Royal Bank of Canada v. Surje & Company Inc. is a recent decision of the Ontario Superior Court of Justice. The personal defendant, Sunny Bhasin ("Mr. Bhasin") held most of the common shares in Surge & Company Inc. ("Surje"), the corporate defendant.

Mr. Bhasin took steps to obtain additional financing for Surge from Royal Bank of Canada ("RBC"). He was put in touch with Alex Garabedian ("Mr. Garabedian"). A credit facility of $150,000 was approved. In May 2008, Mr. Bhasin signed a standard two-page loan agreement. It contained a personal guarantee. Mr. Bhasin testified that he told Mr. Garabedian he did not want to give a personal guarantee for this loan, and that Mr. Garabedian said there was no personal guarantee. He also stated that he did not read the loan agreement before signing it. Mr. Garabedian testified that his standard procedure was to review and discuss loan agreements before they are signed, and to explain to owners that they are signing for both personal and business liability. He did not recall Mr. Bhasin indicating that he did not want to give a personal guarantee.

In December 2010, Surje was transferred to a different section at RBC, and assigned to Praveen Ravindranath ("Mr. Ravindranath"). A new loan agreement was signed. It contained a personal guarantee. Mr. Bhasin testified that the new loan agreement was not reviewed with him, and that he signed it without reading it first. He added that Mr. Ravindranath wrongly told him the agreements were the same as the original loan. Mr. Ravindranath testified that he told Mr. Bhasin that no changes were being made; the company was still being provided with an operating line of $150,000, secured in part by Mr. Bhasin's personal guarantee. He further stated that they discussed the reasons for the personal guarantee at Mr. Bhasin's request.

According to Mr. Bhasin, he first discovered that he had a personal guarantee in June or July 2011. He only disputed the personal guarantee in February 2012.

The main issue before the Court was whether the second personal guarantee signed by Mr. Bhasin was enforceable. The basic requirements to enforce the loan were established: the loan agreement had been signed, the operating line was provided and was drawn on.

Mr. Bhasin pleaded misrepresentation on the basis that Mr. Garabedian and Mr. Ravindranath both told him that there was no personal guarantee.

The Court preferred the evidence of Mr. Garabedian and Mr. Ravindranath to the evidence of Mr. Bhasin. It also found that Mr. Bhasin's "discovery" of the personal guarantee in mid-2011 was completely inconsistent with his own actions – after his "shock", he did nothing until February 2012. Justice Matheson further noted that Mr. Bhasin's testimony was unresponsive and inconsistent on a number of subjects. Therefore, the Court concluded that neither Mr. Garabedian nor Mr. Ravindranath misrepresented the 2008 and 2010 loans, respectively, as excluding a personal guarantee. The second personal guarantee was deemed enforceable.

This case turned on witness credibility. It is a reminder of the importance of having and implementing a standard procedure with respect to thoroughly reviewing loan documentation with clients.