Canadian Imperial Bank of Commerce v. Ohlson, (1997) 209 A.R. 140 (CA)

• Court: Court of Appeal (Alberta)
• Case Date: December 03, 1997
• Citations: (1997), 209 A.R. 140 (CA)

CIBC v. Ohlson (1997), 209 A.R. 140 (CA);

         160 W.A.C. 140

MLB headnote and full text

Temp. Cite: [1997] A.R. TBEd. DE.061

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

(Appeal No. 96-16541)

Indexed As: Canadian Imperial Bank of Commerce v. Ohlson

Alberta Court of Appeal

Bracco and Conrad, JJ.A.,

and Clark, J.(ad hoc)

December 3, 1997.

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 to the son. The mother later gave an equitable mortgage on her home and a prom­issory note at 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, in a judgment reported 180 A.R. 248, 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. The mother appealed.

The Alberta Court of Appeal allowed the appeal. Notwithstanding the cost of the loan was not excessive and therefore not uncon­scionable under the Unconscionable Trans­actions Act, the transaction was unconscion­able in equity and unenforceable as against the mother. It was unconscionable for the bank to document the transaction in the form of a loan, after the monies were advanced to the son, when in substance the transaction was a guarantee for past indebtedness and the bank did not provide or advise the mother to obtain independent legal advice.

Banks and Banking - Topic 708

Duties of banks - Duty respecting inde­pendent legal advice - A bank agreed to loan a son monies if his 82 year old mother executed a promissory note and gave an equitable mortgage on her home - The monies were advanced to the son before the mother executed the documents - The Alberta Court of Appeal held that notwithstanding the cost of the loan was not excessive and therefore not uncon­scionable under the Unconscionable Trans­actions Act, the transaction was uncon­scion­able in equity and unenforce­able as against the mother - It was uncon­scionable for the bank to document the transaction in the form of a loan, after the monies were advanced to the son, when in substance the transaction was a guarantee for past indebtedness and the bank did not provide or advise the mother to obtain independent legal advice - In structuring the transaction as a loan, the bank effec­tively deprived the mother of the indepen­dent legal advice she would have received had it been structured as a guarantee.

Creditors and Debtors - Topic 8561

Debtors' relief legislation - Unconscion­able transactions relief - General - The Alberta Court of Appeal held that a trans­action could be unconscionable in equity notwith­standing it was not unconscionable under the Unconscionable Transactions Act - The Act was concerned only with one kind of unconscionability (usurious lending prac­tices) - The Act and equity did not provide conflicting remedies; they pro­vided parallel remedies - Since s. 4 of the Act provided that nothing "derogates from the existing powers or jurisdiction of the court", the Act provided no impediment to the equi­table remedy co-existing with the statutory regime - See paragraphs 27 to 31.

Creditors and Debtors - Topic 8563

Debtors' relief legislation - Unconscion­able transactions relief - Cost of loan excessive, harsh and unconscionable - [See Banks and Banking - Topic 708 ].

Equity - Topic 1121

Equitable relief - Contracts - Uncon­scionable bargain - General - [See Credi­tors and Debtors - Topic 8561 ].

Equity - Topic 1122

Equitable relief - Contracts - Uncon­scionable bargain - Unconscionable bar­gain defined - [See Banks and Banking - Topic 708 ].

Guarantee and Indemnity - Topic 5

General - Guarantee defined - A bank agreed to loan a son monies if his 82 year old mother executed a promissory note and gave an equitable mortgage on her home - The monies were advanced to the son before the mother executed the documents - The Alberta Court of Appeal held that although the bank documented the trans­action in the form of a loan, after the monies were advanced to the son, in sub­stance the transaction was a guarantee for past in­debtedness and the bank did not provide or advise the mother to obtain independent legal advice - In structuring the transac­tion as a loan, the bank effec­tively deprived the mother of the indepen­dent legal advice she would have received had it been structured as a guarantee.

Guarantee and Indemnity - Topic 2511

Discharge and other defences of surety - General - Lack of independent legal advice - [See Banks and Banking - Topic 708 ].

Cases Noticed:

Calgary (City) v. Northern Construction Co., [1986] 2 W.W.R. 426; 67 A.R. 95 (C.A.), refd to. [para. 16].

National Westminster Bank v. Morgan, [1985] 1 All E.R. 821; 60 N.R. 384 (H.L.), refd to. [para. 19].

Morrison v. Coast Finance Ltd. (1965), 54 W.W.R.(N.S.) 257 (B.C.C.A.), refd to. [para. 20].

Harry v. Kreutziger (1978), 9 B.C.L.R. 166 (C.A.), refd to. [para. 22].

Lloyds Bank Ltd. v. Bundy, [1974] 3 All E.R. 757 (C.A.), refd to. [para. 28].

Bertolo v. Bank of Montreal (1986), 18 O.A.C. 262; 57 O.R.(2d) 577 (C.A.), refd to. [para. 28].

Bomek and Bomek v. Bomek and Dauphin Plains Credit Union (1983), 20 Man.R.(2d) 150 (C.A.), refd to. [para. 28].

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

Authors and Works Noticed:

Fridman, The Law of Contract (3rd Ed. 1994), p. 325 [para. 21].

Waddams, The Law of Contracts (3rd Ed. 1993), p. 367 [para. 20].

Counsel:

E.D. Simper, for the appellant;

P.R.S. Leveque, for the respondent.

This appeal was heard on April 14, 1997, before Bracco and Conrad, JJ.A., and Clark, J.(ad hoc), of the Alberta Court of Appeal.

On December 3, 1997, Conrad, J.A., delivered the following judgment for the Court of Appeal.