Newer Is Not Always Better

If a borrower sells its business and the buyer agrees to assume the related indebtedness, does the lender of that indebtedness have to accept the buyer as its debtor in place of the original borrower? The answer is "yes" if there has been a "novation" created by the assumption of indebtedness, and that may be an unfavourable result for the lender. Fortunately for lenders, the threshold for proving novation is high, as confirmed in the recent judgment of the Supreme Court of British Columbia in Dore River.¹

In that case, the defendant borrower sold its business to a buyer who agreed to assume the obligations for two loans owing to the plaintiff lender. There were discussions with the lender about agreeing to the assignment and assumption of the loans, but no final agreement was reached on that issue and no written agreement was entered into. The buyer made two small payments on the loans, but the loans then fell into arrears. One of the loans was paid out, and the