Canada: SCC Goes Out of its Way to Over-Rule Cummer-Yonge

Last Updated: April 21 2004
Article by Scott Bell


The decision of the Supreme Court of Canada in Crystalline Investments v. Domgroup (2004), 234 D.L.R. (4th) 513 appears to have ended the longstanding uncertainty in commercial leasing and bankruptcy circles caused by the Ontario High Court's decision in Cummer-Yonge Investments v. Fagot.

For almost 40 years, Cummer-Yonge has stood for the proposition that the disclaimer of a lease in bankruptcy extinguishes the lease obligations of both the bankrupt tenant and any guarantor of those obligations. This result is based on the view that the guarantor’s obligations are "secondary" and rely on the continued existence of the tenant's "primary" obligations. In other words, since the tenant no longer has any obligations under the lease, there are no remaining obligations for the guarantor to guarantee.

In response to Cummer-Yonge, most commercial landlords rewrote their standard lease guarantee to take the form of an indemnity and adapted the language to characterize the guarantor/indemnifier’s obligations as "primary" as opposed to "secondary". Also, these documents go to great lengths to confirm that the guarantor/indemnifier's obligations survive a bankruptcy-related termination of the tenant's obligations under the lease.

The Crystalline Decision

Crystalline considered the Cummer-Yonge principle in the context of a bankruptcy proposal, specifically a proposal under amendments to the Bankruptcy and Insolvency Act that permit a tenant to repudiate a commercial lease in order to reorganize its business. Unlike Cummer-Yonge, however, Crystalline dealt with the post-repudiation liability of the assignor of a lease, not a guarantor.

In Crystalline, the defendant entered into two leases, each with a different landlord in respect of a different property. The defendant subsequently assigned both leases to another corporation. These leases included an assignment clause which provided that the defendant remained fully liable for all obligations under the lease notwithstanding any assignment.

The assignee later became insolvent. Its trustee in bankruptcy filed a notice of intention to make a proposal pursuant to s. 65.2 of the Bankruptcy and Insolvency Act and delivered a notice of repudiation of the leases to the landlords. The landlords declined to exercise their right to object to the assignee's proposal and the court approved it.

Under the bankruptcy proposal, the landlords were paid the amount of compensation required by s. 65.2. The landlords then asserted their right to be paid the balance of the outstanding rent by the assignor (i.e., the defendant) based on the assignment clause in the leases.

The motions judge dismissed the landlords' claims. Relying on Cummer-Yonge, he held that the repudiation terminated the leases for all purposes. Consequently, the liabilities that would have been owed by the defendant also disappeared. The Ontario Court of Appeal overturned the motion judge's decision and the defendant appealed to the Supreme Court.

Speaking for a unanimous Supreme Court, Major J. held that the repudiation of the leases did not affect the obligations of the defendant under the lease. Specifically, he held that nothing in the Bankruptcy and Insolvency Act protected third parties, such as assignors, from the consequences of an insolvent assignee's repudiation of a commercial lease. Based on the assignment clauses in the leases, the defendant was liable for the lease obligations even though the leases had been assigned.

The court did find, however, that the defendant was entitled to exercise its common law right of indemnification against the insolvent assignee (albeit as an unsecured creditor).

Impact on Cummer-Yonge

While the court was only required to consider the post-repudiation liability of an assignor (not a guarantor) in Crystalline, Major J. went on to consider the decision in Cummer-Yonge. He stated at para. 39:

Cummer-Yonge has created uncertainty in leasing and bankruptcy. Not only have drafters of leases attempted to circumvent the holding in Cummer-Yonge by playing upon the primary and secondary obligation distinction, but the courts have also performed what has been called "tortuous distinctions" in order to reimpose liability on guarantors.

Major J. pointed out that in Cummer-Yonge, the Ontario High Court applied the reasoning of the English Court of Appeal in Stacy v. Hill. He then stated at para. 42:

The House of Lords went on to overrule Stacey v. Hill. In my opinion, Cummer-Yonge should meet the same fate. Post-disclaimer, assignors and guarantors ought to be treated the same with respect to liability. The disclaimer alone should not relieve either from their contractual obligations.

While Major J’s statements are in obiter, there is little doubt that a lower court would feel compelled to follow the guidance offered by the SCC on this issue. Therefore, as a result of Crystalline, landlords and their counsel can take much more comfort that a guarantor or assignor will remain on the hook even if the tenant goes bankrupt and repudiates the lease. Now, the focus will be more squarely on dissecting the actual language of the lease guarantee or assignment clause.

The content of this article does not constitute legal advice and should not be relied on in that way. Specific advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

In association with
Related Topics
Related Articles
Related Video
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions