Western Ontario Lending and Recovery Inc v. 1650997 Ontario Limited and 1732869 Ontario Inc.

COURT FILE NO.: 760/18

DATE: 2021-07-23

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: WESTERN ONTARIO LENDING AND RECOVERY INC, Plaintiff

AND:

1650997 ONTARIO LIMITED and 1732869 ONTARIO INC. Defendants

AND:

A WILFORD PROFESSIONAL CORPORATION and ALLEN WILFORD, Third Parties

BEFORE: Tranquilli J.

COUNSEL: Randolph D. Mills, for the Plaintiff Allen Wilford, for the Defendants

HEARD: July 14, 2021

ENDORSEMENT

[1] The plaintiff brings this motion for summary judgment against both defendants on a debt pursuant to the terms of two private mortgages. The plaintiff seeks judgment for the sum of $1,313,527.38, solicitor and client costs and pre-judgment interest from February 2, 2018 at the rate of 16.5% per annum on the principal amount outstanding.

[2] By consent order of March 31, 2021, summary judgment was granted in favour of the plaintiff, providing the plaintiff with possession of the properties secured by the mortgages on terms and adjourned the plaintiff’s motion for summary judgment on the principal and interest and claim for solicitor and client costs. The motion for that relief was returned before this court for determination.

[3] The plaintiff submits there is no genuine issue requiring a trial. The defendants’ principal acknowledged on her examination for discovery that she was aware of the terms of the interest-only mortgage. She had the advice of both an accountant and lawyer on the terms of the loan. She was aware of and agreed to the terms that the interest for the full term would be deducted from the advance and that interest would increase by 4% above the contract rate in the event the principal amount was not repaid on or before the maturity date.

[4] The defendants did not submit there is a genuine issue requiring a trial but raised issues as to the legality of the terms of the contract. The defendants argue the contract failed to disclose the true rate of interest as the plaintiff charged interest on the full amount of the mortgage; however, the full amount was never advanced to the defendants. Interest on the mortgage was prepaid and deducted from the sum advanced to the defendants. Nevertheless, the contract required the defendants to pay interest on the full amount of the principal. In substance, it was a blended mortgage because the principal was being paid down through the overcharge on interest. The interest terms were therefore in contravention of sections 6 and 8 of the Interest Act, RSC 1985, c I-15, as amended. The defendants submit that these terms are illegal and require sanction. They invite the court to find that only $937,500 is owing on the mortgage, being the net amount of the principal that was advanced by the plaintiff to the defendants. The defendants submit that there should be no interest on this sum, as a punitive sanction for intentional violation of the Interest Act.

[5] There was no dispute as to the facts presented on this motion. The central dispute is whether the plaintiff is permitted to charge interest at the rates stipulated in the agreement.

[6] The defendants granted two mortgages to the plaintiff, which were registered on two properties. The mortgages contained identical terms and were collateral to one another. The mortgages secured a loan from the plaintiff in the principal amount of $1,250,000. Terms included that interest on the mortgages was at 12.5% per annum calculated monthly and payable as interest only. The interest was prepaid for the initial term in the sum of $312,500.00, which was deducted from the advance in lieu of interest payments. The mortgage would mature on December 22, 2017. In the event the principal amount was not repaid on or before the date of maturity, the interest rate of the mortgage would be adjusted to four percentage points above the current contract rate, or 16.5%. All legal fees would be on a solicitor and client basis.

[7] The principal of the defendant corporations was accompanied by her accountant when she met with the plaintiff to negotiate the terms of the mortgages. Her accountant was also present when the principal signed the mortgage commitment letter for the defendant corporations and as a personal guarantor. The principal acknowledged on her examination for discovery that she was aware that the interest for the full term would be $312,5000.00 and that it would be deducted from the principal to be advanced to her. The third parties, Mr. Wilford, acted as counsel for the defendant corporations and their principal as guarantor (and is also the defendants’ counsel in this matter). By letter dated December 22, 2015, the defendants’ lawyer reported to the plaintiff lender’s lawyer: “I have acted as counsel to the Borrower and Guarantor in connection with the mortgage financing arrangements more particularly described in the mortgage commitment letter dated December 11, 2015 … Based and relying upon the foregoing, I am of the opinion that … The Documents executed by the Borrower and Guarantor constitute valid and legally binding obligations of the Borrower and Guarantor, as the case may be, enforceable against each of them in accordance with their terms.”

[8] The mortgage matured on December 22, 2017. The defendants went into default and the entire amount of the loan was in arrears. The plaintiff commenced this action by statement of claim issued April 9, 2018. The entire amount remains outstanding.

[9] The plaintiff claims the sum of $1,313,527.38 is owing under the mortgage as of April 9, 2018. The plaintiff also seeks pre-judgment interest from February 2, 2018 at the rate of 16.5% calculated monthly not in advance, pursuant to the terms of the mortgage.

[10] I am satisfied there in no genuine issue requiring a trial in respect to the claim and that this matter can be determined without having to resort to the enhanced powers under r. 20.04(2). The issue does not require the court to weigh the evidence, evaluate credibility or draw any reasonable inference from the evidence. The facts are undisputed and summary judgment is a proportionate, more expeditious and less expensive means to achieve a just result: Hyrniak v. Mauldin, 2014 SCC 7. The parties also advised the court that the third party claim is not active and is not an impediment to summary judgment. The issue is whether the defendants are correct in their contention the terms of interest under the mortgages are in contravention of either s. 6 or s. 8 of the Interest Act or are otherwise unenforceable.

[11] I accept the plaintiff’s submission that neither provision under the Interest Act applies to the circumstances of this claim. Section 6 only applies to a mortgage under which the payments of principal money and interests are blended. That was not the situation with these mortgages in issue. The terms clearly stipulated that the payments were “interest only”. I am not persuaded that the withholding of $312,500 from the advance on the principal converted this into a blended payment plan. The terms of the mortgage clearly set out that the sum of $312,500 was prepaid and that interest would nevertheless be payable on the entire principal of $1,250,000. Again, the defendants’ principal acknowledged being aware of these terms at the time of her commitment and that the prepayment would be deducted from the principal.

[12] The effect of s. 8 of the Interest Act is that a rate of interest cannot be imposed in a mortgage agreement if it has the effect of imposing a higher charge on arrears than that imposed on principal money not in arrears. The decision of Krayzel Corp v Equitable Trust Co., 2016 SCC 18 is of no assistance to the defendants. As was noted by the Supreme Court of Canada in that decision, an interest rate increase triggered by the mere passage of time (and not by default) does not offend s. 8. The provision in this contract sets out a prospective rate of interest that would only be charged on the monies secured by the mortgage that were not paid by the balance due date. In any event, section 8 would only be engaged if the effect was to impose a higher rate on arrears than on money not in arrears. As noted by the plaintiff, there are no monies not in arrears.

[13] The final difficulty with the defendants’ submission is that they had a legal opinion at the time of the mortgage commitment which advised that the terms of the mortgages were valid and legally binding. The defendants’ position on this motion is entirely at odds with that evidence.

[14] The court also does not have the assistance of any expert opinion which might have demonstrated how the terms of this mortgage substantively charged interest at higher rates than stipulated in the contract, that the contract was substantively a blended mortgage or that the terms were otherwise in contravention of the Interest Act or other consumer protection law. The court is entitled to assume that the entire record is before it as it would be at trial.

[15] This court is also not in a position to consider the defendants’ urging to revise the amount owing on the principal and exclude interest. This was not addressed in a cross-motion or in the responding record.

Disposition

[16] The plaintiff is accordingly entitled to summary judgment against the defendants in respect of the relief sought in paragraphs 2, 3, 4 of the plaintiff’s notice of motion dated October 28, 2019 and returnable November 27, 2020.

[17] The parties may address the matter of costs by written submissions of no more than 3-pages in length, excluding the bills of costs. The plaintiff may serve and file its costs submissions by July 30, 2021 and the defendants may serve and file their cost submissions by August 9, 2021.

Justice Tranquilli

Date: July 23, 2021