2016 NBCA 50, 2016 NBCA 50

COURT OF APPEAL OF COUR D’APPEL DU NEW BRUNSWICK NOUVEAU-BRUNSWICK 91-15-CA GREGORY JAMES KEOUGH APPELLANT GREGORY JAMES KEOUGH APPELANT - and - - et - SANDFIRE CAPITAL LIMITED PARTNERSHIP RESPONDENT SANDFIRE CAPITAL LIMITED PARTNERSHIP INTIMÉE Keough v. Sandfire Capital Limited Partnership, 2016 NBCA 50 Keough c.

Sandfire Capital Limited Partnership, 2016 NBCA 50 CORAM: The Honourable Chief Justice Drapeau The Honourable Justice Larlee The Honourable Justice Quigg CORAM : l’honorable juge en chef Drapeau l’honorable juge Larlee l’honorable juge Quigg Appeal from a decision of the Court of Queen’s Bench: September 22, 2015 Appel d’une décision de la Cour du Banc de la Reine : le 22 septembre 2015 History of Case: Historique de la cause : Decision under appeal: Unreported Décision frappée d’appel : inédite Preliminary or incidental proceedings: N/A Procédures préliminaires ou accessoires : s.o.

Appeal heard: May 19, 2016 Appel entendu : le 19 mai 2016 Judgment rendered: September 15, 2016 Jugement rendu : le 15 septembre 2016

Reasons for judgment by: The Honourable Chief Justice Drapeau Motifs de jugement : l’honorable juge en chef Drapeau Concurred in by: The Honourable Justice Larlee The Honourable Justice Quigg Souscrivent aux motifs : l’honorable juge Larlee l’honorable juge Quigg Counsel at hearing: For the appellant: Josie H. Marks For the respondent: James E. Fowler, Q.C. Avocats à l’audience : Pour l’appelant : Josie H. Marks Pour l’intimée : James E. Fowler, c.r.

THE COURT Where mortgagees buy in at auction for a nominal sum, the power of sale has been exercised “improperly”. Yet, the mortgagees have added to their portfolio a valuable asset. In any follow-up action for deficiency, debits and credits are calculated and applied as of the date of the mortgage sale, and the burden lies on the mortgagee, the party asserting entitlement, to prove the amount owing under the mortgage and the market value of the asset in question. Only once those figures are established can judgment be granted for any deficiency. The

summary judgment motion judge erred in law in calculating the deficiency as of the date of resale. Moreover, he did not determine the market value of the mortgaged property as of the date of the mortgage sale, and what that value was is a genuine issue of fact requiring a trial. The appeal is allowed and the

summary judgment is set aside. However, the Court defines the issues that are no longer in dispute and directs a trial of the only one that remains outstanding: the market value of the mortgaged property as of the date of the mortgage sale. Costs in the court below will be costs in the cause, and the respondent shall pay costs on appeal, which are set at $7,720. LA COUR Lorsque des créanciers hypothécaires se portent acquéreurs aux enchères moyennant une somme nominale, le pouvoir de vente a été exercé « improprement ».

Pourtant, les créanciers hypothécaires ont ajouté un bien de grande valeur à leur portefeuille. Dans toute action ultérieure en recouvrement d’un manque à gagner, les débits et crédits sont calculés et arrêtés à la date de la vente hypothécaire, et il incombe au créancier hypothécaire, soit la

partie qui fait valoir un droit, de prouver le montant qui lui est dû au

titre de l’hypothèque ainsi que la valeur marchande du bien en cause. Ce n’est qu’une fois que ces montants ont été établis qu’un jugement peut être accordé pour recouvrer le manque à gagner éventuel . Le juge saisi de la motion en jugement

sommaire a commis une erreur de droit en calculant le manque à gagner à la date de la revente. De plus, il n’a pas déterminé la valeur marchande du bien hypothéqué à la date de la vente hypothécaire, et l’établissement de cette valeur constitue une question purement factuelle nécessitant une instruction . L’appel est accueilli et le jugement

sommaire annulé. Cependant, la Cour précise quelles sont les questions qui ne sont plus contestées et ordonne l’instruction de la seule qui reste à trancher, à savoir la valeur marchande du bien hypothéqué à la date de la vente hypothécaire. Les dépens au tribunal inférieur suivront l’issue de la cause et l’intimée est condamnée aux dépens en appel qui sont fixés à 7 720 $ . The judgment of the Court was delivered by DRAPEAU, C.J.N.B. I.

Introduction and Overview [ 1 ] The respondent loaned a large sum of money to the appellant’s numbered company on repayment terms set out in a promissory note and a collateral mortgage, both of which were executed by the appellant on behalf of his company and as “guarantor”. Neither the appellant nor his numbered company made any payment required of them and, as a result, the respondent exercised its power of sale under the Property Act , R.S.N.B. 1973, c. P-19 (“ Act ”). There being no bids at the auction, the respondent bought the mortgaged property for a nominal sum.

It subsequently resold the property for a price that, while significant, left a loan balance. The quantum of the “deficiency”, if any, lies at the heart of the underlying action against the appellant on his guarantees

and the respondent’s successful motion for

summary judgment for the sum of $190,997.67 and costs of $7,720. [2] The principal complaints of error on the motion judge’s part may be formulated as follows: (1)finding the documents executed by the appellant gave rise to legally enforceable guarantees; (2) failing to hold the respondent forfeitedany right to sue by purchasing the property at the auction for a nominal sum; (3) failing to conclude the value of the property erased thedebt or, at the very least, gives rise to a genuine dispute of fact that precludes

summary judgment; and (4) in any event, calculating thedeficiency as of the date of the resale, rather than the mortgage sale date, and charging the appellant with the legal fees and real estatecommission incidental to the resale transaction. In my view, only the latter two complaints are well founded. [3] While I agree the motion judge correctly found against the appellant on the issues raised bycomplaints (1) and (2), I respectfully conclude he erred in law in failing to focus on the market value of the property as of the auctiondate.

Indeed, it has long been the law in this Province that deficiencies stand to be calculated as of the date of the mortgage sale (seeCentral & Eastern Trust Company v. Rosebowl Holdings Ltd. and Heustis (1981), (NB CA), 34 N.B.R. (2d) 308,[1981] N.B.J. No. 87 (C.A.) (QL), at para. 29). Had the motion judge directed his mind to the auction date for deficiency calculationpurposes, he would undoubtedly have concluded there was a genuine dispute of fact over the market value of the property as of that dateand directed a trial of this issue (see Cannon v.

Lange et al. (1998), (NB CA), 203 N.B.R. (2d) 121, [1998] N.B.J.No. 313 (C.A.) (QL), at paras. 12-20). [4] Where default has occurred and the mortgagee proceeds to realize upon its security, ss. 44-47of the Act create a largely mortgagor-unfriendly bundle of powers, rights, limits on liability and immunities, one that is unmatchedelsewhere in Canada and, for that matter, the rest of the common law world.

Thus, under those provisions, the mortgagee has the powerto buy in at the auction for its own benefit and to its own use, as well as the power to resell the property, without being answerable forany incidental loss. In fact, the mortgagee is only liable in damages for “voluntary” losses arising from an unauthorized, irregular or“improper” exercise of the power of sale.

That said, where, as here, the mortgagee buys the property for a nominal sum, there has beenan “improper” exercise of the power of sale within the meaning of s. 47(2) and the mortgagee is answerable in damages for allconsequential losses. [5] In any action or counterclaim for damages, the mortgagor bears the burden of proof for eachcondition precedent to legal entitlement and all other principles applicable to the recovery of damages come into play (see Bérubé v.Lévesque (1999), (NB CA), 219 N.B.R. (2d) 8, [1999] N.B.J. No. 448 (C.A.) (QL)).

However, in an action fordeficiency following the mortgagee’s acquisition of the subject property through an “improper” exercise of the statutory power of sale,the mortgagee bears the burden of proving legal entitlement, which it can only discharge by establishing the amount owing under themortgage and deducting the market value of the property at the time of the sale. The “forced” value is inappropriate in those casesbecause the mortgagee, as owner, is free to dispose of the asset in question at a time and in circumstances conducive to fetching the fullmarket value.

Moreover, expenses incurred post-mortgage sale are the sole responsibility of the mortgagee qua owner and are notchargeable to the mortgagor: Bayview Credit Union Ltd. v. Gambit Holdings & Development Ltd. et al., 2002 NBCA 49, 251 N.B.R. (2d)158, at paras. 12-13. [6] Applying that framework to the case at hand, I would allow the appeal and set aside thesummary judgment. With a view to expediting the litigation and adjudication processes, I would, however, delineate their focus. Themotion judge was bound by Banque Nationale du Canada v. Desrosiers (1996), (NB CA), 167 N.B.R. (2d) 241,[1996] N.B.J.

No. 9 (C.A.) (QL) to find the purchase of the property for a nominal sum did not strip the respondent of its right to sue onthe appellant’s guarantees. Moreover, the judge’s finding that the guarantees are enforceable is unimpeachable. Those issues are nolonger “in dispute” within the meaning of Rule 22.05(1). Indeed, the only outstanding material issue for purposes of calculating thedeficiency, if any, is the market value of the property as of the auction date. I would direct that issue be litigated and tried in accordancewith the Rules of Court.

As well, I would order the costs of the proceedings in the court below be costs in the cause. II. Context [7] The appellant was, at all material times, a resident of Dieppe, N.B., and the sole officer,director and shareholder of 633287 N.B. Inc.

The latter needed funding to complete the construction of a condominium building inDieppe (the “Primrose” project) and it turned for help to the respondent, Sandfire Capital Limited Partnership, a limited partnership withregistered office at the City of Toronto, Ontario. [8] In early 2012, Sandfire agreed to loan $200,000 to the appellant’s numbered company on thesecurity of a collateral mortgage on a vacant lot on Amirault Street in Dieppe, New Brunswick. The lot in question, which was adjacentto the Primrose project and had been acquired in 2011, was subject to a collateral mortgage for the sum of $175,000.

[ 9 ] Sandfire agreed to the loan after considering a report prepared by a reputable appraiser valuating the property at $275,000 in early 2011. The motion judge ruled the value set by the report was inadmissible opinion evidence.

He went on to add that, in any event, a number of circumstances rendered the report unreliable for valuation purposes on the date of the resale. [ 10 ] On March 8, 2012, Sandfire advanced $200,000 to the appellant’s numbered company, which sum the latter agreed to repay with interest in accordance with a promissory note, the terms of which were incorporated in the collateral mortgage on the Amirault Street vacant lot. [ 11 ] Both documents were executed by the appellant not only on behalf of his numbered company but, as well, as “guarantor”. [ 12 ] The promissory note reads as follows: PROMISSORY NOTE $200,000.00 Date: March 8, 2012 For value received, the undersigned promises to pay to the order of SANDFIRE CAPITAL LIMITED PARTNERSHIP, of 185 Carlingview Drive, Toronto, in the Province of Ontario, the sum of Two Hundred Thousand dollars ($200,000.00) at an interest rate of twelve percent (12%) per annum with a term of one (1) year to be paid as follows: Interest only payments in the amount of Two Thousand Dollars ($2,000.00) per month to begin on the 8 th day of April, 2012 and on the 8 th day of each and every month thereafter until maturity date, at which point the full balance is due and payable. ) 633287 N.B.

Inc. ) ) ) Per: ( handwritten signature ) ) Gregory James Keough, President Dated at Moncton, NB, this 8 day of March, 2012 ( handwritten signature ) ____ Gregory James Keough, Guarantor [ 13 ] The collateral mortgage provides as follows: Form 15.1 Collateral Mortgage Land Titles Act, S.N.B. 1981, c. L-1.1, s. 25 Standard Forms of Conveyance Act, S.N.B. 1980, c. S-12.2, s. 2

Parcel Identifier: 70546460 Mortgagor: 633287 N.B. Inc. 299 Champlain ST Dieppe NB E1A 1P2 Mortgagee: Sandfire Capital Limited Partnership 185 Carlingview DR Toronto ON M9W 5E8 Guarantor: Gregory James Keough 733 Chartersville Road Dieppe NB E1A 1K7 Manner of Tenure: Not Applicable Particulars of Security: Promissory note as [negotiated] on this date. Statutory Covenants and Conditions Excluded: None Optional Covenants and Conditions Included: None The mortgagor mortgages to the mortgagee in the specified manner of tenure the specified parcel as collateral security, the particulars of which are specified.

The mortgagor acknowledges receipt of the text of the covenants and conditions which are contained in this mortgage […] by virtue of subsection 25(4) of the Land Titles Act , and agrees to be bound by them to the same extent as if set out at length herein. Date: March 8, 2012 ( handwritten ) Witness: Mortgagor: (handwritten signature) __ 633287 N.B. Inc. Gregory James Keough – President

(handwritten signature) ______ (handwritten signature) __ Thomas Maillet Gregory James Keough, Guarantor [The emphasis is mine.] [ 14 ] Under s. 25(4) of the Land Titles Act , S.N.B. 1981, c. L-1.1, every mortgage in prescribed form is deemed to contain “the covenants and conditions prescribed”. Those covenants and conditions are set out in

Schedule C of the General Regulation 83-130 under the Land Titles Act . The following are pertinent for our present purposes: 101. The mortgagor covenants with the mortgagee that the mortgagor shall pay to the mortgagee the principal sum and interest as hereinbefore set out and all other money payable hereunder; on all arrears of principal, interest and any other sums due to the mortgagee, interest shall be payable at the times and at the interest rate stated, before as well as after maturity, until paid. […] 108.

The mortgagor covenants with the mortgagee that the mortgagor shall pay all taxes, rates, levies and assessments upon the lands and premises during the continuance of this mortgage as and when the same become due and payable, and shall produce to the mortgagee receipts for such payments. […] 115. On default of any payment hereunder or on breach of any covenant, agreement or proviso herein contained or implied on the part of the mortgagor to be made, observed or performed, in whole or in part, the power of sale and all other powers conferred on the mortgagee by virtue of the Property Act , R.S.N.B. 1973, c.

P-19, are incorporated herein, as if the mortgage were made by deed. 101. Le débiteur hypothécaire convient avec le créancier hypothécaire que le débiteur hypothécaire doit payer au créancier hypothécaire le capital et les intérêts tels qu’indiqués plus haut et toutes les autres sommes payables en vertu des présentes; des intérêts doivent être payés sur tous les arriérés de capital, d’intérêt et de toute autre somme due au créancier hypothécaire, aux dates et au taux fixés, aussi bien avant qu’après qu’ils soient arrivés à échéance jusqu’à leur paiement. […] 108.

Le débiteur hypothécaire convient avec le créancier hypothécaire que le débiteur hypothécaire doit payer tous les impôts, taxes et droits sur les biens-fonds et lieux pendant la durée de la présente hypothèque dès qu’ils sont payables et de fournir les reçus de ces paiements au créancier hypothécaire. […]

En cas de manquement du débiteur hypothécaire à son engagement de payer toute somme en vertu des présentes ou à tout engagement, entente ou clause y figurant ou sous-entendu que le débiteur hypothécaire a la charge d’effectuer, observer ou exécuter, en totalité ou en partie, le pouvoir de vente et tous les autres pouvoirs conférés au créancier hypothécaire en vertu de la Loi sur les biens , ch. P-19 des L.R.N.-B. de 1973 sont incorporés aux présentes, comme si l’hypothèque était conclue par un acte de transfert. [ 15 ] The existing $175,000 mortgage was discharged following its payment from the proceeds of the

Sandfire loan. The record is mute on the precise payout. [ 16 ] None of the payments required under the promissory note and the collateral mortgage were made. After demand letters proved fruitless, Sandfire sought to realize on the mortgage security through the power of sale conferred by the Act . [ 17 ] At the March 27, 2014 auction, Sandfire bought the property for the nominal sum of $100. [ 18 ] At that time, the property was assessed at $43,500 for real property tax purposes.

It is unclear whether the assessment took into account the property’s recent subdivision into lots and re-zoning. [ 19 ] On April 9, 2014, Sandfire commenced the underlying action, claiming the full amount of principal and interest owed ($253,559.63) without any credit for the value of the asset (the mortgaged property) it acquired at the auction. [ 20 ] On May 13, 2014, the appellant filed a Statement of Defence contesting the claim on the grounds that his personal liability was not engaged under any document. Correlatively, the appellant pleaded s. 1(

b) of the Statute of Frauds Act , R.S.N.B. 1973, c. S-14 , repealed as of September 30, 2014, which read as follows: 1 No action shall be brought […] (

b) to charge any person upon a special promise to answer for the debt, default, or miscarriage of another, […] unless the agreement upon which the action is brought, or some memorandum or note thereof, is in writing, and signed by the party to be charged therewith, or some other person authorized by him. 1 Il ne peut être intenté d’action […]

b) contre une personne sur la base d’une promesse spéciale de répondre des dettes, manquements ou actes dommageables d’un tiers, […] que si la convention qui donne lieu à l’action est constatée par un écrit ou que s’il en existe un mémoire ou une note et que si la convention, le mémoire ou la note porte la signature de la

partie contre laquelle l’action sera intentée ou de toute autre personne autorisée par elle. [ 21 ] The appellant formulated the following alternative plea: 6. In the alternative, the Defendant states that, if he guaranteed payment of all or part of the sums claimed by the Plaintiff (which guarantee is not admitted and is explicitly denied), the Plaintiff has recovered all amounts owing such that there is no deficiency for which the Defendant is responsible. Specifically:

a) The sums claimed by the Plaintiff were secured by way of a Collateral Mortgage against real property owed by 633287 NB Inc. and bearing Property Identification Number 70546460 (the “Property”);

b) The Plaintiff advanced the funds to 633287 NB Inc. only after obtaining an appraisal of the Property which confirmed its market value to be $275,000.00;

c) In March of 2014, the Plaintiff exercised its Power of Sale against the Property;

d) In exercising its Power of Sale, the Plaintiff breached its duties to act in good faith by submitting a bid of $1.00 to purchase the Property when it knew or ought to have known that the fair market value of the Property at that time exceeded the amounts outstanding on the Collateral Mortgage and Promissory Note;

e) In exercising its Power of Sale, the Plaintiff failed to take reasonable precautions to obtain fair market value for the Property and, had it done so, there would have been no deficiency;

f) The entire amount of any debt owing by 633287 NB Inc. to the Plaintiff was satisfied by the Plaintiff’s acquisition of the Property; and

g) The Defendant denies that there remain any outstanding deficiency or amounts owing to the Plaintiff as alleged and puts the Plaintiff to the strict proof thereof. [ 22 ] Towards the end of May, Sandfire sought and obtained the opinion of a local appraiser who set the value of the property at $46,400. The reliability of that opinion was challenged by the respondent and an experienced real estate agent retained by it. [ 23 ] On June 6, 2014, Sandfire listed the property for sale. The original listing price was $199,000, but this amount was subsequently lowered to $119,900.

There is no explanation in the record for the reduction. [ 24 ] On June 25, 2014, a third party offered to purchase the property for $110,000. The offer, which was conditional and contained what the motion judge described as “substantial clauses with respect to due diligence”, was accepted. Nevertheless, the property remained listed for sale until the end of 2014. However, no other offers were received. The appellant contends this is not surprising given that a “Sold” sign had been posted on the property. [ 25 ] On September 29, 2014, Sandfire filed a Notice of Motion seeking

summary judgment for $253,559.63, the full amount of the loan together with interest, as claimed in the Statement of Claim. That said, at the hearing in the Court of Queen’s Bench, all parties dealt with the action as a claim for the outstanding deficiency following the respondent’s exercise of the default-related powers conferred by the Act . [ 26 ] On December 16, 2014, the potential purchaser of the mortgaged property delivered a letter raising a number of value-related concerns and seeking a reduction of the purchase price to $65,000.

Sandfire declined and the transaction closed on February 5, 2015 for the price of $110,000.

No explanation has been provided for the purchaser’s capitulation. [ 27 ] The net proceeds of the sale following adjustments on closing amounted to slightly more than $100,000. [ 28 ] On March 5, 2015, the appellant applied for the determination of a question of law, namely the enforceability of his “guarantees”. [ 29 ] The hearing of the motions, which began on March 18, 2015, was adjourned until the following August to allow Sandfire an opportunity to file additional affidavit evidence from its realtor. [ 30 ] On September 24, 2015, the motion judge rendered the decision under appeal, finding the guarantees signed by the appellant were legally enforceable and granting

summary judgment in favor of the respondent for the sum of

$190,997.67 and costs of $7,720. As mentioned, the motion judge calculated the deficiency as of the date of the resale. He added: (1)interest at the rate specified in the promissory note; (2) the real estate commission on the resale; and (3) the legal fees incidental to thattransaction. [31] It is alleged in the Notice of Appeal that the motion judge committed the following errors: (a) […] finding that insertion of a signature line labelled “guarantor” on a legal instrument or agreement defining the creditor’s and/ordebtor’s obligations is sufficient to create an enforceable contract of personal guarantee and meets the requirements of

section 1(

b) of theStatute of Frauds, RSNB 1973, c S-14; (

b) In the alternative, […] adopting an approach to contractual

interpretation that fails to consider the “surrounding circumstances”contrary to the directives of the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp., 2014 SCC 53; (c) […] finding that there was sufficient evidence before the Court to assess damages and committed errors of law and of fact withrespect to his assessment of same. III. Analysis and Decision [32] I begin with a brief consideration of complaints articulated in the Appellant’s Submission, butnot pursued or pressed at the hearing.

These include the contention the appellant is not liable for any deficiency because: (1) the truerelationship between the parties was that of a partnership or joint venture, and guarantees were not part of the overall arrangement; and(2) there was no consideration provided for the guarantees, which were unsealed. I would dismiss these objections summarily. [33] The rights and obligations of the parties must be determined on the basis of the terms of thepromissory note and the collateral mortgage, unless there is evidence of an agreement to the contrary.

Indeed, an agreement disentitlingthe lender from exercising its rights under the security instrument in place would be highly relevant, and perhaps dispositive of anyrelated dispute (see Mar-Sand Properties Ltd. v. Central Mortgage & Housing Corp. (1975), (NB KB), 12 N.B.R.(2d) 597, [1975] N.B.J. No. 204 (Q.B.) (QL) (Stevenson J.)). However, there is no evidence of any such agreement.

Moreover, theappellant may not rely on either non est factum (Latin for “it is not my deed”) or lack of consideration since neither excuse is pleaded inthe Statement of Defence (see Rules 27.06(1), 27.06(2), 27.07(3), 27.07(5) and 27.07(6) of the Rules of Court) or raised as a ground ofappeal in the Notice of Appeal (see Rule 62.09(2)).

Be that as it may, there is no merit to either of those arguments. [34] Indeed, the record permits only one inference: the appellant, who was actively engaged in theacquisition of local commercial properties for resale or development purposes, was not mistaken as to the nature of the documents hesigned, both of which were prepared by his lawyer. He is identified as “guarantor” in the promissory note and the collateral mortgage,and signed each document as such.

The argument based on non est factum is manifestly without merit. [35] Moreover, while it is hornbook law that an unsealed guarantee is unenforceable in the absenceof consideration, it need not be provided to the guarantor. It is sufficient if, as agreed by the parties to the guarantee, considerationmoved from its beneficiary to a third party. The law is aptly explained in Snell Lumber Ltd. v. Teed (1959), (NB CA),43 M.P.R. 304, [1960] C.C.S.

No. 252 (N.B.C.A.), where McNair, C.J.N.B., stated: […] [A]n executed consideration will not support a promise and, in consequence, a guarantee, unless under seal, will not be valid unlessthere be some new consideration moving from the promisee.

Where, however, a guarantee is given to secure a future debt, as for goodsto be supplied, the subsequent supply of goods to the principal debtor constitutes consideration to support the promise of the guarantor tothe seller. [p. 309] [36] In the case at hand, the “guarantees” were given as security for the subsequent advance of fundsto the appellant’s numbered company, the principal debtor. That payout constitutes sufficient consideration to support the promise of theappellant as guarantor. I now turn to the appellant’s primary submissions.

A. Failure to specify essential terms as a basis for guarantee unenforceability [ 37 ] The appellant contends his guarantees are not legally enforceable because their essential terms are not in writing. More specifically, the appellant submits his signature over the line above the typewritten word “guarantor” in both the promissory note and the collateral mortgage is not sufficient to give rise to an enforceable guarantee. Like the motion judge, I respectfully reject that submission.

I do so because it overlooks the commonly understood meaning of the word “guarantor”, and the terms of the promissory note and the collateral mortgage to which the guarantee relates. [ 38 ] There is nothing nebulous about the nature and effect of a contract of guarantee.

A guarantor promises the creditor “to be responsible, in addition to the principal, for the due performance by the principal of his existing or future obligations to the creditor, if the principal fails to perform those obligations”: Geraldine Andrews, Q.C. and Richard Millett, Q.C., Law of Guarantees , 7th ed. (London: Sweet & Maxwell, 2015), para. 1-004. In sum, a guarantor is personally liable for the debt, default or miscarriage of the principal. The scope of the guarantee obligations stands to be determined by reference to the principal contract.

On that score, I readily accept as correct the following statements in Kevin McGuinness, The Law of Guarantee , 3rd ed. (Markham, Ont.: LexisNexis Canada Inc., 2013) pp. 6.50-6.51: 6.50 Since a guarantee will usually be intended to protect the creditor from the losses and expenses that are likely to arise by virtue of a breach of the principal contract to which it relates, the terms of that contract are relevant in determining the scope of the guarantee obligation.

They form, in other words, a part of the contractual matrix relevant to the guarantee transaction. […] 6.51 Usually, the guarantee contract is construed by reading it together with the principal contract and any related documents. […] By his signature as “guarantor” the appellant guaranteed the debt owing by his numbered company under the promissory note. [ 39 ] Likewise, as guarantor under the collateral mortgage, the appellant promised to pay all money due by virtue of that instrument.

This promise, which arises from the essential nature of a guarantee, is further defined by condition 101 (the covenant to pay) and the promissory note, both of which are part and parcel of the mortgage. [ 40 ] In my respectful opinion, the terms of the appellant’s guarantees are unambiguous and, as the motion judge rightly found, they are legally enforceable. B.

The statutory regime for the exercise of the mortgagee’s powers, including the power of sale and resale, and the calculation of any deficiency [ 41 ] Judges of the Court of Queen’s Bench have been struggling with a number of issues in connection with the powers conferred upon mortgagees by ss. 44 - 47 of the Act . As expected, each decision rendered reflects a conscientious attempt at avoiding a perceived unfairness resulting from the application of statutory provisions drafted for the benefit of mortgagees.

Moreover, some of those decisions appear to have been shaped to some extent by case-specific concessions and incomplete legal submissions, some oblivious of those statutory provisions.

(1) Legislative history [ 42 ] The case at hand brings into play the mortgagee’s statutory powers of sale, buy in at auction and resale. It does not involve the “right of foreclosure”, which is preserved by virtue of s. 47(5).

Nevertheless, understanding the problems associated with the exercise of that right sheds light on the object of ss. 44 - 47 of the Act . [ 43 ] In both the courts of equity and law, the mortgagee became the owner of the property immediately upon the mortgagor’s default, but the courts of equity “by a decree in personam would compel the mortgagee upon equitable terms to reconvey the land to the mortgagor and, if the mortgagee had already taken possession, would compel him to account for rents and profits received” (see W.B. Rayner and R.H.

McLaren, Falconbridge on Mortgages , 4th ed. (Agincourt, Ont.: Canada Law Book Limited, 1977), at p. 41). That power has been described as objectionable “because it contradicts the language of the mortgage”: Falconbridge on Mortgages , 4th ed., at p. 40. On this point, the authors of that oft-referenced textbook find support in the observations of Lord Bramwell in Salt v. Marquess of Northampton , [1892] A.C. 1 , at pp. 18-19 :

[…] Of course, one knows in a general, if not in a critical way, what is an equity of redemption. It is a right not given by the terms of theagreement between the parties to it, but contrary to them, to have back securities given by a borrower to a lender, I suppose one may sayby a debtor to a creditor, on payment of principal and interest, at a day after that appointed for payment, when by the terms of theagreement between the parties the securities were to be the absolute property of the creditor.

This is now a legal right in the debtor.Whether it would not have been better to have held people to their bargains, and taught them by experience not to make unwise ones,rather than relieve them when they have done so, may be doubtful. We should have been spared the double condition of things, legalrights and equitable rights, and a system of documents which do not mean what they say. But the piety or love of fees of those whoadministered equity has thought otherwise.

And probably to undo this would be more costly and troublesome than to continue it. [44] As an antidote to the defaulting mortgagor’s inalienable right of redemption, the courts of equityeventually accorded the mortgagee the right of foreclosure.

The mortgagee could apply for a decree of foreclosure, which obligated themortgagor in default to “exercise his equitable right to redeem within a reasonable time or be forever precluded from exercising it”:Falconbridge on Mortgages, 4th ed., at p. 42. [45] However, foreclosure in equity could only be achieved through a process that was cumbersome and quite often tedious.

The inefficiency of that means of realizing the mortgage debt prompted conveyancers in the 19th century todevelop a contractual power of sale whose aim was to provide “a simpler and more expeditious mode of getting rid of the mortgagor’sequity of redemption and of realizing the mortgage debt”: Walter M. Traub, Falconbridge on Mortgages, loose-leaf (consulted July2016), (Toronto: Canada Law Book Limited, 2014), at p. 35-2, §35:10.

In time, lenders and conveyancers were successful in persuadingParliament to give its imprimatur to the power of sale by deed (see Lord Cranworth’s Act, 1860 (U.K.), 23 & 24 Vict., c. 145 and theConveyancing and Law of Property Act, 1881 (U.K.), 44 & 45 Vict., c. 41). The last mentioned statute, like its predecessor, can hardly bedescribed as borrower protection legislation.

Quite the contrary: its terms were reflective of the power of sale by deed conveyancers haddevised to facilitate the elimination of the equity of redemption and expeditiously realize the mortgage debt. [46] New Brunswick’s existing statutory regime, whose origins can be traced to the Conveyancing and Law of Property Act, 1881, is even more mortgagee-friendly than the corresponding provisions of that 19th century statute, whichare set out in Appendix “A” for ease of reference and comparison purposes.

The same holds true when ss. 44-47 of our current Act arecompared to their predecessors in New Brunswick’s first legislation on the subject of the rights and obligations of parties to a mortgagein default (see ss. 41-43 of The Property Act, R.S.N.B. 1903, c. 152). Indeed, no significant mortgagor-favoring amendments to thepertinent provisions of the 1903 statute have been adopted. In fact, the very few noteworthy amendments to the statutory regime havebeen for the benefit of mortgagees.

The following probably best illustrates the point. [47] There is highly respected authority for the view that the power to “buy in at auction” found in s.44(1)(

a) does not, by itself, vest in the mortgagee the power to buy for its own benefit. The power in question would merely mean “themortgagee may buy in the property for the purpose of reselling under the power of sale or of having recourse to any other remedyavailable to a mortgagee”: Falconbridge on Mortgages, loose-leaf edition, at §35:130, footnote 191. In Gauvin v. Dionne (1919), (NB CA), 47 N.B.R. 102, [1919] N.B.J. No. 4 (C.A.) (QL), the Court decided otherwise. In its view, the power to buy in atthe auction did indeed vest in the mortgagee the power to acquire the property for its own benefit.

In 1952, the Legislature enacted thepredecessor to s. 44(4), which states the power to “buy in at auction” is a power to buy not only for the mortgagee’s own benefit, but also“to his own use” (see Property Act, R.S.N.B. 1952, c. 177, s. 42(4)). This legislative intervention should resolve any lingering doubt overwhose interests the mortgage-default provisions of the Property Act are designed to protect and, as Rideout J. underscores in FirstNational Financial Corp. v.

LeBlanc et al., 2011 NBQB 188, 375 N.B.R. (2d) 239, at para. 23, the calculation of any deficiency must bebased on the law of New Brunswick, even though the practice in other jurisdictions, such as Nova Scotia, is arguably better.

(2) Reform and judicial obligations [48] In England, the basis for a mortgagee’s liability for loss arising from its exercise of the power ofsale, which was initially confined to bad faith conduct, expanded to include ordinary negligence with Cuckmere Brick Co. v. MutualFinance Ltd., [1971] EWCA Civ 9, [1971] Ch. 949. In that case, the Court confirmed the longstanding view that a mortgagee was not atrustee of the power of sale for the mortgagor and, where there was a conflict of interests, the mortgagee was entitled to give preferenceto its own.

This was particularly the case in deciding on the timing of the sale and in exercising the power of sale. However, the Courtwent on to hold the mortgagee was not merely under a duty to act in good faith, i.e. honestly and without reckless disregard for themortgagor’s interest, but also to take reasonable care to obtain the true market value of the mortgaged property at the moment chosen forits sale.

As a result, the mortgagee’s duties toward the defaulting mortgagor expanded from avoidance of recklessness in sacrificing themortgagor’s interest to the exercise of reasonable care to obtain the true market value of the mortgaged property. [49] However, that extension of liability has since been rejected by the Privy Council (see China andSouth Sea Bank Limited v. Tan, [1989] 3 All E.R. 839 (P.C.) and Downsview Nominees Ltd. v. First City Corp. Ltd., [1993] A.C. 295(P.C.)). In the last-mentioned case, the Privy Council observed that the “[…] general duty of care said to be owed by a mortgagee to […]

the mortgagor in negligence is inconsistent with the right of the mortgagee and the duties which the courts applying equitable principleshave imposed on the mortgagee” (p. 315). Thus, English judge-made law has moved away from visiting upon the mortgagee liability formere negligence in the exercise of its power of sale.

In my respectful view, that is the state of the law in this Province as well, havingregard to the object and wording of ss. 44-47 of the Act, interpreted contextually. [50] In two unanimous decisions directly on point, this Court has rejected dicta approving theimposition of liability upon mortgagees for mere negligence in the exercise of their power of sale. In the Court’s view, the dicta inquestion, which is found in Canadian Imperial Bank of Commerce v. Haley (1979), (NB KB), 25 N.B.R. (2d) 304,[1979] N.B.J. No. 77 (C.A.) (QL) and Banque Nationale du Canada v.

Desrosiers, cannot be reconciled with the Act (see Bérubé v.Lévesque and Bayview Credit Union v. Gambit Holdings & Development). In each of the two last-mentioned cases, it was conceded thepower of sale had been exercised in accordance with the Act and the critical issue for liability purposes was whether the mortgageescould be made to answer in damages for ordinary negligence. The Court concluded they could not, having regard to the provisions of ss.44-47 of the Act. [51] In both Bérubé v. Lévesque and Bayview Credit Union v.

Gambit Holdings & Development, theCourt also rejected dicta from the majority opinion in Banque Nationale du Canada v. Desrosiers purporting to impose affirmativemortgage sale obligations additional to those prescribed by the Act, and to burden mortgagees with liability in damages for any lossoccasioned by their breach. The rejected affirmative obligations are: (1) obtaining a “proper” appraisal; (2) undertaking advertisingbeyond the statutory requirements; (3) employing a real estate firm; (4) utilizing a multiple listing service; and (5) exposing the propertyto the market for a “sufficient” period of time.

I will return to the first of these measures in connection with the discussion surroundingthe notion of propriety in the exercise of the statutory power of sale. [52] It is axiomatic that, in our regime of parliamentary democracy, judge-made law, no matter thecurial provenance, may bear upon the mortgagor-mortgagee relationship only to the extent of its consistency with the Act. In that regard,the Court’s observations on point in Bérubé v.

Lévesque bear repeating: […] It is trite that liability based on common law standards can only be imposed where the redress that would normally flow from theirinobservance is not precluded by legislation. If legislation forecloses such a redress, we are duty bound to give effect to it, even thoughwe might disagree with the policy choice it manifests. That is so for the simple reason that it is beyond any court’s competence to declineto give effect to the legislature’s policy choices if those choices are expressed in legislation that conforms to constitutional norms.

Here,the legislature has made such a policy choice and it has given expression to it in clear language: a mortgagee exercising the power of saleconferred by s. 44 of the Property Act is not answerable in damages for any involuntary consequential losses. [para. 20] [53] It is for the Legislature to bring about amendments to statutes in general, and to the Act inparticular. On that topic, I make mine the observations of Rice J.A., dissenting, in Banque Nationale du Canada v.

Desrosiers: [TRANSLATION] Any codification of the principles enunciated in Cuckmere and Haley and their application to the power of sale under the Property Actmust be by way of statute. It behooves the legislator to determine what weight is to be given to the mortgagor’s interests in light of theimpact of other marketing requirements on mortgage loans and, incidentally, on business and the economy. [para. 57] I conclude the discussion on this topic by underscoring that interesting suggestions for reform can be found in Joseph T.

Robertson,“Foreclosure By Power of Sale: Securing a Proper Price in New Brunswick” (1983) 32 U.N.B.L.J. 83.

(3) Broad and manifold statutory protections for mortgagees [54] Section 44(1)(

a) reads as follows:

(1) A mortgagee, where the mortgage is made by deed, shall, by virtue of this Act , have the following powers to the like extent as if they had been in terms conferred by the mortgage deed, but not further, namely: (

a) a power, when the mortgage money or any interest thereon has become due, to sell, or to concur with any other person in selling, the mortgaged property or any part thereof, and either together or in lots, by public auction or by private contract, subject to such conditions respecting title or evidence of title or other matter as the mortgagee thinks fit, with power to vary any contract for sale, and to buy in at auction, or to rescind a contract for sale and to resell, without being answerable for any loss occasioned thereby ; [Emphasis added.] 44

(1) Lorsque l’hypothèque est consentie par un acte (deed), un créancier hypothécaire possède, en vertu de la présente loi, les pouvoirs suivants dans la même mesure que s’ils avaient été explicitement conférés par l’acte d’hypothèque, savoir :

a) le pouvoir, quand la somme garantie par l’hypothèque ou tout intérêt sur celle-ci est devenu exigible, de vendre ou de concourir avec une autre personne à vendre le bien hypothéqué ou toute

partie de celui-ci en un ou plusieurs lots, aux enchères ou par contrat privé, sous réserve des conditions que le créancier juge opportunes en matière de

titre de propriété, de preuve de

titre de propriété ou autre matière, avec le pouvoir de modifier tout contrat de vente et de se porter acquéreur aux enchères, ou de résilier le contrat de vente et de revendre, sans être tenu de répondre de toutes pertes qui en résulteraient ; [Je souligne.] [ 55 ] Section 44(1)(

a) does more than grant a power of sale. Indeed, it confers additional distinct powers, including the power “to buy in at auction” and the power “to resell” the property. The reference in s. 44(2) to the “foregoing powers” confirms the multiplicity of the powers conferred on the mortgagee. Thus, where the Act refers to the “exercise of the power of sale”, it is targeting that power, and not the other powers enunciated in s. 44(1) (a), including the power of resale. [ 56 ] Just as importantly, s. 44(1)( a ), read in isolation, provides unrestricted immunity to the mortgagee in the exercise of each listed power.

The text selected by the Legislature, including the comma after the word “resell”, is unambiguous: the mortgagee may exercise those powers “without being answerable for any loss occasioned thereby”. The phrase “without being answerable for” means “without being responsible for” or “without being liable for”. Specifically, the power of sale, the power to buy in at auction and the power of resale may be exercised without giving rise “to enforceable liabilities” (see Bryan A. Garner, Black’s Law Dictionary , 10th ed. (St. Paul, Minn.: Thomson Reuters, 2014) at p. 111).

As will be seen, the Legislature has seen fit to recognize significant exceptions to the general immunity prescribed under s. 44(1)(a), but only in respect of the power of sale. [ 57 ] Section 44(4) provides: 44

(4) The power given to a mortgagee in subsection (1) “to buy in at auction” is a power to buy for his own benefit and to his own use. 44

(4) Le pouvoir donné à un créancier hypothécaire dans le paragraphe (1) « de se porter acquéreur aux enchères » est un pouvoir d’acheter pour son propre compte et pour son propre usage. [ 58 ] Section 44(4) makes clear the mortgagee may lawfully buy in at the auction for its own benefit and to its own use . Thus, it gives the Legislature’s imprimatur to the decision in Gauvin v. Dionne , which some commentators criticized as unfair to mortgagors in default, and contrary to longstanding and well-established judge-made law. It bears mention that no other common law jurisdiction has enacted similar legislation.

At any rate, s. 44(4) provides a clear statutory foundation for this Court’s pronouncement in Central & Eastern Trust v. Rosebowl Holdings and Heustis that, after buying in at the auction, the mortgagee is “entitled to deal with the property as its own” (para. 29). I would add, parenthetically, that the majority in Banque Nationale du Canada v. Desrosiers may have misread Gauvin v. Dionne in opining, at para. 25 , that it “upheld the mortgagee’s duty of care”.

In fact, Barry J. referred to the duty to take “reasonable precautions to secure a proper price” in concurring reasons (para. 19); the majority (Justices Grimmer and White) made no mention of any such duty. Be that as it may, and as will be seen, the duty to which Barry J. adverted does no more than impose on mortgagees an obligation to avoid sacrificing, whether fraudulently, willfully or recklessly, the defaulting mortgagor’s interest; it is not a springboard for liability in ordinary negligence. [ 59 ] Section 45(1) reads as follows:

45(1) A mortgagee shall not exercise thepower of sale conferred by

section 44 unless […] (

b) at least four weeks in advance of the sale,he has served upon the mortgagor or he hasmailed by registered or certified mailaddressed to the mortgagor at the latestaddress of the mortgagor known to themortgagee, notice in writing specifying thetime and place of sale, and (

c) notice of the sale has been publishedweekly for four consecutive weeks in somedaily or weekly newspaper having generalcirculation in the county within which thelands lie, or in the case of chattels personal,where the mortgage is recorded or filed, andin the case of lands, by printed handbills, oneof which has been posted in or on the courthouse, one at, in or on the registry office, andone in some public place in the city, town orparish in which the lands are situate. 45(1) Un créancier hypothécaire ne peutexercer le pouvoir de vente conféré parl’article 44 à moins […]

b) d’avoir, au moins quatre semaines avant lavente, signifié ou envoyé par courrierrecommandé ou certifié au débiteurhypothécaire, à sa dernière adresse connue ducréancier hypothécaire, un avis écritindiquant les date et lieu de la vente, et

c) que cet avis de vente n’ait été publiéchaque semaine pendant quatre semainesconsécutives dans un quotidien ou unhebdomadaire ayant une diffusion généraledans le comté où les biens-fonds sont situés,ou dans le cas de chattels personal, oùl’hypothèque est enregistrée ou déposée etdans le cas de biens-fonds, au moyend’affiches imprimées placées l’une àl’intérieur ou à l’extérieur du palais dejustice, une deuxième à l’intérieur ou àl’extérieur du bureau de l’enregistrement etune troisième dans un endroit public de lacité, ville ou paroisse où les biens-fonds sontsitués. [60] This provision is designed [TRANSLATION] “to ensure reasonable participation at the auctionby making it generally known in the county”: Hébert v.

Household Trust Co. (1996), (NB CA), 184 N.B.R. (2d) 83,[1996] N.B.J. No. 599 (C.A.) (QL), Justice Bastarache for the majority. The Legislature having specified measures susceptible, in itsjudgment, of generating reasonable participation at the auction, additional burdens to that end cannot be imposed by judicial fiat: Bérubév. Lévesque. Reform must come from the legislative branch of government. [61] Section 47(2) reads as follows: 47(2) Where a conveyance is made inprofessed exercise of the power of saleconferred by

section 44, the title of thepurchaser is not impeachable on the groundthat no case had arisen to authorize the sale,or that due notice was not given, or that thepower was otherwise improperly orirregularly exercised; but any persondamnified by an unauthorized or improper orirregular exercise of the power shall have hisremedy in damages against the personexercising the power. 47(2) Lorsqu’un transfert est effectué dansl’exercice déclaré d’un pouvoir de vente queconfère l’article 44, le

titre de propriété del’acheteur n’est pas attaquable pour le motifqu’il n’y aurait pas eu lieu d’autoriser lavente, que l’avis exigé n’a pas été donné, ouque le pouvoir à été improprement etirrégulièrement exercé de toute autre façon;mais toute personne lésée par un exerciceirrégulier, impropre ou non autorisé dupouvoir possède un recours en dommages-intérêts contre celle qui a exercé le pouvoir. [62] Section 47(2) pertains exclusively to the exercise of the power of sale, and its effect is two-foldin circumstances where that exercise was unauthorized, improper or irregular.

While the purchaser’s title is unassailable, any personinjuriously affected has a remedy in damages. [63] Section 47(2) provides the only exceptions to the blanket immunity from liability afforded tomortgagees by s. 44(1). As will become evident, the key element of s. 47(2) for our present purposes is the term “improper”. I shouldimmediately make the point that the remedy in damages for unauthorized, improper or irregular exercises of the power of sale is subjectto s. 47(6), which states the mortgagee “shall not be answerable for any involuntary loss” traceable to the exercise or execution of the

power of sale conferred by s. 44 or any associated trust. The trust in question tracks back to s. 47(3) to which I now turn. [ 64 ] Section 47(3) provides: 47

(3) The money which is received by the mortgagee arising from the sale shall be held by him in trust to be applied by him: (

a) in the first place in payment of all costs, charges and expenses, properly incurred by the mortgagee as incident to the sale or any attempted sale of the mortgaged premises; (

b) in the second place in discharge of all unpaid money and interest secured by the mortgage; and the residue of the money so received shall be paid to the person entitled to the mortgaged property, or authorized by the person so entitled to give receipts for the proceeds of the sale thereof. 47(3) Le créancier hypothécaire doit détenir en fiducie la somme provenant de la vente qu’il reçoit et l’affecter :

a) en premier lieu au paiement de la totalité des frais et dépenses qu’il a légitimement supportés dans le cadre de la vente ou de toute tentative de vente des propriétés hypothéquées;

b) en deuxième lieu au règlement de la totalité des sommes et intérêts impayés garantis par l’hypothèque; et le reliquat de la somme ainsi reçue doit être versé à la personne qui a droit au bien hypothéqué, ou à celle que cette dernière autorise à donner reçu des produits de la vente. [ 65 ] The accounting and trust prescribed under s. 47(3) relates to money received by the mortgagee arising “from the sale”. The context and s. 47(6), in particular, confirms, if any further confirmation were thought necessary, that the reference to “the sale” in s. 47(3) targets the mortgage sale.

The Act ordains neither an accounting nor a trust for money received by the mortgagee arising from any resale. Recall mortgagees may buy in at auction for their own benefit and to their own use. That state of affairs goes a long way in explaining and providing support for the Court’s determination in Central & Eastern Trust v. Rosebowl Holdings and Heustis that deficiencies stand to be calculated as of the date of the mortgage sale, a point reaffirmed more recently in Bayview Credit Union v. Gambit Holdings & Development.

The correctness of those decisions is not in issue, and the motion judge erred in failing to apply them. [ 66 ] Section 47(6) reads as follows: 47

(6) The mortgagee, his executors, or assigns, shall not be answerable for any involuntary loss happening in or about the exercise or execution of the power of sale conferred by

section 44, or of any trust connected therewith. 47(6) Le créancier hypothécaire, ses exécuteurs testamentaires ou ayants droit ne répondent pas d’une perte involontaire survenue lors ou à la suite de l’exercice ou de l’exécution du pouvoir de vente que confère l’article 44, ou de toute fiducie qui s’y rattache. [ 67 ] Section 47(6) applies only to the power of sale and the trust arising from its exercise (see s. 45(2)).

That narrow scope of application is fully coherent with a regime that shuts the door on a mortgagee’s liability except, in limited circumstances, for its exercise of the power of sale: ss. 44(1) and 47(2). Just as significantly, s. 47(6) rules out any liability for “involuntary” losses arising from the exercise or execution of the power of sale. In Bérubé v. Lévesque , the Court offered the following insights into the meaning of the expression “involuntary loss”: In the present case, it is conceded that the mortgage sale was conducted under the authority of a “power of sale conferred by

section 44 ” within the meaning of section 47(6). As well, it is beyond serious debate that any loss of equity suffered by Ms. Bérubé happened in or about the exercise or execution of the power of sale conferred on Mr. Lévesque by

section 44 . It follows that the issue that the trial judge had to resolve was whether Ms. Bérubé had proven that her loss of equity was voluntary on Mr. Lévesque’s part. If her loss was involuntary, s. 47(6) affords Mr. Lévesque a complete defence to her action.

“Involuntary” means “not voluntary; done or happening without exercise or co-operation of the will; not done willingly or by choice;independent of volition, unintentional.” See The Oxford English Dictionary, vol. XII (Oxford, Clarendon Press, 1970). Antonyms include“voluntary” and “wilful”. The corresponding expression in the French legislative text is “involontaire”. Its meaning mirrors that of“involuntary”. Antonyms of “involontaire” include “volontaire”, “intentionnel” and “voulu”. See P. Robert, Le Grand Robert de laLangue Française, 2d ed. (Montreal: Les dictionnaires Robert Canada, 1987).

By defining in such terms the type of loss for which amortgagee is not answerable, the legislature has mandated courts to focus on whether the mortgagor’s loss was the object of themortgagee’s exercise and execution of his statutory power of sale. The dicta in Desrosiers, at p. 259, para. 28, to the effect that an “involuntary loss” does not cover a “different reality than the words“wilful neglect or default” found in the Short Forms of Mortgages Act” of Ontario was not intended as a comprehensive statement of thelaw on this issue.

It is undoubtedly true that any loss by a mortgagor will be “involuntary” within the meaning of s. 47(6), unless theevidence shows some wilful conduct by the mortgagee. However, as Bastarache, J.A., noted in Desrosiers, again at p. 259, para. 28, it isthe losses that are characterized by our Property Act when it deals with the mortgagee’s liability following the exercise or execution of astatutory power of sale.

Only a voluntary loss, i.e. one that was sought by the mortgagee, is compensable in circumstances where theapplication of s. 47(6) is triggered. [paras. 23-25] [68] The object and effect of 47(6) are plain. Ordinary negligence is excluded as a basis for amortgagee’s liability in connection with the exercise or execution of its statutory power of sale.

(4) Limited protection for the defaulting mortgagor [69] In Nova Scotia Savings & Loan Company v. MacKenzie and MacKenzie, (1979), (NB KB), 29 N.B.R. (2d) 78, [1979] N.B.J. No. 331 (Q.B.) (QL), Angers J. observed that “[…] it must be borne in mind that NewBrunswick, contrary to other provinces, gives statutorily very little protection to the mortgagor in cases where the mortgagee purchases atthe sale […]” (para. 11).

He made that observation having regard to s. 44(1) which provides that the mortgagee may exercise the powersof sale, buy in at auction and resale “without being answerable for any loss”, and s. 47(6)’s exclusion of liability for “any involuntaryloss”. The main protections afforded mortgagors in default consist of the following. [70] Section 45(1) entitles the mortgagor to notice of the sale. This notice is provided to enabledefaulting mortgagors to undertake steps with a view to protecting their interests.

If, as in this case, the defaulting mortgagor doesnothing in response to the notice, mustering sympathy becomes a challenge. After all, as between the appellant, a local real estatebusinessperson, and the respondent, an Ontario-based lender, one would expect the former to be better acquainted with the pool ofpotentially interested purchasers. [71] Section 47(3) provides for an accounting as of the date of the mortgage sale. Its wordingsuggests the Legislature did not contemplate purchases for a nominal sum.

At any rate, the provision protects the mortgagor against debtincreases for expenses other than those specifically provided. There are significant benefits accruing to the mortgagor and anyguarantors through the calculation of a deficiency as of the mortgage sale. First, the mortgagor and any guarantors are spared liability forpost-sale expenses that can be quite onerous and over which they have absolutely no control. Mortgagees have claimed reimbursementfor a variety of post-sale expenses: “maintenance”, “care” and “re-appraisal” of the property (London Life Insurance Co. v.

Carrick,2002 NBQB 392, 255 N.B.R. (2d) 332, at paras. 13-14), operating expenses, repairs, advertising and the cost of demolition of buildings(Bayview Credit Union v. Gambit Holdings & Development, at para. 3), carrying charges (Scotia Mortgage Corporation v. Condon et al.,2001 NBQB 164, 242 N.B.R. (2d) 79, at para. 20), “protective” expenses and “property management fees” (Bank of Nova Scotia v.Leclair, 2012 NBQB 159, [2012] N.B.J.

No. 497 (QL), at paras. 10-12), the cost of “improvements” purportedly justifiable on the basisof enhanced marketability, security services, insurance fees, legal fees for manifold services and real estate commissions. The list doesnot purport to be exhaustive. Second, the deficiency, if any, can be easily calculated and, as a result, costly litigation and interest chargesmay be avoided. [72] Under s. 47(2), the defaulting mortgagor is entitled to an exercise of the power of sale that isauthorized, regular and proper.

If the mortgagee does not comply with those requirements, the mortgagor’s remedy is in damages for anyconsequential voluntary loss.

(5) An “improper” exercise of the power of sale [73] One of the well-established interpretative aids or principles is that a meaning must be attributedto every statutory provision and every word within any such provision. Section 47(2) of the Property Act refers to “unauthorized orimproper or irregular” exercise of the power of sale. A meaning must be ascribed to each of the quoted adjectives.

More specifically, an“improper” exercise of the power of sale refers to conduct other than “unauthorized” or “irregular”, which brings us to one of the keyquestions: does the phrase “improper exercise of the power of sale” include ordinary negligence? The short answer: it does not. [74] The quoted phrase has been part of this Province’s successive Property Acts since 1903. Itsinclusion in the 1903 statute followed just a few years after the decision of the English Court of Appeal in Kennedy v. De Trafford,[1896] 1 Ch. 762.

In that case, Lindley L.J. identified an improper exercise of the power of sale as one that either “fraudulently, orwillfully, or recklessly” sacrifices the interests of the mortgagor (see p. 772). In his view, the obligation “to take reasonable precautionsto obtain a proper price”, to which he had previously alluded in Farrar v. Farrar’s, Limited (1889), 40 Ch.

D. 395, p. 411, meant nomore than an obligation to avoid sacrificing, whether fraudulently, willfully or recklessly, the mortgagor’s interest. [75] In the House of Lords, the mortgagor in default contended that, although the mortgagees hadacted in good faith, the property had been sold at an undervalue, a result he claimed was traceable to their failure to proceed by auctionand to properly and sufficiently advertise the sale. Lord Herschell described the mortgagor’s appeal “as hopeless an appeal as has everbeen presented” (see Kennedy v. De Trafford, [1897] A.C. 180 (H.L.), at p. 183).

He went on to make the following observations on themortgagee’s obligations: […] [T]he appellant seeks to set aside the mortgage, on the ground that the mortgagees have been guilty of a breach of duty in relation tothis sale. First of all, it is said that they have sold at an undervalue, and that that sale at an undervalue has arisen from their notdischarging the duties incumbent upon them as mortgagees. It is not disputed that they sold in good faith. They did not intend to doanything else but properly exercise the power of sale vested in them under their mortgage.

But it is alleged that they did not put up thepremises for sale by auction, that they only inserted two advertisements inviting a sale by tender, and that they ultimately sold for theamount of principal, interest, and costs to Mr Dodson. I am myself disposed to think that, if a mortgagee, in exercising his power of sale, exercises it in good faith, without any intention ofdealing unfairly by his mortgagor, it would be very difficult indeed, if not impossible, to establish that he had been guilty of any breachof duty towards the mortgagor.

Lindley L.J., in the court below, says that “it is not right or proper or legal for him, either fraudulently orwilfully or recklessly, to sacrifice the property of the mortgagor.” Well, I think that is all covered really by his exercising the powercommitted to him in good faith. It is very difficult to define all that would be included in the words “good faith,” or to give an exhaustivedefinition of them, but I think it would be unreasonable to require the mortgagee to do more than exercise his power of sale in thatfashion.

Of course, if he wilfully and recklessly deals with the property in such a manner that the interests of the mortgagor aresacrificed, I should say that he had not been exercising his power of sale in good faith. [pp. 184-185] Lord MacNaghten agreed, adding that “if a mortgagee selling under a power of sale in his mortgage takes pains to comply with theprovisions of that power and acts in good faith, […] his conduct [cannot] be impeached” (p. 192). The other Lords concurred. [76] In British Columbia Land and Investment Agency v.

Ishitaka (1911), (SCC),45 S.C.R. 302, Duff J. (as he then was) summarized the effect of Kennedy v. De Trafford in the following fashion: [In exercising a power of sale, the mortgagee] is bound to act in good faith, that is to say, he is bound to exercise the power fairly for thepurpose for which it was given.

If the mortgagee proceeds in a manner which is calculated to injure the interests of the mortgagor and ifhis course of action is incapable of justification as one which in the circumstances an honest mortgagee might reasonably consider to berequired for the protection of his own interests; if he [sacrificed] the mortgagor’s interests ‘fraudulently, wilfully or recklessly,’ then […]it would be difficult to understand how he could be held to be acting in good faith.

But that is a vastly different thing from saying that heis under a duty to the mortgagor to take, (regardless of his own interests as mortgagee,) all the measures a prudent man might beexpected to take in selling his own property”. […] [pp. 316-317] Duff J. went on to state “it is clear that in exercising his power the mortgagee does not act as trustee”.

[77] Given that background jurisprudence, the unqualified immunity provided by s. 44(1)(

a) and thecombined operation of ss. 47(2) and 47(6), which confines the remedy in damages to voluntary losses arising from unauthorized,irregular or improper exercises of the power of sale, ordinary negligence in the exercise of the powers listed in s. 44(1)(

a) cannot giverise to liability on the mortgagee’s part. Absent intentional misconduct, reckless sacrifice of the mortgagor’s interest in the exercise of thepower of sale is required. Recklessness is an issue of fact. The surrounding circumstances in each particular case must be considered indetermining the question. [78] However, where the mortgagee buys in at the auction for a nominal price, a reckless sacrifice ofthe interests of the mortgagor occurs.

In the result, the power of sale has been exercised improperly and incidental losses cannot belabeled “involuntary” within the meaning of s. 47(6) (see London Life Insurance v. Carrick, at para. 66). [79] The appellant goes further. He contends the respondent forfeited its right to sue on the covenantand on the guarantees by its “improper” exercise of its power of sale. I disagree. [80] In Banque Nationale du Canada v. Desrosiers, the majority held the bank’s acquisition of themortgaged property for a nominal sum constituted a breach of its duty to act in good faith.

The court posited there is a presumption ofbad faith where “the difference between the true value of the property and the proceeds of the sale is so great that it indicates that theinterests of the mortgagor were sacrificed” (para. 33). After referencing Canada Permanent Mortgage Corporation v. Jesse (1909), 11W.L.R. 295 (Sask.S.C.) and Briand v. Carver et al., [1967] N.S.J.

No. 32 (S.C.) (QL), as authority for the view that the right to sue onthe covenant is forfeited by a bad faith exercise of the power of sale, the court allowed the mortgagor’s counterclaim for damages anddirected they be assessed by the trial judge and [TRANSLATION] “set off against the amount awarded in the main action” (para. 36). Inthe result, the judgment for the deficiency was allowed to stand, but a new trial was ordered to assess the damages payable by the bankfor its bad faith.

Accordingly, in this province, the right to sue on the covenant and any guarantee is not lost as a result of an improperexercise of the power of sale. I should add the rights and obligations of banks under ss. 44-47 are no different than other mortgagees. [81] In Bérubé v.

Lévesque, the Court suggested the result in Banque Nationale du Canada v.Desrosiers could be explained on the basis of the special obligations imposed on banks by s. 428(10) of the Bank Act, S.C. 1991, c. 46which include the obligation to deal with security in a timely and appropriate manner having regard to the defaulting owner’s interests.The Court in Bérubé v. Lévesque ventured that opinion on the basis of the majority’s observations in Banque Nationale du Canada v.Desrosiers: The Bank must also take into account its duties under

section 179 of the Bank Act (S.C. 1991, c. 46; 1993 permanent consolidation, c. B-1.01, subsection 428(10)). Subsection (10) requires the bank to act in good faith in the realization of its security.

In connection with any sale of property by a bank pursuant to subss. (7) and (8) or pursuant to any agreement between the bank and theperson by whom the security was given, the bank shall act honestly and in good faith and shall deal with the property in a timely andappropriate manner having regard to the nature of the property and the interests of the person by whom the security was given [...] (See also Haley on this point, at page 313.) [para. 30] It has since been drawn to my attention that the referenced provisions of the Bank Act have no application to the sale of mortgagedproperties pursuant to ss. 44-47 of the Property Act. [82] The mortgagee need not bid up to the probable market value of the mortgaged property: Bank ofMontreal v.

Allender Investments Ltd. and Neill (1983), (NB KB), 53 N.B.R. (2d) 143, [1983] N.B.J. No. 393 (Q.B.)(QL), Dickson J. and Nova Scotia Savings and Loan Company v. Doucet, Doucet and Doucet (1984), (NB KB), 54N.B.R. (2d) 72, [1984] N.B.J. No. 128 (Q.B.) (QL), Jones J., paras. 14 and 15. After all, the best outcome mortgagors can expect is aprice that reflects the reality of the situation their default created, a forced sale.

Accordingly, purchasing or setting a reserved bid at aprice that corresponds to the forced value of the property, as determined by an independent and reliable professional appraiser, wouldarguably insulate mortgagees against claims of “improper” exercise of the power of sale. Where a mortgagee sells or buys in at themortgage sale for a price that the mortgagee believes, on reasonable grounds, corresponds to the forced value of the property, it isdifficult to see how there could be merit to a claim of “improper” exercise of the power of sale.

(6) The correct approach to the calculation of the deficiency

[ 83 ] The motion judge assessed the deficiency and the respondent’s recovery as follows: As Sandfire had acquired the property at a nominal value, the amount to be considered is the value received considered to be $110,000.00 less reasonable disbursements. In that regard, the Court accepts as reasonable disbursements, the legal fees for the sale of the property being $836.20, real estate commission of $6,215.00, property taxes and arrears to December 31, 2014, for $9,287.67 leaving a net credit for Keough’s benefit of $100,712.33.

As for the amount claimed, the original principal amount of $200,000.00, plus interest to February 5, 2015, at a rate of 12% from March 8, 2012, totals $71,200.00 for a grand total of $271,210.00 less $100,712.33 equalling $170,497.67. Expenses incurred for the mortgage sale are set at $6,500.00 for legal fees plus disbursements for a total amount owing of $176,997.67. Interest up to September 22, 2015 from February 5, 2015, at 12% is set at $13,267.50 totalling $190,265.17. When it comes to the issue of cost, I must consider that a motion was filed by both parties seeking

summary judgment. Only Sandfire was successful. Considering the arguments submitted by Keough, his application for a

summary judgment was questionable, and the

summary judgment by Sandfire was challenged, and two hearings had to be held. In these circumstances, I will allow cost according on Scale 2 of Tariff A of Rule 59. As of September 22, 2015, Sandfire Capital Limited Partnership is granted judgment against Gregory James Keough in the amount of $190,997.67, plus costs which I set at $7,720.00 based on an amount involved of $190,997.67 on Scale 2 of Tariff A of Rule 59.

I grant judgment in favour of the plaintiff against the defendant for an overall amount of $198,717.67. [paras. 61-64] [ 84 ] Where the statutory power of sale has been improperly exercised, the mortgagee, in an action for deficiency, is entitled to judgment for the balance owing under the mortgage after deducting the market value of the asset added to its portfolio as a result of the mortgage sale. As mentioned, the value is not the asset’s “forced” value, but its market value.

That is so because the asset’s salability is unconstrained by the potentially negative influences associated with a forced sale on a specific date. At the time of the appraisals included in the record, The Canadian Uniform Standards of Professional Appraisal Practice defined “market value” as follows: The most probable price which a property should bring in a competitive and open market as of the specified date under all conditions requisite to a fair sale, the· buyer and seller each acting prudently and knowledgeably, and assuming the price is not affected by undue stimulus.

Implicit in this definition are the consummation of a sale as of a specified date and the passing of title from seller to buyer under conditions whereby: 1. buyer and seller are typically motivated; 2. both parties are well informed or well advised, and acting in what they consider their best interests; 3. a reasonable time is allowed for exposure in the open market; 4. payment is made in terms of cash in Canadian dollars or in terms of financial arrangements comparable thereto; and 5. the price represents the normal consideration for the property sold unaffected by special or creative financing or sales concessions granted by anyone associated with the sale. [ 85 ] As stated, the deficiency stands to be calculated as of the date of the mortgage sale.

In Central & Eastern Trust v. Rosebowl Holdings and Heustis , the Court made the following observations on point:

This is an appeal by the defendants, Rosebowl Holdings Ltd. (“Rosebowl”), and David Huestis, (“Huestis”) from a judgment of Barry, J.,[See (NB KB), 31 N.B.R.(2d) 219; 75 A.P.R. 219.] wherein he awarded the plaintiff, Central and Eastern TrustCompany, the sum of $ 47,173.76 with interest at the rate of 10% per annum from December 7, 1976, to the date of judgment, September18, 1980, being the amount which the plaintiff claimed as the difference in the amount it received from the sale of a mortgaged propertyand the balance then due to it on the mortgage of the property which it had sold. […] Notice of sale having been given, the property was sold under the power of sale contained in the mortgage on December 7, 1976 toCentral Trust at public auction for $25,000.00.

Huestis did not attend the sale, nor did anyone attend on behalf of Rosebowl. On June 21, 1977 one Zack Gilks offered to purchase the property from Central Trust for $ 30,000.00. On August 11, 1977, solicitorsrepresenting Central Trust wrote Huestis to the effect that the property had been sold at public auction for $ 25,000.00; that there was adeficiency of $ 47,173.76 under the mortgage, and that Gilks had made an offer for the property. In the same letter Central Trust offeredto sell the property to Rosebowl, Huestis or Jorover for $72,173.76, such offer to be irrevocable until midnight August 22, 1977.

Huestisdid not reply; Central Trust accepted Gilks’ offer and the property was conveyed to Gilks and others by deed dated September 1, 1977. […] In the instant case Central Trust bid in and purchased the mortgaged property at public auction for its own benefit and to its own use as itwas entitled to do pursuant to s. 44 (4) of the Property Act, R.S.N.B. 1973, c.

P-19, which provides: “The power given to a mortgagee in subsection (1) ‘to buy in at auction’ is a power to buy for his own benefit and to his own use.” […] Central Trust was not prevented from selling the property for less than the appraised market value notwithstanding the fact that itintended to look to the defendants for the deficiency. Having bid in the property at the mortgage sale Central Trust was, as I have said,entitled to deal with the property as its own. The mortgagors had no power to redeem it.

Under the terms of the mortgage, the amountrealized on the mortgage sale was the basis upon which Central Trust was entitled to calculate the amount of the deficiency.

In anyevent, there is no evidence that the sale to Gilks was not an arm’s length transaction, and I infer from the evidence that Central Trustimproved the property to some extent as the caretaker hired by Central Trust not only collected the rents, rented the rooms as the tenantscame and went, but also cleaned and painted the interior of the building. [paras. 1, 8, 9, 17 and 29] [86] The finding that “the amount realized on the mortgage sale was the basis upon which [themortgagee] was entitled to calculate the amount of the deficiency” is indisputably the ratio decidendi of Central & Eastern Trust v.Rosebowl Holdings and Heustis.

Indeed, the Court upheld the trial decision on that basis. [87] In any event, the same approach was adopted in Bayview Credit Union v. Gambit Holdings &Development: Bayview calculated the deficiency under the mortgage as of the date that it resold the mortgaged properties. It added to the loan balance($337,381.46) both pre- and post-mortgage sale expenses and charges ($108,144.18) to arrive at the sum of $445,525.64 as the amountowing prior to credits. It then allowed a number of credits such as post-mortgage sale rental income and the net proceeds from the resaleof the mortgaged properties.

The result of that exercise is a deficiency of $62,710.83 plus interest. Since Bayview became the owner of the mortgaged properties at the mortgage sale on May 21, 1999, the legally correct approach wouldcompute the deficiency under the mortgage as of that date. What Bayview did with its properties, including the property on which 158Victoria Street was situated, ceased to be of interest to the appellants after the mortgage sale. Thus, there is no merit to the appellants’contention that they are entitled to a credit for what they claim was the unnecessary demolition of 158 Victoria Street.

Conversely, once Bayview became the owner, any subsequent expenses and charges relating to the mortgaged properties became its exclusive responsibility. The appellants are simply not liable for any of those expenses and charges. That said, this Court must deal with the appeal as framed by the parties and resolve only those issues that are properly before it. The appellants do not take issue with Bayview’s decision to calculate the deficiency under the mortgage as of the date of resale and the respondent has not filed a Notice of Contention.

Moreover, they challenge only one of the post-mortgage sale expenses claimed by Bayview, namely the cost of demolition of the building housing 69 Durham Street and 158 Victoria Street. In my view, that expense cannot be charged to Gambit’s account under the mortgage since it was not the owner of the properties in question when it was

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