms. Cusacks personal guarantee remains
    enforceable given the clear and unambiguous language of the guarantee and the
    factual context.

[65]

At issue in this case was the enforceability of a
    plain-vanilla standard form bank guarantee in the context of a small business
    loan, of which there are undoubtedly many. The motion judge found, and I agree,
    that Ms. Cusack was an accommodation surety, that is, someone who undertakes
    to be a surety for no consideration, whose obligations are to be strictly
    construed: see
Conlin
at para. 12. Despite the finding that Ms. Cusack was
    an accommodation surety, in my view there was nothing in the language of the
    guarantee or in the factual context to justify the motion judges decision not
    to enforce the RBC guarantee according to its terms but instead to dismiss
    RBCs action against Ms. Cusack. This is not a case where the context included,
    for example, an impermissible renewal in the circumstances of a matrimonial
    breakdown as in
Conlin
, a lender overreaching as in
Bruce
, or a
    lenders employee providing misleading advice, as was alleged but not proven in
C.I.B.C. v. Trapp
, [1987]
    B.C.J. No. 280, 12 B.C.L.R. (3d) 35 (C.A.), where the loan amount ballooned
    from $45,000 at its inception to $1 million
. Nor
    is this a case like
Bruce
where the alteration in the loan arrangements was
    both material and was not contemplated by the guarantee.

Disposition

[66]

I would allow the appeal, set aside the motion judges
    order dismissing RBCs motion for summary judgment against Ms. Cusack and dismissing
    RBCs action against her, and substitute an order for judgment in RBCs favour
    against Ms. Cusack for $250,000, plus interest as determined under the
    guarantee.

[67]

The parties were able to agree on costs. I would
    therefore fix the costs of this appeal at $20,000 all-inclusive, payable by Ms.
    Cusack to RBC. Ms. Cusack would also be responsible for the costs before the
    motion judge in the amount of $16,950, all-inclusive.

Released: May 13, 2013 (J.C.M.)

P. Lauwers J.A.

I agree. J.C. MacPherson J.A.

I agree. E.A. Cronk J.A.


