Bauer v. Bank of Montreal, (1980) 32 N.R. 191 (SCC)

• Jurisdiction: Federal Jurisdiction (Canada)
• Judge: Ritchie, Dickson, Estey, McIntyre and Chouinard, JJ.
• Citation: (1980), 32 N.R. 191 (SCC),[1980] 2 SCR 102,32 NR 191,110 DLR (3d) 424,10 BLR 209,[1980] SCJ No 46 (QL),2 ACWS (2d) 450,1980 CanLII 12 (SCC),33 CBR (ns) 291
• Court: Supreme Court (Canada)
• Date: 22 April 1980

Bauer v. Bk. of Mtrl. (1980), 32 N.R. 191 (SCC)

MLB headnote and full text

Bauer v. Bank of Montreal

Indexed As: Bauer v. Bank of Montreal

Supreme Court of Canada

Ritchie, Dickson, Estey, McIntyre and Chouinard, JJ.

April 22, 1980.

Summary:

This case arose out of an action by a bank on a guarantee. The guarantor guaranteed his company's debts to the bank, which also took an assignment of the company's book debts. The guarantee provided that the bank without exonerating the guarantor could "abstain from taking securities from, or from perfecting securities of," the company. The bank neglected to register the assignment of book debts and the security was ultimately lost to other creditors. The bank brought an action against the guarantor on his guarantee. The guarantor pleaded that he was released by the bank's failure to protect its security. The Ontario High Court in a judgment reported 15 O.R.(2d) 746; 76 D.L.R.(3d) 636, dismissed the bank's action and held that the guarantor was released. The Ontario Court of Appeal in a judgment reported 19 O.R.(2d) 425; 85 D.L.R.(3d) 752, allowed the bank's appeal. The guarantor appealed.

The Supreme Court of Canada dismissed the appeal and held that the guarantor was not discharged, because the guarantee expressly provided that the bank was not required to protect its security.

Contracts - Topic 2113

Terms - Express terms - Exemption clauses - General - Interpretation - The Supreme Court of Canada set out the three types of exemption clauses and discussed the special rules of construction to which they are subject - See paragraphs 10 to 11.

Contracts - Topic 2114

Terms - Express terms - Exemption clauses - What constitute - A guarantor guaranteed a debtor's debts to a bank - The bank's standard guarantee form provided that the bank without exonerating the guarantor could grant time, renewals, extensions, releases or discharges and could "abstain from taking securities from or from perfecting securities of, . . . the customer" - The Supreme Court of Canada held that the clause was not an exemption clause and was not subject to special rules of interpretation, in particular the contra proferentem rule - See paragraphs 10 to 11.

Evidence - Topic 6325

Parol evidence rules - Contracts - Collateral contracts - A guarantor gave a written guarantee to a bank, which expressly did not require the bank to protect its security - The guarantor later claimed that the guarantee was given only upon the oral undertaking by the bank to assign its security to the guarantor, if he was called upon to perform under the guarantee - The Supreme Court of Canada held that the alleged collateral oral agreement could not stand in the face of the written guarantee, where the two conflicted - See paragraphs 18 to 19.

Fraud and Misrepresentation - Topic 2516

Misrepresentation - Contracts - The Supreme Court of Canada stated that a contract induced by misrepresentation or by an oral representation inconsistent with the form of the written contract could not stand and could not bind the party to whom the representation had been made - See paragraphs 14 to 15.

Guarantee and Indemnity - Topic 2731

Discharge of surety - Security - Loss or change of by creditor - General - The Supreme Court of Canada held that a creditor in the absence of agreement to the contrary with the debtor or the guarantor must protect and preserve his security and be in a position, unless excused by other agreement, to return or reassign the security to the debtor or guarantor on repayment of the debt - See paragraphs 5 to 6.

Guarantee and Indemnity - Topic 2740

Discharge of surety - Security - Loss of or change of by creditor - Agreement excluding creditor's duty - A guarantor guaranteed his company's debts to a bank, which also received an assignment of the company's book debts - The guarantee provided that the bank without exonerating the guarantor could "abstain from taking securities from, or from perfecting securities of," the company - The bank neglected to register the assignment of book debts and ultimately lost the security to other creditors - In the bank's action against the guarantor the guarantor pleaded that he was released, because the bank failed to preserve its security and could not deliver the security to him upon satisfaction of the guarantee - The Supreme Court of Canada held that the guarantor was not released, because the guarantee specifically provided that the bank had no obligation to protect its security.

Cases Noticed:

Grey Electronics Supply Limited, Re (1974), 6 O.R.(2d) 308 (S.C.), refd to. [para. 2].

Traders Finance Corporation Limited v. Halverson (1968), 2 D.L.R.(3d) 666 (B.C.C.A.), appld. [para. 5].

Household Finance Corporation Limited v. Foster Limited et al., [1949] O.R. 123 (Ont. C.A.), appld. [para. 5].

Jamesway v. Krug (1932), 41 O.W.N. 146 (Ont. H.C.), refd to. [para. 6].

Bryans v. Peterson (1920), 47 O.L.R. 298 (C.A.), refd to. [para. 6].

Rose v. Aftenberger et al., [1970] 1 O.R. 547, appld. [para. 7].

Perry v. National Provincial Bank of England, [1910] 1 Ch. D. 464 (C.A.), appld. [para. 8].

Canadian Indemnity Company v. Okanagan Main Line Real Estate Board et al., [1971] S.C.R. 493, consd. [para. 14].

Jacques v. Lloyd D. George and Partners Limited, [1968] 1 W.L.R. 625 (C.A.), consd. [para. 14].

Firestone Tire and Rubber Company Limited v. Vokins and Co. Ltd., [1951] 1 Lloyds L.R. 32 (K.B.D.), consd. [para. 14].

Mendelsohn v. Norman Ltd., [1970] 1 Q.B. 177 (C.A.), consd. [para. 14].

Hawrish v. Bank of Montreal, [1969] S.C.R. 515, appld. [para. 18].

Authors and Works Noticed:

Chitty, On Contracts (24th Ed.), Vol. 1, p. 362 [para. 10].

Halsbury's Laws of England (4th Ed.), vol. 28, p. 152, para. 280 et seq. [para. 6].

Holden, Security for Banker's Advances (2nd Ed.), p. 197 et seq. [para. 8].

Snell, Principles of Equity (27th Ed.), pp. 462-463 [para. 6].

Counsel:

B.P. BELLMORE, for the appellant;

J.L. McDOUGALL, for the respondent.

This case was heard on February 14, 1980, at Ottawa, Ontario, before RITCHIE, DICKSON, ESTEY, McINTYRE and CHOUINARD, JJ., of the Supreme Court of Canada.

On April 22, 1980, McINTYRE, J., delivered the following judgment for the Supreme Court of Canada: