Court File and Parties

OSHAWA COURT FILE NO.: CV-17-1666 DATE: 20181009 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

CIBC Mortgages Inc. Plaintiff – and – Lyle Michael Derlago Defendant

COUNSEL: Carrie Kennedy, for the Plaintiff Murray Miskin, for the Defendant

HEARD: August 24, 2018

Reasons for Decision

CHARNEY J.:

Introduction

[1] The plaintiff, CIBC Mortgages Inc. (CIBC) brings this motion for summary judgment against the defendant, Lyle Derlago, for amounts owing by him with respect to a mortgage which the defendant signed as a guarantor.

[2] The defendant takes the position that the motion for summary judgment should be dismissed on the basis that there are genuine issues requiring a trial.

[3] The primary issue in this motion is whether the plaintiff can enforce the defendant’s contractual obligation to pay the loan amount by way of summary judgment motion before the plaintiff has taken steps to sell the property by power of sale, which would reduce or eliminate the debt it seeks to enforce.

Facts

[4] CIBC is the mortgagee of a property in Buckhorn, Ontario (the Property) owned by Linda Derlago, the spouse of the defendant. The mortgage was granted in February 2011 to secure a loan amount of $202,000. The defendant signed the mortgage as guarantor on December 17, 2010. Pursuant to the terms of the guarantee, the defendant agreed to repay the loan amount to the plaintiff and perform all other obligations under the mortgage. The guarantee states:

In Return for CIBC Mortgages Inc. having made a loan to the chargor…each person who signs the charge as guarantor agrees with CIBC Mortgages Inc. as principal debtor and not as surety, to pay to CIBC Mortgages Inc. the loan amount as and when required by the charge and to observe and perform all other obligations of the chargor under the charge. Each guarantor, if there is more than one, will be jointly and individually liable with the chargor and with each other for complying with all obligations under the charge…CIBC Mortgages Inc. may require payment from any guarantor before CIBC Mortgages Inc. attempts to obtain payment from the chargor.

[5] The last mortgage instalment paid was made on November 11, 2016. The loan amount became due and payable on December 23, 2016, the mortgage maturity date, and has not been paid. Both of these are defaults under the terms of the mortgage.

[6] The mortgage provides that CIBC may require the defendant to pay the loan amount if, among other things, the payments required by the mortgage are not made. If the payments required by the mortgage are not made, CIBC has “the right to take one or more of these actions at the same time or in any order we choose” to collect the loan amount. One option included in the agreement is suing the guarantor to collect the loan amount. A second option included in the agreement is exercising a “power of sale”. In this case the CIBC has chosen to sue to collect the loan amount before exercising a power of sale.

[7] On March 22, 2017, the total amount outstanding on the mortgage was $171,467.49. On that date, CIBC, through its lawyers, demanded payment of the loan amount from Linda Derlago. The loan amount was not paid.

[8] On or about March 24, 2017, the plaintiff alleges that it discovered that the property had been left vacant and took measures to secure it. The plaintiff takes the position that it took no measures to deprive the registered owner, Linda Derlago, of possession prior to March 24, 2017. The plaintiff takes the position that Linda Derlago and Lyle Derlago abandoned the property without notice to the CIBC.

[9] On or about April 6, 2017, the plaintiff issued a Notice of Sale Under Mortgage, a copy of which was sent to the defendant. On May 13, 2017, the redemption period under the Notice of Appeal expired.

[10] To date, CIBC has taken no steps to sell the property.

[11] On June 5, 2017, CIBC commenced this action against the defendant for the sum of the outstanding loan amount ($173,639.78 as of May 15, 2017) guaranteed by the defendant.

[12] The defendant takes the position that he vacated the property and stopped making payments on the mortgage in November 2016, at which time he turned the keys to the property over to the plaintiff (through the plaintiff’s agent, Luc Burnham, a Financial Advisor employed with CIBC). Mr. Burnham has filed an affidavit denying that the defendant ever gave him the keys to the property.

[13] The defendant argues that the plaintiff took no steps to secure the property ahead of the winter of 2016/17, and damage resulted before the plaintiff took actual possession in March 2017. Moreover, the defendant argues that the plaintiff was negligent in its delay in securing and selling the property and should, therefore, not be able to obtain full repayment of the mortgage debt from the defendant as the guarantor. The defendant argues that there was sufficient equity in the property to fully pay off the mortgage if the plaintiff had acted in a reasonable time frame to secure the property and put it up for sale.

Motions for Summary Judgment

[14] Rule 20.04(2)(a) of the Rules of Civil Procedure provides: “The court shall grant summary judgment if the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence.”

[15] Rule 20.04(2.1) sets out the court’s powers on a motion for summary judgment:

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:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent.
3. Drawing any reasonable inference from the evidence.

[16] These powers were extensively reviewed by the Supreme Court of Canada in Hryniak v. Mauldin, 2014 SCC 7, where it laid out a two-part roadmap for summary judgment motions at para. 66:

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.

[17] Even with these extended powers, a motion for summary judgment is appropriate only if the material provided on the motion “gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute” (Hryniak, at para. 50).

[18] In Hryniak, the Supreme Court held (at para. 49) that there will be no genuine issue for trial when the summary judgment process “(1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.”

[19] To defeat a motion for summary judgment, the responding party must put forward some evidence to show that there is a genuine issue requiring a trial. A responding party may not rest on mere allegations or denials of the party’s pleadings, but must set out—in affidavit material or other evidence—specific facts establishing a genuine issue requiring a trial.

[20] The motion judge is entitled to assume that the record contains all of the evidence that would be introduced by both parties at trial. A summary judgment motion cannot be defeated by vague references as to what may be adduced if the matter is allowed to proceed to trial.

[21] Pursuant to Rule 20.02(1), affidavits may be made on information and belief, but the court may, if appropriate, draw an adverse inference from a party’s failure to provide evidence of any person having personal knowledge of contested facts.

[22] Where summary judgment is refused or is granted only in part, Rule 20.05 provides that “the court may make an order specifying what material facts are not in dispute and defining the issues to be tried and order that the action proceed to trial expeditiously” and give directions or impose such terms as are just.

[23] It is now well settled that “both parties on a summary judgment motion have an obligation to put their best foot forward” (see Mazza v. Ornge Corporate Services Inc., 2016 ONCA 753 at para. 9). Given the onus placed on the moving party to provide supporting affidavit or other evidence under Rule 20.01, “it is not just the responding party who has an obligation to ‘lead trump or risk losing’” (see Ipex Inc. v. Lubrizol Advanced Materials Canada, 2015 ONSC 6580 at para. 28).

See also: Crawford v. Toronto (City), 2018 ONSC 1729 at para. 38:

Thus, if the moving party meets the evidentiary burden of producing evidence on which the court could conclude that there is no genuine issue of material fact requiring a trial, the responding party must either refute or counter the moving party’s evidence or risk a summary judgment.

[24] A plaintiff or defendant bringing a motion for summary judgment does not thereby reverse the onus of proof. See for example, Sanzone v. Schechter, 2016 ONCA 566 at paras. 30-32, confirming the initial evidentiary obligation borne by the moving party (in that case the defendant) on a summary judgment motion.

[25] While Rule 20.04 provides the court hearing a summary judgment motion with “enhanced forensic tools” to deal with conflicting evidence on factual matters, the court should employ these tools and decide a motion for summary judgment only if it can do so fairly: Eastwood Square Kitchener Inc. v. Value Village Stores, Inc., 2017 ONSC 832 at paras. 3-6 (and cases cited therein).

Analysis

[26] The plaintiff argues that the facts relevant to the defendant’s liability under the terms of the mortgage are not in dispute, and that this is therefore an appropriate case to grant summary judgment without the need for the court to use the fact-finding powers in Rules 20.04(2.1) and (2.2). There is no dispute that Linda Derlago defaulted on the loan, or that the defendant guaranteed the loan, or that under the terms of the guarantee the defendant agreed to repay the loan amount to the plaintiff and perform all other obligations under the mortgage. Under the terms of the guarantee there is no obligation on the CIBC to exhaust its recourse against other securities it might hold before being entitled to enforce payment from the guarantor.

[27] The plaintiff acknowledges that there are facts in dispute. The defendant alleges that the mortgagee took possession of the property in November 2016 when the defendant gave the keys to the property to the plaintiff’s agent. The plaintiff takes the position that it did not take possession of the property until March 2017. This factual dispute relates to the defendant’s argument that the plaintiff’s failure to secure the property between November 2016 and March 2017 was negligent and resulted in damages to the property, which has decreased its value.

[28] The plaintiff’s position is that this factual dispute does not have to be resolved on this motion for summary judgment because it is not relevant to the legal issues the court must decide. The plaintiff argues that the defendant, as the guarantor, must pay the outstanding loan amount of $173,639.78. If and when CIBC exercises its right to sell the property, the defendant can raise these allegations if it brings an action for improvident sale of the property. But the cause of action of improvident sale assumes that a sale has been completed (Muhammad v. 2156555 Ontario Inc., 2017 ONSC 7226, at paras. 47 and 52). Therefore any allegation or claim by the defendant against the mortgagee for improvident sale of the mortgaged property and/or an accounting of any surplus sale proceeds must wait until the property is sold.

[29] In the meantime, there is no reason why the mortgagee cannot enforce the guarantor’s contractual obligation to pay the loan amount. Should the mortgaged property be disposed of by power of sale, the mortgagee’s obligation is to account for the proceeds of sale: see Duca Financial Services Credit Union Ltd. v. Bozzo, 2006 ONCA 770 at para. 14, citing Walter M. Traub, Falconbridge on Mortgages, 5th ed. looseleaf (Aurora: Canada Law Book, 2004) c. 31 at 31-12 – 31-14; Mortgages Act, R.S.O 1990, c. M.40, s. 27.

[30] The defendant argues that any payment from the defendant should be reduced because of the delay and damage to the property resulting from the plaintiff’s negligence. As a mortgagee in possession as of November 2016, CIBC had an obligation to manage the property in a reasonable way, that is as a prudent owner would (Manufacturers Life Insurance Co. v. Granada Investments Ltd., 2001 ONCA 2708, at para. 64).

[31] The defendant argues that the issue of the plaintiff’s negligence presents a genuine issue requiring a trial and that this issue must wait until after the sale of the property to determine how much, if anything, the defendant may owe to the plaintiff. In other words, this is not an appropriate case for summary judgment because, once the property is sold, the defendant may bring an action or counterclaim for negligence and improvident sale if the proceeds of sale do not satisfy the mortgage debt. The defendant’s factum expresses the point as follows:

The Defendant has raised issues that, in the future, following sale by the Plaintiff of the property, will be triable, to determine to what extent the Plaintiff is, itself, responsible for any future shortfall by reason of its neglect of the property and delay in selling it. (emphasis added)

[32] As matters now stand, however, the property has not been sold, and there is no action or counterclaim by the defendant against the plaintiff for negligence or improvident sale.

[33] Under the terms of the mortgage there is no obligation on the CIBC to sell the property before it seeks to enforce the guarantee. As a general proposition: “The mortgagee is entitled to exercise an accrued power of sale for his own purposes whenever he chooses to do so.” Bank of Montreal v. Zaffino, 2013 ONSC 3090, at para. 37; Oak Orchard Developments Ltd. v. Iseman, [1987] O.J. No. 361 (Ont. H.C.J.), aff’d, [1989] O.J. No. 2394 (C.A.); Manufacturers Life Insurance Co. at paras. 68 and 69.

[34] In this regard, the Ontario Court of Appeal, in Manufacturers Life Insurance Co., has confirmed that mitigation does not apply to an action for a fixed debt such as a mortgage. The Court stated, at para. 76:

[T]hat a mortgagee in an action for debt is under no duty to mitigate the mortgage debt by accepting a transfer of the mortgaged land… [D]octrines such as remoteness and mitigation, which place limits on the recovery of damages, do not apply to a debt… The principle of mitigation has no application to Manulife’s [the mortgagee’s] claim for repayment of its loans to Granada [the mortgagor].

[35] While the defendant acknowledges that the doctrine of mitigation has no application to this action, the defendant’s position on this motion for summary judgment looks very much like a mitigation claim, since it is raised as a defence to the plaintiff’s claim before the property has been sold.

[36] In my view the date on which CIBC took possession of the property is not relevant to CIBC’s right to enforce the defendant’s contractual obligation to pay the loan amount, and I do not have to resolve this factual dispute to determine the legal issue raised by the pleadings in this case. Pursuant to the terms of the loan agreement, CIBC was legally entitled to require the defendant to pay the loan amount as soon as the payments required by the mortgage were in default. This legal right arose regardless of when (or whether) CIBC took possession of the property. While a mortgagee is entitled to take possession of the mortgaged premises immediately upon default, it may exercise that right when it chooses; there is no “obligation on the mortgagee to take possession of the mortgaged premises at the time of default, or at all”: Manufacturers Life Insurance Co., at paras. 56, 63; Royal Trust Corp. of Canada v. 880185 Ontario Ltd., 2005 ONCA 409, at para. 33.

[37] The date of possession may become relevant if and when CIBC disposes of the property by power of sale and accounts for the proceeds of sale. The defendant cannot, however, defeat a motion for summary judgment by raising issues that may “in the future” present a genuine issue for trial.

Conclusion

[38] Based on the foregoing I am satisfied that the defendant has not raised a defence that requires the trial of an issue in relation to the plaintiff’s current claim against the defendant for payment of the outstanding loan amount, and the plaintiff’s motion for summary judgment in the amount of $173,639.78 is granted. This decision is without prejudice to any claims the defendant may have against the plaintiff if and when the mortgaged property is disposed of by power of sale.

[39] The plaintiff is presumptively entitled to its costs on this matter. If the parties cannot reach an agreement on costs, the plaintiff may file costs submissions of no more than 3 pages plus a costs outline and any offers to settle within 30 days of the release of this decision, and the defendant may file reply submissions on the same terms within 15 days thereafter.

Justice R.E. Charney

Released: October 9, 2018