Habitation Apartments Ltd. borrowed $5,000,000 from the Good Times Bank and secured the loan by way of a
three-year mortgage on its apartment building. The bank demanded additional security for the loan, and
Simple, the president of the corporation, personally guaranteed repayment of the loan.
Several years later, as a result of a dispute between shareholders, Simple was voted out of office as president
along with most of the Board of Directors, and a new president and Board of Directors were selected by the
shareholders. During the months that followed, the new president and Board of Directors reorganized the
corporation’s operations. As a part of the reorganization, it was necessary for the corporation to rearrange its
mortgage loan with the bank. The bank agreed to extend the loan for a further three-year term but at a higher
interest rate. Simple, who was still a shareholder of the corporation, was unaware of the new refinancing
arrangement the corporation had made with the bank.
A year later, as a result of tenant problems and a high vacancy rate, the corporation was unable to meet its
mortgage payments, and the mortgage went into default. When the corporation failed to pay the mortgage, the
bank turned to Simple and demanded payment under the guarantee.
Discuss the rights of the parties in this case and explain the possible outcome if the bank should take legal
action against the corporation and the guarantor.