Canadian Imperial Bank of Commerce v. Ohlson, (1996) 180 A.R. 248 (QB)

• Judge: Rooke, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: February 22, 1996
• Citations: (1996), 180 A.R. 248 (QB)

CIBC v. Ohlson (1996), 180 A.R. 248 (QB)

MLB headnote and full text

Canadian Imperial Bank of Commerce (plaintiff) v. Mary Olga Ohlson and John Carl Ohlson (defendants)

(Action No. 9201-05608)

Indexed As: Canadian Imperial Bank of Commerce v. Ohlson

Alberta Court of Queen's Bench

Judicial District of Calgary

Rooke, J.

February 22, 1996.

Summary:

The defendant son required monies for a real estate transaction, but was a poor credit risk. It was agreed that the defendant mother would provide security. The monies were advanced by the plaintiff bank. The defen­dants later executed an equitable mortgage on land owned by the mother and a prom­issory note at interest of prime plus 2%. The son defaulted. The bank registered a caveat against the land and sued the son and mother on the promissory note and equitable mort­gage. Two issues arose: (1) whether the loan was "unconscionable" under s. 2 of the Unconscionable Transactions Act and (2) whether s. 41 of the Law of Property Act prevented the bank from recovering on the promissory note where recovery was also pursued on the equitable mortgage, which was collateral security to the promissory note.

The Alberta Court of Queen's Bench held that where the cost of the loan was not excessive and the loan was not unconscion­able, relief could not be granted under s. 2 of the Unconscionable Transactions Act. The court held that s. 41 of the Law of Property Act did not bar recovery on the promissory note in this case.

Banks and Banking - Topic 708

Duties of banks - Duty respecting inde­pendent legal advice - A son could not obtain a loan because he was a poor credit risk - The bank agreed to loan him monies if his mother executed a promissory note and gave an equitable mortgage on land - The mother claimed that the bank had a duty to require her to obtain independent legal advice before loaning the monies and breach of that duty rendered the loan unconscionable - The Alberta Court of Queen's Bench stated that "in the context of unconscionability, financial institutions do not have a general or specific duty to require that a third party obtain indepen­dent legal advice. However, ... if a finan­cial institution fails to invite (or require?) a third party to obtain independent legal advice, it runs the risk that a transaction that might, with such advice, not be un­conscionable, will be found to be uncon­scionable. ... I do not agree that the third party must accept the financial institution's invitation to obtain independent legal advice, or that the financial institution cannot proceed with the loan in the absence of such advice having been given." - See paragraphs 46 to 50.

Creditors and Debtors - Topic 8563

Debtors' relief legislation - Unconscion­able transactions relief - Cost of loan excessive, harsh and unconscionable - Section 2 of the Unconscionable Transac­tions Act provided relief to a borrower where the loan cost was excessive and the transaction was unconscionable - A mother executed a $50,000 promissory note and an equitable mortgage so that her son, a poor credit risk, could borrow monies for a real estate transaction - The interest rate was prime plus 2% - The mother claimed the transaction was uncon­scionable, because she was not advised by the bank to obtain independent legal advice - The Alberta Court of Queen's Bench held that relief was available under s. 2 only if the mother established that the cost of the loan was excessive and that the transaction was unconscionable - The cost of the loan was not excessive - Further, the court opined that there was no unconscionability - See paragraphs 22 to 61.

Creditors and Debtors - Topic 8563

Debtors' relief legislation - Unconscion­able transactions relief - Cost of loan excessive, harsh and unconscionable - Section 2 of the Unconscionable Transac­tions Act provided relief to a borrower where the loan cost was excessive and the transaction was unconscionable - The Alberta Court of Queen's Bench held that the cost of a loan was likely to be found "excessive" if, in view of prevailing terms in the market for similar kinds of loans (1) the lender was assuming a relatively low risk by making the loan and (2) the inter­est rate, the method of payment or bonuses payable were unusually favourable to the lender - See paragraph 29.

Creditors and Debtors - Topic 8563

Debtors' relief legislation - Unconscion­able transactions relief - Cost of loan excessive, harsh and unconscionable - Section 2 of the Unconscionable Transac­tions Act provided relief to a borrower where the loan cost was excessive and the transaction was unconscionable - The Alberta Court of Queen's Bench stated that the following three circumstances must all exist at the same time to find a transaction "unconscionable": (1) an inequality of bargaining power or a weakness known to the lender; (2) the inequality of bargaining power must have been exploited by the lender through an unfair or improvident bargain; and (3) if both preceding condi­tions applied, the lender must have failed to advise the borrower to obtain indepen­dent legal advice - The court discussed circumstances evidencing inequality in bargaining power and exploitation - See paragraphs 39 to 45.

Mortgages - Topic 5405

Mortgage actions - Action on the covenant - Prohibition against - Section 41 of the Law of Property Act precluded an action "on a covenant for payment contained in the mortgage" - The Alberta Court of Queen's Bench stated that "(1) a debt obligation which is secured solely by a mortgage can, as a result of the operation of s. 41, only be satisfied by judgment against the mortgaged lands; and (2) if the same debt, or some part of the same debt, is secured by another obligation (in most cases a promissory note), the court must look to the whole of the surrounding cir­cumstances in which the two obligations were entered into to determine whether it was intended that the additional obligation would be distinct from the mortgage and whether the two obligations are merely co-extensive in form (additional recovery being allowed), or are the same obligation" - The court stated that where, as in the case at bar, the mortgage was merely collateral security to the promissory note and the two obligations were merely co-extensive in form, s. 41 did not preclude an action on the promissory note for the deficiency after foreclosure - See para­graphs 62 to 71.

Cases Noticed:

Hamilton v. Long (1903), 2 I.R. 407 (K.B.), refd to. [para. 10].

R. v. Dubeau (1993), 80 C.C.C.(3d) 54 (Ont. Gen. Div.), refd to. [para. 10].

Paquin v. Gainers Inc. (1989), 101 A.R. 290; 71 Alta. L.R.(2d) 74 (C.A.), refd to. [para. 20].

Dassen Gold Resources Ltd. et al. v. Royal Bank of Canada, [1995] 1 W.W.R. 171; 161 A.R. 161 (Q.B.), refd to. [para. 22].

O'Brien v. Brokop (1994), 24 Alta. L.R.(3d) 191 (Prov. Ct.), refd to. [para. 22].

Tucson Properties Ltd. v. Sentry Resources Ltd and Fournel (1982), 39 A.R. 341; 22 Alta. L.R.(2d) 44 (Q.B. Master), refd to. [para. 22].

Bertolo v. Bank of Montreal (1986), 18 O.A.C. 262; 57 O.R.(2d) 577 (C.A.), refd to. [para. 23].

Bomek and Bomek v. Bomek and Dauphin Plains Credit Union (1983), 20 Man.R.(2d) 150 (C.A.), refd to. [para. 23].

Lloyds Bank Ltd. v. Bundy, [1974] 3 All E.R. 757 (C.A.), refd to. [para. 23].

Premier Trust Co. v. Beaton (1990), 1 O.R.(3d) 38 (Gen. Div.), refd to. [para. 24].

Toronto Dominion Bank v. Wong and Lim (1985), 65 B.C.L.R. 243 (C.A.), refd to. [para. 24].

Calgary (City) v. Northern Construction Co., [1986] 2 W.W.R. 426; 67 A.R. 95 (C.A.), refd to. [para. 26].

Adams v. Fahrngruber (1975), 10 O.R.(2d) 96 (H.C.), refd to. [para. 26].

Canadian Imperial Bank of Commerce v. 3L Trucking Ltd. et al. (1995), 176 A.R. 245 (Q.B.), refd to. [para. 28].

Hongkong Bank of Canada v. 414577 Alberta Ltd. and Fife (1995), 167 A.R. 321 (Q.B. Master), refd to. [para. 28].

Canadian Imperial Bank of Commerce v. 3L Trucking Ltd. (1993), 147 A.R. 146; 15 Alta. L.R.(3d) 133 (Q.B.), revd. (1995), 165 A.R. 96; 89 W.A.C. 96; 26 Alta. L.R.(3d) 305 (C.A.), refd to. [para. 28].

Bank of Nova Scotia v. Drouillard-Potter (1987), 79 A.R. 2 (Q.B. Master), refd to. [para. 28].

Commerce Leasing Ltd. v. Marusiak Brothers Backhoe Services Ltd. and Marusiak (1985), 60 A.R. 344 (Q.B.), refd to. [para. 28].

Fusty v. McLean Construction Ltd. (1978), 14 A.R. 602; 6 Alta. L.R.(2d) 216 (Dist. Ct.), refd to. [para. 28].

R.S. v. A.L. (1994), 158 A.R. 227 (Q.B.), refd to. [para. 34].

Morrison v. Coast Finance Ltd. (1965), 54 W.W.R.(N.S.) 257; 55 D.L.R.(2d) 710 (B.C.C.A.), refd to. [para. 37, footnote 2].

Royal Bank of Canada v. Brattberg (1993), 143 A.R. 131 (Q.B.), refd to. [para. 38].

Avon Finance Co. v. Bridger, [1985] 2 All E.R. 251 (C.A.), refd to. [para. 42].

Clayborn Investments Ltd. v. Wiegert (1977), 5 A.R. 50; 3 Alta. L.R.(2d) 295; 77 D.L.R.(3d) 170 (C.A.), refd to. [para. 63].

Edmonton Airport Hotel Co. v. Credit Foncier Franco-Canadien, [1965] S.C.R. 441; 51 W.W.R.(N.S.) 431; 50 D.L.R.(2d) 510, refd to. [para. 63].

Merit Mortgage Group v. Sicoli, [1983] 5 W.W.R. 381; 75 A.R. 204; 26 Alta. L.R.(2d) 232 (C.A.), refd to. [para. 63].

Alberta (Treasurer) v. LaFrance (1980), 13 Alta. L.R.(2d) 142 (Q.B.), refd to. [para. 63].

Canadian Imperial Bank of Commerce v. Andrejcsik (1984), 53 A.R. 137; 30 Alta. L.R.(2d) 109 (Q.B.), refd to. [para. 63].

Canadian Imperial Bank of Commerce v. Secrist (1993), 140 A.R. 111; 10 Alta. L.R.(3d) 342 (Q.B.), refd to. [para. 64].

Bank of Nova Scotia v. Bailey (1986), 71 A.R. 321; 45 Alta. L.R.(2d) 259 (Q.B. Master), refd to. [para. 64].

Tuxedo Savings and Credit Union Ltd. v. Krusky (1987), 75 A.R. 190; 49 Alta. L.R.(2d) 282 (C.A.), refd to. [para. 64].

Royal Bank of Canada v. Platts (1987), 82 A.R. 397; 56 Alta. L.R.(2d) 275 (C.A.), refd to. [para. 64].

Edmonton Savings and Credit Union Ltd. v. Weir (1987), 57 Alta. L.R.(2d) 423 (Q.B. Master), revd. (1988), 86 A.R. 329; 58 Alta. L.R.(2d) 144 (Q.B.), refd to. [para. 64].

Ipsco Inc. v. Russell (1989), 100 A.R. 77 (C.A.), refd to. [para. 64].

Alberta (Treasury Branches) v. Bullock and Bullock (1992), 126 A.R. 349 (Q.B.), refd to. [para. 64].

Alberta v. Wenley Enterprises & Sales Ltd. et al. (1985), 66 A.R. 232 (Q.B. Master), refd to. [para. 66].

Statutes Noticed:

Law of Property Act, R.S.A. 1980, c. L-8, sect. 41 [para. 62].

Unconscionable Transactions Act, R.S.A. 1980, c. U-2, sect. 2 [para. 22].

Authors and Works Noticed:

Driedger, Elmer A., Construction of Stat­utes (3rd Ed. 1994), pp. 298, 299, 301 [para. 26].

Falconbridge on Mortgages (4th Ed. 1977), pp. 83, 84, 87 [para. 66].

Fridman, G.H.L., The Law of Contract (3rd Ed. 1994), p. 338 [para. 22].

Ontario, Law Reform Commission, Report on Amendment of the Law of Contract (1987), generally [para. 26].

Price and Trussler, Mortgage Actions in Alberta (1985), p. 404 [para. 64].

Roach, The Canadian Law of Mortgages of Land (1993), pp. 309, 310 [para. 66].

Waters, D., Banks, Fiduciary Obligations and Unconscionable Transactions (1986), 65 Can. Bar Rev. 37, generally [para. 28].

Counsel:

P.R.S. Levesque, for the plaintiff;

E.D. Simper, for the defendant, Mary Ohlson;

John Carl Ohlson, on his own behalf.

This case was heard before Rooke, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the fol­lowing judgment on February 22, 1996.