AGF Trust Company v. Muhammad et al. [Indexed as: AGF Trust Co. v. Muhammad]

73 O.R. (3d) 767

[2005] O.J. No. 1

Docket: C40678

Court of Appeal for Ontario,

Catzman, Doherty and Armstrong JJ.A.

January 5, 2005

• Application for leave to appeal to the Supreme Court of Canada was dismissed with costs June 23, 2005 (major, Fish and Abella JJ.)

Mortgages -- Guarantee -- Guarantor signing mortgage document which stated in unambiguous guarantee provision that guarantee would continue and be binding on guarantor, before and after maturity, until moneys secured were fully paid -- Mortgagor and mortgagee agreeing to renew mortgage -- Mortgagor forging guarantor's signature on renewal agreement -- Mortgagor defaulting and mortgagee selling mortgaged property under power of sale and suing guarantor for deficiency -- Guarantor liable -- Effect of guarantee clause signed by guarantor being that she was bound as guarantor until moneys originally advanced had been paid and satisfied.

The appellant's husband gave a mortgage to the respondent to secure repayment of a loan. The appellant joined in the mortgage document as guarantor of her husband's obligation to repay the loan. The clause of the mortgage which set out the provisions relating to the guarantor stated that the guarantee "shall continue and be binding on the Guarantor and as well after as before default and as well after as before maturity of this Charge, until the moneys hereby secured are fully paid and satisfied and all Obligations are performed". When the mortgage matured, the appellant's husband and the respondent agreed on additional time to pay and a lower rate of interest. The husband sought the appellant's consent to sign as guarantor. When she declined, he forged her signature to the renewal agreement. The respondent had no knowledge of the forgery. The mortgage went into arrears. The respondent sold the property under power of sale and sued the appellant for the deficiency. The trial judge granted judgment against the appellant. The appellant appealed.

Held, the appeal should be dismissed.

The guarantee clause was clear and unambiguous. The effect of that clause was that the appellant was to be bound as guarantor until moneys originally advanced had been paid and satisfied. This was not a case where the guarantee clause applied only to extensions and not to renewals, so that the appellant would have had to give her explicit consent to a renewal. The guarantee in this case indicated that the appellant agreed to be bound regardless of changes in the terms of the mortgage and regardless of whether or not the respondent insisted on immediate payment by the mortgagor on maturity of the mortgage.

APPEAL by a guarantor from a judgment for a mortgagee in action against a guarantor for deficiency.

Bank of Montreal v. Negin (1996), 1996 1548 (ON CA), 31 O.R. (3d) 321, [1996] O.J. No. 4194 (C.A.), apld [page768] Manulife Bank of Canada v. Conlin, 1996 182 (SCC), [1996] 3 S.C.R. 415, [1996] S.C.J. No. 101, 30 O.R. (3d) 577n, 139 D.L.R. (4th) 426, 203 N.R. 81, 30 B.L.R. (2d) 1, 6 R.P.R. (3d) 1, distd Laurentian Bank of Canada v. Laurina Investments Ltd., 1999 18701 (ON CA), [1999] O.J. No. 4027, 128 O.A.C. 223 (C.A.), affg [1998] O.J. No. 1167, 17 R.P.R. (3d) 21 (Gen. Div.); Citadel General Assurance Co. v. Iaboni (2004), 2004 1525 (ON CA), 71 O.R. (3d) 817, [2004] O.J. No. 2912, 188 O.A.C. 175, 241 D.L.R. (4th) 128, 21 R.P.R. (4th) 164 (C.A.); Tkachuk v. Boettger, [2001] O.J. No. 5184, [2001] O.T.C. 957 (S.C.J.), consd Other cases referred to Bates v. Bates (2000), 2000 14734 (ON CA), 49 O.R. (3d) 1, [2000] O.J. No. 2269 (C.A.)

Howard W. Reininger, for respondent. Alfred S. Schorr, for appellant.

CATZMAN J.A.: --

The Appeal

[1] The appellant's husband borrowed money from the respondent trust company. He gave a mortgage to secure repayment of the loan. The appellant joined in the mortgage document as guarantor of her husband's obligation to repay the loan. When the mortgage matured, the appellant's husband and the respondent agreed on additional time to pay and a lower rate of interest. The husband sought the appellant's consent to sign as guarantor and, when she declined, he forged her signature to the renewal agreement. The respondent had no knowledge of the forgery.

[2] The husband defaulted on payment of the loan. The respondent sold the mortgaged property under power of sale and sued the appellant for the deficiency. Marshall J. gave judgment for the respondent. This is an appeal from his decision.

[3] For the reasons set out below, I would dismiss the appeal.

The Facts

[4] In 1992, Dil Muhammad arranged a first mortgage with the respondent, AGF Trust Company ("AGF"). The mortgage security was a commercial property, owned by Dil Muhammad, on which he operated a government-funded nursing home for mentally handicapped adults. The mortgage term was five years, and the interest rate was 10.25 per cent. Payment was guaranteed by Dil Muhammad's wife, Zubaida Muhammad ("the appellant"). She received independent legal advice before signing as guarantor. [page769]

[5] In 1997, Dil Muhammad sought to transfer the property and to assign the mortgage to a third party. AGF did not accept the proposed assignee. It offered Dil Muhammad a number of renewal options, including a renewal for five years at a reduced interest rate of 7.5 per cent.

[6] It was a condition of the renewal that the mortgage renewal document was to be signed by the appellant as guarantor. Dil Muhammad sought the appellant's consent, but she refused. He then forged her name to the renewal document. The respondent was unaware that the appellant had not signed the document, and it is common ground that, had the respondent known that she had not done so, it would not have renewed the mortgage.

[7] The nursing home fell on hard times. In 1999, the mortgage went into arrears and AGF proceeded to enforce its security. It appointed a receiver and ultimately sold the property under power of sale. There was a substantial shortfall, in large part because of the cost of carrying the property until its sale. The amount of the shortfall, excluding interest, was $376,765.45.

The Terms of the Mortgage Guarantee

[8] Clause 8 of the mortgage set out the provisions relating to the guarantor. The relevant provisions read:

8. Guarantee

If a person is named as a guarantor in this Charge, then it being a condition of the making of the Loan that the covenants hereinafter set forth should be entered into by such person (the "Guarantor"), the Guarantor, on behalf of himself, his heirs, executors, administrators, successors and assigns, in consideration of the advance in whole or in part of the Principal Amount hereby covenants, promises and agrees that:

(o) as principal obligor and not as surety, he shall pay to the Chargee all principal monies, interests and other monies owing by the Chargor on the security of this Charge and shall observe, perform and keep all obligations, covenants and agreements of the Chargor contained in this Charge and the Security (such obligations, covenants and agreements being hereinafter collectively called the "Obligations"). The Guarantor covenants with the Chargee that if the Chargor shall at any time make default in the punctual payment of any monies payable hereunder or in the observance or performance of any of the Obligations, the Guarantor shall pay all such monies to the Chargee and shall perform all such Obligations without any demand being required to be made and shall indemnify and save harmless the Chargee from any losses, costs, expenses or damages arising from the breach or non-performance of any such Obligations; [page770]

(p) the provisions of this section are unconditional and absolute and that, although as between the Guarantor and the Chargor the Guarantor is only surety for the payment by the Chargor of the monies hereby secured and for the performance of the Obligations, as between the Guarantor and Chargee the Guarantor shall be considered as primarily liable therefor, and that no release or releases of the Property or of the Chargor and no indulgence shown by the Chargee in respect of any default by the Chargor or by any successor that may arise under this Charge and no extension and extensions granted by the Chargee to the Chargor or to any successor for payment of the mortgage monies hereby secured or for the doing, observing or performing of any covenant, agreement, matter or thing contained herein or in any of the Security to be done, observed or performed by the Chargor or by any successor, nor any variation in or departure from the provisions of this Charge, nor any other dealings between the Chargor or any successor and the Chargee, nor any release of the Chargor or any other thing whatsoever whereby the Guarantor as surety only would or might have been released whether by operation of law or otherwise, nor any acceptance of additional security from the Chargor, shall in any way modify, alter, vary or in any way prejudice the Chargee or affect the liability of the Guarantor in any way under this covenant, which shall continue and be binding on the Guarantor and as well after as before default and as well after as before maturity of this Charge, until the monies hereby secured are fully paid and satisfied and all Obligations are performed;

(v) the Chargee may vary any agreement or arrangement with the Guarantor and grant extensions of time to or otherwise deal with him without any consent on the part of the Chargor; . . .

The Judgment at Trial

[9] At trial, Marshall J. granted judgment for AGF against the appellant. He held that the effect of the guarantee clause that the appellant had signed was that she was to be bound as guarantor until the moneys originally advanced had been paid and satisfied.

[10] In reaching this conclusion, he relied on three cases in which guarantors were held to be liable in circumstances similar to those in this case: Bank of Montreal v. Negin (1996), 1996 1548 (ON CA), 31 O.R. (3d) 321, [1996] O.J. No. 4194 (C.A.); Laurentian Bank of Canada v. Laurina Investments Ltd., [1998] O.J. No. 1167, 17 R.P.R. (3d) 21 (Gen. Div.), affd 1999 18701 (ON CA), [1999] O.J. No. 4027, 128 O.A.C. 223 (C.A.); and Tkachuk v. Boettger, [2001] O.J. No. 5184, [2001] O.T.C. 957 (S.C.J.). He then concluded:

Considering the authorities, the specific clause and the evidence before me, I would follow the authorities that I referred to. I see nothing in this case that would extinguish the liability of Zubaida Muhammad as guarantor under the original agreement which she did sign after receiving independent legal advice. [page771]

The Cases

(a) Manulife Bank of Canada v. Conlin

[11] In this court, the appellant relied principally on a case not cited in the trial judge's reasons. That case is the decision of the Supreme Court of Canada in Manulife Bank of Canada v. Conlin, 1996 182 (SCC), [1996] 3 S.C.R. 415, [1996] S.C.J. No. 101. In Manulife, a husband signed as guarantor for his wife's mortgage. The mortgage was for a term of three years at an interest rate of 11.5 per cent. Shortly before the mortgage was to mature, the wife and the mortgagee executed an agreement renewing the mortgage for a further three-year term at a higher rate of interest of 13 per cent. The form of renewal provided space for the signature of the guarantor, but the husband did not sign it. The mortgage fell into default, and the mortgagee sued both the wife as mortgagor and the husband as guarantor. The mortgagee obtained summary judgment against both but, on appeal, this court set aside the judgment against the guarantor and dismissed the action against him. A further appeal by the mortgagee to the

Supreme Court of Canada was dismissed.

[12] The decision in Manulife turned on the characterization of the agreement reached between the mortgagor and mortgagee when the original term was about to expire and on the language of the guarantee. The guarantee and indemnity clause in the mortgage referred only to extensions, whereas a separate renewal clause in the same document differentiated between renewals and extensions. The majority of the court held that (1) the agreement reached was a renewal, not an extension, and that (2) the guarantee and indemnity clause applied only to extensions and not to renewals. In order for the guarantor to be bound by a renewal agreement, the husband would have had to give his explicit consent to a renewal. As he had not done so, the claim against him failed.

(b) The cases cited by the trial judge

[13] Manulife was considered - but not applied - in the three cases cited by the trial judge in his reasons for judgment. All three concerned the liability of a guarantor of an indebtedness secured by mortgage. All three turned on a guarantee clause that was virtually identical to the guarantee clause in the present case. None of the three turned on the distinction between a renewal and an extension. In all three, the guarantor was held liable.

[14] I have appended, as a schedule to these reasons, the relevant language in the guarantee provisions in the three cases and in the present case. [page772]

(1) Bank of Montreal v. Negin

[15] In Bank of Montreal v. Negin, supra, the mortgage was extended for a period of six months beyond its original maturity date at a reduced rate of interest. The guarantor refused to consent to the extension. When the mortgage was not paid, the bank sued the guarantor and obtained summary judgment against him. The guarantor appealed to this court.

[16] The appeal was argued before the decision of the Supreme Court in Manulife, but judgment was reserved to await the release of the reasons in that case. Speaking for this court, McKinlay J.A. said of Manulife, at pp. 325-26 O.R.:

. . . in this case, the guarantee provisions of the mortgage are clear and unambiguous.

In the Manulife case, terms involving extension of time to pay and amendment of other terms of the mortgage were dealt with in a separate clause in the mortgage, not in the guarantee provisions. In that sense, the Manulife case was an unusual one.

This case is much different. There are numerous words in the guarantee in this case which indicate agreement of the guarantor, whether as guarantor or as primary debtor, to be bound regardless of changes in the terms of the mortgage and regardless of whether or not the bank insists on immediate payment by the mortgagor on maturity of the mortgage. . . . [T]he most compelling words, in my view, are those which state that the liability of the guarantor "shall continue and be binding on the guarantor, and as well after as before default and after as before maturity of this mortgage, until the said mortgage moneys are fully paid and satisfied".

[17] The "most compelling words" to which McKinlay J.A. refers in this extract from her reasons are, for present purposes, identical to the words found at the end of clause 8(p) in the guarantee in the present case.

(2) Laurentian Bank of Canada v. Laurina Investments Ltd.

[18] In Laurentian Bank of Canada v. Laurina Investments Ltd., supra, a mortgage for two years at 9.75 per cent was extended for three years at 8.5 per cent. The guarantor consented to the extension, subject to conditions which were not met. When the mortgagor defaulted, the bank sold the mortgaged property and sued the mortgagor and the guarantors for the deficiency. In granting summary judgment against the guarantors, Bellamy J. noted that the guarantee clause in the case before her was identical to the one considered in Bank of Montreal v. Negin and concluded, at paras. 18-19:

The guarantors argue that they should be released from liability on the guarantee because of alleged material changes to the contract (extension of [page773] the term and lower interest rate) which were undertaken without the consent of the guarantors.

In my view, the extension of the mortgage was specifically authorized and contemplated by the original mortgage agreement. I see no ambiguity. There was a guarantee clause in the initial mortgage agreement which, I find, also survived the mortgage extension.

[19] The "most compelling words" of the guarantee provision to which McKinlay J.A. referred in Bank of Montreal v. Negin were, for present purposes, identical to the words found in the guarantee clause in Laurentian Bank.

[20] The decision of Bellamy J. was affirmed, by way of a brief endorsement, by this court: 1999 18701 (ON CA), [1999] O.J. No. 4027, 128 O.A.C. 223 (C.A.). No reference was made in the endorsement to the issue arising on this appeal.

(3) Tkachuk v. Boettger

[21] In Tkachuk v. Boettger, supra, a mortgage for one year at 14 per cent was renewed for a second year on the same terms and conditions. The guarantor was advised of, but refused to guarantee, the renewed mortgage. A prior mortgagee sold the property under power of sale, and no surplus funds remained from the sale to pay towards the mortgage in question. In granting summary judgment against the guarantor, Hambly J. said, at paras. 13-14:

In my view, the Bank of Montreal v. Negin cannot be distinguished from the case before me. In the Bank of Montreal, the terms in the renewed mortgage were more favourable to the mortgagor. In this case, the terms of the renewed mortgage are the same as the original mortgage. More important, the guarantor clause of the mortgages are the same. In particular, the clause which states that the guarantor shall be bound until the mortgage moneys are fully paid and satisfied is identical.

A guarantor may be released from liability on the guarantee in circumstances where the creditor and the principal debtor agree to a material alteration of the terms of the contract of debt without the consent of the guarantor. Also, a guarantor clause on a mortgage will be interpreted strictly against the mortgagee. However, a guarantor may contract out of the protection that is provided to him in common law and equity, as set out . . . in Manulife. That is what [the guarantor] did in this case. [The mortgagees] sought [the guarantor's] agreement to guarantee a renewed mortgage. They did not need it. The guarantee that [the guarantor] gave in the original mortgage was still binding upon him.

[22] Again, the "most compelling words" to which McKinlay J.A. referred in Bank of Montreal v. Negin were, for present purposes, identical to the words found in the guarantee clause in Tkachuk. [page774]

(c) Citadel General Assurance Company v. Iaboni

[23] In the interests of completeness, I should make reference to a recent decision of this court in which Manulife was considered. That case is Citadel General Assurance Co. v. Iaboni (2004), 2004 1525 (ON CA), 71 O.R. (3d) 817, [2004] O.J. No. 2912, 241 D.L.R. (4th) 128 (C.A.).

[24] Citadel General did not involve a claim against a guarantor. Rather, the issue arose in the context of a mortgagor [See Note 1 at the end of the document], a mortgagee and a subsequent transferee of the property. The mortgage had been granted by the mortgagor in 1986. It had a five-year term. In 1987, the mortgagor sold the property to the transferee. In 1991, when the five-year term expired, the mortgagee agreed with the transferee to renew the mortgage for a further five years at a reduced rate of interest. The mortgagor was not notified of the renewal. When the transferee defaulted, the mortgagee sold the property under power of sale and sued the mortgagor for the deficiency. On motion by the mortgagor for summary judgment dismissing the mortgagee's claim, the motion judge held that the agreement between the mortgagee and the transferee was a renewal and not an extension agreement and that the renewal clause did not bind the mortgagor to an agreement of which he had no notice. She granted the mortgagor's motion, and the mortgagee appealed.

[25] The mortgagee's appeal to this court was dismissed. Rosenberg J.A., speaking for the court, held that, when read together, the default clause and the renewal clause in the mortgage made clear that the mortgagor did not remain liable on the covenant once the mortgage was renewed with the transferee without notice to the mortgagor. This was so because the renewal clause distinguished between renewals and extensions and the default clause did not refer to renewals.

[26] Speaking for the court, Rosenberg J.A. noted (at para. 15) there was an important difference between the position of the guarantor in Manulife and that of the mortgagor in Citadel General. While the mortgage in Citadel General contained a guarantor clause, it did not apply to the mortgagor. If the mortgagor had any continued responsibility for the debt, it had to be based on the covenant clause in the mortgage. Thus, Rosenberg J.A. observed (in para. 18) that:

[S]ince the liability of the [mortgagor] in this case does not depend on the equivalent of [the guarantor clause], much of the discussion in Manulife is not applicable to this case. [page775]

[27] With the exception of Manulife, none of the cases relied upon by the trial judge in the present case -- Bank of Montreal v. Negin, Laurentian Bank v. Laurina Investments or Tkachuk v. Boettger -- was considered by the court in Citadel General. I have examined the court file in Citadel General and have confirmed that no reference was made to any of these cases in the factums filed by the parties.

[28] I do not read Citadel General as precluding the result reached by the trial judge in the present case.

The Present Case

[29] Bank of Montreal v. Negin was decided by this court in December 1996, a little over a month after the decision of the Supreme Court of Canada in Manulife. Judgment in Negin was deliberately reserved to await the release of that decision. Upon a consideration of the reasons for judgment and of the language of the guarantee provisions in Manulife, this court distinguished that case and held the guarantor liable under his guarantee in the original mortgage. As I have noted, the relevant provisions of the guarantee in the present case are, for present purposes, identical with those found in the guarantee in Negin.

[30] Counsel for the appellant in the present case did not suggest, either in his factum or in oral argument, that Negin was incorrectly decided. In such circumstances, this court will not readily depart from a previous decision on the same issue: Bates v. Bates (2000), 2000 14734 (ON CA), 49 O.R. (3d) 1, [2002] O.J. No. 2269 (C.A.), at paras. 30-31. It follows, in my view, that this court should apply Negin as conclusive of the issue in this case and that this court is bound to apply it in deciding this appeal.

[31] Although I find that Negin is dispositive of this appeal, I should like to address three submissions made by counsel for the appellant. First, he argued that this case is directly on point with the decision in Manulife. This submission overlooks the fact that, unlike the agreement in Manulife, the mortgage in this case does not contain a separate clause that casts doubt on the certainty of the language in the guarantee clause. In the present case, the terms dealing with extensions of time to pay and the amendment of other terms were all set out in a single guarantee clause.

[32] Second, counsel for the appellant argued that Manulife stands for the principle that the provision of a signature line on a renewal agreement indicates that a guarantor is not waiving her rights to protection, and that he or she must specifically consent to the renewal. In Negin, however, McKinlay J.A. observed (at p. 325 O.R.) that she did not take Manulife to state [page776] that one can use the line in an extension or renewal agreement marked for execution by a guarantor to assist in the interpretation of another document.

[33] Third, counsel for the appellant argued that the agreement between the mortgagor and the mortgagee in the present case was a renewal agreement as opposed to an extension, and that Manulife stands for the proposition that a renewal agreement requires the explicit consent of the guarantor. I do not agree. The reason Manulife distinguished between "renewals" and "extensions" was because, in that case, the guarantee and indemnity clause referred only to "extensions", whereas the renewal or extension of time clause referred both to "renewals" and "extensions". There is no such asymmetry in the present case. Negin, Laurentian Bank and Tkachuk all conclude that the very clause used in the present case is clear and unambiguous.

Disposition

[34] For these reasons, I would dismiss the appeal and affirm the decision of Marshall J. The respondent is entitled to its costs of the appeal. As agreed between counsel, such costs should be fixed in the sum of $7,500, inclusive of disbursements and G.S.T.

Appeal dismissed.

SCHEDULE A

Relevant Language of Guarantee Provisions

Bank of Montreal v. Negin

[the liability of the guarantor] shall continue and be binding on the Guarantor, and as well after as before default and after as before maturity of this mortgage, until the said mortgage moneys are fully paid and satisfied.

Laurentian Bank of Canada v. Laurina Investments Ltd.

[the liability of the guarantor] shall continue and be binding on the Guarantor, and as well after as before default and after as before maturity of this mortgage, until the said mortgage moneys are fully paid and satisfied.

Tkachuk v. Boettger

[the liability of the guarantor] shall continue and be binding on the guarantor and as well after as before maturity of the charge and both before and after default and judgment until the said monies are fully paid and satisfied. [page777]

The Present Case

[the liability of the guarantor] shall continue and be binding on the Guarantor and as well after as before default and as well after as before maturity of this Charge, until the monies hereby secured are fully paid and satisfied and all Obligations are performed.

Notes

Note 1: In fact, there was more than one mortgagor. For simplicity, I have referred to them collectively as "the mortgagor."