Court File and Parties

COURT FILE NO.: 3574/14 DATE: 2016-09-27 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Laurentian Bank of Canada, Plaintiff – and – Carole Rosanne Girouard also known as Carole Rosanne Audette, Defendant

COUNSEL: James M. Butson, for the Plaintiff Marc A.J. Huneault, for the Defendant

HEARD: September 22, 2016

DECISION ON MOTION

GAUTHIER, J.

The Motion

[1] The plaintiff, Laurentian Bank of Canada (the “bank”), seeks summary judgment as against the defendant, Carole Rosanne Girouard also known as Carole Rosanne Audette (“Audette”), in the amount of $32,160.50, plus interest, plus costs.

[2] The amount claimed is in connection with a guarantee given by Audette to the bank by way of a charge between the bank and Rejean Girouard (the then spouse of Audette), registered on October 24, 2008, in the Land Registry Office for the Land Titles Division of Sudbury (No. 53) as Instrument Number SD130285, against the property known as 143 Isidore Street, Chelmsford, Ontario, for a five year term, securing the sum of $185,461.50, bearing interest at 5.75% per annum.

[3] The amount claimed is calculated as follows:

• Principal Balance: $176,528.08
• For Accrued Interest to October 6, 2014 at 5.40%: 9,777.19
• Tax Account Balance (Debit): 785.86
• Mortgagee's Administrative Fees: 421.30
• Property Management Fees: 7,891.20
• Appraisal (July 2014): 536.75
• Appraisal (September 2014): 452.00
• Real Estate Commission (at 5.5%), inclusive of H.S.T.: 11,187.00
• Legal Fees inclusive of H.S.T. and disbursements to October 6, 2014 (Including H.S.T. #123958498): 5,000.29
• Sub-total: $212,579.67
• Received on Sale: 180,419.17
• TOTAL AMOUNT OWING AS AT OCTOBER 6, 2014: $32,160.50

The Facts

[4] I have borrowed liberally from both facta in the following recitation of the facts: a. Carole Audette (“Audette”) married Rejean Girouard (“Girouard”) on June 26, 2004. b. Audette together with Girouard purchased both 141 and 143 Isidore Street, Chelmsford, Ontario, on June 2, 2006. The property consists of a side-by-side brick duplex with separate driveways and separate entrances. c. Audette and Girouard applied for Planning Act consent and severed 141 Isidore from 143 Isidore on or about October 24, 2008. Thereafter, Audette owned 141 Isidore Street and Girouard owned 143 Isidore Street. They financed the transaction by two separate charges in favour of Laurentian Bank of Canada. Girouard guaranteed the charge as against 141 Isidore Street and Audette guaranteed the charge as against 143 Isidore Street. It is Audette’s guarantee that is the subject matter of this litigation. d. The term of the loan was for a period of five years with a balance due date of November 1, 2013. e. Audette and Girouard separated on or about May 3, 2009. f. Audette and Girouard entered into a separation agreement which provided that each of them would be solely responsible for any and all mortgage payments due and owing for their own mortgage. According to Audette’s evidence, she and Girouard had agreed that they would each refinance their respective property at the end of the term of the charge, being November 2013. The inference is that they intended for each of them to be released from their guarantee to the bank. The understanding was that neither Audette nor Girouard would consent to any extension or renewal of her/his guarantee. g. Audette refinanced her property at 141 Isidore Street with the Royal Bank of Canada in October 2013. The intention was to pay off the bank in connection with the charge against 141 Isidore Street which would release Girouard from his guarantee. Through inadvertence, the bank registered a discharge of the charge with respect to the property at 143 Isidore Street (Girouard’s property) instead of Audette’s property at 141 Isidore Street. This occurred on December 5, 2013. h. Girouard died suddenly on October 19, 2013. i. At the time of Girouard’s death, the property at 143 Isidore was occupied by a tenant, Nancy Aguiar. Apparently she had been depositing her rent cheques in the deceased’s account at the Caisse Populaire and continued to do so for the months of November and December 2013, as well as the months of January and February 2014. j. The mortgage payment by Girouard due on November 1, 2013, was not made. k. On March 7, 2014, the bank began proceedings under the mortgage registered against the title to 141 Isidore Street (Audette’s property) against both Audette and Girouard (presumably the bank didn’t know that Girouard had died) alleging a default in instalments as of November 1, 2013. l. As a result of communication between Audette and the bank’s solicitor, the action against her was discontinued by way of notice of discontinuance dated March 19, 2014. m. On April 3, 2014, without notice to any person, the bank was granted leave to issue a certificate of pending litigation against the title to 143 Isidore Street (Girouard’s property). A certificate of pending litigation was issued that day, and registered against the title to that property. n. On May 15, 2014, the bank secured a judgment, without notice to Audette, reinstating the mortgage which forms the subject of this litigation. o. Audette was then served with a notice of sale under mortgage dated May 29, 2014. p. The bank began another proceeding under the mortgage against Audette and Girouard by way of statement of claim issued on July 14, 2014. q. Audette caused a statement of defence to be delivered on October 7, 2014. r. The property at 143 Isidore Street was listed for sale. Audette purchased the property. The sum of $180,419.17 was paid to the bank on the closing of the transaction on October 6, 2014. s. The bank’s motion for summary judgment was brought on April 27, 2015. t. On August 6, 2015, Audette delivered a request to admit whereby admission of the truth of the following facts was requested: 1. Rejean Girouard died on about October 19, 2013. 2. Mr. Girouard’s death occurred prior to the mortgage renewal date of November 1, 2013. 3. The mortgage registered as Charge #SD130285 on the property known municipally as 143 Isidore Street, Chelmsford, Ontario, was not renewed by way of executed renewal agreement between Mr. Girouard and the plaintiff. u. The bank responded that it admitted the truth of the facts number 1 and number 3, and “with respect to fact number 3, the mortgage was automatically renewed by the bank to take effect on November 1, 2013. It was not executed by Mr. Girouard who passed away shortly before the renewal was to take effect. No payments were actually made under the said renewal, but the bank remained and remains prepared to honour the more favorable terms which were offered.”

The Guarantee

[5] I turn now to the relevant provisions of the guarantee as contained in the charge registered against 143 Isidore Street on October 24, 2008: a. The Guarantors with the Chargors, as principal debtors and not as surety will well and truly pay or cause to be paid to the mortgagees the indebtedness payable hereunder on the days and times and in the manner herein limited and appointed for the payment thereof; b. To unconditionally guarantee full performance and discharge by the Chargor of the obligations of the Chargor under the provisions of this Charge at the time and in the manner herein provided. c. To indemnify and save harmless the Chargee against and from all losses, damages, costs and expenses which the Bank may sustain, incur or be or become liable for by reason of: i. the failure for any reason whatsoever of the Chargor to pay the indebtedness expressed to be payable pursuant to this Charge or to do and perform any other act, matter or thing pursuant to the provisions of this Charge; or ii. any act, action or proceeding of or by the chargee for or in connection with the recovery of the indebtedness or the obtaining of performance by the Chargor or any other person liable hereunder or any other act, matter or thing pursuant to the provisions of this Charge; d. The Chargee may grant any extensions of time for payment, increase the rate of interest payable under the Charge; release the whole or any part of the Chargor’s Property or other security from this Charge; or otherwise deal with the Chargor provided notice thereof is given to the Guarantors. e. The Chargee may from time to time release or discharge the whole or any part or parts of the Property or any other security or any surety for the indebtedness payable hereunder for such consideration as the Chargee shall think proper or without any or any sufficient consideration without being accountable for the value thereof or for any monies except those actually received by the chargee and may at any time and from time to time without notice to or any consent or concurrence by any person except the guarantors make any settlement, extension or variation in terms of any obligation hereunder and no such release, discharge, settlement, extension or variation in terms by the chargee in asserting its rights nor any other thing whatsoever, including, without in any way limiting the generality of the foregoing, the loss by operation of law of any right of the Chargee against the Chargor, Guarantor or any other person or the loss of destruction of any security shall in any way release, diminish or prejudice the security of this Charge as against any Property remaining undischarged or release prejudice any covenants herein contained or release or diminish the liability of the Chargor, Guarantor or any other person liable hereunder so long as any indebtedness expressed by this Charge to be payable remains unpaid, and no security or surety shall be deemed to be released or discharged save by the formal release or discharge executed by the chargee.

The Bank’s Position

[6] The bank now seeks to recover what it says is the deficiency after the sale of the mortgaged property. Default occurred on November 1, 2013, and has continued. It occurred before the term of the mortgage expired. The charge has never been paid out, nor has there been any material change to the charge which could potentially release the guarantor from her obligations.

[7] Whether Girouard’s tenant deposited monies into Girouard’s account during her tenancy does not change the fact that default of payment under the mortgage occurred as of November 1, 2013. Any such payments made by the tenant were not paid to, accepted by, or withdrawn from, Girouard’s account by the bank.

[8] Although the bank had “automatically renewed” the charge, Girouard died before the renewal could be executed by him. This submission is expanded upon in the bank’s factum to the effect that: “the aforesaid charge was renewed and amended by renewal and amendment agreement which renewal and amendment renewed and amended the charge on the following terms and conditions… the charge matured on May 1, 2014.” (para. 6) This submission mirrors the evidence provided by the bank on the issue of renewal.

[9] When I asked counsel specifically if the mortgage had been in fact renewed, the answer was that it had not, although the bank had been prepared at all times to honour the more favorable terms proposed in the renewal, i.e. a lower interest rate.

[10] The bank was not and is not bound by any agreement reached by Audette and Girouard, dealing with the properties or the mortgages on those properties, whether by way of separation agreement or otherwise.

[11] The erroneous discharge of the wrong mortgage was subsequently corrected, and at no time was Audette released from her guarantee obligations. Effectively, there was no “formal release or discharge executed by the chargee” as provided for in the guarantee provision itself (clause j).

[12] Notwithstanding the bank’s errors, Audette continued to be liable on her guarantee. The bank relies particularly on the wording contained in the guarantee itself, at clause (c)(i) and (ii): To indemnify and save harmless the Chargee against and from all losses, damages, costs and expenses which the Bank may sustain, incur or be or become liable for by reason of: (i) The failure for any reason whatsoever of the chargor to pay the indebtedness expressed to be payable…; or (ii) Any act, action or proceeding of or by the charge for or in connection with the recovery of the indebtedness or the obtaining of performance by the Chargor or any other person liable hereunder or any other act, matter or thing….

[13] Audette’s statement of defence does not disclose any genuine issue requiring a trial and therefore the bank is entitled to judgment as requested. Any challenges Audette had to any portion of the amount claimed, i.e. the amount claimed for the property management fees and appraisals, were not followed up on in the course of the motion: Audette could have but did not cross-examine a representative of the bank with regard to any of the amounts claimed in the statement of claim. Therefore, the evidence of the bank regarding the costs/fees incurred is to be taken as true and accurate.

Audette’s Position

[14] As a “favoured creditor”, Audette was entitled to notice of the proposed renewal of the charge, as well as the application for a certificate of pending litigation and the application to reinstate the charge.

[15] The bank’s failure to give notice to Audette of the “automatic renewal” resulted in a release of her guarantee.

[16] Aside from the lack of notice, Audette’s consent to the renewal was never obtained. Therefore, as of November 1, 2013, there was no ongoing contract between Audette and the bank. The bank could not avail itself of Audette’s guarantee beyond November 1, 2013. The bank’s election to renew without Audette’s consent resulted in the charge no longer being secured by Audette’s guarantee. Also, the terms of the charge did not provide for an automatic renewal in any event.

[17] The bank’s failure to provide notice of the proceedings regarding the title and the reinstatement of the charge was a tacit acceptance by the bank that the guarantee was no longer in force.

[18] The judgment reinstating the mortgage refers to “a valid and enforceable mortgage…” No mention is made of the guarantee, thus the guarantee is not reinstated.

[19] There was no default during the term of the charge. Funds were at all times available in Girouard’s bank account to cover the mortgage instalments. The bank was negligent in failing to withdraw the funds that were set aside to cover the instalments. Audette’s evidence is that her mortgage payments to the bank were made by an automatic withdrawal of the mortgage funds from her account at the Caisse Populaire by the bank.

[20] The evidence, together with the evidence of the tenant regarding the deposits of the rent for 143 Isidore Street directly into Girouard’s account at the Caisse Populaire, it is submitted, strongly suggests that the bank had been, until November 1, 2013, automatically deducting payment from his account at the Caisse Populaire. No evidence was lead to explain why the bank ceased to withdraw the funds from Girouard’s account after October 1, 2013.

[21] The bank’s failure to withdraw the funds, or to make inquiries about the availability of funds to cover the payment, was negligent behavior on the part of the bank and constitutes a material variation of the contract, without notice or consent of the guarantor, resulting in the release of the guarantee.

[22] Even if there was a default under the mortgage, not only was the bank responsible for such default, it was obligated by virtue of the provisions of clause (e) of the mortgage to give notice to the guarantor. The words “any extension of time for payment” pre-suppose a default and require notice to be given to the guarantor.

[23] Erroneously or not, the bank discharged Girouard’s mortgage, without notice to Audette. This resulted in a release of the guarantee, as did the failure to advise that it had ceased to collect the payments. These were all material variations to the agreement which impacted on the guarantor’s risk.

[24] Audette has provided evidence about monies being available in the deceased Girouard’s account. The bank, however, did not provide any evidence to refute the suggestion that the funds were available to cover the mortgage payments, at least until February 2014, or any explanation for not having automatically withdrawn the funds from Girouard’s account as the payments came due.

[25] The bank did not put its best foot forward, and therefore is not entitled to summary judgment against Audette. There are genuine issues requiring a trial: the failure to withdraw funds by the bank, and the appropriateness of the damages claimed.

[26] In the alternative, Audette submits that even if she is liable on the guarantee then there is a serious (genuine) issue about certain of the amounts claimed by the bank: a. Mortgagee’s Administrative Fees in the amount of $421.30; b. Property Management Fees in the amount of $7,891.20; c. Real Estate Commission of $11,187.00; and d. Legal Fees in the amount of $5,000.29.

[27] Audette takes issue with the fact that the bank did not provide documentary evidence (invoices) or any substantiation of the administrative and management fees. As well, she was prepared at all times to purchase the property prior to its being listed for sale. The real estate commission could have been avoided. Furthermore, there is no breakdown of the legal fees claimed.

[28] Finally, Audette suggests that I should grant summary judgment in her favour and dismiss the bank’s claim.

Summary Judgment

[29] Pursuant to the provisions of rule 20.01 of the Rules of Civil Procedure, a court shall grant summary judgment if there is no genuine issue requiring a trial with respect to a claim or a defence.

[30] The rule sets out at subparagraph 2.1 that a court will consider the evidence submitted by the parties and the judge may exercise any of the following powers for the purpose of determining that issue, unless it is in the interest of justice for such powers to be exercised only at trial: a. Weighing the evidence; b. Evaluating the credibility of a deponent; and c. Drawing any reasonable inference from the evidence.

[31] The question to be asked on a summary judgment motion is whether the record allows me to reach a fair and just determination on the merits.

[32] Corbett J. has provided a most useful summary of the approach to be taken by the court, in Sweda Farms Ltd. v. Egg Farmers of Ontario, 2014 ONSC 1200 (Ont.S.C.J.):

1. The court will assume that the parties have placed before it, in some form, all of the evidence that will be available for trial;
2. On the basis of this record, the court decides whether it can make the necessary findings of fact, apply the law to the facts, and thereby achieve a fair and just adjudication of the case on the merits;
3. If the court cannot grant judgment on the motion, the court should: a. Decide those issues that can be decided in accordance with the principles described in (2), above; b. Identify the additional steps that will be required to complete the record to enable the court to decide any remaining issues; c. In the absence of compelling reasons to the contrary, the court should seize itself of the further steps required to bring the matter to a conclusion.

Analysis

[33] There are a number of issues that arise from the facts of the case: a. Whether or not there was default under the mortgage; b. Whether or not Audette’s guarantee was valid and enforceable on November 1, 2013; and c. Whether any of the steps taken by the bank, after November 1, 2013, (i.e. the discharge of the incorrect mortgage, the application for reinstatement of the mortgage) resulted in the release of Audette’s guarantee.

Was there Default?

[34] There is evidence to suggest that there were sufficient funds in Girouard’s account at the Caisse Populaire to cover the November 1, 2013, mortgage instalment. There is evidence to suggest that the bank had historically been withdrawing funds from that account in order to cover the payments due on the mortgage. The evidence is that the tenant had, at the time of Girouard’s death, been depositing her rent payment into Girouard’s account at the Caisse Populaire and that she continued to do so until February 2014. There is no evidence to the contrary.

[35] That said, the availability of sufficient funds to cover the mortgage payment due on November 1, 2013, is not determinative of the issue. Under the terms of the October 24, 2008, mortgage the entire balance due under the mortgage was due and payable on November 1, 2013, not just the monthly instalment. There is no evidence to suggest that payment of the full balance of the mortgage was tendered to the bank, or was available to be taken by the bank. The balance due at the maturity date of November 1, 2013, was owed and remained unpaid. There was default under the mortgage.

Valid and Enforceable Guarantee?

[36] Unless the mortgage was renewed on or before November 1, 2013, both Girouard and Audette became liable for the entire balance due. As guarantor, Audette did “unconditionally guarantee full performance and discharge by the chargor of the obligations of the chargor under the provisions of this charge at the times and in the manner herein provided.” (clause (b) of the guarantee).

Renewal

[37] Despite the language at paragraph 7 of the statement of claim about the mortgage having been “renewed and amended by renewal and amendment agreement…” the mortgage in fact was not renewed. Whether or not Audette was notified of the anticipated renewal is immaterial. There was no renewal.

[38] The bank’s claim at paragraph 2 of the statement of claim is on the mortgage of October 24, 2008. Whether or not the bank mistakenly proceeded as if the mortgage had been renewed has no impact on the liability of the chargor and guarantor under that mortgage, as at November 1, 2013.

Other Steps Taken

[39] Likewise, none of the other steps taken, i.e. the erroneous discharge of Audette’s mortgage rather than Girouard’s and the steps taken to secure and then rectify the title to correct the bank’s error, had any effect on Audette’s obligation under the guarantee; that obligation had crystallized when the maturity date of November 1, 2013 was reached.

[40] There is no genuine issue to be tried on the issue of the default and the validity of Audette’s guarantee. The record permits me to make that finding.

[41] There is, however, a genuine issue requiring a trial with regard to amount claimed by the bank. Audette has raised the issue of the appropriateness of the costs claimed for (a) administration fees, (b) property management fees, (c) real estate commission, and (d) legal fees). These costs were challenged by Audette’s evidence that Girouard’s property was not maintained after the bank took possession: no work was performed and the driveway was not cleared during the winter months. She also raises the issue of whether in fact any real estate fees were properly incurred given her proposal to purchase the property, which possibly might have avoided the need for a realtor. As well, no evidence of how the legal fees were arrived at was provided. There may well also be an issue about the interest claimed given the erroneous discharge and resulting delay in commencing proceedings.

[42] Exercising the powers available to me pursuant to rule 20.04 (2.2) of the Rules of Civil Procedure, I will order that there be a mini-trial where oral and documentary evidence can be presented on the issue of the appropriateness of the amount claimed. Such mini-trial shall be heard by me after the parties have had a pre-trial (trial management and settlement discussions).

Conclusion

[43] The bank’s motion is denied, despite the above findings of fact which are finally decided, that is, there was default under the October 24, 2008, mortgage and the guarantor was liable for the outstanding amount of the mortgage on November 1, 2013.

[44] The issue of the amounts claimed by the bank shall proceed to a mini-trial before me, the parameters of which shall be determined by the pre-trial judge.

[45] The matter is adjourned to the trial coordinator to set a date for the pre-trial and mini-trial, at the request of the parties.

[46] The matter of costs is reserved to me to be dealt with after the mini-trial.

The Honourable Madam Justice Louise L. Gauthier

Released: September 27, 2016