Bank of Nova Scotia v. Mawer, 2013 ABQB 633

Court of Queen ’ s Bench of Alberta Citation: Bank of Nova Scotia v. Mawer, 2013 ABQB 633 Date: 20131031 Docket: 1103 10667 Registry: Edmonton Between: The Bank of Nova Scotia Plaintiff - and - Bruce Mawer and Stuart Sabatier Defendants _ ________________________________________ ______________ Reasons for Judgment of L. A. Smart , Master in Chambers _________________________________________ ______________ I. Introduction [ 1 ] This is an application for judgment for the balance outstanding under two lines of credit after a sale to the Plaintiff of the lands over which it held a mortgage.

The Bank of Nova Scotia (Bank) proceeded with foreclosure actions in relation to two residential condominium units owned by the Defendants. This decision relates to one of the condominiums, the other having been addressed in the

Bank of Nova Sotia v. Mawer, 2013 ABQB 587 (Mawer #1). [2] Stuart Sabatier assigned into bankruptcy and did not defend the action nor participate in this application. II. Issue [3] The issue in this matter is whether the Bank is permitted to obtain a personal judgment against Mr. Mawer for the balanceoutstanding under the lines of credit or does the restriction in s. 40(1) of the Law of Property Act, RSA 2000, c. L-7 (LPA) apply. III.

Facts [4] The Defendants entered into a Purchase Agreement for the purchase of lands briefly legally described as Unit 268Condominium Plan 062-1607 (the "Condo") at the stated price of $403,093 on March 15, 2006. They applied to the Bank for a mortgagein the amount of $302,319.72 (75% of the purchase price). On November 24, 2006, the Condo appraised at a market value of $405,000.In support of the Mortgage Application the Defendants provided income verification. Based on the Notice of Assessment of Mr. Mawerfor 2005, and a letter of confirmation from Mr.

Sabatier's employer their collective gross employment income was $114,710. [5] The Plaintiff and the Defendants entered into a Scotia Total Equity Plan (STEP) in writing on December 6, 2006, whichprovided for the making of various types of loans by the Plaintiff to the Defendants to be secured by a Mortgage. [6] Also on December 6, 2006, the Bank agreed to provide the Defendants with a ScotiaLine VISA under a Personal CreditAgreement (PCA) pursuant to the STEP. The Defendants executed a Retail Collateral Mortgage on November 30, 2006 securing the sumof $303,400 (75% of the appraised value of $405,000).

The mortgage was registered at the time of closing of the Condo purchase onJanuary 16, 2007, and the amount approved under the PCA being the full amount the mortgage was advanced. [7] On May 4, 2007, the Defendants made application for an increase of their existing STEP limit to be advanced by way of aScotialine Visa. In that credit application total gross annual employment income for the Defendants was stated to be $94,092. To supportthe income the identical documentation was provided as had been previously for the earlier mortgage loan.

The application disclosedthree properties with a total collective value of $1,475,000. In the Decision and Verification Worksheet it indicates an increase of$250,000 was sought on the basis of a value of $650,000. An updated appraisal was completed indicating a market value of $465,000.The STEP limit was approved at 80% of that value being $372,000. [8] On May 14, 2007, the Defendants under a Personal Credit Agreement, to use the words of the Bank’s witness, the “... mortgage debt was reduced to the approval of $272,000”. Also under that PCA, the Bank approved a second Scotialine Visa with alimit of $100,000.

The PCA described the Condo as the Security Pledged. On the same date a second Retail Collateral Mortgage wasexecuted containing substantially the same terms as the first mortgage except the principal sum said to be secured was a maximum of$465,000. Once registered the earlier mortgage was discharged. IV.

Legislation [9] Section 40(1) of the Law of Property Act, RSA 2000, c L-7 states: 40(1) In an action brought on a mortgage of land, whether legal or equitable, or on an agreement for the sale of land, theright of the mortgagee or vendor is restricted to the land to which the mortgage or agreement relates and to foreclosure of the mortgage orcancellation of the agreement for sale, as the case may be, and no action lies (

a) on a covenant for payment contained in the mortgage or agreement for sale. V. Discussion [10] The prohibition in s. 40 (1) of the Law of Property Act is absolute although there are statutory exceptions albeit none apply inthese circumstances. In addition, the Courts have recognized that there may be factual circumstances where the prohibition ought not toapply. The general principle with respect to the application of s. 40 is set out in Clayborn Investments Ltd v.

Wiegert (1977), 1977ALTASCAD 164 , 5 AR 50 (SCAD) at p. 59: The court must inquire into the whole of the surrounding circumstances at the time of the transaction to determine its substance whateverform it may have taken, and the burden of proof the provisions do not apply to the transaction would be upon him who asserts it. [11] In my decision in Mawer #1, I outlined the overriding legal principles with respect to the application of s. 40(1) of the Law ofProperty Act. The same principles apply here.

I also addressed those principles in the context of the transaction in that case and to theextent that the circumstances and factual background are similar they will not be addressed here. The primary factual distinction in thiscase is that both mortgages were advanced under Scotialine Visas. [12] The Bank’s witness states that the first advance was to purchase the Condo but thereafter it operated as a revolving line ofcredit.

I suspect that this is to attempt at a distinction arising from the common misconception that s. 40(1) of the LPA is limited tocircumstances where homes are purchased for occupation by the purchaser or their families. This is not and has never been arequirement. Furthermore there is nothing in the LPA that restricts the application of s. 40(1) to circumstances where there is a singleadvance. VI. Conclusion

[ 13 ] This is an application for

Summary Judgment under Rule 7.3 on the basis that Mawer has no defence to the claim of the Bank. The parties agree with the test for

summary judgment. There are in my view no disputes over the facts presented. As in Mawer #1, I am not satisfied that the factual matrix presented satisfies the onus of the Bank to show there is no genuine issue as to the application of s. 40(1) of the LPA . [ 14 ] Finally, also as in Mawer #1, I have concluded that regardless based on a modern

interpretation of the common law this mortgage transaction is subject to s. 40(1) of the Law of Property Act . [ 15 ] Accordingly, the application of the Bank is dismissed. Dated at the City of Edmonton, Alberta this 31 st day of October, 2013. L. A. Smart M.C.C.Q.B.A. Appearances: Andrea Willey Duncan & Craig LLP for the Plaintiff Kunal Nand Chomicki Baril Mah LLP for the Defendant