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opinion BANKING ON CO R PO R ATE BY BRYAN HAYNES Alberta anomaly, No. 2, needs to go to have a Guarantees Acknowledgment Act. Although its purpose is laudable, its application has created headaches for practitioners, uncertainty for cli- ents, and injustices for many. First enacted in 1939, the act remains A largely intact today. It was implemented to protect ordinary individuals from unwittingly subjecting themselves to onerous liabilities and says that a guar- antee provided by an individual has no effect unless the guarantor acknowledg- es the execution of the guarantee before a notary public who certifies that he has satisfied himself by examination that the guarantor is aware of the contents of the guarantee and understands it. All of this for a prescribed maximum fee of $5. The act supplements the Statute of Frauds (1677), which requires that guarantees be in writing. The courts have generally applied the act strictly — no notarial certificate, no enforcement. This has resulted in some guarantors evading, on technical grounds, the obligations they under- took with full knowledge. In some multi-jurisdictional disputes however, courts have jumped through hoops to apply the laws of other jurisdictions; by all appearances to give effect to guar- antees that would otherwise have failed under Alberta law. In Bharwani v. Chengkalath, the plaintiff sold his accounting practice to the defendant. The plaintiff agreed to finance a portion of the purchase price in exchange for a personal guarantee and collateral mortgage. The plaintiff 's solicitor prepared the necessary docu- ments, complete with a notarial certifi- cate in prescribed form. The defend- ant's wife (in whose name title to the residence was registered), who is a law- lberta is the only jurisdiction in Canada (and in most, if not all, other common law jurisdictions) yer and was acting for her husband on the sale, refused to sign the guarantee as she did not want to be personally responsible for the debts of her husband apart from the equity in their home. Accordingly, in place of the guarantee and collateral mortgage, she drafted an acknowledgment of indebtedness whereby "the undersigned grants to . . . without any personal liability, as secur- ity for the repayment of . . . a charge on lands legally described as . . ." which the plaintiff 's solicitor accepted. The transaction soured and the plaintiff sought to enforce the charge on land. The defendant's wife claimed that the acknowledgment of indebted- ness (yes, the one she drafted on the basis that she was not prepared to sign a personal guarantee) was in fact a per- sonal guarantee and was unenforceable since it failed to comply with the act. Remarkably, both the master and the chambers judge on appeal agreed. On its face, the acknowledgment merely granted a charge on land and did not create a personal obligation to answer for a default of another. Assuming it did create such an obliga- tion, it was arguably given on the sale of an interest in goods or chattels (an exception from the definition of "guar- antee" under the act). Regrettably, no appeal was taken from the order of the chambers judge. Alberta Court of Appeal ruling in Bharwani v. Chengkalath: www2.albertacourts.ab.ca/jdb/2003-/ca/ civil/2008/2008abca0148.pdf Alberta Law Reform Institute 1970 report on the Guarantees Acknowledgement Act:: www.law.ualberta.ca/alri/docs/fr5.pdf Its 1985 report: www.law.ualberta.ca/alri/docs/fr44.pdf The Alberta Court of Queen's Bench and the Court of Appeal therefore only dealt with the issue of whether the prin- ciple of estoppel precluded the defend- ant from raising the defence of non- compliance with the act (which both courts held did not). In her reasons for judgment, Court of Queen's Bench Justice B.E. Romaine acknowledged, "There is no doubt that the equities of the situation make this an unattractive conclusion." In its 2008 judgment, the Court of Appeal emphasized: "We are obliged, for purposes of this judgment, to accept the finding of the cham- bers judge that the Acknowledgment of Indebtedness prepared and executed by the respondent is a guarantee within the meaning of the act. We reiterate that this determination was not appealed." The act has been examined twice by the Alberta Law Reform Institute. The first report, in 1970, recommended the act be retained but reformed to inter alia permit a court to grant relief in cases where it is obvious the spirit of the act has been complied with. In its second report, in 1985, the institute's board was divided as to whether the act should be repealed and recommend similar reforms assuming it was retained. To date, none of the recommended reforms in either report have been adopted. With or without reform, the act has outlived its useful life and should be repealed. This Alberta anomaly should be eliminated and Alberta brought in step with other common law jurisdic- tions. Bryan Haynes (haynesb@bennettjones. com) is a partner and co-chairman of the commercial transactions practice group at Bennett Jones LLP. This column expresses the opinions of the writer, not his firm, and does not constitute legal advice. www. C ANADIAN Law ye rmag.com JULY 2010 17