TD v Konga: When Guarantors Are Guaranteed To Pay

Guarantors beware: the Court of Appeal, in The Toronto-Dominion Bank v Konga,1 held that the guarantor was required to pay in response to a demand for payment pursuant to a guarantee, even where the debtor corporation had not failed to make a payment under the loan agreement.

Background

The appellant, Raymond Konga ("Konga" or the "Guarantor"), guaranteed a loan made by the respondent, The Toronto-Dominion Bank ("TD"), to Vermatin Inc. (the "Corporation"). TD claimed that the Corporation breached the terms of the loan agreement and demanded repayment of the loan from both the Corporation and Konga. TD moved successfully for summary judgment against Konga for payment pursuant to the guarantee.

Issues and Analysis

The Court of Appeal was tasked with resolving two issues. First, did the motion judge err in finding that TD was entitled to make a demand on the guarantee? Second, did the motion judge err in finding that Konga was not entitled to an equitable discharge of the guarantee?

1. TD was entitled to demand on the guarantee

   1. The Corporation was afforded a reasonable amount of time to pay

      The case law since R.E. Lister Limited v Dunlop Canada2 is clear that a debtor is entitled to a reasonable amount of time to pay. The Court clarified that this determination is "fact-specific and dependent upon the conduct of the parties, before and after the demand" and that it "would not be possible, or indeed workable, for the creditor to arbitrarily establish that timeframe for the debtor".3

      Applying these principles to the facts of this case, the Court of Appeal held that the Corporation was afforded a reasonable amount of time to pay following the issuance of the demands. This conclusion was supported by the motion judge's finding that TD did not take steps to enforce the demand for many months after issuing the demand letter.4

   2. The demand by TD pursuant to the guarantee was available even where the Corporation had not failed to make a payment under the loan agreement

      Konga argued that a demand for payment under the guarantee was only available to TD if the Corporation defaulted on a monetary term of the loan agreement.5 In other words, the appellant argued that the Corporation had to be in default of payment under the loan agreement as a precondition of payment on the guarantee.6 While breaches of the other covenants in the loan agreement may have triggered TD's right to demand payment from the Corporation, Konga argued that this right did not...