COURT FILE NO.: CV-08-4403-00
DATE: 2014-06-06
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: Shelley Eckert, Plaintiff
AND:
U.S. Trust Corp. II, Peter McCallion
and Linda Burgess, Defendants
BEFORE: Andre J.
COUNSEL:
Peter M. Callahan and A. Valova, Counsel, for the Plaintiff
Alan S. Price, Counsel, for the Defendants
HEARD: May 16, 2014
ENDORSEMENT
This is a motion for summary judgment brought by the plaintiff, David Eckert, against the defendant, Linda Burgess.
The plaintiff claims that the defendant provided security in the amount of $150,000 for a loan which he granted to the defendant, U.S. Trust Corp II (“US Trust”). The defendant claims that she should not be held liable for the company’s failure to repay the loan because the plaintiff failed to ensure that she received independent legal advice before she provided security for the loan.
OVERVIEW
The plaintiff issued a Statement of Claim on or about November 2008. The defendants were noted in default but this default was set aside, on consent, on August 11, 2011. The defendants filed a Statement of Defence on or about September 2011.
The Statement of Claim was initially commenced by the Plaintiff’s spouse, Ms. Shelley Eckert. Following the settlement of certain family matters, Ms. Eckert assigned her rights and interests in the debts owed to her by the defendants, to the plaintiff.
In June 2005, the plaintiff and Ms. Eckert loaned the sum of $150,000 to the defendant, US Trust. On June 27, 2005, the defendant, Peter McCallion (“McCallion”), who is Ms. Burgess’ brother, executed a Promissory note (“Note”) on behalf of US Trust and also signed as a guarantor of the loan. Mr. McCallion also executed a further agreement with US Trust in which he undertook to make an additional payment of $30,000 plus interest to the plaintiff.
On June 29, 2005, the defendant, Linda Burgess, signed an Assignment Agreement in which she pledged all her rights, interest and title in her Investors Group, Non-Registered Investments Account (“the Investment Account”) as security for the amounts owed to the plaintiff by US Trust.
On July 14, 2005, the plaintiff registered a security interest on the Investment Account.
On June 1, 2006, the defendants executed an agreement in which they undertook to pay the plaintiff $40,000 plus interest in exchange for a forbearance against the plaintiff enforcing the terms of its agreements with US Trust and McCallion.
On March 9, 2008, the defendants executed an agreement similar to that of June 1, 2006, but this time they undertook to pay the plaintiff $60,000 immediately. The defendants have paid $24,000 towards the debt owed to the plaintiff. The total amount owing by the defendants, inclusive of principal, bonus payments and interest, is $482,707.75.
10)The plaintiffs have obtained judgment against the defendants, US Trust and Peter McCallion.
PLAINTIFF’S POSITION
11)The plaintiff submits that Ms. Burgess voluntarily provided security of the $150,000 loan taken by her brother’s company and should be held accountable for her actions.
12)Secondly, that the plaintiff provided the loan to US Trust only after receiving assurances of repayment by the security provided by Ms. Burgess. The plaintiff also submits that the defendant cannot escape liability because the exchanged act was not for her benefit. Absent any duress, or unconscionability, the defendant should be held responsible to the extent of the security she provided for the loan.
DEFENDANT’S POSITION
13)The defendant submits that the plaintiff had a legal obligation to ensure that Ms. Burgess received independent legal advice before she provided security for the loan for the following reasons:
She had no interest in US Trust.
She did not receive any portion of the initial $15,000 which Mr. McCallion borrowed from the plaintiff.
She did not receive any direct or indirect benefit from the loan.
THE LAW
14)Rule 20.04 reads:
20.04 (2) The court shall grant summary judgment if,
a) The court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or
b) The parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
(2.1) In determining under clause (2)(a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
(2.2) A judge may, for the purposes of exercising any of the powers set out in sub rule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation.
15)In Hryniak v. Maudlin 2014 SCC 7 the Supreme Court of Canada noted at paragraph 66 that:
On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.
ANALYSIS
16)There is no dispute that the plaintiff loaned US Trust the sum of $150,000.
17)Furthermore, Ms. Burgess does not dispute the plaintiff’s contention that he only advanced the loan to US Trust after she provided security for the loan.
18)Finally, Ms. Burgess does not dispute that US Trust and Mr. McCallion repeatedly reneged on their agreements to fully repay the loan.
19)Ms. Burgess stated in her affidavit that the Assignment Agreement wherein she pledged her Investment Account as collateral for the $150,000 was merely “to obtain a payment extension”, rather than security for the loan.
20)The documentary evidence however, contradicts Ms. Burgess’ assertion. The Assignment Agreement, dated June 29,2005, which was signed by Ms. Burgess, indicates the following:
I, Linda Burgess, hereby pledge all my right, title and interest in my Investors Group, Non Registered Investments Account #1229820 to Shelley Eckert AS SECURITY FOR A LOAN IN THE PRINCIPAL AMOUNT OF $150,000 CANADIAN. (emphasis added)
21)The Amending Agreement executed by Ms. Burgess on June 1, 2006, similarly notes that: “And whereas collateral to the above Note was a promissory note and an Assignment Agreement provided by Linda Burgess (The Burgess Security);”
22)I therefore find as a fact that the Assignment Agreement executed by Ms. Burgess on June 29, 2005, was security for the loan rather than an agreement to obtain a payment extension.
23)Accordingly, I find that there is no genuine issue requiring a trial and that the evidence provided enables me to fairly and justly adjudicate the dispute between the parties.
24)The only issue raised by the defendant is her contention that the plaintiff had an obligation to ensure that she received independent legal advice before pledging her Investments account to secure the loan taken by Mr. McCallion. She relies on two cases, Bertolo v. Bank of Montreal, 1986 150 (On C.A.) and Mackay v. Bank of Nova Scotia (1994), 1994 7328 (ON SC), 20 O.R. (3d) 698 (Gen.Div.) for the proposition that a lending institution has the responsibility of ensuring that a surety to a principal debtor who is not receiving the benefit of a loan, either receives independent legal advice or is advised to obtain such advice.
25)In Bertolo, the borrower negotiated a loan from a bank to commence a restaurant business, which was 100 percent financed. The bank demanded that the debtor’s mother, who was a widow with little schooling and who spoke little English, provide a promissory note for part of the loan and a mortgage on her home. The bank never explained to her that she was the principal debtor and not merely the guarantor. The business subsequently failed and the debtor’s mother sought declaratory relief that the promissory note and the mortgage were void. Mrs. Bertolo prevailed at trial and the bank appealed. The Court of Appeal dismissed the bank’s appeal on the ground that while the bank knew that Mrs. Bertolo should have received independent legal advice and undertook to obtain it, it had failed to do so. To that extent, it was unconscionable for the bank to take advantage of its security.
26)Bertolo, however, indicates that the necessity for a lender to ensure that a loan guarantor received independent legal advice will depend on the particular facts and circumstances of a given case. The Court of Appeal held that the following factors mandated that Mrs. Bertolo should have had independent legal advice:
a. Her age
b. Background
c. Business experience
d. Financial position
e. Relationship with the real borrower
f. The fact that she played no role in the negotiations for the loan
g. Her lack of awareness of the terms of the loan or the terms of the restaurant purchase.
h. The fact that Mrs. Bertolo was mortgaging her only substantial asset with no direct benefit to herself.
i. The fact that she had been made a primary debtor rather than a guarantor and hence had become a customer of the bank.
27)Bertolo is distinguishable on its facts from the instant case. Mrs. Bertolo appeared to have been, on account of her age, limited English, lack of business experience and the use of her only asset as security for the loan, much more vulnerable than Ms. Burgess. Furthermore, unlike the instant case, Mrs. Bertolo had been made a primary debtor rather than a guarantor of the loan. Additionally, the claim against Ms. Burgess is for the amount of her security rather than the total amount owing to the plaintiff.
28)The McKay case is similarly distinguishable on its facts. There, Mrs. McKay was persuaded to finance her daughter’s purchase of a new trailer from the defendant bank. She placed a mortgage on her condominium to finance the transaction. Unbeknownst to her, the loan she received from the bank not only financed the purchase of the trailer but also retired her daughter and son-in-law’s indebtedness to the bank.
29)Following her relatives’ declaration of bankruptcy, the plaintiff successfully commenced an action against the bank for a declaration of invalidity. The court held that the unequal bargaining position together with an unfair contract, created a presumption of undue influence and that the bank’s failure to ensure that the plaintiff received independent legal advice was fatal to its position.
30)As in Bertolo, the circumstances of Mrs. McKay supported and justified a finding of vulnerability and one of unconscionability of contract. She was 57 years old, had a monthly income of $1,200 and had a Grade 8 education. The condominium she mortgaged was her only asset. Prior to the transaction, she had never applied for, or taken out a personal loan with a financial institution.
31)In this case, Mrs. Burgess did not present any facts to support a finding that given her vulnerability, either on account of her age, income, lack of knowledge or a combination of some or of all of these factors, that the plaintiff was obliged to ensure that she had independent legal advice before pledging her Investment Account as security for the loan in question.
32)Accordingly, the plaintiff’s motion for summary judgment is granted.
COSTS
33)The plaintiff seeks costs of $22,776.88 on a partial indemnity basis.
34)The defendant seeks costs in the amount of $8,053.92 on a substantial indemnity basis and $4,972.52 on a partial indemnity basis.
35)The plaintiff justifies the amount of costs it seeks on the basis that it has made four court appearances since initially filing its motion for summary judgment in April 2014.
36)In determining the quantum of costs that is fair and reasonable in this matter, I take the following factors into consideration:
37)The plaintiff was substantially successful in this matter.
38)The matter was relatively uncomplicated and did not warrant significant preparation time.
39)The defendant did not unduly complicate or prolong the matter and on the contrary, raised a sole issue in response to the applicant’s motion.
40)On the three previous occasions that the motion was addressed in court, it was adjourned on April 17, 2014 and on May 2, 2014, while on April 25, 2014, the motion involving Ms. Burgess was also adjourned on consent to May 2, 2014.
41)Given the uncomplicated nature of the motion, the hours of preparation time claimed by the plaintiff appears to be excessive.
42)Accordingly, costs in the amount of $10,000 inclusive, payable by the defendant to the plaintiff, is fair and reasonable in this case.
ORDERS
This court orders and directs that Manulife Securities Investment Services Inc. and/or Investors Group shall immediately liquidate the non-registered financial portfolio held in the name of the Defendant, Linda Burgess, and identified as Non-Registered Investments Account No. 1229820, in its entirety, and shall forthwith pay the full current value thereof to “RZCD Law Firm LLP in trust” on behalf of the Plaintiff.
This court orders and adjudges that service of this Order upon Manulife Securities Investment Services Inc. and/or Investors Group may be effected by sending a copy of same by facsimile transmission or email to Manulife Securities Investment Services Inc. and/or Investors Group to the attention of Don Landry, Account Representative.
This court orders and adjudges that the Defendant, Linda Burgess, shall pay to Plaintiff his costs of this Motion, and of the action, fixed in the amount of $10,000 inclusive.
This order bears interest at the pre-judgment interest rate of three (3) percent per year from the date of this order.
Andre J.
Date: June 06, 2014