​​​The Court of Appeal of Ontario found in Toronto-Dominion Bank v. Konga that the interpretation of a guarantee is a question of mixed fact and law, entitled to deference on appeal. Further, for a guarantor to obtain a discharge from the guarantee, he must establish that the bank's demand caused the debtor's default.

The appellant in Konga had signed a personal guarantee of a corporation's obligations to the respondent bank. The loan agreement was subject to a facility letter which provided that the line of credit would be repayable on demand, and that the bank could accelerate the payment on occurrence of any event of default. The bank communicated with the corporation on a few occasions and ultimately issued a demand for immediate repayment. When the corporation filed a notice of intention to make a proposal in bankruptcy, the bank moved for summary judgment against the guarantor.

The Court of Appeal confirmed that a debtor is entitled to a reasonable time to pay following the issuance of a demand. The judge properly interpreted the guarantee, which provided that the bank did not have to exhaust its recourses against the corporation before being entitled to make a demand under the guarantee. Further, the guarantor could not be discharged because the bank played no role in the corporation's breaches of the loan agreement and continuing failures to cure its defaults, despite the bank's warnings.

Originally posted January 9, 2017. UPDATE, April 20, 2017: Click here for Evita Ferreira's more detailed analysis of the decision.