Co-Signer or Guarantor Sued in Ontario: Your Exposure and Your Defences
If a lender is demanding payment from you for someone else’s loan, start with what you signed. A co-borrower owes the whole debt from day one. A guarantor owes what the guarantee says, usually only after the borrower defaults and the lender demands payment from you personally. That distinction decides what you owe, when the limitation clock starts, and which defences you have. Ontario law protects guarantors: the guarantee must be in writing, a material change to the loan without your consent can release you, and a limited guarantee caps your exposure. It also lets lenders draft around most of them, so the document matters more than anything you were told when you signed.
Co-borrower or guarantor? The wording matters more than the label
“Co-signer” is not a legal term; it covers two different arrangements. If you signed the loan or line of credit as a borrower, you are a co-borrower, and loan agreements almost always make co-borrowers liable jointly and severally: the lender can pursue either of you for the whole balance without suing the other first. If you signed a separate guarantee, you promised to answer for another person’s debt, and your liability runs on the guarantee’s terms: what triggers it (usually the borrower’s default followed by a written demand on you), whether it is capped, and whether it covers one loan or all of the borrower’s present and future debts to that lender. Read yours before assuming anything.
A guarantee must be in writing and signed
Section 4 of the Statute of Frauds bars any action to charge a person “upon any special promise to answer for the debt, default or miscarriage of any other person” unless the agreement, or a memorandum of it, is in writing and signed by the person being sued. A verbal promise to cover a relative’s loan is not enforceable as a guarantee. The rule protects guarantors, not co-borrowers, whose debt is their own. The writing need not be formal: the consideration need not appear in it (s. 6), and under the Electronic Commerce Act, 2000, an electronically signed guarantee generally satisfies both requirements. If the lender cannot produce a signed guarantee, say so early; if it can, the fight is over what it permits.
When a guarantor is released, or the exposure is reduced
In Manulife Bank of Canada v. Conlin, a majority of the Supreme Court of Canada confirmed the rule that a guarantor is released when the lender and the borrower agree to a material alteration of the loan without the guarantor’s consent, unless the change is plainly insubstantial or can only benefit the guarantor. A husband had guaranteed his wife’s three-year mortgage at 11.5 per cent; when the bank renewed it at 13 per cent without notice to him, he was released. Ambiguity in a lender’s form is read against the lender, and family guarantors who sign for nothing are held to its precise terms.
But a guarantor can contract out of those protections if the wording is clear, and bank forms do. In Royal Bank of Canada v. Samson Management & Solutions Ltd., the Court of Appeal for Ontario held a spouse to her $250,000 continuing “all accounts” guarantee of her husband’s business even though the operating line was later tripled without her knowledge: the guarantee expressly allowed the bank to advance more, renew, change the interest rate and take or give up security. Two questions, then: was the change material, and does the guarantee clearly permit it? Those clauses usually also cover the lender releasing security, which would otherwise discharge the guarantor to the extent of its value. A limited guarantee is different: if you guaranteed up to a stated amount, that figure, plus interest and costs if the guarantee says so, is the ceiling whatever the borrower went on to owe.
The limitation clock runs from demand, not from the borrower’s default
Most guarantees are demand obligations: the guarantor owes nothing until the lender demands payment. In Bank of Nova Scotia v. Williamson, the Court of Appeal held that the two-year limitation period on a demand guarantee starts with a clear and unequivocal demand on the guarantor, not with the borrower’s default. A 2004 letter saying the bank “will take steps to recover payment from you” if the borrower did not pay was only a courtesy notice; the real demand came in 2007, and the action begun weeks later was in time. The Limitations Act, 2002 now says this expressly for demand obligations created on or after January 1, 2004 (s. 5(3) and (4)). So an old default does not mean a stale claim, and a signed acknowledgment or part payment by you before the period expires restarts it (s. 13). A guarantee that is not worded as a demand guarantee may be treated differently.
Family car loans, a partner’s line of credit, and business borrowing
A parent or sibling who “co-signs” a car loan is almost always a co-borrower: if the vehicle is repossessed and sold, you owe the shortfall, and the lender can come to you first. A joint line of credit with a partner works the same way, and a separation agreement assigning the debt to your ex does not bind the bank; see joint debt after separation in Ontario. Owners routinely guarantee bank loans, leases, supplier accounts and merchant cash advances, and a judgment on the guarantee is enforceable against everything you own personally, including by a writ against your home. The business failing, or the borrower filing for insolvency, does not release you.
The first week after a demand
Gather the guarantee, the loan agreement, every amendment or renewal, statements and the demand letter. Decide whether the letter is actually a demand and note its date; the limitation period, and often interest, run from it. Do not sign an acknowledgment or make a goodwill payment before getting advice; either can restart the limitation clock (s. 13(10) and (11)). Compare the loan as signed with the loan at default: rate, term, limit, security held, any refinancing. Keep a record of anything you pay; a guarantor who pays generally has a claim over against the borrower. If a claim has been served, you have 20 days to file a defence in Small Claims Court (claims up to $50,000), and 20 days to deliver a statement of defence in the Superior Court if served in Ontario, where a notice of intent to defend adds 10 days. See responding to a statement of claim and being sued for debt in Ontario.
Frequently asked questions
Can the lender sue me before it sues the borrower? If you are a co-borrower, yes. If you are a guarantor, it depends on the guarantee; most bank forms allow demand on you as soon as the borrower defaults.
The borrower filed a consumer proposal or went bankrupt. Am I off the hook? No. Under the Bankruptcy and Insolvency Act, a discharge does not release a surety or a person jointly bound with the bankrupt (s. 179), and a consumer proposal does not release anyone the discharge would not (s. 66.28(3)).
I never got independent legal advice. Does that cancel the guarantee? Not by itself. It matters most where a guarantee was signed under pressure or without understanding it, typically between spouses or family members, and can support defences such as undue influence or unconscionability.
Find out what you actually signed
Whether you owe the whole balance, a capped amount, or nothing turns on a few documents and a few dates. Tell us what the lender sent you, and we will work out which you are, whether the loan was changed without your consent, whether the demand and claim were in time, and what a realistic outcome looks like.
Sources: Statute of Frauds, R.S.O. 1990, c. S.19, ss. 4, 6 · Limitations Act, 2002, S.O. 2002, c. 24, Sched. B, ss. 4, 5, 13, 15 · Electronic Commerce Act, 2000, S.O. 2000, c. 17, ss. 5, 11, 31 · Manulife Bank of Canada v. Conlin, 1996 CanLII 182 (SCC), [1996] 3 S.C.R. 415 · Royal Bank of Canada v. Samson Management & Solutions Ltd., 2013 ONCA 313 · Bank of Nova Scotia v. Williamson, 2009 ONCA 754 · Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, ss. 66.28, 179 · Rules of the Small Claims Court, O. Reg. 258/98, r. 9.01 · Rules of Civil Procedure, R.R.O. 1990, Reg. 194, rr. 18.01–18.02. General information for Ontario, not legal advice.
General information for Ontario, not legal advice. Reviewed by Angelos Spingos. Last reviewed September 21, 2026.