CITATION: CIBC v. Marko, 2017 ONSC 1113
COURT FILE NO.: CV-15-4805-SR
DATE: 2017 02 16
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Canadian Imperial Bank of Commerce
S. Butt, Counsel for the Plaintiff
Plaintiff
- and -
Lynn J. Marko
I. Donnell, Counsel for the Defendant
Defendant
HEARD: January 25th, 2017
REASONS FOR JUDGMENT
LEMAY J
[1] The Plaintiff, the Canadian Imperial Bank of Commerce (“the Plaintiff” or CIBC” or “the Bank”) loaned the Defendant, Lynn Marko (“the Defendant” or “Ms. Marko”) the sum of $116,823.34 in late 2005 to purchase a Fleetwood Pace Arrow Motorhome (the “Motorhome”) from Crate Marine Sales Limited (“Crate’s”). As part of the loan agreement, CIBC was entitled to register a security interest against the Motorhome under the Personal Property Security Act (“PPSA”).
[2] The security interest was never properly registered against the Motorhome. In addition, Ms. Marko never actually took title to the motorhome from Crates. In November of 2014, Crates was placed into receivership. The Motorhome was sold as part of the liquidation of Crates assets, and neither CIBC nor Ms. Marko realized anything from the sale of that asset.
[3] Following the sale of the Motorhome, Ms. Marko stopped making payments on the loan. CIBC sued Ms. Marko for the balance remaining on the loan, which was $62,392.48. Ms. Marko counterclaimed, alleging that CIBC improperly failed to register its security interest in the Motorhome. As a result, Ms. Marko asserts that CIBC has failed to mitigate its damages, and has failed to protect Ms. Marko’s rights in the Motorhome. Ms. Marko seeks compensatory damages in the sum of $80,000.00, punitive damages in the sum of $20,000.00 and damages for pain and suffering in the sum of $20,000.00.
[4] For the reasons that follow, I am granting summary judgment to CIBC in the amount of $62,392.48, plus pre-judgment interest and dismissing the Defendant’s counterclaim in its entirety.
Background Facts
a) The Original Loan
[5] Ms. Marko and CIBC entered into a loan agreement on November 1st, 2005. That loan agreement indicates that Ms. Marko was given a personal loan for $116,823.34, and that she pledged the Motorhome as security. The loan agreement on its face states that the Motorhome is held in the name of Lynn J. Marko.
[6] In addition to this term, the agreement that Ms. Marko entered into clearly incorporated the terms contained in CIBC’s Personal Borrowing Agreement booklet. That booklet sets out the following provisions which are relevant to my consideration of this motion:
Ownership and possession. You warrant that you own the collateral and agree that you will not sell, lease or give up possession of it without our consent.
Other claims. You will keep the collateral free of all security interests, mortgages, liens and other claims (“encumbrances”) except any you have already reported to us in writing. If you do not, we may at our option make any payment required to discharge all or part of the encumbrances.
We may refuse to advance funds until we are satisfied that there are no encumbrances, other than those we approve of, against the collateral.
- Dealing with the collateral. If the collateral includes tangible personal property:
• You will keep the collateral insured for the amount and against the risks that we reasonably request. If you do not we may at our option insure the collateral and pay the premiums. We may apply any proceeds of insurance to the amount you owe us (including any amount not yet due).
• You will keep the collateral in good repair. We may inspect the collateral at any reasonable time and may at our option make and pay for any reasonable repairs.
- CIBC’s rights on default. All amounts secured by the collateral and accrued interest and other charges will become payable immediately on demand if any of the following happens:
• you breach any of your obligations under this Part III
• the collateral is sold or removed from Canada or is about to be sold or removed from Canada without our consent
• you grant a security interest in collateral to any other person
• proceedings are started by or against you under any insolvency or bankruptcy law (or if you are not the Borrower, such proceedings are started by or against the Borrower)
• anything else happens which endangers the collateral or affects your ability to pay the amounts you owe us.
[7] Ms. Marko was a director of Crates at all material times. She decided that she would keep the title of the motorhome at Crates because she could take advantage of Fleet insurance rates for the Motorhome.
Ms. Marko made all of the payments on this loan until approximately March of 2015, when she stopped making payments.b) The Bankruptcy and Re-Registration of the PPSA Interest
[8] In September of 2014, the Motorhome was taken to Prosser’s Garage in Keswick for maintenance and repairs. It remained there in November of 2014, when Crates filed a Notice of Intention to Make a Proposal pursuant to the Bankruptcy and Insolvency Act.
[9] On November 21st, 2014 an interim receiver was appointed by the Court.
[10] When CIBC signed the agreement with Ms. Marko, it had attempted to register its PPSA interest in the Motorhome. However, that registration was never perfected because there was a one digit numerical error in the registration that CIBC completed. It substituted a 7 for a 4.
[11] As a result, when the Interim Receiver was appointed in November of 2014, there was no security interest registered against the Motorhome by the Bank.
[12] The company that was fixing the Motorhome, Prosser’s, registered a Repair and Storage Act lien against the Motorhome. The registration of this lien caused Ms. Marko to discover that CIBC had not properly registered its security interest in the Motorhome.
[13] In the meantime, the bankruptcy proceedings with Crates proceeded through the fall of 2014. A Trustee in Bankruptcy and a Court Appointed Receiver were appointed. Parties were invited to file claims for disputed property in Crates’ possession, which were due by January 30th, 2015. Late claims were barred.
[14] Ms. Marko advised CIBC of this claims process, but CIBC did not file a claim with the Receiver, and did not assert a security interest in the Motorhome in the bankruptcy litigation with Crates. Ms. Marko attempted to have CIBC assert an interest, but was advised that CIBC was not in the business of recovering property.
[15] The Motorhome as ultimately sold to a third party in March of 2015. No funds from the sale of the Motorhome were provided to either CIBC or to Ms. Marko. At this time, Ms. Marko allowed the loan to go into default.
c) The Claims
[16] When Ms. Marko stopped making payments on the loan, CIBC sued her for the balance of the loan that remained owing.
[17] Ms. Marko counterclaimed for damages as a result of the lost value in the motorhome, and claimed that the Bank had repudiated the loan agreement by failing to register its security. She also claimed for punitive damages and damages for mental distress.
[18] Discoveries have not yet been held in this action. CIBC has moved for summary judgment, on the basis that the funds were advanced to Ms. Marko, there has been default in payment, and there is no basis for Ms. Marko to withhold the money that she owes CIBC. Ms. Marko does not dispute the first two of these allegations.
Issues
[19] There are three issues that arise in this case:
a) Is this an appropriate case for summary judgment?
b) Did CIBC breach any duties or contractual provisions (either express or implied) that would entitle Ms. Marko to make a counterclaim for the value of the lost motorhome?
c) Is there any basis for granting Ms. Marko punitive damages or damages for pain and suffering?
[20] I have set the issues out this way because it is clear, on its face, that Ms. Marko owes CIBC the money that they have claimed back. The question is whether she has a defence or a counterclaim to CIBC’s claim.
Issue #1- Is This a Case for Summary Judgment?
[21] The test for summary judgment is set out in Hryniak v. Mauldin (2014 SCC 7). That case marked a departure from the way that litigation was to be conducted. Judges are expected to determine whether there is a genuine issue requiring a trial. No genuine issue requiring a trial will exist if the judge can make the necessary findings of fact, apply the law to the facts to reach a fair and just determination on the merits, and where summary judgment is a more proportionate and expeditious means to achieve a just result.
[22] In my view, this is a case for summary judgment. There are no material facts in dispute between the parties. The Defendant asserts that there is a genuine issue of material fact with respect to both her Statement of Defence and Counterclaim that require a trial. She also asserts that discovery is necessary in this case. I disagree.
[23] The facts in this case are clear and, from the foregoing summary, there is nothing material that is in dispute between the parties. It is clear that there was a loan agreement, and the terms of that agreement are also clear. It is also clear that the security interest was not registered properly under the PPSA. In addition, I was not pointed to any other meaningful facts that are in dispute in this case.
[24] The essential question on this motion is whether there is any merit, from a legal perspective, to the Defendant’s defences and counterclaims. Those are legal questions that can be answered in light of the factual matrix that I have set out above. Neither discovery nor a trial will significantly change the evidence available in this case. I now turn to consider those defences and counterclaims.
Issue #2- Did CIBC Breach any Duties or Contractual Provisions in this Case?
[25] Ms. Marko has asserted a number of breaches of various contractual provisions, both express and implied, on the part of CIBC. In reviewing the factum, the argument of counsel and Ms. Marko’s Affidavit, I have identified three principal arguments:
a) The registration of CIBC’s interest in the motorhome was a condition precedent for the loan for all parties.
b) If CIBC had properly registered its security interest against the Motorhome, then both CIBC and Ms. Marko would have received their money back.
c) CIBC failed to mitigate its damages by attempting to register the security and/or advance a claim after the fact.
[26] I will deal with each argument in turn.
a) Was the Registration of CIBC’s Interest in the Motorhome a Condition Precedent?
[27] Ms. Marko’s assertion that the registration of CIBC’s interest in the motorhome was a condition precedent for the loan suffers from two fatal flaws. First, and most importantly, if this assertion were correct, then the monies that CIBC was to advance under the loan would not have been advanced until the security was registered. Having received the entirety of the value of the loan, it is not now open to Ms. Marko to assert that the loan agreement is invalid because the security was not registered.
[28] Second, there is no obligation in law or in fact for CIBC to actually register its security interest. A reading of the loan agreement makes two facts clear. First, the registration of the security under the PPSA is for the protection of CIBC, and not of the owner of the security. Second, there is no actual obligation on the part of CIBC to register the security. Instead, the obligation is on the person who is receiving the loan to provide the security.
[29] In her Affidavit, Ms. Marko states (at paragraph 20) that she specifically made it an express condition of the loan that CIBC take security in the Motorhome to mitigate her personal risk. This statement suffers from three problems. First, there is nothing to support it. It is a bald assertion. Ms. Marko is obligated to put her best foot forward on a summary judgment motion. As a result, if she had any details or any other evidence about this alleged express condition, she was obligated to include it in her Affidavit. These details are not present and there is no evidence before the Court that Ms. Marko ever followed up on this alleged condition, which means that such a discussion likely never took place.
[30] Further, the fact that Ms. Marko decided to leave title to the Motorhome in Crates’ name supports the conclusion that there was no agreement that CIBC had to register the security. Had she insisted on the registration of the security interest, she would have been obligated to transfer title in the Motorhome to her name, and would not have been able to take advantage of the Fleet Insurance rates. Had she not transferred the Motorhome to her name, the security interest could not have been registered.
[31] Second, an interest in the security is designed to protect the lender, and not the borrower. If the security interest is not perfected, then the borrower has more ability to encumber or dispose of the property. As a matter of general practice, lenders will act to protect their own interest. However, an express term actually requiring the lender to register its security (or to resort to its security in any way) would need to be clear and express. On review of the loan documentation, no such term exists in this case.
[32] Third, counsel for Ms. Marko argues that the “officious bystander” test should be applied to import a term into the loan agreement requiring the lender to register its’ security interest. I reject this argument. The officious bystander test would not be applied in this case. A borrower would, in many cases, be quite content if the lender did not register its interests on the borrower’s security. The borrower would certainly not insist in such a term being included in the agreement.
[33] Finally, CIBC points out that there is an entire agreement clause in this agreement. That is a further reason for not reading in any of the terms that Ms. Marko proposes.
[34] This brings me to the second argument that Ms. Marko is advancing.
b) CIBC Improperly Failed to Register Its Interest in the Security
[35] Ms. Marko asserts that CIBC improperly failed to register its interest in the security and, as a result, caused both CIBC’s loss and her loss. This argument also suffers from two fatal flaws. First, as I have stated above, there was no obligation on CIBC to register the interest in the first place.
[36] Secondly, CIBC could not have perfected its interest in any event. Ms. Marko did not have title to the Motorhome at any point between the time when the loan was made in 2005 and the Motorhome was sold to a third party in 2015. As a result, she did not have the authority to grant a security interest in the Motorhome to CIBC, in spite of the fact that she signed an agreement granting such a security agreement.
[37] I acknowledge that, at paragraph 26 of her Affidavit, Ms. Marko states:
I verily believe that, as a Director of Crate’s, I had the authority to grant security over the Motorhome to the Plaintiff, despite the fact that the Motorhome remained registered to Crate’s.
[38] However, there is no legal authority for this statement. Corporations have separate identities, and it is the Corporation that would have had to grant the security interest in the Motorhome under the PPSA. Further, Ms. Marko signed an agreement with CIBC that clearly stated that she held title to the Motorhome. This was a misrepresentation on her part.
[39] Counsel for Ms. Marko spent considerable time in oral argument on the fact that CIBC ultimately attempted, after the Receiver had been appointed, to try and register its security against the Motorhome. He argued that this late attempt at registration supported Ms. Marko’s claim that CIBC was obligated to register its security interest. This argument does not assist Ms. Marko in any way. The fact that the error came to CIBC’s attention and they acted on it, does not change the legal conclusion that CIBC had no obligation to register its security.
[40] This brings me to the argument on mitigation.
c) Did CIBC Fail to Mitigate Its Damages?
[41] No. Ms. Marko argues that CIBC should have pursued an interest in the Motorhome once it became clear that the security was not properly registered. She argues that, by not pursuing this interest, CIBC failed to mitigate its damages.
[42] The first, and most important, problem with this argument is that the monies owing to CIBC from Ms. Marko are a debt. As our Court of Appeal noted in Manufacturers Life Insurance Co. v. Granada Investments Ltd. ([2001] 2708 (ONCA) at paragraph 76):
Lastly, in my opinion, as a general proposition, mitigation does not apply to an action for a fixed debt as it does to tort and contract damage claims. The mitigation issue in a mortgage remedy context arose in Pacific & Western Trust Corp. v. Gretchen Enterprises Ltd. (1989), 1989 4666 (SK QB), 63 D.L.R. (4th) 764 (Sask. Q.B.). In that case, the mortgagor’s position was that since the value of the mortgaged land was equal to or greater than the amount of the mortgage debt, the mortgagee had a duty to mitigate its losses by accepting an offer from the mortgagor to transfer the mortgaged property to the mortgagee in satisfaction of the debt. At pp. 765-66, Estey J., after referring to Chitty on Contracts, 24th ed., vol. 1 (1977), at pp. 727-28 and Anson, Principles of the English Law of Contract, 21st ed. (1959), at p. 459, concluded that a mortgagee in an action for debt is under no duty to mitigate the mortgage debt by accepting a transfer of the mortgaged land. He concluded that doctrines such as remoteness and mitigation, which place limits on the recovery of damages, do not apply to a debt. I agree. The principle of mitigation has no application to Manulife’s claim for repayment of its loans to Granada.
[43] In this case, the amount owing was a fixed debt. As a result, CIBC does not have any obligations to mitigate its losses. Instead, CIBC can decide when (or whether) to realize on its security or otherwise pursue repayment.
[44] Counsel for Ms. Marko argues that CIBC had a duty to mitigate based on CIBC’s obligation to conduct itself in a good faith and honest manner with due regard to the interests of Ms. Marko. Counsel based his argument on the principles in Bhasin v. Hrynew (2014 SCC 71). I reject that argument for three reasons. First, the contract between Ms. Marko and CIBC involves a fixed debt. While CIBC may very well have obligations of good faith, those obligations arise in the context of the commercial contract that the parties have entered into.
[45] The commercial contract in this case is a loan, which is a fixed debt. As a result, the context of that contract includes CIBC’s right to enforce its security at any time. As the Court of Appeal noted in Manufacturers Life, supra at paragraph 63:
As a general proposition, although Manulife could have asserted rights to possession under the mortgage before August 30, 1996, it was not under any duty to do so in the March through August, 1996 period. See Modern Realty Co., Ltd. v. Shantz, 1928 5 (SCC), [1928] S.C.R. 213 at 221. Manulife was entitled to exercise its right of possession when it chose to do so.
[46] Although this passage is in the context of a mortgage action, it still refers to the rights of a security holder. CIBC is in the same position in this case as Manulife was, and has the same right to enforce (or not enforce) its security interest.
[47] Second, in any event, CIBC could never have perfected its security interest in the Motorhome because Ms. Marko never had title to the Motorhome. As a result, any attempts to register a security interest in the Motorhome would have been fruitless. Therefore, CIBC could not have mitigated its losses even if it had tried to do so.
[48] Third, Ms. Marko was also a contracting party, and was also bound to obligations of good faith and fair dealing. She breached those obligations, and put both parties at risk, by failing to transfer title to the Motorhome from Crates to her own name. She cannot now claim that CIBC acted contrary to the principles of good faith and fair dealing by failing to discover and correct her own misrepresentation.
d) Concluding Comments- The Equities
[49] In essence, Ms. Marko left title to the Motorhome with Crates in order to take advantage of lower insurance rates. CIBC did not discover this fact because it did not properly register its security interest under the PPSA, and because Ms. Marko signed an agreement with CIBC in which she specifically represented that she (and not Crates) had title to the property. Ms. Marko now says that CIBC should be responsible for her losses.
[50] In other words, having sought and claimed the advantages associated with leaving the title to the Motorhome in Crates’ name, Ms. Marko now seeks to have the bank shoulder the responsibility for the associated losses that she has suffered.
[51] I have already explained why I have found Ms. Marko’s claims to be unsupported in law. The previous two paragraphs illustrate that Ms. Marko’s claims cannot be supported on any principle of equity either. Ms. Marko is the author of her own misfortune. CIBC did not conduct itself contrary to the principles of good faith and fair dealing.
[52] Accordingly, I grant CIBC’s motion for summary judgment, and dismiss Ms. Marko’s claims for damages from CIBC related to the loss of the residual value of the Motorhome.
Issue #3- Is Ms. Marko Entitled to Punitive Damages or Damages for Pain and Suffering?
[53] As I have dismissed the remainder of Ms. Marko’s claim, it follows that her claims for punitive damages and/or damages for pain and suffering are also dismissed.
[54] However, I should also state that I saw no evidence in Ms. Marko’s Affidavit or the other materials that she filed on this motion that would support either of these claims, even if she had succeeded on the merits of her contractual claim.
Conclusion
[55] For the foregoing reasons, I order as follows:
a) CIBC is to have judgment for the amount of $62,392.48 as of July 22nd, 2015, together with per diem interest in accordance with the Courts of Justice Act thereafter.
b) Ms. Marko’s counterclaim is dismissed in its entirety.
[56] CIBC is to provide its costs submissions within fourteen (14) days of the release of these reasons. Those submissions will be no longer than two (2) single-spaced pages in length, exclusive of bills of cost and offers to settle.
[57] Ms. Marko is to provide her responding costs submissions within fourteen (14) days of receiving CIBC’s submissions. Again, those submissions will be no longer than two (2) single-spaced pages in length, exclusive of bills of cost and offers to settle.
[58] There shall be no reply submissions on costs without my leave.
LEMAY J
Released: February 16, 2017
CITATION: CIBC v. Marko, 2017 ONSC 1113
COURT FILE NO.: CV-15-4805-SR
DATE: 2017 02 16
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Canadian Imperial Bank of Commerce
Plaintiff
- and -
Lynn J. Marko
Defendant
REASONS FOR JUDGMENT
LEMAY J
Released: February 16, 2017