Although many people have questioned the relevance of Alberta’s long-standing Guarantees Acknowledgment Act (the "GAA") in today’s marketplace, recent judicial decisions have reinforced the principle that strict compliance with its formalities is an essential element for any enforceable guarantee.
The GAA was first enacted near the end of the Great Depression as a piece of consumer protection legislation. It was designed to protect the ordinary individual who, through lack of experience or understanding, might otherwise find himself or herself subject to onerous liabilities, the nature and extent of which he or she did not properly appreciate upon agreeing to become a guarantor.
This legislation is unique to Alberta, and applies only to guarantees entered into on or after September 1, 1969 by individuals resident in Alberta. The GAA requires that the person signing the guarantee appear before a notary public, acknowledge that he or she executed the guarantee, and, in the presence of the notary, sign a prescribed form. The notary on that same form must state, based upon his or her examination of the person entering into the guarantee, that the guarantor is aware of the contents of the guarantee and understands it. The notary then issues the certificate in prescribed form which must be attached to or noted on the guarantee. If these requirements are not met, the guarantee is unenforceable. Corporate and certain other guarantees, as well as indemnities, are not subject to the GAA. However, one should be cautious of trying to avoid the effect of the GAA by styling a guarantee as an indemnity.
The question of what is the governing law of a guarantee given by an Alberta resident therefore becomes extremely important. If the governing law is Alberta, the GAA will apply and if not, the GAA will not apply where the parties to the contract are from different jurisdictions. Recently, the Alberta Court of Queen's Bench has implied that if the guarantee contains a choice of law clause, that clause will be determinative of the law governing a guarantee. However, where no choice-of-law clause is contained in that guarantee, the Court will be left to determine what is the proper law of the contract by deciding which jurisdiction has the most real and substantial connection to the guarantee contract.
Unfortunately, non-compliance with the statute cannot be remedied. The Alberta Court of Appeal has recently confirmed in Bharwani v. Chengkalath that “The act clearly expresses obligations that must be complied with as a matter of public policy and as a pre-requisite to enforceability of a guarantee by an individual in Alberta. The performance of those obligations cannot be waived or estopped regardless of the individual guarantor’s actual knowledge of the obligations undertaken in the guarantee.”. In that case, a lawyer was relieved of liability under an acknowledgment of indebtedness that the lawyer had personally drafted and signed because the formalities of the GAA has not been observed.
Therefore, when lenders are owed debts or other obligations which are directly or indirectly guaranteed by an individual resident in Alberta, strict compliance with the GAA is advised to ensure the enforceability of the guarantee.