Guarantees and Summary Judgment: Court reviews important considerations for granting summary judgment against the guarantor of a corporate loan

This article was originally published in Law360 Canada.

In Royal Bank of Canada v HI & DQ’s Foods Inc., 2025 ONSC 2774, the Ontario Superior Court of Justice addressed several issues relating to personal guarantees in commercial lending. The decision confirms that summary judgment can be appropriate in a claim against a guarantor and clarifies the limited scope of fiduciary duties owed by financial institutions, the responsibilities of corporate directors acting as guarantors, and the narrow availability of the defence of non est factum.

Background

Royal Bank of Canada (“RBC”) commenced a motion for summary judgment against the guarantor of a loan provided to a corporation of which they were a director (the “Guarantor”). Prior to the summary judgment hearing, the Guarantor assigned the corporation into bankruptcy, and accordingly the motion proceeded against only the Guarantor for the amounts they had guaranteed to RBC.

In response, the Guarantor raised several defences, which are addressed in turn below.

The Sleeping Partner

The Guarantor argued that they had merely been a “sleeping partner” under the direction of another individual who was not party to the action, and therefore should not be liable under their guarantee. The Court disagreed, finding that the Guarantor did not advance any documentary evidence to support this claim, and noting that the Defendant had personally corresponded with RBC and its counsel, directed the company’s accountants to submit financial reports, and did not involve the purported directing individual in any meaningful way during the loan application or enforcement process.

A Lack of Independent Legal Advice Is Not Fatal

The Court rejected the Guarantor’s claim that the guarantee was unenforceable on the basis that they had not obtained independent legal advice. Justice Kurz affirmed that independent legal advice is not a prerequisite to the enforceability of a guarantee when the guarantor is also an officer and director of the borrowing corporation. In such cases, courts assume a degree of sophistication and responsibility that precludes the need for protective measures typically afforded to non-commercial guarantors.

The Strict Application of Non Est Factum

The Guarantor further advanced the defence of non est factum, which allows a contract to be voidable if the signer, through no carelessness on their part, is mistaken as to the document’s nature and character, especially where there has been a misrepresentation by the other party.

The Court rejected this defence, finding no evidence of misrepresentation by RBC. The Guarantor’s claim that they could not understand English was directly contradicted by their sworn affidavit — written in English with no translation — and by their multiple email communications with RBC which were in English, her signing of English-language documents, and her failure to appear in Court to demonstrate that a genuine language barrier existed. These factors led the Court to conclude that the Guarantor either understood the nature of the document or was careless in signing it.

No Fiduciary Duty in Commercial Lending

Finally, the Court addressed the Guarantor’s assertion that RBC had a fiduciary duty to ensure they understood the guarantee and its consequences. The Court rejected this argument, finding that a creditor-debtor relationship is inherently commercial and does not, absent exceptional circumstances, give rise to fiduciary obligations.

Citing Justice Ross in Bank of Montréal v 1480863 Ontario Inc., 2007 CanLII 13359 (ON SC), the Court noted:

“Absent any special relationship or exceptional circumstances ... the lender owes no duty to the borrower in connection with the making of the loan.”

It is a well-established and longstanding principle that lenders do not owe borrowers an inherent duty during loan transactions, as their relationship is fundamentally contractual in nature. Particularly, financial institutions are not under a legal obligation to advise customers against entering into the loan agreement.

Conclusions

The Court has provided a thorough review of the appropriateness of summary judgment against personal guarantors of a commercial loan and has addressed some potential defences that may be raised by a guarantor. Both creditors and debtors should be aware of the considerations a court may have in reviewing these types of claims.

This decision further underscores the importance of personal responsibility in the context of commercial lending. Directors and officers who sign personal guarantees must ensure that they understand the legal and financial implications of their commitments. Courts will not accept defences rooted in carelessness or after-the-fact regret, particularly where the individual had ample opportunity to review the agreement and seek legal advice. Importantly, financial institutions that operate as lenders do not owe fiduciary duties to corporate directors or officers acting as guarantors for these transactions.

Spencer Jones, lawyer at Lerners LLP, represented the moving party on this motion.