Unnamed Lenders and What a Mortgage Secures

The Dispute

A property owner held land carrying three mortgages, two of them in foreclosure with roughly a month left to pay them out or lose the property in a sale. Refinancing was the way out, but the third mortgage, registered in favour of a family member and showing a face value in the seven figures, made new lending impossible. The family member had advanced far less, and the wider family said its money sat behind the mortgage too.

The Parties’ Positions

The mortgagor petitioned the Supreme Court of British Columbia for an accounting under the mortgage, a declaration of the sum required to pay it out, and a discharge once alternative security stood in its place. The mortgagor accepted owing the amount the mortgagee’s own affidavit established and offered an irrevocable direction to pay that sum from the proceeds of any new mortgage or of a sale. The mortgagor further contended that the mortgage document represented the entire agreement and that the parol evidence rule, which keeps evidence outside a written contract from adding to or contradicting it, therefore excluded the circumstances the mortgagee relied upon.

The mortgagee resisted the relief and consented instead to a full accounting on oral evidence, whether by an accounting hearing or by conversion of the petition to a trial. The evidence on the application was inadequate, the mortgagee submitted, for the court to understand what the mortgage had been granted to secure. Relying on British Columbia (Milk Marketing Board) v Saputo Products Canada G.P., the mortgagee contended that bona fide triable issues arose over the sums the parents had advanced and over an oral agreement that the mortgage secured them. The mortgagee also relied on the circumstances in which the mortgagor granted the mortgage, including the family’s wish to prevent further charges against the property, and maintained that the parol evidence rule did not exclude that material.

The Court’s Decision

The court found no admissible evidence of the loans the parents were said to have made, since no affidavit from them was before it, and held that the position was more in the nature of a bald assertion than a bona fide triable issue. The court held that the construction the mortgagee advanced offended the parol evidence rule as articulated in Sattva Capital Corp v Creston Moly Corp, because it would have required adding the parents to the definition of lender or a term assigning their loans.

The court declared the mortgage limited to securing the amounts the mortgagee had advanced, fixed the payout at a low four-figure sum, and ordered the discharge on delivery of the direction to pay. The charge came off title, clearing the way to refinance, and the mortgagee carried the mortgagor’s costs of the application, doubled from two days before the hearing.

Key Lessons for Private Lenders and Mortgagors

• Name every intended lender in the mortgage form. The standard mortgage terms defined the lender as the person named in the mortgage form and any person to whom that person transfers the mortgage, so a relative whose money is behind the advance may secure nothing unless a recorded assignment brings them in.
• Do not rely on a face value to fix what a mortgage secures. A charge registered for a round sum may secure no more than the advances its named lender can prove, so the gap between the registered figure and the provable debt sits with the lender.
• Put a third party’s advance in evidence, from that party. The court declined to find a triable issue over the parents’ loans because no affidavit from them was before it, and a bald assertion did not fill the gap.
• Record any wider purpose in the instrument itself. Evidence of the circumstances in which a mortgage is granted can assist in interpreting it, but this matter shows it may not be used to add a lender the document does not name.

The outcome of this matter turned on the wording of the registered mortgage and on the evidence before the court on the application. A similar dispute may resolve differently.

ATAC LAW acts for lenders and borrowers in disputes over registered security and the debts it secures.

This matter was conducted by Dan H. Griffith, a partner at ATAC LAW, who acted for the mortgagee on the application.