Posts Tagged ‘Law’

In Life and Love, There Are No Guarantees; But In Law, Consent Is Required

January 6, 2014

There are no guarantees. From the viewpoint of fear, none are strong enough. From the viewpoint of love, none are necessary. ~Emmanuel Teney

Teney is mostly right, but when it comes to the law of guarantee, the key question is whether you are liable under the guarantee if the underlying contract is changed materially without your consent.

Recall the Supreme Court of Canada decision in Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415 [“Manulife“] where Cory J. held that:

“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.

This rule has been adopted in a number of Canadian cases.  See for example Bank of Montreal v. Wilder, [1986] 2 S.C.R. 551, at p. 562. [and citing The Law of Guarantee (2nd ed. 1996) by Professor K. P. McGuinness  at pp. 534 and 541].

In a lucid and straightforward application of the Manulife decision, the Court of Appeal for Ontario in GMAC Leaseco Corporation v. Jaroszynski, 2013 ONCA 765, [“GMAC”] recently considered whether a guarantor is liable for the truck’s residual value  in lieu of the guarantor’s consent to an lease extension agreement between the principal debtor and creditor.

In GMAC,  Dr. Jaroszynski agreed to co-sign a lease for a truck for his then girlfriend’s father and brother (the “Micielis”). He never had possession or control of the truck; albeit he made all of the lease payments. The lease, assigned by the dealership to GMAC, stipulated that its terms could not be changed without the written consent of both the Micielis and the doctor, as co-lessee. When the lease term expired, the lessor entered into two lease extension agreements with the Micielis.  The truck was apparently stolen and never returned to GMAC.

Dr. Jaroszynski was neither aware nor consented to the extension agreements, and was equally unaware that the truck had not been returned at the end of the lease term.

The Court of Appeal asks: Is Dr. Jaroszynski liable for the truck’s residual value?

At first glance, the case militates towards a finding of liability based upon an entire agreement clause.  Gillese J.A. observes:


[28]       As will be seen, clause 21(b) of the Lease plays a significant role in this case.  Clause 21(b) is an “entire agreement” provision, which stipulates that any changes to the Lease terms must be in writing and signed by both lessee and co-lessee.  The relevant parts of the preamble to the Lease and clause 21 read as follows:

This is an agreement to lease the vehicle described above with any attachments or accessories (the “Vehicle”).  This is not a purchase agreement and You do not own the Vehicle and do not have title to it.  “You” and “Your” refer to Lessee and any Co-Lessee,  jointly and severally with the Lessee.   “We”, “Us and “Our”, refer to the Lessor named above, and after assignment, refer to GMAC Leaseco Corporation (GMAC) or any other assignee, which may include General Motors of Canada Limited (“GM”).  “Lease” refers to this Lease Agreement.



You agree that (a) The Lease shall be governed by the laws of the province or territory in which it is signed by You.  (b) It is the entire agreement between You and Us relating to the lease of the Vehicle.  Any change to the terms of this Lease must be in writing and signed by You and any Assignee. …  [Emphasis added.]

In fact, the Court of Appeal agreed with the Divisional Court that Dr. Jaroszynski was a lessee and not a surety, as the trial judge had found, and further,

 I also agree with the Divisional Court’s reasons for arriving at that conclusion, which can be summarized as follows.  The Lease is a comprehensive document.  Under its terms, Dr. Jaroszynski is unambiguously defined as a co-lessee and given the same responsibilities as the lessee.  The trial judge erred in law by failing to properly apply basic principles of contractual interpretation, including a failure to consider the words of the Lease itself.  As the language of the Lease was unambiguous, it was an error to construe it based on the Appellant’s subjective intention and evidence extraneous to the Lease.

[39]       I further agree with the Divisional Court that Dr. Jaroszynski was not liable for Lease payments in the period covered by the extension agreements.  He did not sign the extensions agreements, thus, they were not binding on him.

[40]       However, in my view, the Divisional Court erred in finding that Dr. Jaroszynski remained liable for the truck’s return or its residual value after the extension agreements were entered into.  In my view, Manulife Bank of Canada v. Conlin, [1996] 3 S.C.R. 415 dictates that he be excused from that liability.

Following a thorough analysis of the majority and dissenting reasons in Manulife, Justice Gillese notes Cory J.’s conclusion that “a principal debtor clause converts a guarantor into a full-fledged principal debtor. The bank’s failure to notify Mr. Conlin, as a principal debtor, of the renewal agreements “must release him from his obligations since he is not a party to the renewal.” (GMAC, per Gillese J.A. at para. 52, citing Cory J. in Manulife at para. 19).

Justice Gillese concludes:

[78]       As we have seen, in Manulife, Cory J. extended to principal debtors the protection historically given to guarantors.  Therefore, in my view, the same test for what constitutes a material change applies to a principal debtor.

[79]       On this test, it is plain that the changes effected by the extension agreements were material.  The extension agreements increased Dr. Jaroszynski’s financial burden and the length of his contractual obligations to GMAC by four months.  This amounts to an increase of approximately 11% (the 4 month extension divided by the original 36 month term).  Extending a person’s financial exposure by an additional 11% is not plainly “unsubstantial” and clearly is not “necessarily beneficial” to him.  On the contrary, it was to Dr. Jaroszynski’s detriment.

[80]       Moreover and very importantly, the extension agreements had the effect of giving the lessee the right to possession of the truck for an additional four months, thus exposing Dr. Jaroszynski to an extra four months of risk that the truck might be damaged or stolen.  Dr. Jaroszynski agreed to assume that risk for thirty-six months – not forty months.  To paraphrase from para. 3 of Manulife, by varying the Lease without Dr. Jaroszynski’s consent, GMAC went off on a frolic of its own and when misfortune occurred, it was at GMAC’s sole risk.  As a result, Dr. Jaroszynski is relieved of liability under the Lease.  To again paraphrase, it is not so much a matter of saying that Dr. Jaroszynski is no longer liable on the Lease as, rather, that the Lease under which he assumed liability ceased to apply to him.

[81]       I would add this comment.  In Manulife, Cory J. observed that the requirement of the guarantor’s signature on the bank’s standard form renewal agreement led to the conclusion that without his consent he would not be bound.  So too in the present case.  GMAC’s standard form extension agreement had a place for the co-lessee’s signature, leading to the conclusion that the co-lessee would not be bound absent his or her consent.

[82]       In conclusion, Dr. Jaroszynski did not consent to the extension agreements, which changed in a material way his obligations under the Lease.  He did not waive the protection afforded a principal debtor.  Indeed, the Lease affirmed that any changes would be in writing and signed by him.  Manulife dictates that he be relieved of his obligations under the Lease.

A sensible result.

A Judicial Do-Over

January 2, 2014

I have long thought that an appeal court is more than merely a forum of last resort , a venue for judicial review, or a chamber of sober second thought.

The intrinsic value of appellate review lies within an appellate court’s power to correct errors of law: lower courts are best suited to be triers of fact. Let the evidentiary chips fall onto the table of justice, where they may.

Many trial lawyers appreciate the difference between the conduct of a trial and that of an appeal. Preserving the record on appeal is vitally important: objections must be stated clearly and unequivocally, but ultimately silence is an admission when it comes to raising grounds for appeal. Equally important is the fact that all cases are framed by the pleadings. If a trier of fact decides a case outside the bounds of the causes of action and defences pleaded, this constitutes a denial of natural justice and procedural fairness and strikes at the very root of the adversarial system: both the plaintiff and the defendants are entitled to know what the dispute is about and raise all arguments and adduce any evidence in support of their respective legal positions.

However, no one likes legal “technicalities”, not even lawyers. Depending on your views of the judicial decision-making process as deductive, inductive or reductive; a court must fairly, impartially and rationally use the process of judicial reasoning to resolve a dispute on its merits.

There is an “escape clause” built into the civil justice system: the fusion of law and equity that reflects the historical compromise of the exercise of judicial power over individuals (jurisdiction in the traditional sense of “juris” (the law”) and diction (“speaks) and that justice not only be done, but also be seen to be done. Consider section 96 of the Courts of Justice Act R.S.O. 1990, c. C.43 (as am) which reads:

Common Law and Equity

Rules of law and equity

96.(1)Courts shall administer concurrently all rules of equity and the common law. R.S.O. 1990, c. C.43, s. 96 (1); 1993, c. 27, Sched.

Rules of equity to prevail

(2)Where a rule of equity conflicts with a rule of the common law, the rule of equity prevails. R.S.O. 1990, c. C.43, s. 96 (2); 1993, c. 27, Sched.

Jurisdiction for equitable relief

(3)Only the Court of Appeal and the Superior Court of Justice, exclusive of the Small Claims Court, may grant equitable relief, unless otherwise provided. 1994, c. 12, s. 38; 1996, c. 25, s. 9 (17).

 Section 96 of the CJA is what I like to call the “judicial do-over”.

Let’s say you’re plaintiff’s counsel and you’ve persuaded the trial judge of the defendant’s liability, but proving the plaintiff’s damages poses to be a problem. Do you take your chances and hope the trial judge will award the plaintiff damages based upon a theory without expert evidence, or much evidence, for that matter? What do you do? Do you take your chances and hope the Court of Appeal will uphold the the trial judge’s assessment of damages, or will only nominal damages be awarded?  Is the fair and just result to order a new trial on the assessment of damages?

Read today’s decision of the Court of Appeal for Ontario in TMS Lighting Ltd. v. KJS Transport Inc., 2014 ONCA 1, per Cronk J.A. (Blair and Strathy JJ.A. concurring).and you be the judge:

(f) The question of remedy

[81] The appellants argue that any award of damages for TMS’s lost productivity should be nominal, at best. They submit that because the respondents’ nuisance-based damages theory was justifiably rejected at trial, and the trial judge’s substituted approach for the quantification of lost productivity damages is fatally flawed, the respondents must bear the consequences for their failure to lead the necessary evidence to establish the quantum of their damages. They rely, in this regard, on the trial judge’s findings that the respondents failed to adduce available evidence at trial that bore on their theory of lost productivity damages and that, as a result, an adverse inference should be drawn against the respondents regarding the utility of any such evidence. As a result of these factors, the appellants say, an award of only nominal damages is mandated.

[82] In the particular circumstances of this case, I would not accede to this argument.

[83] It is well-established that where the absence of evidence renders it impossible to assess damages, a plaintiff may be entitled to only nominal damages. Goldfarb, for example, says so. But this is not invariably the case. Where a plaintiff proves a substantial loss and the trial judge errs in the assessment of damages arising from that loss, the interests of justice may necessitate a new trial on damages. Although the quantification of damages flowing from the established loss may prove difficult, nonetheless the injured plaintiff is entitled to compensation.

[84] Goldfarb itself is a case in point. Goldfarb involved a claim for damages for breach of fiduciary duty advanced by the client of a law firm against the firm and the involved firm lawyer. This court held that there was inadequate cogent evidence to support the substantial award of damages made by the trial judge. Justice Finlayson explained, at para. 67:

[The plaintiff/client] failed to prove the losses through appropriate evidence. The trial judge’s award of damage is speculative at best, and does not reflect with much precision real losses flowing from the breach, notwithstanding that the plaintiff bore the burden of proving the losses in the normal course.

[85] Notwithstanding that the proffer of relevant evidence was “fully within the control of [the plaintiff]”, the Goldfarb court rejected the remedy of nominal damages and concluded that a new assessment of damages was necessary because the plaintiff had demonstrated a substantial personal loss although evidence proving the quantum of that loss was lacking: Goldfarb at paras. 80, 83 and 84. See also Rosenhek v. Windsor Regional Hospital, 2010 ONCA 13, 257 O.A.C. 283, at paras. 37-38, leave to appeal to S.C.C. refused, [2010] S.C.C.A. No. 89.

[86] This reasoning is apposite here. On the trial judge’s findings, the respondents suffered a substantial and unreasonable interference with the use and enjoyment of their lands, as well as trespass to those lands. The appellants’ nuisance and trespass were neither trivial nor transitory. To the contrary, they occurred over a sustained period and interfered, to a significant extent, with the respondents’ use and enjoyment of their lands for the purpose of TMS’s manufacturing operations. For approximately five years, disruption of TMS’s manufacturing operations led to reduced business productivity. This is a real wrong, which caused real loss.

[87] Damages, including damages for loss of revenues or profits, may be measured in various ways including, where appropriate, based on expert opinion evidence. That the manner of proof of lost productivity damages posited by the respondents at trial failed, does not mean that no proof is available. In all the circumstances, in my view, a new assessment of TMS’s lost productivity damages arising from the appellants’ proven nuisance and trespass is required in the interests of justice.

Sex, Laws and Videotape: Canadian Government Moves Ahead to Criminalize Revenge Porn

October 24, 2013

Sex, Lies and Videotape (Poster image via Wikipedia)

I previously blogged about the Criminalization of Revenge Porn movement south of the border in a post entitled “Revenge Is A Link Best Served Cold“.

From the October 16, 2013 Speech From The Throne:

Our Government believes that the justice system exists to protect law-abiding citizens and our communities. For too long, the voices of victims have been silenced, while the system coddled criminals. Our Government has worked to re-establish Canada as a country where those who break the law are punished for their actions; where penalties match the severity of crimes committed; where the rights of victims come before the rights of criminals.

  • Our Government will introduce a Victims Bill of Rights to restore victims to their rightful place at the heart of our justice system.
  • Our Government will focus on protecting the most vulnerable of all victims, our children. Recent tragic deaths, including those of Amanda Todd, Rehtaeh Parsons, and Todd Loik, have shocked Canadians.Our Government will introduce legislation giving police and prosecutors new tools to effectively address cyberbullying that involves criminal invasion of privacy, intimidation and personal abuse. This legislation would create a new criminal offence prohibiting the non-consensual distribution of intimate images.

The proposed amendments to the Criminal Code of Canada are based on the euphemistically titled report ” “Cyberbullying and the Non-consensual Distribution of Intimate Images (June 2013)” [pdf], [the “Report”]. The Report was written under the auspices of the Coordinating Committee of Senior Officials (CCSO), Criminal Justice, Cybercrime Working Group (CWG) and a Sub-Group on Cyberbullying established in January 2013 (co-chaired by the Department of Justice Canada and the Ontario Ministry of the Attorney General) at the behest of the Federal/Provincial/Territorial Ministers Responsible for Justice and Public Safety.

With respect to the “Non-Consensual Distribution of Intimate Images” (shorter version “Revenge Porn”), the Executive Summary states:

On the issue of the non-consensual distribution of intimate images, the Working Group and CCSO reviewed related literature and existing Criminal Code offences and concluded that there is a gap in the Criminal Code’s treatment of this conduct. The Working Group recommends that a new criminal offence addressing the non-consensual distribution of intimate images be created, including complementary amendments relating to, for example, the forfeiture of items used in the commission of the offence and restitution to permit the victim to be compensated for any costs associated with having the images removed from the Internet.

Read the Report and see whether criminalizing revenge porn addresses any free speech issues. Just kidding, section 2(b) of the Charter which includes the right to freedom of expression (a denuded version of the U.S. First Amendment right of free speech) is not on the Committee’s radar. When consenting adults have sex and choose to film their amorous escapades, it is the responsibility of the Canadian federal government to ensure that the revenge pornographer is prosecuted to the fullest extent of the Law. (more…)

Hilary Young, “Adding Insult to Injury in Corporate Defamation Damages”

September 3, 2013

Hilary Young (University of New Brunswick – Fredericton – Faculty of Law) has posted “Adding Insult to Injury in Corporate Defamation Damages”. Here’s the abstract:

The law of defamation treats corporations almost identically to natural persons. In most common law countries, corporations may bring defamation actions, and the elements are the same for corporate plaintiffs as for natural person plaintiffs, as are the defences. So too, are the principles for awarding damages.

Both people and corporations have valuable reputations worthy of legal protection. However, given the significantly different effect of reputational injury on humans than on corporations, the principles applied in quantifying damages to each should differ. Aggravating factors relating to emotional injuries should not be considered in assessing reputational injury to corporations, because corporations cannot suffer such injuries. Specifically, I focus on the relevance to the quantification of damages of: a) the defendant’s failure to apologize; b) the defendant’s malice; and c) the aim of vindicating reputation. Examples are drawn primarily from Canadian law but also from the laws of other common law countries.

The article first argues against treating a defendant’s failure to apologize to a corporation as a factor aggravating damages. The only relevance to a corporation of an apology is as a form of setting the record straight. Thus, an apology may mitigate damages but a failure to apologize will often have no effect on damages. Yet the law treats a failure to apologize as aggravating damages.

Similarly, the defendant’s malice is considered a factor aggravating damages, but since corporations cannot be upset, embarrassed or insulted, it is not clear that malice should be relevant to calculating their compensatory damages.

Finally, courts should no longer award damages in order to vindicate corporate reputation. The interest in human dignity may justify the vindicatory goal of defamation law. However, given that corporations have no dignity to protect, and given a number of problems associated with attempting to award damages to vindicate reputation, it is not justifiable to award corporations damages to vindicate their reputations.

Download a pdf copy of the paper via SSRN here.


June 18, 2013

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I would be remiss if I failed to mention that J. Kirby Inwood sent me this email back on April 4th, 2013, even though he doesn’t like me very much:




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