Executive Summary: Key Legal and Evidentiary Issues

• Dispute over whether a novation by substitution of debtor occurred when the purchaser of the company’s shares agreed privately to guarantee the company’s debts.
• Interpretation of the personal guarantee and separate guarantee agreement, including a contractual cap of $500,000 and clauses stating the guarantee survives changes in office, ownership, and control.
• Application of article 2363 C.c.Q. on suretyship attached to “fonctions particulières” and whether the guarantor’s role as shareholder/president triggered an automatic end to the guarantee on sale of her shares.
• Assessment of the guarantor’s credibility and financial disclosure, including contradictions between her testimony and her signed personal financial statement.
• Evaluation of the bank’s refusal to substitute the new owner as sole guarantor based on his insufficient solvency and absence of any new signed guarantee with the bank.
• Alleged breach of the bank’s duty of information under article 2345 C.c.Q., weighed against the guarantor’s own inaction, assumptions, and failure to update her contact details.

Facts of the case
Banque de Montréal entered into a lending relationship with 9327-5170 Québec inc., a courier and parcel delivery company operating for large clients such as Amazon and FedEx. Under a loan agreement dated 17 September 2021, the bank extended credit to the company through a $100,000 line of credit, a $20,000 BMO Corporate MasterCard, and a $380,000 demand loan, for a total credit facility of up to $500,000. To secure these advances, the bank took a movable hypothec without delivery over the company’s property, insurance on the company’s assets, and a personal guarantee from Kateryna Osipova, then president and shareholder of the company, up to a maximum of $500,000 plus conventional interest and costs. The same day, Ms Osipova also signed a separate document titled “Guarantee for Indebtedness of an Incorporated Company”, under which she personally guaranteed all present and future debts of the company to the bank, up to $500,000 plus interest at three percent above the bank’s prime rate and legal or other recovery costs. She acknowledged that by signing these instruments she was personally assuming responsibility for repayment of the company’s borrowings. The company and the guarantor further agreed to certain covenants, including providing annual financial information to the bank and not changing control or ownership of the company, nor selling the guarantor’s shares, without the bank’s prior written consent.

Subsequent share sale and internal arrangement with the purchaser
In practice, the day-to-day management of the business was largely in the hands of a third party, Yuri Airapetian, despite Ms Osipova holding the title of president and being a shareholder on paper. In March 2023, Ms Osipova and her co-shareholder, Viktor Galenich, sold all their shares in the company to a third-party buyer, Oleg Lavrinenko, for $720,000. In the share sale documentation, particularly an annex to the memorandum of agreement of sale, Mr Lavrinenko agreed as between himself and the sellers to provide a personal guarantee for the company’s debts, including its loans from Banque de Montréal, and to “discharge” the vendors from such commitments. However, this private undertaking involved only the buyer and sellers; the bank was not a party to that agreement and did not participate in negotiating or approving it. The bank only learned of the completed transaction after the fact, on 10 March 2023, when Mr Airapetian emailed the account manager, Michèle Grégoire, informing her that the “official” share sale had taken place and attaching documents, including the sale agreement and the annex describing the buyer’s promise to give a personal guarantee.

Contractual covenants and the guarantee clauses at issue
Two sets of contractual terms were central to the dispute: the change-of-control and share-transfer covenants in the loan agreement, and the survival and scope clauses in the separate guarantee. The credit agreement specifically required that there be no change in the ownership or control of the company and that Ms Osipova not dispose of her shares without the bank’s prior written consent. The share sale proceeded without that consent, and the bank later treated this as a default under the loan. In the guarantee document, the parties went further and expressly addressed the effect of changes in the guarantor’s role and in the company’s structure. One key clause stated that the guarantee would remain in effect despite any change in the circumstances that had led the undersigned to execute it, and “notwithstanding the termination of or a change in the office or duties” of the guarantor or any change in her relationship with the company. Another clause provided that no change in the name, objects, capital stock, ownership, control, or constitution of the company would affect the guarantor’s liability with respect to transactions occurring before or after such changes. These provisions were directly at odds with the guarantor’s later argument that her obligations should have automatically ended when she sold her shares and ceased to be president.

Developments after the share sale and the bank’s reaction
Before the share sale, in autumn 2022, Ms Grégoire had conducted an annual review of the company’s credit file, including the guarantor’s financial situation. Ms Osipova had confirmed she still had assets exceeding the $500,000 guarantee cap and had previously provided a signed personal financial statement indicating net assets of about $880,000, an important element in the bank’s assessment of her creditworthiness as a guarantor. During that review, Ms Osipova proved unable or unwilling to provide all requested financial documents and referred the bank to Mr Airapetian, who then mentioned that a sale of the business was a possibility but not yet concrete. Ms Grégoire asked that she be contacted again if and when a sale materialized, as the bank would need full details. There was no follow-up before closing; the bank was not consulted or asked for consent prior to the completion of the share sale on 4 March 2023. Only days later did the bank receive the email confirming that the transaction had already occurred, in apparent breach of the loan covenants. After reviewing the documents, Ms Grégoire, acting in good faith, explored with Mr Airapetian and then with Mr Lavrinenko the possibility of adding the latter as an additional personal guarantor. She requested his balance sheet, tax returns, and other financial information for credit analysis. Once she had those materials, the bank decided it was prepared to add Mr Lavrinenko as a second guarantor but would not release Ms Osipova because his asset position was inadequate to replace her as the sole personal guarantor for the company’s substantial indebtedness. When informed of this decision, Mr Lavrinenko rejected the proposed arrangement, insisting that he would only agree if the bank fully released Ms Osipova, and he refused to sign any guarantee in favour of the bank. Over the same period, the bank noticed suspicious transactions in the company’s account, including duplicate cheque deposits leading to an overdraft of about $15,000. When asked to cover the overdraft, Mr Lavrinenko declined, linking his cooperation to the bank’s willingness to liberate Ms Osipova and name him as the only guarantor. Ultimately, the bank never received a signed guarantee from him.

Default, proceedings, and the issues at trial
The company later defaulted under the loan agreement, and in November 2023 the bank issued a formal demand letter placing it in default and requiring repayment of the outstanding indebtedness. The admitted unpaid balance stood at $422,772.24 as of 31 March 2023, around the time of the share sale, and had risen to $558,685.53 in principal and conventional interest by 20 February 2026. In September 2024, Banque de Montréal commenced an action against both the company and Ms Osipova, claiming $482,403.31 jointly and severally under the credit agreement and her guarantee. In April 2025, the bank obtained a default judgment against both defendants, but in October 2025 the Superior Court granted Ms Osipova’s application for retraction of judgment in part, setting aside the judgment only as it applied to her. The action therefore continued solely against her, with liability for the company already established. At trial, she admitted signing both the credit and guarantee documents but raised three principal defences: that there had been novation by substitution of debtor when Mr Lavrinenko agreed to guarantee the debts, extinguishing her obligations; that the guarantee had ended when she sold her shares and ceased to be president, under the Civil Code provisions on suretyship tied to “fonctions particulières”; and that the bank had breached its duty of information by failing to inform her that it refused to substitute the new owner as sole guarantor.

Analysis on novation by substitution of debtor
The court first addressed the alleged novation under articles 1660 and 1665 C.c.Q., which allow an obligation to be extinguished and replaced by a new one, including by substituting a new debtor and releasing the original. Drawing on doctrinal authorities and case law, the judge recalled that novation does not presume itself; the intention to effect it must be evident, and the party alleging novation bears the burden of proof. For a novation by substitution of debtor, there must be a prior obligation, a new obligation that differs from the first, a clear intention of the creditor to accept the new obligation in place of the old and release the former debtor, and capacity to contract. A mere agreement between the original debtor (or guarantor) and a third party, without the creditor’s clear consent to discharge the original obligor, is not novation but at most an imperfect delegation or internal arrangement. Applying these principles, the court found that no new obligation binding the bank and Mr Lavrinenko had ever been created, as he never signed a guarantee in favour of the bank. The only promise he made was in the annex to the share sale agreement, between himself and the sellers, to provide a personal guarantee and to discharge them internally. That private undertaking could not, without the bank’s participation, replace the contractual guarantee that Ms Osipova had given directly to the bank. The court also rejected the idea of an implicit novation based on the bank’s conduct. Far from expressing a clear and unequivocal intention to release Ms Osipova, the bank consistently declined to do so after its credit department assessed the buyer’s financial situation and judged him insufficiently solvent to stand alone as guarantor. There was no reason for the bank to relinquish a stronger guarantor in favour of a weaker one, and no evidence that it had agreed to extinguish its original rights. The silence or inaction argued by the defence could not amount to the kind of unambiguous renunciation of rights required to establish novation.

Effect of the sale of shares and “fonctions particulières”
The court then turned to the argument that the guarantee ended automatically when Ms Osipova ceased to be shareholder and president. Under article 2363 C.c.Q., a suretyship that is attached to the performance of particular functions ends when those functions cease. To invoke this protection, however, the guarantor must prove that at the time of contracting she occupied specific functions in the debtor entity, that her guarantee was attached to those functions, and that she left those functions before the emergence of the debts for which she seeks to be discharged. This rule is not of public order; parties can contract out of it in the guarantee itself. On the evidence, the court held that Ms Osipova had not discharged her burden. Her own testimony, describing herself as a “name-only” shareholder and president, largely disconnected from the operation of the business and delegating almost all dealings with the bank to Mr Airapetian, undermined the idea that the guarantee was meaningfully “attached” to her corporate functions. She gave only superficial evidence of the circumstances in which she signed the guarantee and could point to no discussions or contractual language indicating that her obligations as guarantor were conditioned on her continuing in those roles. More fundamentally, the guarantee expressly provided that it would remain in effect regardless of changes in the guarantor’s office, duties, or relationship with the company, and that modifications to the company’s ownership, control, or constitution would not affect her liability for indebtedness incurred before or after such changes. Given that article 2363 C.c.Q. is suppletive, these clear clauses validly excluded its effect. The court thus concluded that the share sale on 4 March 2023 did not terminate her guarantee; it remained in force up to the contractual limit of $500,000 until complete performance of the company’s obligations.

Assessment of the bank’s duty of information
Finally, the court examined the allegation that Banque de Montréal had breached its duty of information under article 2345 C.c.Q. That article obliges the creditor, at the request of the surety, to provide useful information regarding the content and terms of the principal obligation and its state of performance. Jurisprudence has consistently interpreted this provision as creating a duty to answer questions when asked, not a general, proactive obligation to keep the guarantor informed absent a request. Moreover, a breach of this duty will only support a partial or complete defence if the guarantor proves both the breach and resulting prejudice. In this case, there was no evidence that Ms Osipova ever asked the bank for information about whether Mr Lavrinenko had in fact been substituted as guarantor or whether she had been released. She admitted she never received any written confirmation of a release from the bank yet made no inquiry; instead, she relied entirely on what Mr Airapetian allegedly told her, without seeking verification or documentation. After the share sale, she had no direct communication with the bank and did not update her residential address, which complicated service of the demand letter and the initiating proceedings. Against that background, the court found no breach of the duty of information: the bank had not refused any request for information because none had been made, and nothing in its conduct could reasonably have led her to believe she had been discharged. Even if one assumed a shortcoming in communication, the court held that she had not demonstrated any specific prejudice flowing from it, given that her assumption of release was based on her own inaction and blind reliance on third-hand assurances rather than on anything the bank had represented or concealed.

Ruling and financial consequences
Having rejected all of Ms Osipova’s defences, the Superior Court upheld the bank’s claim on the guarantee. It held that the suretyship was valid and continuing, that no novation by substitution of debtor had taken place, and that the contractual terms of the guarantee overrode any argument based on the automatic termination of a function-based suretyship. While the admitted indebtedness of the company stood at $558,685.53 as of 20 February 2026, including conventional interest, the court limited the judgment against the guarantor to the $500,000 cap specified in the guarantee, together with conventional interest from 21 February 2026 and the additional indemnity under article 1619 C.c.Q. from 31 July 2025, plus judicial costs, whose exact amount could not be precisely quantified on the face of the judgment. In the result, Banque de Montréal emerged as the successful party, obtaining a solidary condemnation against Ms Osipova for $500,000, in addition to interest, indemnity, and costs, alongside the earlier default judgment already rendered against the company.