Written by: Sara Bahadori
When small corporations borrow funds, lenders often require a personal guarantee from the owner. If a dispute arises over the owner’s personal liability, courts will look at the contract and the context in which the agreement was made.
The recent case of Royal Bank of Canada v. 1108135 Ontario Inc., 2025 ONSC 3285, illustrates how such cases are assessed and how outcomes can vary even where the parties and circumstances appear similar.
Background
The Royal Bank of Canada (RBC) brought a claim against a small Ontario corporation and its sole director to recover unpaid amounts on a business operating line of credit (BOL) and a corporate Visa credit card. The corporation did not dispute its liability, but the director argued that he was not personally responsible for the debts.
RBC moved for summary judgment. The director opposed the motion and argued that he did not apply for either product in his personal capacity, did not sign any documents that would impose personal liability, and was never advised that he would be personally responsible for repayment.
The BOL Agreement
The BOL was governed by a written agreement. On the final page, just above the director’s electronic signature, the agreement included the following statement in bold, capitalized text:
OWNER READ CAREFULLY: By signing this Agreement, you agree to be personally responsible for the full repayment of all Debt and Royal Bank may demand payment from you.
Two signature boxes appeared on the same page. The director signed both, once as an “Authorized Person” for the corporation and once as “Owner.”
RBC argued that even if the director only saw the last page, he would have seen that he was signing in both capacities and that he was explicitly agreeing to personal liability for the BOL.
The director responded that he simply clicked a link to sign electronically and did not read the full agreement. He said nothing on the signature page indicated personal liability and that he was not provided a copy of the agreement afterward.
The Court rejected the director’s reliance on Tilden Rent-A-Car Co. v. Clendenning, finding the facts distinguishable. While Tilden involved fine print in a standard form contract, the personal guarantee clause in this case was clearly visible in bold and capital letters. The Court found that the director knew or should have known he was assuming personal liability, noting it is common practice for lenders to require personal guarantees from owners of closely held corporations. The director’s failure to read the agreement in full or ask for a copy did not excuse him from liability. He was accordingly found to be personally liable for the amounts owing under the BOL.
The Visa Account
The claim regarding the Visa credit card was decided differently.
The director testified that in 2012 the corporation was preapproved for a Visa card, which he accepted on the corporation’s behalf. He stated that he never received a copy of the Visa Agreement and did not agree to be personally liable for the card’s balance. RBC was unable to provide evidence showing otherwise.
The Visa Agreement was a 20-page standard form document. Although it could bind a user through usage rather than signature, it defined an “Owner” as someone who signed the agreement. The director had not signed it. The Court found no indication that the director had ever agreed to personal liability or was identified as a co-borrower. The monthly statements also failed to clearly state that he was personally responsible.
The Court concluded that the director was not an “Owner” under the terms of the Visa Agreement and could not be held personally liable for the debt.
Key Takeaways
- Clear and prominent terms matter
Courts will uphold personal guarantees where the agreement uses unambiguous language that is reasonably presented to the signatory. - Electronic signatures are valid, but context is crucial
Clicking to accept or signing electronically can bind a party if the document is clear. Failing to read an agreement will not typically excuse a party from liability. - Each agreement stands on its own
Even within the same lender-borrower relationship, different agreements may lead to different outcomes depending on the evidence of consent and the language of the documents.
Conclusion
This decision is a reminder that personal liability for corporate debt will depend on the wording of the agreement and how that wording is communicated. Lenders should take care to clearly document and disclose any personal guarantees, while business owners should carefully review all documents before signing, especially in online or preapproved settings.
If you operate a corporation and are unsure about the terms of a credit agreement, consult with legal counsel before signing. The consequences of a personal guarantee may not be obvious until it is too late.
