It’s time to review your standard forms! They may not say what you think – and assuming they do can cost commercial lenders money, time and aggravation.
Laurentian Bank of Canada v. Bonhomme, 2012 ONCA 515
Standard Forms. Businesses love them – but they are not always read carefully every time they are pulled out.
Standard Forms are an essential tool to any business. They assist in developing global practice standards, continuity in corporate communications and consistency in business transactions when serving a variety of client and customer needs. However, they may pose a hidden danger.
In Bonhomme, the Bank sought to recover amounts owing under a line of credit it had granted to B and M, as co-borrowers.
B disputed his liability to pay the amounts claimed because the Bank had advanced them based on a cheque that only M had signed. B argued that, without his signature, he was not responsible for the funds drawn, and that the Bank should not have permitted the funds to be drawn without the signatures of both borrowers.
The Bank disagreed, asserting that the agreement permitted either B or M to draw funds under the line of credit.
Herein lies the standard form trap. The agreement provided in part as follows:
The Bank shall be authorized to extend loans on presentation of any cheque or other written request bearing the signature of the Customer as subscribed to the present document...
“Customer” is described in the agreement as B and M.
The Bank obtained summary judgement and B appealed. The Court of Appeal held that, on its face, the line of credit agreement was ambiguous concerning whether “the Customer” meant one or both signatories to the agreement. The issue required extrinsic evidence and a trial.
The Bank likely intended “Customer” to refer to either of B or M. But the lack of clarity in the language has opened an unwanted Pandora’s box – a box overflowing with each “Customer” to whom the Bank has extended credit using this particular standard form loan agreement. The result is that a similar issue may arise with each line of credit the Bank grants to two or more “Customers”, but the good news is that this is an issue that the Bank can resolve with a simple revision to its standard form.