Court of Appeal overturns decision barring lender from mortgage payments for 22 years

In an interplay between a mortgage and a guarantee and postponement agreement that barred a lender from being paid money borrowed for 22 years, the Ontario Court of Appeal has ruled that the motions judge’s decision that the postponement document superseded the guarantee and led to an absurd result.

“What the motion judge confused is whether a debt is due and owing and whether a lender can enforce payment of a debt that is due and owing. The former addresses liability, and the latter addresses enforcement.”

In Sicotte v. 2399153 Ontario Ltd, the Court of Appeal determined that the guarantee and postponement were separate and distinct contractual obligations, and the motion judge improperly conflated the two. “The conclusion of the motion judge has the effect of precluding the appellant, not only from being repaid the monies borrowed from her for the next twenty-two years, but also from receiving any interest payments on those funds,” the court wrote.

Lawyer for the appellant, Martin Black, says the court’s decision reconfirms that a guarantor is still liable regardless of what a borrower does. If a payout is scheduled and the borrower enters into a new agreement with the bank or lender, it does not change the guarantor’s obligations.

While the postponement was negotiated and signed by the appellant, Black says the guarantors agreed that the mortgage loan would be due in one year, whereas the postponement would have delayed the repayment for 22 years.

“A separate guarantee governs the guarantors. They were aware of the postponement, but they weren’t its beneficiaries. Instead, their communications with my client made it clear that the mortgage would become due in one year. They were guaranteeing that obligation and one year doesn’t mean 22 years.”

Lawyer for the respondents Alden Christian declined to comment on the matter to Law Times.

The motion judge held that the appellant Joanne Sicotte, the lender to 2399153 Ontario, could not pursue the guarantees from co-respondents, Josée Virgo, Philippe Grandmaitre, and Denis Marchand, because she signed a postponement agreement with the borrower and third-party creditor, Business Development Bank of Canada (BDC).

Sicotte precluded herself because of the contractual arrangements with the BDC that agreed to prioritize them and postpone her enforcement rights against the debtor. The decision prevented her from enforcing the guarantee until the mortgage 2399153 Ontario made with BDC is paid, and by its terms, the payout may not occur until 2043 or later.

Relying on Sattva Capital Corp. v. Creston Moly Corp, Ontario Court of Appeal Justice Ian Nordheimer wrote that Sicotte did not alter her enforcement rights against the guarantors and that contrary to the motion judge’s finding, the postponement agreement did not do so. “The first clue to that conclusion ought to have arisen from the salient fact that the guarantors were not parties to the Postponement Agreement.”

Justice Nordheimer wrote that the guarantee was still independent and not affected because the postponement did not include the guarantors. “The Postponement Agreement, upon which the guarantors and motion judge placed exclusive reliance was between the appellant, the borrower, and the BDC. The guarantors were not parties to the Postponement Agreement. Nothing in the Postponement Agreement purports to involve, much less alter the relationship between the appellant and the guarantors.”

He set aside the motion judge’s order and allowed the appeal granting summary judgment against the guarantors following the guarantee’s terms.

Black says occurrences where a first mortgage lender and a new one agrees to postponements are prevalent. For example, justice Nordheimer presided over a similar case in April 2021 where he wrote the dissenting view, which Black says would have gone against Sicotte.

“I find it interesting that where a judge disagreed just six months earlier understands that you have to look at the interplay among the different players and the agreements that they’ve signed.”

The dispute began after Sicotte loaned $800,000 to 2399153 Ontario in 2014 for a mortgage, and Virgo, Grandmaitre, and Marchand were guarantors. Under a separate agreement, they guaranteed 2399153 Ontario debts and liabilities “at any time owing” to the appellant.

2399153 Ontario was obligated to make monthly payments to Sicotte, and in failing to do so, she enforced the guarantee against Virgo, Grandmaitre, and Marchand. However, in 2018, BDC loaned 2399153 Ontario $3.9 million in exchange for a mortgage over the same property.

Sicotte, 2399153 Ontario and BDC signed a Postponement of Debt Agreement that BDC will be prioritized first in payouts as part of the loan agreement.

The original mortgage was also amended from the principal amount of $800,000 to $1,522,757, the interest rate of 5.0 per cent to 6.0, the payment term extended for one year, and an increase in monthly payment from $3,333.33 to $7,613.79, which were payments of interest only.

2399153 Ontario made the monthly interest payments to Sicotte only in July, August and September 2018 and the mortgage matured and was fully due on July 10, 2019.

Relying on the Postponement Agreement, BDC advised Sicotte that she could not demand payment from 2399153 Ontario or enforce her mortgage against the property until BDC receives full payment in August 2043.

She accepted BDC’s warning about the mortgage, commenced action on the guarantee, and brought a motion for summary judgment against the guarantors.