The Toronto-Dominion Bank v. Valentine et al. [Indexed as: Toronto-Dominion Bank v. Valentine]

61 O.R. (3d) 161

[2002] O.J. No. 3487

Docket No. C34591

Court of Appeal for Ontario,

Finlayson, Doherty and MacPherson JJ.A.

September 13, 2002

• Application for leave to appeal to the Supreme Court of Canada was dismissed April 17, 2003 (Iacobucci, Binnie and LeBel JJ.). S.C.C. File No. 29452. S.C.C. Bulletin, 2003, p. 642.

Banks and banking -- Demand for payment of loan -- Bank's improper calculation of monthly interest payments leading to apparent loan default -- Bank demanding repayment of loan -- Bank breaching loan agreement -- Insurance for loan cancelled as a result of bank's demand for repayment -- Bank obliged to give notice that a demand for repayment would terminate loan insurance -- In the circumstances, appropriate to order loan and mortgage security discharged.

In January 1990, Margaret Valentine learned that her husband Peter had applied to the Toronto-Dominion Bank (the "Bank") for a $75,000 line of credit to pay personal debts and debts of his construction business. She consulted a lawyer and, on the lawyer's recommendation, Margaret signed a marriage contract in which she agreed to cooperate in obtaining the line of credit, which was to be secured by a second mortgage on the matrimonial home. The day after the loan documentation was signed, including the mortgage, Margaret's lawyer wrote the Bank stating that the marriage contract required that the line of credit be administered through a joint account that required two signatures for cheques. The Bank did not respond to the letter, and the joint account was not set up. In August 1990, the Valentines obtained, through the Bank, life insurance relating to the loan; the insurance proceeds would repay the loan in the event that Margaret or Peter died. It was a term of the insurance that it terminated if the Bank demanded payment of the loan. Also in August, Margaret and Peter signed replacement documentation for the line of credit because the Bank was in the process of changing its forms.

By the end of 1990, the line of credit was in arrears. The arrears were caused because the Bank, instead of taking the minimum monthly payments as it was entitled to do under the terms of the letter of credit, was taking 3 per cent of the outstanding balance at the end of each month. On March 5, 1991, the Bank demanded repayment of the loan and, in June 1991, it commenced power of sale proceedings under the mortgage. In July, Margaret deposited a cheque payable to Peter, and the Bank reinstated the line of credit. In August, Peter died, but the insurance company denied coverage on the basis that the Bank's demand in March had terminated the policy.

The line of credit went into default and, in the summer of 1992, the Bank recommenced power of sale proceedings. Margaret commenced an action for an injunction, and the Bank counterclaimed for payment. The action came to trial and Klowak J. declared the indebtedness and the mortgage discharged. The Bank appealed.

Held, the appeal should be dismissed with costs.

Per MacPherson J.A. (Doherty J.A. concurring): Klowak J. was incorrect in concluding that Margaret was not bound by the loan agreement. The Bank was not in a conflict of interest position with Margaret, who knew how the proceeds of the loan would be used. Her lawyer's letter, which came after the loan documentation had been signed, could not impose terms, and Margaret knew that the Bank had not agreed to the terms. Further, the Bank was not under any duty to ensure that Margaret receive further independent legal advice when she signed the new [page162] forms in August. However, Klowak J. was correct in concluding that the Bank had a duty to give the Valentines notice of the effect of the demand for repayment on the insurance policy. Contrary to the loan agreement, the Bank was taking more than a minimum monthly payment. The result of this error and breach of the loan agreement was the loan agreement was in arrears by March 1991. However, but for the Bank's breach, there would have been no basis for making the demand and, but for the demand, the life insurance would have continued in effect. The Bank's breach of contract led directly to the termination of the life insurance policy. While this conclusion was sufficient to dispose of the appeal, Klowak J. was also correct in concluding that in the circumstances of this case, the Bank had a duty to inform the Valentines that one of the consequences of the demand was the termination of the life insurance on the loan. Accordingly, the appeal should be dismissed.

Per Finlayson J.A. (dissenting): The conduct of the Bank was not responsible for the Valentines' breach of the loan agreement. Peter was not excused from making payments because on an ex post facto analysis it was determined that the interest payments were improperly calculated by the Bank. The error in calculating interest was irrelevant; the loan was already in default and there was sufficient reason to call in the loan. The calculations of the majority in support of its argument that the Bank put the Valentines into overdraft are open to challenge. The Bank could not be faulted for calling the loan. There was no basis for concluding that Margaret Valentine would have ensured that the loan was kept in good standing to protect the life insurance. Under the rules of pleading, it was her responsibility to prove this allegation, and she failed to meet this burden. The submission that the Bank was required to serve a notice of intention to demand the loan was not supportable in law or bank practice. The majority of the court has acted on its own to provide a remedy that Mrs. Valentine had not requested.

APPEAL from a judgment of Klowak J., [2000] O.J. No. 2683 (S.C.J.) declaring debts and a mortgage discharged.

Cases referred to Twardy v. Humboldt Credit Union Ltd. (1985), 1985 2678 (SK QB), 34 C.C.L.T. 140, [1985] 6 W.W.R. 538, 41 Sask. R. 216 (Q.B.) Statutes referred to [Family Law Act, R.S.O. 1990, c. F.3, s. 21](https://www.canlii.org/en/on/laws/stat/rso-1990-