COURT OF APPEAL FOR ONTARIO
LASKIN, ROSENBERG AND LAFORME JJ.A.
B E T W E E N :
UPPER VALLEY DODGE CHRYSLER LIMITED
Nicholas D.C. Holland for the appellant
Appellant
- and -
ESTATE OF MARCEL CRONIER, JACQUELINE CRONIER, MARCEL CRONIER TRUCKING LIMITED, F. ALLAN HUCKABONE and HUCKABONE, SHAW, O’BRIEN, RADLEY-WALTERS and REIMER
John E. Summers and H. Kritsch for the respondents and cross-appellants Estate of Marcel Cronier, Marcel Cronier Trucking Limited and Jacqueline Cronier
Eric Williams For the respondents
Respondents
Heard: October 31, 2005
On appeal from the judgment of Maranger J. of the Superior Court of Justice dated May 27, 2004 made at Ottawa, Ontario.
BY THE COURT:
A. OVERVIEW
1The transaction giving rise to these two appeals took place in Pembroke in 1988.
2William Morglan, the owner of Upper Valley Dodge Chrysler Limited, agreed to loan $160,000 to Marcel Cronier Trucking Limited at an interest rate of 14 per cent per annum. As security for the loan, Cronier Trucking gave a chattel mortgage against the equipment it owned and a mortgage against real property which was owned by Marcel Cronier and his wife, Jacqueline Cronier, and which included the matrimonial home.
3The purpose of the loan was to consolidate a $90,000 debt already owing by Cronier Trucking to Upper Valley and various debts to other creditors, and to assist in financing a potentially lucrative federal government contract Cronier Trucking had obtained.
4The respondent law firm acted on both sides of the transaction. The senior partner, Allan Huckabone, acted for Upper Valley and Morglan who had been clients of his for many years. Another partner in the firm, Grant Radley-Walters, acted for the Cronier interests, as he had done for the previous decade.
5The loan soon went into default. However, no doubt at least in part because of the long personal relationship between Morglan and Marcel Cronier, Upper Valley did not begin this litigation until 1998, a year after Marcel Cronier had died. Initially, Upper Valley sued only the Cronier defendants. Its claim was based on default in its two pieces of security: the chattel mortgage and the real property mortgage.
6The Cronier defendants delivered a statement of defence. In the statement of defence, Jacqueline Cronier pleaded unconscionability, undue influence, and non est factum. She alleged that she did not receive independent legal advice before signing the mortgage and that neither the mortgage nor the risk of signing it was explained to her.
7Jacqueline Cronier’s defence prompted Upper Valley to amend its statement of claim and to sue the respondent law firm and Huckabone. It alleged that Huckabone and the law firm were negligent and in breach of their fiduciary duty in failing to ensure that Jacqueline Cronier had independent legal advice and that she understood the nature of the mortgage she was signing. In turn, the Cronier defendants amended their statement of defence to assert a cross-claim against the law firm, essentially making the same allegations against the firm as had Upper Valley.
8By judgment dated May 27, 2004, Maranger J. ordered the Cronier defendants to pay Upper Valley the sum of $296,551.78, inclusive of pre-judgment interest. However, he dismissed both the claim and the cross-claim against Huckabone and the law firm. It is from these dismissals that Upper Valley and the Cronier defendants appeal.
B. Upper Valley’s Appeal
9Upper Valley argued four issues on appeal.
- Conflict of Interest
10Upper Valley submits that by acting on both sides of this loan transaction, the law firm put itself in a position of irreconcilable conflict. On this ground alone, Upper Valley argues, it is entitled to judgment against the law firm for the amount of its loan. We do not agree.
11The trial judge considered but rejected Upper Valley’s claim that the law firm had put itself in a position of conflict. Instead, he concluded that no conflict arose largely because the two parties, Morglan and Cronier, had agreed on the terms of the transaction before they sought legal advice. They had gone to Huckabone and Radley-Walters simply to “paper” the transaction. In the trial judge’s words at para. 42 of his reasons:
In my view the examination of this issue has to be considered in its proper context. This matter occurred in a small Town in 1988. The lawyers involved had represented each client for a number of years. It was accepted practise in this community to act on both sides of a transaction of this type. This transaction was not a complex matter. The lawyers were not cognisant of an old account of the Croniers when rendering the services. The parties to this loan were not in a situation of conflict at the time the deal was closed. The terms of the security being provided were not negotiable. The house was either mortgaged or there was no loan. It became a condition precedent. By the time Allan Huckabone was retained it was not a situation of conflict but simply the implementation of an agreement.
12Lawyers and law firms must, of course, be wary of acting on both sides of a transaction. The law reports contain many cases where acting on both sides gives rise to a disqualifying conflict of interest. However, we think that on the record before him, it was open to the trial judge to find that no conflict arose requiring separate representation. We therefore decline to interfere with it.
- Failure to advise of the real risk
13Jacqueline Cronier was required to sign the mortgage on the real property, which was being given as partial security for the loan. Therefore, Huckabone properly advised his client Morglan that he should not advance the funds unless Jacqueline Cronier obtained independent legal advice. Morglan rejected his lawyer’s advice. The trial judge accepted Huckabone’s evidence – which was supported by his contemporaneous notes – that Morglan said he would take his chances in court.
14On appeal, Upper Valley argues that Huckabone understated the real risk in proceeding without ensuring that Jacqueline Cronier had independent legal advice. Apparently Huckabone thought that the mortgage being given by Marcel and Jacqueline Cronier covered only the lot on which their home was located. In fact, this lot was contiguous to three other lots owned by the Croniers, which they used for various other purposes. The mortgage had to be given, and was given, over all four lots, not just the lot on which the house was situated. Huckabone knew the true state of the title before closing, but apparently did not advise Morglan of any change in the risk of proceeding without independent legal advice for Jacqueline Cronier.
15We do not think that any further advice would have deterred Morglan from proceeding with the transaction. The evidence is overwhelming that he wanted to advance the money, principally because he would become a secured instead of an unsecured creditor. Moreover, the principal security he was looking to in order to protect his loan was not the real property mortgage but the chattel mortgage over the equipment. Upper Valley’s argument must therefore fail on the issue of causation.
- Compound Interest
16The trial judge rejected Upper Valley’s claim for compound interest, and reduced the 14 per cent interest rate under the loan to the rate provided in the Courts of Justice Act. He did so for two reasons: Upper Valley’s delay in bringing the action, a delay he considered “commercially unreasonable,” and Upper Valley’s failure to provide a proper accounting over the years.
17On appeal, Upper Valley contends that the trial judge erred in failing to award compound interest. We do not accept this contention. The loan went into default nine months after it was made, yet Morglan took no action to collect the debt for nine years, all the while letting interest accumulate at 14 per cent per annum. We think that it was within the trial judge’s discretion to make the interest award that he did. Accordingly, we decline to give effect to this ground of appeal.
- Costs
18The trial judge ordered Upper Valley to pay the law firm its costs of the trial on a partial indemnity basis. He rejected Upper Valley’s arguments that it was reasonable to add the law firm as a defendant and that therefore it should not pay the law firm’s costs. Upper Valley renews this argument on appeal.
19The trial judge recognized the validity of Upper Valley’s arguments, but concluded that “they do not displace the more important consideration of the result achieved at the end of this trial.” This was a proper exercise of the trial judge’s discretion on costs. We see no basis to interfere with it. Thus this ground of appeal also fails.
C. Croniers’ Appeal
20Both Jacqueline Cronier’s mental health and her illiteracy were issues at trial. Her counsel advanced defences of non est factum, unconscionability, and ineffective legal representation. The trial judge did not give effect to any of these defences.
21On the basis of expert and other evidence, he found that Mrs. Cronier had “the requisite mental capacity” to execute the mortgage documents and thus he rejected her plea of non est factum. He found that there was nothing unfair about the loan transaction. In doing so, he noted that a 14 per cent interest rate from a private lender in 1988 was “within the realm of reasonable.” Finally, the trial judge found that Grant Radley-Walters was a meticulous solicitor, and that he both carefully explained the mortgage to Mrs. Cronier and recommended she obtain independent legal advice. She, however, refused to do so. Although Mrs. Cronier challenged these findings on appeal, they are well supported by the record and we defer to them.
22Jacqueline Cronier’s principal argument on appeal is that the trial judge erred in failing to hold that she should not be held liable on the mortgage because the law firm failed to insist on her obtaining independent legal advice. In other words, she contends that hers was a case where it was not enough for the law firm to advise her to obtain independent legal advice; it had to insist and ensure that she do so.
23Jacqueline Cronier did not want to give a mortgage as security for the loan. Her husband could have sold the equipment that the trucking company owned and dispensed with the need for a loan altogether, but he was unwilling to do so. On the other hand, Upper Valley would not advance the money without the security of both a chattel mortgage and a real property mortgage. Mrs. Cronier eventually capitulated and signed the mortgage.
24Although it obviously would have been better had Jacqueline Cronier obtained independent legal advice before signing the mortgage, on the basis of the trial judge’s findings of fact and the record before us, we are persuaded that even if she did obtain independent legal advice she would have nonetheless signed the mortgage so that her husband and his company could obtain the loan. Thus this argument must fail, as did Upper Valley’s principal argument, on the issue of causation.
25The trial judge recognized the desirability that Jacqueline Cronier obtain independent legal advice. As he said, “I have little difficulty in agreeing with the view of both experts, that ideally Mrs. Jacqueline Cronier should have received independent legal advice.” However, he then considered whether her doing so would have made a difference. He concluded that it would have made no difference. Even if she had obtained independent legal advice she would have gone through with the loan. The loan benefited her family and the family’s livelihood. It allowed the family’s debts to be consolidated, and it provided extra money for the federal government contract. In short, the loan was a significant benefit, not just to Mr. Cronier but also to Mrs. Cronier.
26In the following paragraph of the trail judge’s reasons, he sets out his important findings on this issue:
In this case, Mrs. Jacqueline Cronier needed this loan. She received a direct benefit. Mrs. Cronier and Mr. Cronier both owed Upper Valley Dodge Chrysler Limited about $90,000.00. The mortgage loan was, in part, being obtained to retire that debt. A series of creditors were demanding payment. Grant Radley-Walters successfully used rapid repayment as a tool to reduce the total obligation. Furthermore, the loan in question was also to obtain financing in order to obtain a contract for the family-run business. The evidence was clear that Mrs. Cronier derived a livelihood together with her husband and their daughter from the Cronier family business. Although, she did not have a direct interest in the business (i.e. she did not co-own the business with her husband) she was nonetheless involved in its day-to-day operation. This is not a case of someone putting up their house for someone else’s clearly foolhardy loan, this is a case where the individual in question had a vested interest in obtaining a loan to consolidate and potentially reduce an overwhelming debt load. It is more probable than not that Mrs. Cronier would have gone through with this loan even with the benefit of independent legal advice.
27These findings are unassailable on the record. So too is the trial judge’s companion finding that Jacqueline Cronier failed to make out undue influence. We therefore do not give effect to her principal ground of appeal.
D. CONCLUSION
28We dismiss both appeals. Huckabone and the law firm are entitled to their costs of each appeal. The parties agreed on costs to the winning side of $15,000.00 inclusive of disbursements and GST. In accordance with this agreement, Upper Valley and the Cronier defendants will each pay the respondents $7,500.00 for the costs of their appeal.
