ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NOS.: Orangeville 726/08 and 486/10
DATE: January 7, 2014
BETWEEN:
CITI CARDS CANADA INC.
Jeffrey Tighe, counsel for the Plaintiff
Plaintiff
- and -
SUSAN L. ROSS, also known as SUSAN LYN ROSS
Kenneth Watts, counsel for the Defendant
Defendant
AND
BETWEEN:
CITI CARDS CANADA INC.
Jeffrey Tighe, counsel for the Plaintiff
Plaintiff
- and -
KITCHENER SHORT, also known as KITCH SHORT, also known as KITCHENER B. SHORT
Kenneth Watts, counsel for the Defendant
Defendant
HEARD TOGETHER: November 28 and 29, 2013
WEIN, J.
[1] This case involves the payment of amounts owing on a Home Depot credit card. The defendant Ross agrees that she owes the purchase amounts, but argues that the interest rate should be calculated on the basis of the rate in the Courts of Justice Act, which was 3.3 per cent at the time the action was brought. The defendant Short, who is Ms. Ross’ common-law husband, argues that it has not been proven that he was either a co-applicant, joint cardholder or other authorized purchaser, and as such that he is not liable directly to Citi Card for the amounts owing.
[2] I find that both defendants are responsible for the amounts owing, with interest, in accordance with the contract made with CitiBank in 2006.
Undisputed Facts:
[3] In 1999 Ms. Ross applied for and received a credit card from Home Depot. The card was administered by G.E. Cards. In June of 2003, Citi took over the Home Depot credit cards and began to administer the agreement. As early as 2004, Mr. Short, by his own admission, began to use the credit card. It is disputed whether he simply used Ms. Ross’ card or whether he had his own card. The card had a $40,000 limit, and was used up to that amount, and paid off up to and including 2005. However, by 2007, the terms of the agreement, which had most recently been set out in a 2006 version of the Consumer Card Holder Agreement, were breached. Some subsequent payments had been made, but eventually the card was given to Collections and eventually “charged off” on November 23, 2008.
Evidence on Behalf of Citi Card
[4] The head legal collector from Citi Card, Ms. Smith, reviewed the corporate files and testified on behalf of Citi Card. With respect to general procedures, Ms. Smith testified that all customers were notified of any new customer agreement and any change in the interest rate. New cards were issued at the time that the company took over from G.E. in 2003, and new agreements were sent out with every card, although an exact copy of the 2003 agreement is not available. The earliest one that they had available in their files was the 2006 agreement: there is also a subsequent agreement made in 2008. These agreements would be sent out by way of mass mailing to all cardholders by regular mail, along with their statements. There is no specific evidence that the agreement went to Ms. Ross, who was the primary cardholder on the relevant account, but in accordance with the agreement and the Consumer Protection Act, which indicates that the use of the card by the consumer replaces the consumer’s signature, it is clear that legally, as well as from Citi’s perspective, the ongoing use of the card constituted acceptance of the terms after 2003 and 2006.
Amendments
[5] From viewing the May 2008 statement, Ms. Smith testified that Mr. Short was termed, on their records, a secondary cardholder. Accordingly, he would be jointly and severally liable. He would have had his own card and could make payments or use the card. There would not be any separate account statements, but he would have had to apply to become a secondary holder. Their records did not indicate when this would have been done. From viewing the statements, Ms. Smith noted that the interest rate at the time of the transfer to Citi was 18.48 per cent, and changed to 28.8 per cent as of February 12, 2004. In July of 2004, a substantial amount was paid off: $30,701, just prior to the expiry of a twelve-month interest free period. After this, further purchases were made and the account was maintained and kept up to date for a couple of years. In April 2005, it was paid off to a zero balance. It was kept up to date for a few months, and then a balance came to be carried over. By December 23, 2007, the balance including interest was over $40,000, that is, over the credit limit. Efforts were made to try to bring the account up to date, but payments of less than the minimum amount were made, causing a continuing increase in the balance.
[6] Computer records kept by the company indicate that there were a number of conversations with Mr. Short, who was termed Card Holder 2, about paying off the balance or trying to reach a credit agreement, but these were unsuccessful. The last statement was on November 23, 2008 when the account was deemed to be charged off, at a balance of $47,149.44.
[7] After this, as with any charge off, the matter would be referred to the legal department and interest would be calculated on a straight interest basis. On this basis, the plaintiff calculated the prior amount owing at $47,149.44, plus interest from November 23, 2008 to the date of trial, November 28, 2013, at $68,118.42. That amount calculates interest at the rate of 28.8 per cent on a non-compounding basis. These records indicate that up to October of 2008, when a final payment of $1,212 was made, Mr. Short kept in contact with the company and made small payments.
[8] At the same time, there was no indication that either he or Ms. Ross suggested there were any errors on the statement. Ms. Smith agreed that there is no physical or documentary evidence that Mr. Short signed any agreement or application forms or that any invoices or delinquency notices were sent to him. Because Ms. Ross was the primary account holder, they were all sent to her. While both Ms. Ross and Mr. Short’s name are listed on the computer accounts, no other identifying features are listed. From Ms. Smith’s perspective, before Mr. Short could engage in discussions about the account, he would have had to identify himself and provide identifying features including his address and date of birth. The records before the court did not show whether Citi had Mr. Short’s date of birth as opposed to only Ms. Ross’s.
Evidence of the Defendants
[9] Susan Ross testified that Mr. Short received all the invoices that were sent in her name and looked after them. She did not normally open the bills and does not recall seeing the 2006 agreement or other agreements. She acknowledged that she frequently gave her card to Mr. Short to use, but testified that she did not have a conversation with Citi to add Mr. Short to the card and was not aware of him having his own card.
[10] On this issue of whether or not Mr. Short had his name added to the account, in examinations, Ms. Ross had testified that Mr. Short was not added as a party when the account was opened: “It wasn’t at that point. I don’t recall when he was added though…we were in the store, I believe, and we were building a home at the time and he needed another card, I guess, for the account”. She thought he was just added or got a card over the phone. She later confirmed that to her knowledge he was added to the account and had his own Home Depot card for use when he was not with her and that she was sure he used it. When her memory was refreshed at trial about these answers, she indicated that she did not know if he had used his own card or used hers. When shown one of the receipts she indicated that the signature was similar to Mr. Short’s and he later confirmed that it was “similar” to his. I found Ms. Ross was visibly reluctant to answer these questions or to confirm her evidence as given at discoveries. She was evasive in declining to identify her husband’s signature.
[11] Mr. Short also testified. He acknowledged that he sometimes used the card and he tended to the majority if not all of the invoices. He did not recall seeing either the 2006 or the 2008 agreement, although he acknowledged that he opened the envelopes with the statements of account.
[12] Mr. Short also acknowledged that he had conversations with Citi about the account and payments. He thought he only had to give the home phone number, the account number and the birthday of the cardholder. His testimony was that the signature on the receipt in the materials was “very similar” to his own and that he would sign his own name, but he said he used Ms. Ross’s card and did not have his own.
[13] In cross-examination, Mr. Short was directed to his testimony at discovery, in which he indicated that while he used the card, “I don’t recall if I had one in my possession attached to my name or if it was hers. I don’t recall”. By the time of trial he said he was absolutely certain, based on conversations with his wife and looking at the website, that he did not have a card in his name. He said he was authorized to use her card. He did agree that the interest rates were marked on the bills and he could find them if he looked for them. He agreed that he had many conversations with Citi about the need to make payments.
[14] When cross-examined about the details of some of the conversations as recorded in the notes, he said he did not know why he would tell them he had had a heart attack and his wife was out of work, since his heart attack had been five years earlier and his wife was a homemaker. However, he did not deny saying that; he simply testified that he was not sure he would say that. He agreed that he tried to reach a mutual agreement to pay the account off, but they were never able to finalize an agreement.
Analysis
[15] It is not disputed that Ms. Ross is liable for the debt. With respect to Mr. Short, the central issue is whether or not he was issued a card.
[16] As the defence points out, there is no documentary evidence concerning the issuing of the secondary card. However, there is ample circumstantial evidence that he did obtain a card. First of all, the computer records of the company clearly show his name on the account. He was frequently identified as “CH2” for a secondary cardholder. His virtually acknowledged signature on Tab 1 is good evidence that he had his own card. The 2006 agreement shows that no one but a cardholder is allowed to use the card, and the fact that he frequently signed for purchases is cogent evidence that he had a card in his own name. I do not accept the suggestion that he was repeatedly permitted to sign for purchases, some of them significant, on a card bearing the name Susan Ross. As well, I reject the evidence of both Ms. Ross and Mr. Short that he did not have a card in his name. Both of them changed their evidence after they discussed the issue following discoveries. Their testimony on the reasons for changing the evidence was evasive and not persuasive. I reject their evidence at trial suggesting that Mr. Short did not have a card.
[17] While it is not necessary for me to determine the alternative position that even without his own card, his use of the card bound him contractually, as indicated in the Consumer Protection Act, I would have made this finding if necessary.
[18] In the result, I find that each of Ms. Ross and Mr. Short are jointly and severally liable for this account.
[19] The set-off claim originally detailed in the Statement of Claim has been abandoned, and accordingly a finding for the plaintiff in the full amount of the original claim is appropriate.
Interest Rate
[20] It is quite clear from the documents that the annual rate at the time in question was 28.8 per cent. This rate is found in the contract, and is noted on each statement. I find that Mr. Short, who handled the account on both their behalves, was well aware of the interest rates. He made a large payment of over $30,000 on one occasion in order to avoid paying interest at the expiry of the twelve-month interest free time period for purchases he had made prior to that. As well, the collection notes established that he was very mindful of the accruing interest, and was anxious to make an arrangement to pay. At no time did he suggest that the claimed interest rate was not appropriate. By 2008, when $47,149.44 was owing, the unpaid purchases amounted to $17,956.67. There was already $29,192.77 of interest outstanding, as the defendant summary indicates.
[21] The additional amount of interest now claimed, of $68,118.42, is staggering. To date, over $97,000 in interest is claimed, almost 500 per cent more than the value of the purchased product. While at first blush this seems shocking, the underlying commercial principles must be assessed.
[22] In Bank of America v. Mutual Trust Co., 2002 SCC 43, [2002] 2 S.C.R. 601, the Supreme Court of Canada, assessed whether or not compound interest as opposed to simple interest was appropriately charged in assessing damages for breach of contract. It was held, at para. 46, that:
If courts were restricted to simple interest in assessing damages for breach of contract, an apparent abuse could occur in the following way. Money lent at compound interest would accrue compound interest until there was a breach of contract by the borrower. The lender could then sue and only be entitled to simple interest on the judgment. This would encourage borrowers not to repay loans. Contract law is not the enemy of parties to an agreement but, rather, their servant. It should not frustrate their mutually agreed intentions but, instead, absent overriding policy concerns, should permit those parties to obtain the benefit of their intended agreement.
[23] Similarly, the Court of Appeal of Ontario has held it to be in error to fail to grant prejudgment interest in the rate provided for in the contract and instead impose the lower rate provided for under the Courts of Justice Act: see Gyimah v. Bank of Nova Scotia, 2013 ONCA 252, 305 O.A.C. 198, at para. 10.
[24] In another case where a trial judge declined to award any amount for interest as stipulated in the credit card agreement or for pre-proceeding collection expenses claimed in terms of the credit card agreement, the Divisional Court held that the principles of contract law, as related to the recovery of expectation damages by a creditor in relation to a default under loan arrangements by the debtor, dictate that the application of a lower interest rate than that in the contract would be unjust to the lender, absent exceptional circumstances. In that case, the court held that “unless the terms respecting interest rates in the credit card agreement are vague or unclear or unless the interest rate derived from the written agreement infringes a statutory provision such as the Interest Act, effect should be given to the contractual rate for the determination of both pre- and post-judgment interest”: see Capital One Bank v. Matovska et al., 2007 37015 (Ont. Div. Ct.).
[25] Similarly, in Capital One Bank v. Wilcox, 2011 CarswellOnt 9507 (Sm. Cl. Ct.), it was held that the failure of a cardholder to read an agreement is hardly unusual and by using the card, the cardholder must be taken to have accepted the terms. In Smith v. Smith, 2009 55715 (Ont. S.C.) a complex rate formula was rejected as the parties, who were related, were not sophisticated in matters of business.
[26] Accordingly, absent exceptional circumstances, a creditor is entitled to recover both pre-judgment and post-judgment interest at the contract rate.
[27] Exceptional circumstances that would cause a court to decline to apply a contractual interest rate must be more than just financial hardship for the borrower: vague or unclear terms, overriding policy concerns such as a criminal interest rate, unconscionable conduct on the part of the lender, or commercially unsophisticated parties. None of these apply here.
[28] Counsel for the plaintiff, experienced in this type of case, acknowledged that in many circumstances defendants make real efforts, such as were made in this case, to make payment arrangements, although in many more cases they do not. Doing so, it is argued, does not make the case exceptional.
[29] The defence also argues that even in the case of Ms. Ross, the failure to show a specific agreement with a specific rate in it results in a voiding of the interest rate in effect, such that the court should simply impose the rate set out by the Courts of Justice Act, which was 3.3 per cent at the time the first of these proceedings was instituted. I do not agree. The 2006 agreement, which is deemed to have been received by the parties given their subsequent use of the card, clearly sets out the interest rate. Furthermore, the terms of the agreement were also reflected in part in the account statements that were received, which clearly indicated the interest rate, the amount of interest accruing, and the minimum payment under the terms of the agreement.
[30] The question remains as to whether the length of time that has passed before trial, as well as the extraordinary amount of interest owing, constitute exceptional circumstances which would justify a reduction in the amount.
[31] As to the accruing of interest, it is clear that under the terms of the contract, pre-judgment and post-judgment interest would be the same. Although the amount of interest is more than five times the amount of the original purchases, this amount is not an illegal interest. Persons who contract with credit card companies must know that irresponsible actions on their part, in making purchases for which they cannot pay, will result in high rates of interest accruing.
[32] Sympathetic as I am to the circumstances of the defendants, who did make real efforts to settle the matter, and who at one time were offered the opportunity of paying this debt off at a much slower rate and lower rate of interest, I cannot simply insert a lower rate of interest out of sympathy. Consequently, judgment must be given in the contractual amount of 28.8 per cent, that is an interest amount of $68,118.42 to and including November 28, 2013.
Costs
[33] If parties are unable to resolve the issue of costs, I will receive written submissions, within fifteen days of release of this judgment for the plaintiff and a further fifteen days for the defendants.
Wein J.
Released: January 7, 2014
COURT FILE NOS.: Orangeville 726/08 and 486/10
DATE: January 7, 2014
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
CITI CARDS CANADA INC.
Plaintiff
- and -
SUSAN L. ROSS, also known as SUSAN LYN ROSS
Defendant
AND BETWEEN:
CITI CARDS CANADA INC.
Plaintiff
- and -
KITCHENER SHORT, also known as KITCH SHORT, also known as KITCHENER B. SHORT
Defendant
REASONS FOR JUDGMENT
Wein, J.
Released: January 7, 2014