2005 BCSC 40 Gill v. Highland Pacific

Before: The Honourable Mr. Justice Cohen

Reasons for Judgment

Counsel for the plaintiff	K.E. Ducey
Counsel for the defendant	M.C. Baron
Date and Place of Trial:	November 17-19 & 25, 2004
	Vancouver, B.C.

I. Introduction

[1] On August 12, 1991, the plaintiff signed a second Mortgage (the “Mortgage”) in favour of the defendant. The Mortgage was a loan on the security of the plaintiff’s property for the principal amount of $75,000, with interest at prime plus 3%. The monthly payments on the outstanding balance were interest only. The Mortgage fell due on September 1, 1992.

[2] The plaintiff also signed several other documents at the same time as the Mortgage. First, she signed a document which read, “The undersigned makes all covenants contained in the attached Mortgage and acknowledges receipt of a true copy of such Mortgage from Highland-Pacific Mortgage Corporation, at or before the time that the Mortgage was executed.”

[3] Second, the plaintiff signed a “Disclosure Statement” which states, inter alia, that the Mortgage will become due and payable on September 1, 1992; that there is no right to renew the Mortgage on the same terms when it falls due; and that the Mortgage may be paid off by the borrower at any time upon payment of the balance then owing.

[4] Third, the plaintiff signed an “Order to Pay” which authorized her solicitor Mr. R.J. Palkowski to pay certain fees and disbursements and the balance to Mr. Palkowski.

[5] On August 14, 1991, Mr. Palkowski wrote to the plaintiff enclosing a copy of the Mortgage and the net proceeds in the amount of $71,150.

[6] On August 15, the plaintiff wrote cheques in favour of Mr. William Graham in the amount of the net proceeds. Mr. Graham was living with the plaintiff at the time.

[7] At the same time as the defendant granted the loan to the plaintiff, Mr. Graham’s company, Baseline Industries Ltd. (“Baseline”) executed a demand “Promise to Pay” in favour of the plaintiff in the amount of $50,000. The rate of interest was prime plus 3%, and the term of the loan was from August 13, 1991, to August 13, 1992.

[8] Mr. Graham also signed a demand “Promise to Pay” in favour of the plaintiff in the sum of $25,000. The rate of interest and term of the document was the same as the Baseline promissory note.

[9] Baseline executed a document in consideration of the loan by the plaintiff to Baseline of $50,000 to pay a bonus of $10,000 to the plaintiff within 6 months of the date of the loan.

[10] Mr. Graham executed a document which includes covenants to pay the plaintiff the principal amount of the loan to Baseline ($50,000); to pay the monthly interest payments on the Mortgage, “until the Mortgage has been paid in full”; to pay the $10,000 bonus within 6 months of the date of the loan to Baseline; and to pay the principal amount of $25,000 including interest on the promissory note of Mr. Graham.

[11] On October 6, 1992, the plaintiff signed a document extending the maturity date of the Mortgage until September 1, 1993, on the same terms and conditions. At the same time the documents signed by Mr. Graham and Baseline were extended to September 1993.

[12] In September 1993, Ronald Niven & Associates (“Niven”), the agent for the defendant, sent the plaintiff a letter advising her that the defendant had agreed to extend the maturity date of the Mortgage until September 1, 1994, on the same terms and conditions. The plaintiff was asked to sign and return the letter if she wished to extend the Mortgage. She did not respond.

[13] On July 28, 1994, Niven again wrote to the plaintiff, this time enclosing a copy of the Mortgage, Disclosure Statement, Order for Payment and the renewal agreement signed October 6, 1992, and another copy of the renewal agreement sent to her in September 1993. The letter said, “If you do not wish to renew the said Mortgage please contact the writer and we will provide you with the amount required to pay out the Mortgage loan in full.” The letter is signed by Mr. R.D. Niven. The plaintiff did not respond.

[14] On February 22, 1996, Mr. J.W. Seddon, the solicitor for the defendant, wrote to the plaintiff enclosing a “Modification of Mortgage” with a request that the plaintiff execute and return the enclosed documents. The plaintiff did not respond to this letter.

[15] On December 10, 1999, the defendant’s auditor sent the plaintiff a letter containing a statement of the plaintiff’s indebtedness to the defendant, as at October 31, 1999, in the amount of $73,088.90. The plaintiff was asked to sign and return the letter to the sender to confirm the information. The plaintiff did not respond. Nor did she respond to a similar letter sent to her on November 29, 2000.

II. Plaintiff’s Claim

[16] The plaintiff alleges, inter alia, that the defendant knew that the plaintiff would receive no benefit from the Mortgage; that she had not made any payments towards the Mortgage and had not agreed to renew the maturity date beyond September 1, 1993; and that as a result of the effluxion of time, any debt owing by the plaintiff to the defendant had been extinguished thereby relieving the plaintiff of any obligation under the Mortgage.

[17] The plaintiff also alleges, in the alternative, that her only liability to the defendant was as a guarantor of the loan secured by the Mortgage, and that she should be relieved from any liability on the loan as a result of the defendant’s undue delay in enforcing the Mortgage, and any other material alterations to the terms of the loan made between the defendant and Mr. Graham without her consent.

III. Issues

1. Has the defendant’s right to bring an action on the Mortgage expired as a result of the effluxion of time?

2. Alternatively, if it has not, is the plaintiff the principal debtor on the Mortgage or is she a guarantor of a loan by the defendant to Mr. Graham?

IV. Background

[18] Mr. Graham is a businessman. In the spring of 1991 he needed funds to make a down payment of $50,000 U.S. on the purchase of a service station in Washington State. At the time he had 90 days to arrange $2 Million U.S. to finance the purchase price. According to him, the plaintiff agreed to place a second mortgage on her residential property so he could meet the down payment.

[19] Mr. Graham explained that Mr. William Craig, an employee of Baseline, knew that the defendant was in the business of granting second mortgages. Mr. Craig introduced the plaintiff and Mr. Graham to Mr. Niven. Before Mr. Niven would approach the defendant to approve a loan to the plaintiff he required an appraisal of the plaintiff’s property and her personal financial information. Mr. Graham arranged for the appraisal and Mr. Craig supplied Mr. Niven with the plaintiff’s personal financial information, although it is not entirely clear from the evidence how he got his hands on this information.

[20] Mr. Graham’s version is that he and the plaintiff visited Mr. Niven’s office. Mr. Niven apparently already knew Mr. Graham from a prior loan he arranged for Mr. Graham through Mr. Craig, although Mr. Graham denies any prior relationship. In any event, Mr. Niven was satisfied that the plaintiff had a good credit rating, that she had the ability to make the monthly interest payments and that her property provided the defendant with adequate security. He recommended to the defendant that it make the loan.

[21] Mr. Niven provided Mr. Seddon with instructions by telephone to prepare mortgage documents granting the plaintiff a second mortgage in the amount of $98,500, with interest at prime plus 3 1/2%, interest payments monthly and for a term of 6 months. By letter dated June 21, 1991, Mr. Seddon sent the original documents to Davis and Company for execution because Mr. Niven had advised him that this firm was acting for the plaintiff. It appears that after the plaintiff received independent legal advice she decided not to proceed with the loan from the defendant. The loan was therefore cancelled.

[22] On August 8, 1991, Mr. Niven provided Mr. Seddon with new instructions by telephone to prepare mortgage documents granting the plaintiff a second mortgage on her property in the amount of $75,000. It appears that Mr. Niven did not actually meet with the plaintiff before instructing Mr. Seddon to draw the Mortgage in her favour. The terms were interest at prime plus 3%, payable monthly and a term of 1 year.

[23] Mr. Seddon prepared the documents and sent them to Davis and Company on August 9th. On this same date Mr. Seddon received a call advising him that Davis and Company could not act and that Mr. R.J. Palkowski would be acting for the plaintiff in the transaction. On August 9th Davis and Company wrote to Mr. Palkowski telling him that at the request of Mr. Craig the original mortgage documents were being sent to him to attend to execution.

[24] On August 12th the plaintiff executed the Mortgage documents at Mr. Palkowski’s office. On the following day Baseline and Mr. Graham executed the documents in the plaintiff’s favour on essentially the same terms as the Mortgage terms with the exception that the plaintiff was to receive a bonus payment of $10,000.

[25] Since the date that the Mortgage was executed by the plaintiff Mr. Graham has been making the monthly interest payments to the defendant. He was not able to arrange the financing for the purchase of the service station and the transaction did not complete. The plaintiff has not made a demand on the Promise to Pay from Baseline or Mr. Graham.

V. Plaintiff’s Position

[26] The plaintiff is seeking an order discharging the Mortgage and a declaration that she is released from any liability to the defendant. Her position is that the limitation period for enforcing the Mortgage has expired, or in the alternative, that the Mortgage was really in the nature of a guarantee for the debt of a third party and that as a result of the conduct of the defendant and Mr. Graham she is relieved from any obligation under the Mortgage.

[27] The plaintiff submits that Mr. Niven knew that Messrs. Graham and Craig were in business together, was aware of the personal relationship between the plaintiff and Mr. Graham, and knew that the plaintiff was considering making an investment in something that Mr. Graham was involved in.

[28] The plaintiff submits that Mr. Graham was making the monthly interest payments on his own behalf and not on her behalf. Mr. Graham left his relationship with the plaintiff shortly after she executed the Mortgage. She did not have a forwarding address for him. The next time she saw him was in October 1992, when he asked her to sign the extension agreement for one year. The plaintiff says that at no time did she agree to a further extension of the loan. In her telephone conversations with Mr. Niven the plaintiff repeatedly told Mr. Niven that the loan was Mr. Graham’s loan and not hers. By 1994, Mr. Niven knew that the plaintiff and Mr. Graham were no longer living together.

[29] When the plaintiff and her brother attended at Mr. Niven’s office in February 1996, Mr. Niven provided them with a statement of the Mortgage account showing that the monthly interest payments had all been made to date. Following this meeting Mr. Seddon sent the plaintiff the Modification of Mortgage documents. The plaintiff submits that the reason Mr. Seddon sent the documents is that the defendant was concerned about the security for the loan as Mr. Niven knew that the plaintiff and Mr. Graham were not living together, that she had no contact with Mr. Graham, she had not agreed to extend the loan and was telling Mr. Niven that it was not her loan.

[30] According to the provisions of the Limitation Act, R.S.B.C. 1996, c. 266 (the “Act”), s. 3, the limitation period for enforcing a mortgage is 6 years from the date that the debt is due. The plaintiff submits that the defendant’s right to bring an action on the Mortgage has expired by the effluxion of time and that the Mortgage cannot now be enforced by the defendant. The plaintiff claims that the Mortgage was due on September 1, 1993. The plaintiff did not agree to extend the loan past this date. The defendant made no demand on the Mortgage prior to May 30, 2002, well outside the limitation period, although the plaintiff submits that it was legally entitled to do so at any time after September 1, 1993.

[31] The plaintiff argues that at no time subsequent to signing the extension agreement did she acknowledge liability for the Mortgage, on the contrary, she claims that she repeatedly told Mr. Niven that the loan was not hers. She says that, at best, she told Mr. Niven she did not want the defendant to foreclose the Mortgage. However, she submits that it was the defendant’s choice not to foreclose on the Mortgage when it was due, at its peril.

[32] The plaintiff argues that to defeat the plaintiff’s claim the defence must rely on the fact that the defendant’s cause of action was kept alive by the payment of the monthly interest payments as evidence of confirmation of the plaintiff’s debt to the defendant. She claims that for the defence to succeed on this argument, it must prove that by making the interest payments Mr. Graham was acting as the plaintiff’s agent, and not on his own behalf.

[33] The plaintiff submits that the defendant knew that Messrs. Graham and Craig made the arrangements for the Mortgage in the first place for Mr. Graham’s benefit, and that she was only involved to provide her property as security for the loan. She asserts that, as such, any monthly interest payments made by Mr. Graham were made by him as the principal debtor and not as the plaintiff’s agent.

[34] The plaintiff says that given her statements to Mr. Niven that the loan was not hers, and his knowledge that the parties were not living together, it would be inconsistent to find that the plaintiff had given Mr. Graham authority to make the payments which would affect her legal position under the Mortgage.

[35] Thus, the plaintiff submits that the defendant has failed to establish that Mr. Graham was acting as the plaintiff’s agent by making the monthly interest payments to the defendant. She says that once the defendant was aware of the plaintiff’s position, by February 1996, if not much earlier, it acted at its peril by not enforcing whatever rights it had against the plaintiff under the Mortgage.

[36] Alternatively, the plaintiff submits that when the Court looks at the substance of the transaction, and not the form to determine the true intent of the parties as to their legal relationship, then the Court can conclude that the plaintiff was acting as a surety for the debt of Mr. Graham, and was not the principal debtor to the defendant.

[37] The plaintiff refers to the same evidence as she alluded to in connection with her primary argument, and claims that it establishes that the Mortgage was Mr. Graham’s debt and not hers. She also submits that the extension of the Mortgage from two years to over ten years is a material change which the plaintiff never consented to, and that as a result she is relieved of any liability to the defendant for the debt. The plaintiff submits that Mr. Graham assumed all liability for the debt as he made all of the monthly interest payments and that the defendant accepted him as the principal debtor. Otherwise, the plaintiff argues, there is no logical explanation for the defendant continuing to accept the payments from him, particularly since the commencement of this action. She also submits, that as the defendant took no steps to enforce the Mortgage despite being told that the plaintiff denied liability for the debt, and given that the term of the Mortgage expired many years ago, it is implicit that the defendant accepted the arrangement with Mr. Graham.

VI. Defendant’s Position

[38] The defence contends that the plaintiff should be estopped from claiming that the debt owing from the plaintiff to the defendant is extinguished due to the limitation period expiring because of the following factors:

1. the plaintiff knew payments were being made, in fact she knew who they were being made by;

2. the plaintiff never advised anyone that payments were not to be made by Mr. Graham or accepted by the defendant;

3. the plaintiff never disputed the balance owing from her when statements were produced;

4. the plaintiff never disputed the defendant appearing as second loss payee on the insurance policy for the property; and

5. the plaintiff never advised that she did not want to continue with the Mortgage after being asked that question on numerous occasions.

[39] The defence claims that the defendant relied on these factors and the conduct of the plaintiff to believe that the Mortgage was acknowledged and being continued on a monthly basis.

[40] Regarding the plaintiff’s alternative argument, the defence asserts that there is no evidence, nor a single document to suggest that the plaintiff was merely a guarantor of the Mortgage.

VII. Decision

[41] The core of the plaintiff’s case is that if the Court denies the plaintiff her claim under the Act, this would allow the defendant to continue indefinitely accepting interest payments from Mr. Graham while the plaintiff “is left in limbo” as to whether she will be called upon to pay the loan. Her counsel submits that, in theory, there could be no end to her liability if this were to continue as the underlying debt is not being reduced. Counsel argues that this defeats the whole purpose of limitation periods which are meant to introduce some certainty into a person’s affairs.

[42] Although plaintiff’s counsel made a most compelling argument on behalf of the plaintiff, in my opinion, the plaintiff’s claim based on the Act, and her alternative argument based on her being a surety rather than a principal debtor must be dismissed.

1. Summary of the Evidence

(i) The Plaintiff

[43] The plaintiff testified that she did not take any steps to apply for the Mortgage: she did not supply her personal financial information, and she did not discuss with anyone the terms of the Mortgage before she signed the documents. She even went so far as to say that she did not meet with Mr. Niven before she signed the Mortgage.

[44] According to the plaintiff, she twice sought legal advice before she signed the Mortgage and was told on both occasions not to sign. Her explanation for why she did sign the Mortgage on August 12th is that it was against her better judgment, but on that date she was on painkillers and was feeling sick. Her version of the events leading up to her signing the Mortgage is that she had injured her Achilles tendon playing tennis in the Okanagan. This was in the summer of 1991, and following surgery for the injury she was placed in a full leg cast. On August 12th, Mr. Graham drove her to her doctor to have her cast changed. Following this procedure, Mr. Graham drove the plaintiff to Mr. Palkowski’s office to sign the Mortgage and related documents. She claims that after she signed she felt stupid about what she had done and told a close friend about it. She did not tell her family members because she did not want them to know that Mr. Graham had taken advantage of her. She says that she took the promissory notes from Baseline and Mr. Graham after the fact because this was the only way she could try to protect herself.

[45] According to the plaintiff, in the first year of the Mortgage she called Mr. Niven to find out if the monthly interest payments were being made by Mr. Graham because she had lost contact with him at the time. She said that the reason she did not consult a lawyer when Mr. Graham asked her to sign the document extending the Mortgage for a further year is that in her mind it was Mr. Graham’s debt.

[46] In early February 1996, the plaintiff and her brother attended at Mr. Niven’s office. The plaintiff testified that Mr. Niven told them that he would try and contact Mr. Graham and get him to pay off the Mortgage. At that time she told Mr. Niven that it was not her debt.

[47] The plaintiff also testified that she did not contact her insurer to show the defendant’s interest on the policy. Nor did she receive annual statements from the defendant’s auditor showing the balance outstanding on the Mortgage prior to 1999.

[48] In cross-examination, when defence counsel suggested to the plaintiff that she was always aware that she had to refinance or pay off the balance of the Mortgage she replied, “or ignore it and let Bill deal with it.” Counsel also suggested that she never told Mr. Niven that she wished to pay out the balance to which the plaintiff replied that she simply ignored the Mortgage. She also said that she ignored the letters from the defendant’s auditors because it was not her debt. When asked whether she told her insurer that the defendant’s interest should not be shown on the cover notes for the annual renewals, she testified that she did not say one way or the other.

[49] The plaintiff also testified that when she called Mr. Niven in 1991 and 1992 to enquire about whether Mr. Graham was continuing to make the monthly interest payments she told him each time that it was not her debt and that he should deal with Mr. Graham.

(ii) Mr. Niven

[50] Mr. Niven, a mortgage broker, testified, in chief, that he met the plaintiff in July 1991. He said she attended at his office so that he could review the terms of the Mortgage with her and make sure that she understood the nature of the loan. He explained that the loan to the plaintiff was initiated by a call to him from Mr. Craig. He also said that Mr. Craig supplied him with the plaintiff’s personal financial information. He insisted that the borrower was the plaintiff and no-one else.

[51] Mr. Niven said he knew that the Mortgage proceeds were going to be used by the plaintiff for an investment because the plaintiff said something to him about this, but he did not take an interest because he is not permitted to give financial advice. He said that the loan to the plaintiff by the defendant was based on his standard practice: a good credit rating, her ability to pay and adequate security.

[52] Mr. Niven testified that he had no relationship with Mr. Graham other than the fact that sometime prior to the defendant granting the Mortgage to the plaintiff he had approved a loan to Mr. Graham.

[53] Mr. Niven said that when the plaintiff did not respond to his letter of September 3, 1993, he assumed that she wished to have the Mortgage continue. At the time the monthly interest payments were being paid by Mr. Graham. He also said that when the plaintiff and her brother came to his office in 1996 he made it clear to them that the loan had been made to the plaintiff. As well, he said that he received phone calls from the plaintiff after 1994 when she more or less mentioned to him that it was not her loan. He told her that the defendant loaned the money to her, not Mr. Graham. He also advised her that the monthly interest payments were up-to-date.

[54] Mr. Niven testified that he knew when the Mortgage was granted that the plaintiff and Mr. Graham were living together in what he called a “common-law” relationship. He said he did not know until 1994 that the parties had separated when the plaintiff advised him that Mr. Graham was no longer living with her.

[55] Mr. Niven recalled that in one of the telephone conversations he had with the plaintiff he told the plaintiff that Mr. Graham came to his office once a month to make the monthly interest payments, something he had done from the time the Mortgage was granted to the plaintiff.

[56] Mr. Niven testified that he always assumed that Mr. Graham was the plaintiff’s agent. He said she never told him that Mr. Graham was not authorized to make the monthly interest payments on her behalf.

[57] In cross-examination, Mr. Niven said he was sure he met with the plaintiff once before she signed the Mortgage. He could not recall if his initial discussions with Mr. Craig were for a loan in the amount of $98,500. After acknowledging that he met with the plaintiff in June or July 1991, that he could only recall having one meeting with the plaintiff, that it was his practice to meet with a client before he supplied instructions to Mr. Seddon, and that there were no meetings between him and the plaintiff between the middle of June and August 12, 1991, Mr. Niven then conceded that he was mistaken when he said that he discussed the Mortgage for $75,000 with the plaintiff. However, Mr. Niven said that plaintiff’s counsel’s suggestion to him that he never met with the plaintiff and that all of his instructions regarding the Mortgage came from Messrs. Graham and Craig was “nonsense”.

[58] Mr. Niven said that he had no knowledge of Davis and Company’s involvement in the transaction. He could not explain why in Mr. Seddon’s handwritten notes of his instructions from Mr. Niven that Mr. Seddon made reference to Davis and Company.

[59] Mr. Niven agreed with plaintiff’s counsel that once the Mortgage matured that it was in default, but he said that the plaintiff told him that she did not want the defendant to call the loan, and he noted that the monthly interest payments were not in default.

[60] Mr. Niven said that he knew that the plaintiff was considering making an investment in something that Mr. Graham was involved in, but he said that he had no further information about the nature of the investment and did not ask anything about it. He said it did not surprise him, or find it unusual that Mr. Graham was making the monthly interest payments because he knew that the parties were living common-law. He said that the monthly interest payments were due from the plaintiff, and that Mr. Graham was making the payments as her agent.

[61] Mr. Niven testified that when he met with the plaintiff and her brother his response to the plaintiff’s suggestion that he get Mr. Graham to pay back the principal was that she and Mr. Graham should work out their own differences. However, he said that he told them that he would raise it with Mr. Graham, but said he reminded the plaintiff that the Mortgage was made to her, not to Mr. Graham.

(iii)Mr. Seddon

[62] Mr. Seddon testified that Mr. Niven told him that Davis and Company were acting for the plaintiff in the transaction. He said that there was nothing in the handling of the transaction that would have triggered any suspicion. He called the loan to the plaintiff “routine”.

[63] Mr. Seddon said that he received his instructions from Mr. Niven to send the plaintiff the Modification of Mortgage which extended the time for repayment of the balance of the principal amount owing, and set the monthly payments of principal and interest.

[64] Mr. Seddon testified that the monthly interest payments made by or on behalf of the borrower extended the Mortgage on a monthly basis.

[65] In cross-examination, Mr. Seddon said that the conduct of a borrower would constitute an agreement to extend a Mortgage, although a written extension agreement was preferable. However, he said that if the person making the payments on a mortgage after it has matured was not the agent of the borrower then he was not sure what the consequences would be. If this came to his attention he would want to make an enquiry. He felt he would be entitled to assume that if the payments were being made on behalf of a borrower then that person is acting as the borrower’s agent and that it would not be incumbent upon him to determine the relationship.

[66] Mr. Seddon agreed with plaintiff’s counsel that when a mortgage term expires the borrower has to pay the balance, or is in default. He said the lender is not required to accept monthly payments but can enforce payment of the balance outstanding on a mortgage. He was not aware that the plaintiff did not agree to an extension, but he said that if the monthly interest payments were made by her, or on her behalf, this conduct would constitute an extension.

[67] When Mr. Seddon received instructions from Mr. Niven to send the Modification of Mortgage documents to the plaintiff he was not told that the relationship between the plaintiff and Mr. Graham was strained. When counsel noted that he did not hear back from the plaintiff, Mr. Seddon said that borrowers can be difficult at times, but he noted that in this case the monthly interest payments were being made like clockwork which, he said, is a primary element of a good borrower.

[68] Mr. Seddon said that if he was told by the plaintiff that it was not her loan he would make an enquiry, although he was not saying that he would necessarily have any concerns. He noted that in this case the monthly interest payments were being made on time, there was insurance coverage in place to protect the defendant and the defendant’s auditor sent the plaintiff a yearly audit letter to confirm the Mortgage balance. This conduct he said was all consistent with the extension of the loan.

(iv) Mr. Graham

[69] Mr. Graham used Baseline as a vehicle to purchase the service station in Washington State. He said that he discussed the purchase with the plaintiff on a daily basis because they were living together at the time. He claims that the plaintiff was well aware of the details of the purchase, including the fact that Baseline was to be used as a vehicle to make the purchase, and the annual earnings of the service station.

[70] Mr. Graham testified that when he returned from Seattle, after reaching a settlement giving him time to come up with the financing for the purchase, he told the plaintiff that he needed $50,000 U.S. for the down payment to “make the deal fly.” He said that the plaintiff offered her property as collateral for a loan and that she agreed to place a second mortgage on her property so he could make the down payment.

[71] Mr. Graham contacted Mr. Craig, an employee of Baseline at the time, and Mr. Craig then introduced the plaintiff and Mr. Graham to Mr. Niven.

[72] Mr. Graham said that Mr. Niven requested an appraisal of the plaintiff’s property, which he arranged, and the plaintiff’s personal financial information. He also said that Baseline offered the plaintiff a bonus of $10,000 for helping him finance the transaction and that she was in agreement with the plan.

[73] Mr. Graham drove the plaintiff to Mr. Niven’s office and he waited in the reception area while the plaintiff met on her own with Mr. Niven. He claims that he had no prior dealings with Mr. Niven, and none since. He also said that when they arrived at Mr. Niven’s office he knew that they were there to see him about placing a second mortgage on the plaintiff’s property, but Mr. Niven did not ask about the purpose of the loan.

[74] Mr. Graham said that the plaintiff made a loan to him of the net Mortgage proceeds. He then paid the $50,000 U.S. down payment. However, the purchase did not materialize because he was not able to raise the balance of the financing to complete the transaction.

[75] Mr. Graham testified that he has made all of the monthly interest payments on the Mortgage. He acknowledged that he had agreed with the plaintiff to make the monthly interest payments and said that he was never advised by her not to make them. He said that while he is not legally obligated by the Mortgage to make the monthly interest payments, he is doing so because he promised the plaintiff that he would.

[76] Mr. Graham said that when he took the document to the plaintiff in October 1992 to extend the term of the Mortgage he did not say to her that unless she signed he would not continue to make the monthly interest payments.

[77] Mr. Graham testified that the documents that he and Baseline executed in the plaintiff’s favour reflect his agreement with the plaintiff. He said that he was extending obligations to the plaintiff in tandem with her obligations under the Mortgage. He said that when the Mortgage was extended in 1992, so were his and Baseline’s obligations to the plaintiff.

[78] In cross-examination, Mr. Graham said that Mr. Niven was mistaken when he testified that he had dealt with Mr. Graham before the transaction with the plaintiff. He also said that Mr. Niven was only interested in the plaintiff’s ability to pay the loan. He insisted that he never divulged the plaintiff’s personal information to Mr. Niven, and he was not aware how Mr. Craig got his hands on the information. He believed that Mr. Craig’s only involvement was to introduce him and the plaintiff to Mr. Niven.

[79] Mr. Graham could not explain how the figure of $98,500 appeared on the first set of mortgage documents. He could only recall that he requested $75,000.

[80] Mr. Graham testified that Mr. Niven was well aware that he was making the monthly interest payments. He said that he kept telling Mr. Niven that some day he hoped to take care of the Mortgage. He also said that he did not discuss with Mr. Niven any understanding that so long as he made the monthly interest payments that the defendant would not call the loan. He said that he told the plaintiff that he would pay off the debt when he could and that he was sorry that it had dragged on for so long.

[81] Mr. Graham said it was possible that Mr. Craig made the arrangements for the plaintiff to attend at Mr. Palkowski’s office to execute the Mortgage. He also said that he read the Mortgage just before it was executed, or at the time, and that he knew the amount of the Mortgage and the interest rate.

2. Discussion

[82] The issue of whether the defendant’s right to bring an action against the plaintiff on the Mortgage has expired raises two discreet questions. The first is when did the limitation period start to run?

[83] In Norman Estate v. Norman (1990), 43 B.C.L.R. (2d) 193 (S.C.), the mortgage at issue provided that if any payment of principal or interest was missed, the whole of the amount secured by the mortgage became due and payable at the option of the mortgagees. No payments were ever made. The petitioner’s position was that as of the due date of the first payment, the respondents had the right to enforce the whole of the debt, and because of this, the time limitation started to run on that date. The respondents’ position was that the time starts to run when a mortgagee first exercises his option to sue. Upon a review of the authorities, Shaw J. concluded that the petitioner’s position in law was correct. I think that this result applies to the facts in the case at bar as well.

[84] Article 11.01 of the Mortgage provides that “if a default occurs the Principal Amount ... shall, at the Lender’s option, immediately be paid.” Article 12.01(a) of the Mortgage provides that a default occurs if “the Borrower breaches or threatens to breach any covenant or agreement contained in [the Mortgage]...” Article 13.01 provides that if a default occurs the lender may at its option and in any order that it chooses “(a) demand payment of the Principal Amount ...” or “(b) sue the Borrower for payment of the Principal Amount ...”

[85] As a further term of the Mortgage, pursuant to Article 5.01 the plaintiff covenants to pay “the Principal Amount ... when due”, which was September 1, 1993.

[86] Accordingly, I find that when the plaintiff did not pay the principal amount due on September 1, 1993, she was in default under the terms of the Mortgage. I find further that on September 1, 1993, the defendant had a right of action to sue the plaintiff for payment of the principal amount due to the defendant under the terms of the Mortgage. Thus, I find, subject to the effect of the continued monthly interest payments by Mr. Graham, that the limitation period started to run on September 1, 1993, and that the limitation period expired on September 1, 1999.

[87] As the defendant did not demand payment from the plaintiff of the principal amount due under the Mortgage until May 30, 2002, well after the expiry of the limitation period, I turn to the second question to be answered, that is, whether the payment of the monthly interest payments by Mr. Graham confirmed the defendant’s cause of action so as to continue the limitation period pursuant to s. 5 of the Act.

[88] Subsections 5(1), (3) and (9) of the Act provide, as follows:

5(1) If, after time has begun to run with respect to a limitation period set by this Act, but before the expiration of the limitation period, a person against whom an action lies confirms the cause of action, the time during which the limitation period runs before the date of the confirmation does not count in the reckoning of the limitation period for the action by a person having the benefit of the confirmation against a person bound by the confirmation.

5(3) If a secured party has a cause of action to realize on collateral, either of the following is a confirmation by the payer or performer of the cause of action:

(a) a payment to the secured party of principal or interest secured by the collateral, or

(b) any other payment to the secured party in respect of that party’s right to realize on the collateral, or any other performance by the other person of the obligation secured.

5(9) For the purposes of this section, a confirmation made by or to an agent has the same effect as if made by or to the principal.

[89] The parties are on common ground that the heart of the question is whether Mr. Graham made the monthly interest payments to the defendant as the plaintiff’s agent. The plaintiff conceded in her submission that if Mr. Graham is found by the Court to have acted as her agent then she cannot succeed in her claim based on the Act because the monthly interest payments made by Mr. Graham would constitute a confirmation of the defendant’s cause of action against her under the terms of the Mortgage so as to continue the limitation period.

[90] The essential ingredients of an agency relationship are: the consent of both the principal and the agent; authority given to the agent by the principal, allowing the former to affect the latter’s legal position; and the principal’s control of the agent’s actions. The second and third ingredients often overlap as the principal’s control over the actions of his agent is manifested in the authority given to the agent: See Royal Securities Corp. v. Montreal Trust Co. (1967), 59 D.L.R. (2d) 666 (Ont. H.C.).

[91] In Roeder v. Halicki, [1983] 4 W.W.R. 220 (B.C. Co. Ct.), Boyle Co. Ct. J. (as he then was) cites a passage from Scherer v. Paletta (1966), 57 D.L.R. (2d) 532 (Ont. C.A.), where the Court set out at p. 534:

Where a principal gives an agent general authority to conduct any business on his behalf, he is bound as regards third persons by every act done by the agent which is incidental to the ordinary course of such business, or which falls within the apparent scope of the agent’s authority. As between principal and agent, the authority may be limited by agreement or special instructions but as regard third parties the authority which the agent has is that which he is reasonably believed to have ...

[92] In Barnett v. Rademaker, 2004 BCSC 1060, at para. 31, Melnick J. dealing with the general principles of agency notes that “An attitude informing the jurisprudence in this area is the general view that the expectations of the third party dominate.”

[93] Relying upon these authorities, I think that there are three main questions to be answered by the Court in its determination of whether Mr. Graham was acting as the plaintiff’s agent when he made the monthly interest payments to the defendant. First, was there consent between the plaintiff and Mr. Graham that he would make the monthly interest payments to the defendant? Given the clear agreement between them that Mr. Graham was responsible to make the monthly interest payments to the defendant I find that this ingredient of the agency relationship is satisfied.

[94] Secondly, did the defendant have the plaintiff’s consent and authority to continue making the monthly interest payments to the defendant after the mortgage fell due on September 1, 1993? Thirdly, was it reasonable in the circumstances for Mr. Niven to believe that Mr. Graham had the plaintiff’s consent and authority to continue making the monthly interest payments?

[95] In my opinion, Mr. Graham not only had the plaintiff’s consent and authority to continue making the monthly interest payments to the defendant after the Mortgage fell due but it was perfectly reasonable for Mr. Niven to treat Mr. Graham as the plaintiff’s agent for the purposes of making the monthly interest payments after the Mortgage fell due.

[96] In my opinion, even though the plaintiff told Mr. Niven in her telephone calls to him after September 1, 1993, and when she met with him in February 1996 that the loan was not hers, and also told him at some point before 1996 that she and Mr. Graham were no longer living together, Mr. Niven was entitled to treat Mr. Graham as the plaintiff’s agent for the purposes of making the monthly interest payments to the defendant.

[97] I make this finding because Mr. Graham was entirely willing and the plaintiff permitted him at all times, both before and after the mortgage fell due, to make the monthly interest payments on her behalf. She never at any time told Messrs. Niven or Graham that Mr. Graham did not have her consent or authority to make the monthly interest payments. On the contrary, she regularly called Mr. Niven to check and find out if Mr. Graham was making the monthly interest payments on time, even after the Mortgage was in default.

[98] Moreover, when the plaintiff received the correspondence from Mr. Niven enquiring about her intention to renew the Mortgage she did not respond but permitted Mr. Graham to continue making the monthly interest payments. Even when asked by Mr. Niven during their telephone conversations about what she wished to do about the Mortgage she did not provide him with a response but permitted Mr. Graham to continue making the monthly interest payments.

[99] In fact, from the entering into of the Mortgage by the plaintiff to the present time Mr. Graham has made all of the monthly interest payments, and at all times with the plaintiff’s knowledge and consent. The plaintiff always had it within her power to revoke Mr. Graham’s authority to make the monthly interest payments, and of the defendant to accept them. She never took this step. In her own words, after the Mortgage fell due she simply ignored the situation and let Mr. Graham deal with the defendant.

[100] Thus, I am satisfied, and find on the whole of the evidence, that Mr. Graham acted as the plaintiff’s agent in making the monthly interest payments to the defendant before and after the Mortgage fell due: he acted for the benefit of the plaintiff, with her knowledge and authority to act on her behalf. I find that it was therefore reasonable, in all of the circumstances, for Mr. Niven to have believed throughout his dealings with Mr. Graham that he was acting as the plaintiff’s agent when making the monthly interest payments.

[101] In the result, I find that Mr. Graham was the agent of the plaintiff regarding each of the monthly interest payments made to the defendant and that therefore s. 5 of the Act applies. I find further that the monthly interest payments made by Mr. Graham constitute confirmation of the defendant’s cause of action against the plaintiff under the terms of the Mortgage such that the time between September 1, 1993, and the date of the last monthly interest payment does not count in the reckoning of the limitation period.

[102] Accordingly, I find that the defendant’s right to bring an action against the plaintiff pursuant to the terms of the Mortgage has not expired by the effluxion of time. This then brings me to the alternative issue of whether the plaintiff was merely a guarantor of a loan by the defendant to Mr. Graham and not the principal debtor under the Mortgage.

[103] I reject the plaintiff’s position on this issue. First, I find that the plaintiff met with Mr. Niven and agreed that her property could be used as security for a second mortgage from the defendant, albeit it appears that she met with him about a mortgage in an amount that did not proceed.

[104] In any event, I do not think anything turns on the fact that Mr. Craig supplied Mr. Niven with the plaintiff’s personal financial information, possibly without her consent, or that the plaintiff did not actually meet with Mr. Niven before she signed the Mortgage. The fact remains that the plaintiff signed the Mortgage freely with a full understanding as to its terms and does not allege an unconscionable transaction in her claim against the defendant.

[105] In my opinion, there is no evidence to support a finding either directly or by inference that the true nature of the transaction was a loan by the defendant to Mr. Graham secured by the plaintiff’s property with the plaintiff acting merely as a guarantor for the loan. I find that the true nature of the transaction between the plaintiff and the defendant and between the plaintiff and Mr. Graham is clearly one where the plaintiff agreed with Mr. Graham to use her property to place a second mortgage so that she in turn could loan the net proceeds from the Mortgage to Mr. Graham. The consideration for the plaintiff agreeing to the arrangement was a promise by Mr. Graham to pay her a bonus of $10,000, and for him to make the monthly interest payments on the Mortgage. The plaintiff obviously thought at the time that she was protected by having Baseline and Mr. Graham supply her with the promissory notes in similar terms as those she had agreed to with the defendant.

[106] As it turns out, if the plaintiff did not know then, she plainly knows now that her agreement with Mr. Graham to place a second mortgage on her property was an imprudent move on her part. No doubt she regrets signing the Mortgage having already received legal advice, apparently not once but twice, advising her not to enter into the transaction. However, she was competent at the time she signed the Mortgage and, in my view, while I am mindful of the position she is now left in given that Baseline is bankrupt and Mr. Graham has not performed his promise to repay her the money he loaned from her, nevertheless, in my opinion, the plaintiff remains bound to perform her obligations under the Mortgage.

3. Conclusion

[107] For the foregoing reasons, I find that the plaintiff’s action for a declaration that any debt owing from her to the defendant is extinguished, or that she is released from any debt owing to the defendant must be dismissed.

“B.I. Cohen, J.”
The Honourable Mr. Justice B.I. Cohen

Citation:	*Gill v. Highland Pacific,*
	2005 BCSC 40