Bk. of Mtrl. v. Mercer, (2000) 193 Nfld. & P.E.I.R. 88 (NFTD)

• Judge: Adams, J.
• Court: Supreme Court of Newfoundland and Labrador (Canada)
• Case Date: August 04, 2000
• Jurisdiction: Newfoundland and Labrador
• Citations: (2000), 193 Nfld. & P.E.I.R. 88 (NFTD)

Bk. of Mtrl. v. Mercer (2000), 193 Nfld. & P.E.I.R. 88 (NFTD);

    582 A.P.R. 88

MLB headnote and full text

Temp. Cite: [2000] Nfld. & P.E.I.R. TBEd. AU.008

Bank of Montreal (plaintiff) v. Alvin Mercer (defendant)

(1995 St. J. No. 2692)

Indexed As: Bank of Montreal v. Mercer

Newfoundland Supreme Court

Trial Division

Adams, J.

August 4, 2000.

Summary:

The Bank of Montreal sued Mercer, seek­ing to enforce his guarantee of a corpora­tion's indebtedness.

The Newfoundland Supreme Court, Trial Division, allowed the action.

Evidence - Topic 2281

Special modes of proof - Judicial notice - Particular matters - Interest rates - The Bank of Montreal sought to enforce a guarantee - The guarantor submitted that the Bank should be restricted to interest at the judgment interest rate rather than at the contractual rate because it had not led any evidence to prove its prime lending rate - The Bank submitted that the prime rates of Canadian chartered banks were regularly published in leading financial journals and the court could take judicial notice of them - The Newfoundland Supreme Court, Trial Division, held that it could not take judi­cial notice of the rates because the prime rates of individual banks were not always the same on every day and thus some independent research of documents and materials not readily available to the court would be required - The court granted leave for the plaintiff to file affidavit evidence to prove its prime lending rate for the relevant period - See paragraphs 83 to 92.

Guarantee and Indemnity - Topic 2511

Discharge and other defences of surety - General - Lack of independent legal advice for surety - Mercer was a director and shareholder of a company - The Bank of Montreal sued Mercer, seeking to enforce his guarantee of the company's indebted­ness - Mercer raised several defences, among them, that the bank failed to ensure that he obtained independent legal advice before making the guarantee - The New­foundland Supreme Court, Trial Division, held that there was no inequality of bar­gaining power and no obligation to ensure that Mercer had independent legal advice - Mercer was an intelligent, well-educated professional man, experienced in sophisti­cated business dealings - There was no evidence of undue influence - To the extent that he relied on anything other than his own knowledge and investigation, he relied on his brother, a fellow director and shareholder, for his information on the company and its financial circumstances - See paragraphs 29 to 34.

Guarantee and Indemnity - Topic 2514

Discharge and other defences of surety - General - Waiver by surety of defences - The Bank of Montreal sought to enforce Mercer's guarantee of a company's in­debtedness - Mercer submitted that the Bank's principal contract with the com­pany, on which the guarantee was based, contained a condition precedent requiring the Bank to perfect its assignment of book debts over the company's accounts receiv­able as a first charge against those assets - Mercer submitted that the Bank failed to do so and this was a material alteration in the principal contract - The Newfoundland Supreme Court, Trial Division, rejected the argument on the ground, inter alia, that the parties had contracted out of the equitable protection claimed by Mercer - See para­graphs 52 to 66.

Guarantee and Indemnity - Topic 2514

Discharge and other defences of surety - General - Waiver by surety of defences - The Newfoundland Supreme Court, Trial Division, held that s. 12 of the Limitation of Actions (Personal) and Guarantees Act codified the equitable protection afforded guarantors - The court held that parties to a guarantee could contract out of the pro­tection afforded by s. 12 - See paragraphs 70 to 79.

Guarantee and Indemnity - Topic 2667

Discharge and other defences of surety - Acts of creditor - Duties of creditor - Mercer and two other principals personally guaranteed a company's debt to the Bank of Montreal - The Bank sought to enforce Mercer's guarantee - Mercer submitted that he should be excused from paying under the guarantee because the Bank did not inform him that it had lost confidence in one of the other guarantors because he misled them about the ownership of his personal residence, which formed much of the basis for his presumed net worth - The Newfoundland Supreme Court, Trial Divi­sion, rejected the submission - The guaran­tee was joint and several - Any one of the guarantors could be held liable for the entire amount of the debt guaranteed - Upon the wording of the guarantee, the Bank was under no duty to advise Mercer of any loss of confidence in one of the other guarantors - See paragraphs 67 and 68.

Guarantee and Indemnity - Topic 2731

Discharge and other defences of surety - Security - Loss of or change of by creditor - General - Mercer was a director and shareholder of a company - The Bank of Montreal sought to enforce Mercer's guar­antee of the company's indebtedness - Mercer submitted that the Bank's principal contract with the company, on which the guarantee was based, contained a condition precedent requiring the Bank to perfect its assignment of book debts over the com­pany's accounts receivable as a first charge against those assets - Mercer submitted that the Bank failed to do so and this was a material alteration in the principal contract - The Newfoundland Supreme Court, Trial Division, rejected the argument on the ground, inter alia, that the alleged material alteration was one which Mercer could reasonably have expected - See paragraph 69.

Guarantee and Indemnity - Topic 2731

Discharge and other defences of surety - Security - Loss of or change of by creditor - General - [See Guarantee and Indem­nity - Topic 2991 ].

Guarantee and Indemnity - Topic 2990

Discharge and other defences of surety - Changes in the principal contract - General principles - The Newfoundland Supreme Court, Trial Division, stated that "reliance is the rationale for the equitable principle which releases the surety from his obliga­tion if the creditor makes a material alter­ation in the principal contract with the debtor." - See paragraph 49.

Guarantee and Indemnity - Topic 2991

Discharge and other defences of surety - Changes in the principal contract - What constitute - A Bank sought to enforce Mercer's guarantee of a company's in­debtedness - Mercer submitted that the Bank's principal contract with the com­pany, on which the guarantee was based, contained a condition precedent requiring the Bank to perfect its assignment of book debts over the company's accounts receiv­able as a first charge against those assets - Mercer submitted that the Bank failed to do so and this was a material alteration in the principal contract - The Newfoundland Supreme Court, Trial Division, rejected the argument because, inter alia: a new agree­ment abandoned any reference to condi­tions precedent to advancing funds; the parties had voluntarily abandoned the old agreement and were operating under the new agreement when the guarantee was signed; the condition precedent in the old agreement was for the Bank's benefit; and Mercer did not rely on the Bank having first charge over the accounts receivable because he had no knowledge of the assignment when he signed the guarantee -See paragraphs 35 and 40 to 51.

Interest - Topic 2341

Agreement to pay interest - Evidence - General - [See Evidence - Topic 2281 ].

Cases Noticed:

Bank of Montreal v. Featherstone, Cooke and Cross et al. (1989), 33 O.A.C. 377; 58 D.L.R.(4th) 567; 68 O.R.(2d) 541 (C.A.), refd to. [para. 33].

Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415; 203 N.R. 81; 94 O.A.C. 161, dist. [para. 54].

Bauer v. Bank of Montreal, [1980] 2 S.C.R. 102; 32 N.R. 191, refd to. [para. 56].

Holland v. Hutchings, [1936] S.C.R. 165, dist. [para. 68].

Toronto-Dominion Bank v. Rooke et al. (1983), 3 D.L.R.(4th) 715 (B.C.C.A.), refd to. [para. 69].

Canadian Imperial Bank of Commerce v. Fox Creek Motels Ltd., [1984] B.C.J. No. 736 (S.C.), not folld. [para. 72].

Bank of Montreal v. Fennell (1991), 7 C.B.R.(3d) 140 (B.C.S.C.), appld. [para. 75].

Bank of Montreal v. Perron (1982), 18 Man.R.(2d) 418 (C.A.), dist. [para. 80].

Bank of Montreal v. Wilder, [1986] 2 S.C.R. 551; 70 N.R. 341, dist. [para. 80].

Brown v. Kinden (1988), 89 N.B.R.(2d) 387; 226 A.P.R. 387 (C.A.), refd to. [para. 83].

Statutes Noticed:

Limitation of Actions (Personal) and Guarantees Act, R.S.N. 1990, c. 206, sect. 12 [para. 71].

Authors and Works Noticed:

McGuinness, Kevin, The Law of Guaran­tee (1986), pp. 254, 255, 256, paras. 10.15, 10.17 [para. 49].

Sopinka, John, Lederman, Sydney, N., and Bryant, Alan W., The Law of Evidence in Canada, pp. 976, 977 [para. 86].

Counsel:

Gregory Dickie, for the plaintiff;

Robert J. Dillon, for the defendant.

This action was heard by Adams, J., of the Newfoundland Supreme Court, Trial Divi­sion, who delivered the following decision on August 4, 2000.