Toronto-Dominion Bank v. MacLean, 2016 NSSC 221

SUPREME COURT OF Nova Scotia Citation: Toronto-Dominion Bank v. MacLean , 2016 NSSC 221 Date: 20160823 Docket: Hfx No. 429699 Registry: Halifax Between: The Toronto-Dominion Bank Plaintiff v. Shawn M. MacLean and Margaret C. MacLean Defendants Decision Judge: The Honourable Justice Gerald R.P. Moir Heard: June 1, 2016, in Halifax, Nova Scotia Last Written Submission: June 23, 2016 Counsel: Andrew Rankin, for the Plaintiff Shawn M. MacLean, on his own Margaret C.

MacLean, not appearing Moir, J. : Introduction [ 1 ] Twelve years ago the MacLeans borrowed $18,000 from the Toronto-Dominion Bank, and they secured the debt with a mortgage on 721 Mahon Street in New Waterford. By 2014, the loan had been paid down to about $10,000, but the MacLeans fell into default. [ 2 ] The bank sued for foreclosure and sale. It also claimed “judgment for the deficiency, if any, between the amount realized by sale… and the aggregate of the sums claimed above.” The sums included principal, interest, protective disbursements, and costs. [ 3 ] Mr.

MacLean tendered a bank draft for $10,495, but that was not enough to cover the debt plus mounting costs. So, the draft was returned, an order for foreclosure and sale was obtained, it settled the mortgage debt at $10,877 plus costs, and the bank purchased the property at the foreclosure auction for $1,150. The bank resold the property for $4,000 and now claims a deficiency judgment of $16,967, far more than the MacLeans owed in the first place.

[4] The questions are whether it is wrong to permit a sale by the court to inflect a drastically increased liability upon theMacLeans and, if so, whether there is anything the court can do to right the wrong. [5] I will begin by providing a concise statement of the facts based on the evidence before me. I will review authorities to whichthe parties have referred. Then, I will give my appraisal of the extent of the court’s discretion for granting remedies on the equitableclaim of foreclosure and sale. Finally, I shall offer my disposition.

Summary of Facts [6] The debt was incurred and the mortgage was granted at the end of 2003. It appears there was a house on the property at thattime. Principal was $18,000 repayable with interest at 5.25% a year calculated semi-annually, not in advance. [7] The MacLeans either moved from the property before 2009, or had never lived there. The bank records show they were livingnearby in Scotchtown since at least 2009. [8] At some time, the dwelling on the mortgaged property burnt to the ground. The MacLeans did not replace it. They had noinsurance. The bank officers who administer the loan are in Ontario.

They only found out about the fire when the mortgage went inarrears. (That is not to say employees at the local branch were unaware.) [9] There appear to be gaps in the loan accounting for 2013 and 2014 submitted in support of the motion for foreclosure and sale.Apparently, the loan was nine months in arrears in September of 2014. The rest of the accounting suggests monthly payments were maderegularly until 2013 or 2014. [10] The action was started in July of 2014. The MacLeans defended on the ground that the bank had agreed to settle for arrears inexchange for renewal. The order was granted on

summary judgment, the bank proving that settlement was discussed but not finalized. [11] The order was granted on April 30, 2015. It settled the mortgage debt at $10,252 plus interest, protective disbursements, andcosts to be taxed. Early in May, Mr. MacLean tendered $10,495 thinking that was enough to redeem. The payment was returned. Thebank advised that it required the $10,495 just to bring the mortgage up to date, redemption would cost $18,671.34. [12] The sale was held on June 12, 2015, and the bank purchased the property for auction expenses, $1,150. Costs were taxed at$1,750, plus disbursements of $3,217.

With HST, the expenses totaled $5,570. [13] Just before the sale, the bank obtained an appraisal that valued the property at $9,000. It got another appraisal in October, 2015that indicated $7,000. It also obtained advice from realtors as to realistic sales prices: $12,000 in June, 2015; $10,000 in July; $8,000 inAugust; $7,000 in September; $8,000 in October; $7,000 in November and December; $6,000 in January, 2016; and, $5,000 in February. [14] The bank sold the property to a realtor in March of 2016. The price was $4,000, and the proceeds were $1,810. The deficiencywould be $16,967.

Arguments of the Parties [15] Mr. MacLean opposes the bank’s motion for a deficiency judgment. He refers to the comparables in the appraisal. Hecomplains that his tender of $10,495 was rejected because of drastic new expenses. And, he relies on Briand v. Carver (1967), (NS SC), 66 D.L.R. (2d) 169 to suggest that the court has a discretion to refuse a deficiency judgment in an action forforeclosure and sale or to go with appraisal values rather than a sale price. [16] The bank submits that the court “has little discretion to vary the value of a deficiency [judgment]”.

And, “the court’s discretionis not without limit. Equitable discretion should only be exercised when circumstances require it.” And, “… the court’s equitablediscretion should be exercised only if there is improper conduct by the mortgagee.” [17] The bank refers to Central Trust Co. v. Adshade, (NS CA), [1983] N.S.J. 56 (S.C.A.); Canadian ImperialBank of Commerce v. R. England’s Warehouse Ltd. (1996), 1996 NSCA 22 , 147 N.S.R. (2d) 321 (C.A.); Royal Bank ofCanada v. Bremner, [1997] N.S.J. 58 (C.A.); Royal Bank of Canada v. Marjen Investments Ltd., 1998 NSCA 37 , [1998] N.S.J.4 (C.A.); Royal Bank of Canada v.

Williams 2002 NSSC 108; and, Royal Bank of Canada v. Clairmont 2002 NSSC 162. [18] Counsel for the bank also discussed the perhaps broader approach to the discretion in Toronto-Dominion Bank v. Stevens 2011NSSC 343 and the reliance that decision places on Federal Business Development Bank v. Silver Spoon Desserts Enterprises Ltd., 1995NSCA 168 , [1995] N.S.J. 359 (C.A.) and Bank of Nova Scotia v. Allen 2010 NSCA 47.

Pointing out that Stevens is not entirelyclear on the subject, counsel does allow “Stevens suggests that the court plays a role in scrutinizing anything that may affect the value ofthe deficiency order, including but not limited to any wrongdoing on the part of the mortgagee during the Sheriff’s Sale.” [19] Chief Justice Cowan’s 1967 decision in Briand is the foundation for using appraisals to calculate a deficiency when themortgagee buys the property and has not resold it.

There had been criticism of the Nova Scotia remedy of foreclosure and sale forallowing the mortgagee to acquire the mortgaged property and to maintain an action on the mortgage debt: see para. 24. The situationbefore the Chief Justice seemed to fit the critics’ bill. [20] The sheriff sold the mortgaged property to the mortgagee for only fifty dollars. The Chief Justice found the property was worthmore than $5,500, well over the mortgage debt. In those days, a public auction was expected to fetch close to market value. The result ofthe sale in Briand was therefore “difficult to explain”: para. 42.

The Chief Justice decided (para. 41): In the case at bar, it seems to me that the sale price of $50 is so grossly inadequate that I am justified in exercising my discretion, which Ido, in refusing to confirm the sale on terms which would enable the plaintiff to have judgment against the defendant mortgagors for thedifference between the amount owing under the mortgage, plus taxes, expenses of sale and taxed costs, and the amount received on sale

of the mortgaged property. [ 21 ] So, Chief Justice Cowan saw that he had a broad discretion to refuse confirmation of a sale, and exercised that discretion to prevent an unfair deficiency judgment. [ 22 ] On the other hand, the decision in Briand does not suggest that appraised value may prevail over value established by an arm’s length sale after sufficient exposure to the market. Mr. MacLean suggests as much, but the whole point of the decision was to avoid injustice when the property had not been resold. [ 23 ] In Adshade Mr.

Barry Bartlett had signed an assumption agreement when he purchased a home in Debert. He sold the home to Mr. Adshade, who also signed an assumption agreement. Mr. Bartlett did not obtain a release of his liability under the first assumption agreement. Mr. Adshade signed a renewal agreement, which substantially increased the interest rate and monthly payments. [ 24 ] Central Trust obtained an order for foreclosure and sale in an action in which Mr. Bartlett and Mr. Adshade were defendants. Mr.

Bartlett purchased the mortgaged property at the foreclosure sale for several thousand dollars less than the mortgage debt. Justice Richard refused a motion for a deficiency judgment because of “the basic inequity of the circumstances”: para. 10 of the decision on appeal. He explained the finding of inequity by reference to the modification of the terms for repayment of the mortgage debt: also para. 10. [ 25 ] Justice Hart wrote for the Supreme Court, Appeal Division. Mr. Bartlett remained a principal debtor when he sold the mortgaged property. Suretyship defences were not available to him.

He was liable for the debt on the terms and at the rate in his assumption agreement. See para. 13 to 15. So, Justice Hart wrote at para. 16, “I turn now to the refusal of the trial judge to grant the order for deficiency judgment on the basis of general equitable principles.” [ 26 ] I emphasize that expression “general equitable principles” and will emphasize similar expressions in the rest of Justice Hart’s writing. [ 27 ] Paragraphs 16 to 29 of Adshade provide an extensive review of the law and equity of deficiency judgments in the remedy of foreclosure and sale.

I dare to summarize. [ 28 ] “These [general equitable] principles were developed in the early English Courts of Equity to prevent mortgagees from gaining an unfair advantage over persons who had pledged their property as security for loans.”: para. 16. Against the legal conveyance subject to defeasance, by which default gave the property absolutely to the mortgagee with the debt remaining, equity created a “fiction”, a right to redeem the property despite the terms of the mortgage: para. 16. [ 29 ] The creation of the equity of redemption necessitated another equitable right, the mortgagee’s right to foreclosure.

The mortgagee needed to be able to make good on the security when default persisted. Simple foreclosure sets a deadline for redemption, after which the property belongs to the mortgagee absolutely. However, the mortgagee “could not have the property and the money as well.”: para. 16. The price of simple foreclosure was the release of the mortgage debt on sale by the mortgagee. [ 30 ] The practice developed in some places of effecting foreclosure through judicial sale. That was the remedy in Nova Scotia since Chief Justice Belcher imported the Irish equity rules in the early days of English colonialization.

We developed differently from England and Ontario, where simple foreclosure was the norm at the time, “and as a result different considerations arise when the court considers the right of a mortgagee to obtain a deficiency judgment.”: para. 17. [ 31 ] Foreclosure and sale in Nova Scotia allows the mortgagee to bid at the foreclosure auction and to maintain the mortgagor’s liability on the covenant for payment.

The reason the mortgagee does not pay the price of simple foreclosure, release from liability on the mortgage debt, is that the value of the property is proved through a public auction. [ 32 ] The authorities on deficiency judgment reviewed by Justice Hart in para. 17 to 28 of Adshade show faith in judicial sale for determining market value. However, the right to a deficiency judgment is limited by equitable principles.

Justice Hart writes at para. 19: The same equitable principles, however, that apply in the case of the English practice [simple foreclosure] continue under that of this province and an examination of subsequent [1883 to 1983] cases reveals that the mortgagee's right to a deficiency judgment has been limited to cases where proper notice has been served and no substantial inequity would follow.

And, at para. 27: It can be seen from the decided cases that apart from the decision of Chief Justice Cowan [in Briand ] there is a strong tendency to accept the amount bid at the judicial sale as determinative of the subsequent deficiency.

A review of the English jurisprudence reveals, however, that equity has always looked behind the procedure followed to determine that no unfair advantage is obtained by any party to the transaction. … It is therefore the responsibility of the judge when exercising his equitable jurisdiction in matters such as these to have regard to all such factors when deciding the amount, if any, of a deficiency judgment that should be approved. [ 33 ] Justice Hart reviewed some recent trial level decisions concerning the new practice of supporting claims for a deficiency judgment with appraisals, giving notice of the motion to the mortgagor, and “dealing with the right to recover expenses subsequent to the foreclosure sale”: para. 29.

He wrote at para. 30, “I have referred to these recent decisions to show the extent to which courts are prepared to go to balance the equities between parties to foreclosure actions.”

[ 34 ] No equity appeared in favour of reducing Mr. Bartlett’s contracted liability once it was seen that the changes in terms agreed to by the subsequent owner did not bind Mr. Bartlett. See para. 30. [ 35 ] In England’s Warehouse , the CIBC sought a deficiency judgment after a series of sales. The defendants sought large deductions for failure to obtain market value. The chambers judge allowed smaller deductions. The defendants appealed and the plaintiff cross- appealed. [ 36 ] The appeal court allowed the cross-appeal. Justice Hallett wrote for the appeal court.

Two of the properties sold at the sheriff’s sale to independent parties. In cases of that kind, the court must calculate the deficiency on the auction price “unless the mortgagee has interfered with the conduct of the sale in a way that results in a depressed price”: para. 58. Justice Hallett explained at para. 59: The words of Rule 47.10(1) as it was in force at the time of the application, do not confer a discretion on the Chambers judge who hears a deficiency application.

It is only the inherent equitable jurisdiction of the court that can be invoked and then only in the most extraordinary circumstances of the sort referred to by Hart J.A. [in Adshade ]… where the mortgagee's conduct in realizing on the loan security was clearly unacceptable. [ 37 ] The plaintiff purchased and resold the other properties. The chambers judge found it failed to “properly market the property”. Justice Hallett pointed out that it is sufficient to show that the resale price was reasonable. In some circumstances, a quick private sale will be reasonable.

See para. 80. [ 38 ] Bremner included an argument that an amendment to Rule 47.10(1) of the Nova Scotia Civil Procedure Rules (1972) broadened judicial discretion on a motion for deficiency judgment. Paragraph 59 of England’s Warehouse referred to Rule 47.10(1) “as it was in force at the time of the application”. At that time the Rule provided that, in stated circumstances, “the plaintiff shall be entitled to an order for payment of the deficiency”. The Rule was amended to change “shall” to “may”. [ 39 ] Justice Flinn wrote for the court in Bremner .

He said, “ the amendment was simply a recognition of the Court’s inherent jurisdiction to intervene, in the appropriate case.”: para. 7. He adopted this line from Justice Davison’s decision at first instance: “The Court has an equitable jurisdiction but only to be exercised if the circumstances demand.”: also, para. 7. [ 40 ] The main issue in Marjen was whether changes to the Rules and the practice memorandum on foreclosure had brought about reforms that included terminating claims for expenses after the order for foreclosure and sale, such as real estate commissions.

Justice Nathanson decided the reforms terminated those claims. The appeal court disagreed. [ 41 ] Justice Bateman wrote for the court. She reiterated that the change from “shall” to “may” in Rule 47.10(1) did not alter the law, “… since, pursuant to its equitable jurisdiction, the Court has always had a discretion to refuse the application for a deficiency.”: para. 30.

She also said, “The Court’s focus on an application for a deficiency judgment is to ensure that the mortgagee recovers no more than ‘is just and reasonable’.”: para. 31. [ 42 ] In Williams , the mortgaged property was sold at foreclosure auction to an independent purchaser, but Justice Murphy was confronted with numbers that put him to his inquiry. The mortgage debt started at $54,750. Payments of $4,679 had been made. The property went for $26,251. The deficiency claim was $40,426. [ 43 ] “I was concerned about the equities inherent in those numbers…”: para. 5.

So, Justice Murphy adjourned the motion and requested more evidence. An appraisal was produced that expressed a value of $35,000. There was little evidence of why the value had dropped drastically. There was evidence that someone in the bank instructed for bidding to stop at 75% of the appraised value. [ 44 ] Justice Murphy said that Bremner and England’s Warehouse held that the discretion to refuse a deficiency judgment “should be exercised only if there is improper conduct by the mortgagee.”: para. 7. However, a broader inquiry may be required on fixing the amount of a deficiency.

Although the sum paid by a third party at judicial sale usually determines the deficiency in Nova Scotia, the Court has an obligation to determine whether the sale price represents proper recovery, and must exercise its equitable jurisdiction when deciding the amount to which a deficiency claimant is entitled in a particular case. [para. 8] Justice Murphy referred to Adshade . [ 45 ] The Clairmont decision was companion to Williams . The two decisions were delivered orally by Justice Murphy early in 2002, and written versions were released by him later in the year.

In Clairmont there was also a “huge disparity” between the mortgage amount and the highest bid at the foreclosure auction, but the “evidence supports the $19,501.00 obtained at the Sheriff’s Sale as a reasonable price in the circumstances”: para. 18. Thus, “this is not a case where the court should deviate from its practice of calculating deficiency based upon the amount paid by a third party at a sheriff’s sale.”: also, para. 18.

Discussion of Authorities [ 46 ] In my view, the cases relied on by the Toronto-Dominion Bank support a judge’s discretions to allow or refuse a deficiency judgment on equitable principles and, if allowed, to calculate the amount on equitable principles.

As I see it, there is a tension between Justice Hart’s decision in Adshade and some of Justice Hallett’s comments in England’s Warehouse , which suggest a severe limit on the discretion: “only in the most extraordinary circumstances of the sort… where the mortgagee’s conduct in realizing on the loan security was clearly unacceptable.” in para. 59 of England’s Warehouse . [ 47 ] As I read them, the subsequent decisions relied on by the bank take a more temperate approach to limits on deficiency judgment discretions than we find in England’s Warehouse : “only to be exercised if the circumstances demand” in Bremner at para. 7, “always had

a discretion to refuse” and “to ensure that the mortgagee recovers no more than ‘is just and reasonable’.” at para. 30 and 31 of Marjen,and “… the Court has an obligation to determine whether the sale price represents proper recovery, and must exercise its equitablejurisdiction when deciding the amount…” at para. 8 of Williams. [48] As will be seen, Adshade remains the touchstone for ascertaining the discretion attached to the remedy of a deficiency judgmentand the discretion is not limited to cases of misconduct.

Rather, the exercise of the discretion is guided by what is just and reasonable.But first, it is time to review authorities the bank does not rely on but which counsel fairly brought to my attention. [49] Justice Rosinski confronted an unusual situation in Stevens. On the bank’s motion, the court assessed a deficiency against oneof two mortgagors. It used an appraisal. Later the bank sought an assessment against the other mortgagor, who had been difficult toserve. By then, the property had been sold for much less than the appraised value.

So, the bank sought a much greater amount againstthe second mortgagor. [50] Justice Rosinski interpreted the Nova Scotia Civil Procedure Rules “in a way which effectively provides for only one defaultjudgment on this foreclosure sale and possession order, and therefore only one deficiency amount calculation.”: para. 87. He did so onseveral grounds, including that the

interpretation was “more equitable”. [51] In the course of his decision, Justice Rosinski referred to several authorities including Silver Spoon and Allen. He emphasizedpara. 15 of Silver Spoon where Justice Bateman, who wrote for the majority, said “The rationale behind equitable intervention todisallow the deficiency, where the mortgagee has bid successfully, is to ensure no unfairness and, in particular, no double recovery bythe mortgagee.”: para. 77 of Stevens. [52] Chief Justice MacDonald wrote for the court in the Allen case.

The Marjen decision had overturned Justice Nathanson’sholding that the 1995 reforms cut claims for protective disbursements off as of the order for foreclosure and sale, which had beenchanged to provide default judgment on the claim on the mortgage debt as well as the claim for foreclosure and sale. However, JusticeMacAdam held in Bank of Montreal v.

Kennedy, 2006 NSSC 119 , [2006] N.S.J. 150 (S.C.) that Marjen applied only when themortgagee had resold. (Justices Nathanson and MacAdam had spearheaded the 1995 reforms, in consultation with other judges andmembers of the bar.) [53] In Allen, Justice LeBlanc had followed Justice MacAdam and the Court of Appeal was required to decide the issue of Marjenapplying when the mortgagee had not resold.

The court held that Marjen applies whether the bank still holds the property or has resold it. [54] In the course of his reasons, the Chief Justice said, “Finally it must be remembered that, under our Civil Procedure Rules, thecourt serves as a watchdog, overseeing every expenditure claimed by the mortgagee.”: para. 14. The Chief Justice referred to Rule72.13(2) as providing safe guards for the mortgagor. Nature of the Discretion on Deficiency Judgment [55] Adshade remains the touchstone on the discretion that judges of this court possess when a mortgagee seeks to obtain or quantifya deficiency judgment.

I will reiterate the holding in Adshade and, by reference to subsequent decisions of the Court of Appeal, elaborateon its application. But first, there are a couple subjects that will help us focus our attention on the issue at hand. One is technical and lessimportant. The other goes to the foundations of the discretion. [56] First, the kinds of issues we have been confronting in this field since the 1995 reforms came to us in assessments of damages.The issue of whether to grant a deficiency judgment is covered in the order for foreclosure, sale, and possession.

The order provides forjudgment “subject to later qualification”. So, the discretion is exercised in the context of an assessment of damages. [57] Second, the discretion is not based on the inherent jurisdiction and it arises in every deficiency assessment.

With great respect, Ihave to take issue with Justice Hallett’s statement at para. 59 of England’s Warehouse that “It is only the inherent equitable jurisdictionof the court that can be invoked and then only in the most extraordinary circumstances…”. (Of course, I accept and apply the holding inthat case that a mortgagee ordinarily is entitled to rely on the amount paid by an independent purchase at the foreclosure auction.) [58] In the eighteenth century, Chancery overrode the courts of law on penalties and forfeitures.

Law found its own way to avoidunjustly contracted penalties, but to this day the equitable approach governs forfeiture. At its most general and most basic, that approachgrants a discretion to equity judges to relieve against forfeiture. [59] The discretion is not without limit. Over the centuries, courts have developed some principles that give a measure of certaintyfor predicting the exercise of the discretion. However, it is a discretion. [60] For cases on the discretion to relieve against forfeiture of leases, see Dennaoui v.

Green Gables Fine Foods Limited (1974), (NS SC), 19 N.S.R. (2d) 631 (S.C., T.D.) and Pye v. Bank of Montreal (1986), (NS CA), 72 N.S.R.(2d) 433 (S.C., A.D.). For a case in which the basic discretion was exercised in connection with a mortgage, see Navarro v. Hayter(1975), 20 N.S.R. (2d) 297 (S.C., T.D.). [61] The connection between the equitable discretion to relieve against forfeiture and equitable foreclosure remedies is explained in the passages from Falconbridge on Mortgages (3rd ed.) and Handbury’s Modern Equity (9th ed.) at para. 12 and 13 of the decision ofJustice Jones in Atlantic Trust Company v.

Bezanson, [1975] N.S.J. 514 (S.C., T.D.). Falconbridge went on to state the connectionsuccinctly, “If there is no forfeiture, there is no need to invoke any equitable right to redeem, and therefore no question of foreclosure.” (p. 448, 4th ed.). [62] The mortgagor could sue on the covenant for payment in the courts of law or sue to foreclose the equity of redemption (thepossibility of relief against forfeiture) in the courts of equity. In the latter case, the mortgagor submitted to a discretion.

In Nova Scotia,the mortgagor could sue for foreclosure and sale and for a deficiency judgment but these remedies were founded on equitable discretion.

[ 63 ] The equitable discretion to relieve against forfeiture is not measured by the Chancellor’s foot. There are established limits: Can- Euro Investments Ltd. v. Industrial Alliance Insurance , 2009 NSSC 20 at para. 30 . The case cited by Justice Beverage (now of the Court of Appeal) discusses relief against forfeiture under leases and mortgages: Union Eagle Ltd. v. Golden Achievement Ltd. , [1997] 2 All E.R. 215 (P.C.) . [ 64 ] The limits cannot be rigid or the discretion is as pretense.

And, if made rigidly by an appeal level court, they remove an ancient discretion that belongs to equity judges at first instance. [ 65 ] The propositions that a deficiency judgment assessment always involves discretion and that the discretion is not limited to “most extraordinary circumstances” follow from the foundation of the cluster of equitable remedies associated with mortgage default. [ 66 ] In conclusion, Adshade is the touchstone for deficiency judgments.

The discretion is exercised for the mortgagee “where proper notice has been served and no substantial inequity would follow.” (para. 19) or “no unfair advantage is obtained” (para. 27). The discretion is exercised to ensure the judgment “is just and reasonable” ( Marjen , para. 31) and the amount realized “represents proper recovery” ( Williams , para. 8 ). These passages express the limits on the discretion that must be exercised on assessment of a deficiency judgement. [ 67 ] Williams returned to the true discretion.

For decades, it had been thought that a court ordered sale by public auction with good advertising assured a sale at true value. Note, for example, the bewildered comment of Chief Justice Cowan at para. 42 of Briand and the justification for allowing deficiency judgment at para. 18 of Adshade where Justice Hart quotes from Kenny v. Chisholm (1886-87), 19 N.S.R. 497 . For all that time, judges were constrained by the price paid by an independent purchaser at the foreclosure auction. See para. 18 of Silver Spoon . [ 68 ] What was factual when Chief Justice Cowan wrote Briand in 1967 is not factual today.

Today, foreclosure auctions seldom result in the kind of bidding that sets a true test of the market. As far as I know, Williams was the first decision to break from the former rigidity and to examine the bank’s bidding strategy as part of the inquiry into justice and reasonableness. It had been wrong to think that sale to an independent purchaser at the foreclosure auction always produces a just and reasonable value upon which to calculate the deficiency judgment. That kind of thinking turns discretion into rule of law.

Disposition [ 69 ] Rules 72.11 to 72.13, the statement of claim, and the order for foreclosure and sale speak of a deficiency. The word has the sense of inadequacy, rather than total failure. I am not saying that cost of realization can never exceed the amount realized for the calculation of a deficiency judgment, just that the prospect of the Rules, the claim, and the order is a recovery to reduce or extinguish the principal and interest. [ 70 ] This case is far beyond that prospect. The amount realized is drastically less than the cost of realization.

The claim after the foreclosure auction and the resale is much greater than the amount that was owed when the bank sued for the equitable remedy of foreclosure and sale. [ 71 ] In those circumstances, the equitable discretion should be exercised only after close inquiry into the extraordinary outcome. Is it fair that the mortgagors should bear the full burden of the utter failure of the realization process? [ 72 ] Also, foreclosure and sale is an expensive remedy for enforcing a small loan. The court has to be concerned about the expense of its processes.

The concern is as great today when foreclosure and sale is used to enforce a $10,495 loan as it was when receivership was used to enforce a $26,724 (in 1987 dollars) loan: last paragraph in Justice Hallett’s decision in Continental Bank of Canada v. Snow , [1987] N.S.J. 74 (S.C., T.D.) . [ 73 ] Today, most banks administer mortgage loans at a nationally capitalized office. The officer for the bank on this motion is in London, Ontario.

Judges cannot assume decisions are made with knowledge of the mortgaged property and local conditions, as judges may have assumed when these loans were administered by a local branch. [ 74 ] There is no evidence that any thought was given by the bank to the efficacy or the efficiency of using foreclosure and sale to enforce a small loan against a vacant lot in a very depressed community.

I base my findings on justice and reasonableness on the absence of such evidence, on the evidence of a small loan and a mortgage of a vacant lot in a depressed community, on the absence of any evidence of local inquiries when the decision to sue for foreclosure and sale was made, on the subsequent low appraisals and advice about declining prices, on the public auction that resulted in a $1,150 sale price, and on the marketing effort that hardly covered marketing and closing expenses. [ 75 ] The extraordinary result and the choice of an expensive remedy to enforce a small loan undermine the justice and reasonableness of a conventional calculation of the deficiency against the MacLeans.

I find that the choice of remedy was unjust because it put the MacLeans’ right of redemption out of reach. It was unreasonable because it exposed the bank to losses, and burdened the MacLeans with liability, for useless expenses without any evidence of an assessment being made when the remedy was chosen. [ 76 ] Justice is restored by limiting the deficiency to what would have been recovered on an action for a debt that was less than half the jurisdictional maximum of the Small Claims Court, and also reducing the judgment by the apparent value of the land that was foreclosed.

This way the bank recovers no more than, and the MacLeans pay no less than, would have been the case if the less expensive remedy was chosen. Conclusion [ 77 ] The bank will have judgment for $6,877 only. The parties will bear their own costs of the motion for a deficiency judgment.

J.