Ontario Court Of Appeal Summaries (May 11 – 15, 2015)

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P.A.R.C.E.L. Inc. v Acquaviva, 2015 ONCA 331 [Cronk, Gillese and Rouleau JJ.A] Counsel: H. Crosner, for the appellant D. Saverino, for the respondents

Keywords: Mortgages, Interest Act, s. 8, Mortgages Act, s. 17, Promissory Notes, Substantial Indemnity Costs

Facts: On June 6, 2011, the appellants executed a promissory note (the "Note") and a mortgage (the "Mortgage") in favour of the respondents, both in the principal amount of $458,488.07. The documents were executed in relation to a single loan, the consideration for the loan being the discharge by the respondents of a mortgage on an unspecified property. Both the Note and Mortgage stipulate the same repayment terms when there is no default. However Clause 2 of the Note provides for the escalation of the applicable interest rate from 0.75% to 10% per annum, "after demand, default, and pre and post judgement" (the "Interest Escalation Provision"). The Mortgage contains no Interest Escalation Provision. Between January 15, 2011 and December 15, 2011, the appellants made payments to the respondents that were credited in full against the Note and the Mortgage. In January 2012, before the maturity date of either instrument, the appellants ceased all payments under the Note and Mortgage.

On March 21, 2012, the respondents sued under the Mortgage and the appellants defended the action. The respondents made no claim under the Note in their original pleadings. The respondents obtained a default judgment in July 2012 which was set aside in December 2012. In January 2013 the respondents amended their pleading to include a claim against the appellants for payment of $469,360.47 under the Note as well as the Mortgage. The respondents also claimed interest at the rate of 10% per annum on the amount owing, in accordance with the Interest Escalation Provision. The respondents brought a motion for summary judgment against the appellants in January 2014. The motion judge concluded the appellants were indebted to the respondents under the Note and Mortgage and accepted the respondents' calculation of amounts due, and granted summary judgment. He ordered payment plus "additional sums accruing thereunder to the date of this judgement".

The appellants raise four grounds of appeal. They argue the motion judge erred by awarding interest under the Note, Mortgage, Mortgages Act Interest and post judgment interest at the rate of 10%. The appellants submit the Interest Escalation Provision offends s.8 of the Interest Act and the appropriate rate is 0.75% per annum. Second, they challenge entitlement to the late payment charges and default fees and submit they violate s.8 of the Interest Act. Third they maintain the judgment is inconsistent with the default judgment granted in July 2012 and finally they contend the motion judge erred by awarding the respondents costs on a substantial, rather than a partial indemnity scale.

Issues: (1) Do specific amounts included in the judgement violate s.8 of the Interest Act?

(2) Is the judgment under appeal inconsistent with the prior default judgment?

(3) Did the motion judge err in awarding the respondents their costs on a substantial, rather than a partial, indemnity scale?

Holding: Appeal allowed, in part, by setting aside i) the awards of interest under the Note and the Mortgage, the Mortgages Act Interest and post judgment interest at the rate of 10% per annum, substituting a rate of 0.75% per annum instead; and ii) the awards of late payment charges and default fees. In all other respects, the appeal is dismissed.

Reasoning: (1) Yes. The court held the Interest Escalation Provision violated s.8 of the Interest Act and was therefore ineffective. The court found that s.8 applied to both debt instruments, the Mortgage and Note, as the arrears of principal and interest in question were "secured by [a] mortgage on real property". It followed that, because the Interest Escalation Provision applied to arrears that were secured by a mortgage within the meaning of s.8, and had the effect of increasing the rate of interest charged on the arrears beyond the pre-default interest rate payable on the principle amount...