Amending Loan Documents: Don’t Forget The Guarantor

A recent decision from the Court of Appeal for Ontario (the "Court of Appeal") in Royal Bank of Canada v. Samson Management & Solutions Ltd. ("Samson") highlights enforceability issues that can arise with guarantees when an underlying loan document is altered without a guarantor's consent. The facts in Samson are all too common and should give lenders pause when amending loan documentation. Ultimately, the Court of Appeal did find the subject guarantee was enforceable, but the decision underscores important practices to employ in these circumstances.

In 2005, Royal Bank of Canada ("RBC") provided a credit facility in the amount of $150,000 to Samson Management and Solutions Ltd. (the "Borrower"). The loan was secured by, among other things, a $150,000 guarantee of all of the Borrower's obligations to RBC from the spouse of the Borrower's principal, Cheryl Cusack ("Cusack"), who was not involved in the day-to-day operations of the Borrower. Cusack's guarantee was in