Date: 19971105 Docket: C.A. 137878
NOVA SCOTIA COURT OF APPEAL
Cite as: Royal Bank of Canada v. Druhan, 1997 NSCA 157
Freeman, Hart and Flinn, JJ.A.
BETWEEN:
ROYAL BANK OF CANADA ) Steven Zatzman
) for the Appellant
Appellant )
)
- and - )
) Darcy L. MacPherson
) for the Respondent
PAULA DRUHAN and JOHN PAUL DRUHAN )
)
Respondents ) Appeal Heard:
) October 10, 1997
)
)
) Judgment Delivered:
) November 5, 1997
)
)
)
)
)
)
)
)
THE COURT: Appeal allowed in part per reasons for judgment of Flinn, J.A.; Hart and Freeman, JJ.A. concurring.
FLINN, J.A.:
The appellant (the bank) appeals the decision of Justice J. Michael MacDonald, of the Supreme Court of Nova Scotia, in which he set aside certain security documents executed by the respondents (Mr. and Mrs. Druhan), in favour of the bank, in November 1992. The security documents included:
a. a promissory note to secure payment of $87,000.00. With the exception of a small personal loan, the $87,000.00 represented borrowings related to Mr. Druhan’s business;
b. a mortgage, as collateral security to the promissory note, on real estate owned by Mrs. Druhan. The real estate consisted of two properties, the matrimonial home and an adjacent vacant lot.
As part of this transaction the bank agreed to release a prior collateral mortgage, executed by Mrs. Druhan in 1991, as collateral security to a guarantee, which she had executed, with respect to her husband’s business debts owing at that time.
When the promissory note, signed in 1992, went into default, the bank commenced a foreclosure action against Mrs. Druhan’s properties, and also claimed a deficiency judgment against both Mr. and Mrs. Druhan.
In setting aside the promissory note and the mortgage, the trial judge decided that Mr. and Mrs. Druhan were induced to sign the note and mortgage by misrepresentation. The trial judge said, as well, that the Druhans were the “victims of undue influence” by the bank, having been unduly pressured into signing this security documentation.
The bank’s position on this appeal is, essentially, that the trial judge erred in deciding that there had been a misrepresentation; in deciding that Mr. and Mrs. Druhan were the victims of undue influence and that they were unduly pressured into signing this security documentation. Alternatively, the bank submits, that even if there is a basis for finding that the collateral mortgage is unenforceable against Mrs. Druhan, the trial judge was wrong to decide that the promissory note was unenforceable.
To consider the issues which give rise to this appeal it is necessary to review, in some detail, the circumstances which led to the execution of this security documentation, by Mr. and Mrs. Druhan, in 1992.
Background Facts
Mr. and Mrs. Druhan have been married for 24 years. Throughout most of the marriage, Mrs. Druhan was employed outside the home. Mr. Druhan was involved in several businesses, most of which were of dubious success. They purchased their home in 1977. In 1982 they purchased a vacant lot adjoining the matrimonial home. The purchase of the home in 1977 was financed by a $15,000.00 mortgage. Mrs. Druhan, alone, made the payments on that mortgage. As the trial judge found:
This home was particularly important to Mrs. Druhan who was primarily responsible for its acquisition and upkeep.
When the mortgage was paid off, in 1985, both properties were transferred to Mrs. Druhan’s name.
The evidence shows that historically, Mrs. Druhan neither had, nor wanted, any involvement in her husband’s business affairs. He had financial problems, as well as an alcohol problem, and Mrs. Druhan wanted the real property in her name:
..... to protect myself and the kids. So we separated everything there and I told Paul in the 70s that this [the house] was mine and I would take responsibility for the kids and stuff and I didn’t care if he made a million with the business.
In early 1991, Mr. Druhan began to operate a business known as Cadillac Boat Sales, involving the purchase and sale of various types of pleasure boats. The bank financed Mr. Druhan’s operation. Mr. Druhan negotiated short term loans to be reduced as inventory was sold.
In 1991, Mr. Druhan owed the bank $64,700.00 which had been secured, solely, by his demand note to the bank. He wished to increase his borrowings to $75,000.00. The bank wanted additional security for these borrowings. The security which the bank demanded was as follows:
1. personal guarantees of the $75,000.00 business indebtedness, signed by both Mr. and Mrs. Druhan;
2. a mortgage on the two properties, in Mrs. Druhan’s name, as collateral security to the personal guarantee;
3. a further guarantee, up to a maximum of $50,000.00, to secure potential further advances.
The bank retained the Druhans’ lawyer, Alfred Dinault, to prepare the security documentation. Mr. Dinault has been practicing law in North Sydney since 1979, particularly in the area of real estate matters.
There was conflicting evidence surrounding the execution of this security documentation in 1991. Mrs. Druhan testified that she denied being told by Mr. Dinault, or anyone at the bank, that she was signing two separate guarantees and a collateral mortgage; nor did she realize, at the time, that she was signing a mortgage. She testified that her husband led her to believe that she was being asked to sign a “bank note”:
It would only be for a month. He had four boats in the yard and this would only be for a month and my name would be off it.
She considered Mr. Dinault to be her lawyer, and she had confidence in him. She did not understand that he was the bank’s lawyer as well. There was no requirement, nor suggestion, that she receive independent legal advice, notwithstanding that, at the time, she was under no obligation to sign anything with respect to her husband’s business debts.
Mr. Dinault testified that he explained the nature of the documents to both Mr. and Mrs. Druhan and was satisfied that both knew what they were signing.
The trial judge made no findings with respect to this evidence.
There was, however, a problem with respect to the collateral mortgage which was executed in 1991. After the mortgage was executed by Mr. and Mrs. Druhan, Mr. Dinault registered the document in the Registry of Deeds. When the document was returned to his office from the Registry of Deeds, he discovered that there was only one legal description in the document. The mortgage, as signed by Mr. and Mrs. Druhan, secured only the vacant lot adjacent to the matrimonial home. The legal description for the matrimonial home property had been, inadvertently, omitted. Mr. Dinault could have corrected this error by requesting the Druhans to execute an amending agreement; or, failing that, an application could have been made to rectify the document. He chose neither course. Rather, Mr. Dinault simply added, to the original, signed, mortgage document, a legal description for the matrimonial home property, and re-registered the mortgage at the Registry of Deeds. At no time did he advise his client, the bank, or his client Mr. and Mrs. Druhan, that he had made such a change. The change remained undetected until after the commencement of these proceedings.
In fact, after Mr. Dinault re-registered the mortgage, he sent a report to the bank. In that report, dated June 21st, 1991, Mr. Dinault said the following:
June 21, 1991
Royal Bank of Canada
291 Commercial Street
P.O. Box 307
North Sydney, N.S.
B2A 3M4
RE: Paula Druhan and John Paul Druhan
Dear Sir/Madam:
Please find enclosed the following documentation with respect to the recent mortgage between the above noted and your bank:
(1) The original copy of mortgage document, dated May 31, 1991 and recorded at the Sydney Office of the Registry of Deeds on June 18, 1991 at Book No. 1708, Page 734; .....
The registration particulars which Mr. Dinault provided to the bank were the particulars of the second registration. There is no reference in Mr. Dinault’s letter to the first registration, nor to his initial error in omitting the legal description of the matrimonial home property, from the original signed document. Mr. Dinault readily admitted, in testimony, that he did not advise the bank of these details.
Mr. Dinault also included, with this letter to the bank, the bank’s standard form Report on Security in which he certified to the bank that the bank had a valid first charge on both properties owned by Mrs. Druhan.
I note, here, that the mortgage document, as signed by Mr. and Mrs. Druhan, is, clearly, unenforceable by the bank against the matrimonial home, because the matrimonial home property was not included, and the unauthorized alteration, made by Mr. Dinault, obviously cannot be enforced. Indeed, the unauthorized alteration of the original signed document by the bank’s lawyer may have voided the mortgage in its entirety. I will say more about that later in these reasons for judgment. However, the subsequent dealings among all of these parties should be viewed in light of the fact that the 1991 mortgage, as executed by Mr. and Mrs. Druhan, would be unenforceable against the matrimonial home.
Between June, 1991, and June, 1992, further advances were made by the bank to Mr. Druhan’s business. Some interest was paid on the business loan. No principal payments were made. The mortgage contained no payment schedule.
In June, 1992, the bank manager indicated to Mr. Druhan that within eight months he wanted to have a substantial reduction in principal on the operating loan of the business. The bank manager told Mr. Druhan that if no such reduction was made:
we will have no alternative but to proceed and put his operating loan on a reducing basis by way of a mortgage on his home which we hold as security on these loans.
There was no reduction of principal by August 1992, and the bank manager contacted Mr. Druhan. He told Mr. Druhan that he wanted a new mortgage, on the matrimonial home property, with a payment schedule. The bank manager wanted to incorporate the business borrowings ($75,000.00 plus) with a personal loan (on which monthly payments were being made) into one loan with monthly payments. He told Mr. Druhan, at that time, that if this new security was not provided:
...we would proceed with action on the ‘91 mortgage, yes. I didn’t say the word “foreclose”. I said we would proceed with action to take our security.
Mr. Druhan agreed with these new proposed arrangements.
The bank manager, again, retained the Druhans’ lawyer, Mr. Dinault, to do the legal work associated with this new mortgage. Mr. Dinault testified that he did not consider that he represented the bank in this transaction or in the 1991 transaction. However, the documentary evidence, and the evidence of the bank manager, make it abundantly clear that he did represent the bank with respect to both transactions.
The mortgage was not actually signed until November 1992. Between August and November there were several discussions between the bank manager and Mr. Druhan wherein the bank manager reiterated his concerns that he wanted this new mortgage on the matrimonial home, and that if it was not forthcoming he would proceed to take action on the 1991 mortgage.
The bank manager had no discussion with Mrs. Druhan during this period between August and November, 1992. Likewise, Mr. Dinault did not have any discussions with Mrs. Druhan during this period except on November 5th, 1992, the day on which she executed the mortgage document.
Mrs. Druhan testified that in August 1992, when she was first approached by her husband, and advised that the bank wanted the new mortgage on the matrimonial home, she said that she would not sign it. She testified that she did not understand why she had to sign it because she had nothing to do with her husband’s business, “The house is mine” she testified. She told her husband that he should check with a lawyer to see if she really had to sign the mortgage. She asked her husband to ask Mr. Dinault about this. She testified that her husband reported back to her that Mr. Dinault advised that she had to sign the mortgage or the 1991 mortgage would be foreclosed.
Mr. Dinault confirmed in his testimony, that he told Mr. Druhan, as he had been instructed by the bank, that the Druhans must sign these new security documents because:
if you don’t sign the new mortgage the 1991 mortgage will be foreclosed.
While Mr. Dinault had no direct contact with Mrs. Druhan during this period between August and November, 1992, he was aware that there was a lengthy delay in getting this security documentation signed. He testified that he “speculated at the time” (and the evidence shows that he was correct in that speculation), that there was reluctance on the part of Mrs. Druhan to sign this security documentation.
Mrs. Druhan testified that on November 5th, 1992, her husband called her at work, asked her if she could get off early. He picked her up at work. She testified that he waited until they got out on the highway and he told her that this is the day that she had to sign the mortgage; and he drove her directly to the bank. At the bank she signed the variable rate promissory note. Her husband then took her across the street to Mr. Dinault’s office where she signed the mortgage. Mrs. Druhan testified that she felt that she was forced to sign the mortgage document - “No one gave me any choices here”. She testified of her concern that if she did not sign the mortgage document “the RCMP might come and remove her from my home.
Mr. Dinault confirmed, in his testimony, that, in the presence of both Mr. and Mrs. Druhan, at the time these documents were signed, that he again relayed the bank’s message that if they did not sign the documents, the 1991 mortgage would be foreclosed.
It should be noted here that when Mr. Dinault prepared the documentation associated with this transaction, he prepared a release of the 1991 mortgage which was eventually executed by the bank. In that release, the reference to the 1991 mortgage is to the particulars of its re-registration. There is no mention of the first registration of that mortgage.
With respect to Mrs. Druhan’s evidence, the trial judge made the following findings:
..... I find that in August of 1992, Mr. Pike on behalf of the Bank was anxious to have the promissory note and corollary mortgage signed by the Defendants. Yet this was the last thing Mrs. Druhan wanted to do. Despite her husband’s approaches she resisted until November, 1992. Finally her husband picked her up from work and told her that she had to sign or they would lose their house. This message was clear and this message originated at the Bank. Mr. Pike made it clear to Mr. Druhan that if this security was not signed the Bank could and would foreclose. In the circumstances Mr. Druhan was expected to relay that message to Mrs. Druhan.
Furthermore, Mr. Pike also made it clear to Mr. Dinault that the Bank would foreclose if this security was not executed. Mr. Dinault was expected to relay this message to both Defendants. Clearly without this inducement, neither Defendant would have signed this security. I believe Mrs. Druhan when she stated that she felt she had no choice but to sign and that she feared that “the R.C.M.P. might come and remove her from the home.” .....
Any suggestion that the Bank’s message was not that it would “take her home” but that it would simply “attempt to foreclose” would be no more than an exercise in semantics. Regardless of the exact words used by Mr. Pike the message received by the Defendants was clear .... sign or we will take your home ... you have no choice.
The trial judge rejected a plea of non est factum made on behalf of Mr. and Mrs. Druhan because he found that when they signed the 1992 security documents, they knew that they were signing a promissory note for $87,000.00 together with a collateral mortgage which secured their home.
However, the trial judge referred to the 1991 mortgage (to which the legal description of the matrimonial home had been added after the document was signed) as “questionable security”. He decided, considering all of the circumstances of this case:
a. that the bank’s assertion to Mrs. Druhan that it would take her home, through a process of foreclosure of the 1991 mortgage, amounted to a misrepresentation;
b. that Mrs. Druhan should have been given independent legal advice; and
c. that, on a balance of probabilities, Mr. and Mrs. Druhan were the victims of undue influence.
The trial judge set aside the documentation executed on November 5th, 1992, being the promissory note and the mortgage. In order to place the parties in the same position as though the contract had not been made, he also set aside the release which the bank had given to the 1991 mortgage; which release had been given on the strength of the 1992 security documentation.
In setting aside the release of the 1991 mortgage, the trial judge said the following:
By setting aside the bank’s release of the 1991 securities, I am not commenting on the validity of the 1991 security except to repeat that it was questionable. In fact, I have been reminded by both counsel that it is not my function to rule definitively on the 1991 security.
Grounds of Appeal
Counsel for the bank, in his factum, raises the following issues:
1. The Learned Trial Judge, although questioning the validity of the 1991 mortgage, did so in obiter comments. There can be no misrepresentation without a finding that the 1991 mortgage was invalid. The word “questionable” does not mean that the mortgage is unequivocally unenforceable. It is therefore submitted that there was no misrepresentation made by the Appellant which induced both Respondents to execute the 1992 Collateral Mortgage.
2. In view of the finding of the trial judge, that both defendants knew what they were signing when they signed the promissory note and collateral mortgage in 1992, the trial judge was wrong to conclude that either Mr. or Mrs. Druhan required independent legal advice.
3. Quite apart from the question of the validity of the collateral mortgage, executed in November, 1992, the trial judge was wrong to conclude that the promissory note, executed at the same time, was unenforceable against both Mr. and Mrs. Druhan. It cannot be said that Mr. Druhan was under any misapprehension as to the reason for the promissory note. He applied for, and obtained, the additional loans from the bank. No independent legal advice would be required for him; nor did he sign the documents under any misrepresentation. He had negotiated, and was fully aware of, the loans which formed the basis of the promissory note.
Disposition
I have concluded that the trial judge was correct in his decision to set aside Mrs. Druhan’s obligations under the mortgage and promissory note executed by her, in favour of the bank, on November 5th, 1992. However, I have also concluded, with respect, that the trial judge erred in his decision to set aside Mr. Druhan’s obligations under the same promissory note.
I will set out my reasons for coming to this conclusion.
There are two matters on which I should comment initially.
Firstly, as I have indicated previously in these reasons , the 1991 mortgage document, which Mr. and Mrs. Druhan signed, is clearly unenforceable against the matrimonial home property, and it may very well be void in its entirety. It is unenforceable against the matrimonial home property for the simple reason that the matrimonial home property was not included; and, obviously, the unauthorized alteration to the document, made by Mr. Dinault, cannot be enforced.
If, on discovering the error which he had made, Mr. Dinault had acted promptly, a court would, in all probability, have granted the equitable relief of rectification, and corrected the document. However, a court of equity would not, now, consider such relief in view of the actions of Mr. Dinault in altering the document without authority, and in concealing that alteration. Mr. Dinault, who has been practicing law in the real estate field since 1979, must have known that this would be the result of his actions.
In addition to the 1991 mortgage document being unenforceable against the matrimonial home property, the alterations to the signed mortgage document, which were made by the bank’s lawyer, Mr. Dinault, may have rendered the mortgage document void in its entirety.
The genesis of the legal principles, with respect to alteration of documents, is the often quoted Pigot’s Case (1614), 77 E.R. 1177. Those principles are set out in Halsbury’s Laws of England (4th) Volume 9 at p. 413-414 as follows:
597. Unauthorised material alteration. If, after a written contract has been executed, a promisee intentionally alters it in a material respect without the consent of the promisor, whether by adding anything to it or by striking out any part of it or otherwise, the promisor is discharged, even if the original words can still be read. The rule applies not only to contracts under seal, but to all contracts in writing and written instruments.
A party seeking to enforce an altered instrument must show that it is not invalidated by the alteration.
598. Scope of rule. Even if the alteration is made by a stranger without the knowledge of the promisee the other party is discharged if the document is in the custody of the promisee or of his agent, but there is no discharge where the alteration was made by a stranger whilst the document was not in such custody. The promisor is not discharged where the alteration was made by accident or mistake; but the contract is avoided where the alteration was intentional, even if made under a mistake of law as to the legal effect of the document. .....
599. What alterations material. To have the effect of discharging the promisor the alteration must be material, that is to say it must be one which alters the obligations created by the instrument. An alteration which merely expresses what would otherwise be implied is immaterial and does not affect the liability under the contract. .....
The unauthorized alteration, made by Mr. Dinault, is clearly a material alteration. The obligations, created by the executed document, were substantially altered by the change which he made.
Professor Waddams in The Law of Contracts, 3rd edition, 1993, suggests that in Canada these principles have been somewhat narrowed by the requirement to prove actual fraudulent intent in order to have an altered document declared void in its entirety. He says at p. 235:
Where a document is altered after execution it is plain that the obligations evidenced by it cannot thereby be increased. The alteration will be void against the obligor in the absence of assent to it. Where a material alteration is made fraudulently by the obligee, it has been held that the document is void altogether, the basis of this rule being a penal one: a person should not be able to attempt a fraud with nothing to lose if the attempt fails. Some statements of the rule go much further and it has been suggested that any alteration made while the document is in the custody of the obligee voids the document , on the ground that the obligee is bound to keep the document intact. This version of the rule seems too wide. The quasi-penal consequence of total nullity rests on deterrence of fraud, and should be reserved, it is submitted, for cases of actual fraudulent intent.
I do not intend to explore this matter further because, in considering the issues which are raised in this appeal, it is not necessary to make a determination as to whether the 1991 mortgage is void in its entirety. Nor would I be prepared to make such a finding because that matter was not, specifically, before the Court, and was not dealt with by counsel. It is only necessary to recognize that the 1991 mortgage, as signed by Mr. and Mrs. Druhan, would not be enforceable by the bank against the matrimonial home.
Secondly, although it is trite law, it should be noted that the bank cannot be heard to say it had no knowledge that the mortgage document, which Mr. and Mrs. Druhan signed in 1991, did not secure the matrimonial home. Mr. Dinault had knowledge of that fact, and came by that knowledge in the course of his retainer by the bank. For that reason, the bank is bound by that fact even though that fact may have been concealed from the bank. See Bank of British North America v. Saint John & Quebec Railway, [1921] 62 S.C.R. 346.
I will now analyze the circumstances leading to the execution, in 1992, of the documents which are the subject of this appeal, insofar as Mrs. Druhan is concerned.
Mrs. Druhan has worked outside the home for most of her married life. She made the mortgage payments on the matrimonial home. After the mortgage was paid off, she insisted that the property be registered solely in her name. That was in 1985. Her husband had financial problems and an alcohol problem. Mr. Druhan had been involved in several businesses, most of which were of dubious success. Mrs. Druhan had no interest, nor involvement, in her husband’s business affairs. In 1991, she signed two guarantees, with respect to her husband’s business debts, and a mortgage as collateral security thereto. She says that she was misled by her husband as to the nature of what she was signing. She signed that documentation, in the presence of her lawyer (who was also the bank’s lawyer), without receiving any independent legal advice.
In 1992, she was asked to sign a promissory note, and a mortgage of this matrimonial home property as security for the indebtedness of her husband’s business. These are the security documents which are the subject of this appeal. For three months she balked. She did not want to sign. She did not understand why she was being asked to sign. The properties were in her name. She had nothing to do with her husband’s business, or his business debts. She asked her husband to inquire of their lawyer, Mr. Dinault (who was also the bank’s lawyer), if she really had to sign. The bank’s lawyer, who was concerned about the delay in getting this documentation signed, and who was aware that Mrs. Druhan was balking, advised, on the bank’s instructions, that she must sign or the bank would foreclose the prior mortgage signed in 1991, and she would lose her home. The bank’s lawyer knew that this prior mortgage, which Mrs. Druhan had signed, did not secure the matrimonial home; and he, therefore, must have known that the bank could not foreclose and sell her home. These facts were not disclosed, nor was there any suggestion that Mrs. Druhan receive independent legal advice. Rather, the bank’s lawyer, on the bank’s advice, led Mrs. Druhan to believe that if she did not sign the documents, she would lose her home to a foreclosure.
Eventually, on November 5th, 1992, Mrs. Druhan was taken by her husband to the bank where she signed the promissory note; and then across the street to the bank’s lawyer’s office where she signed the collateral mortgage. The only reason she signed these documents is because she feared that if she did not, the R.C.M.P. might come and remove her from her home.
Given these circumstances, I reject the submission that there was no misrepresentation here.
All of the indicia for rescission, based on false misrepresentation, are present here. On the topic of false misrepresentation, Professor Friedman in his text, The Law of Contract, 3rd edition, 1994, at p. 295 refers to United Shoe Machinery Co. v. Brunet, [1909] A.C. 330 (P.C.) and says:
Lord Atkinson made it clear that to establish a case of false or fraudulent misrepresentation the following had to be established: (1) that the representations complained of were made by the wrongdoer to the victim; (2) that these representations were false in fact; (3) that the wrongdoer, when he made them, either knew that they were false or made them recklessly without knowing whether they were false or true; (4) that the victim was thereby induced to enter into the contract in question.
The bank’s lawyer, knowing that the 1991 mortgage document, which was signed by Mr. and Mrs. Druhan, did not secure the matrimonial home, induced Mrs. Druhan to sign the 1992 security documents by falsely misrepresenting that if she did not sign, she would lose her home to a foreclosure of the 1991 mortgage. Had Mrs. Druhan known the true facts, she would not have signed the security documents, and the trial judge so found.
The fact that the bank manager was not, personally, aware that the matrimonial home was not secured by the 1991 mortgage document which Mr. and Mrs. Druhan signed, is of no consequence. The bank, itself, is deemed to have that knowledge because its lawyer had that knowledge. The bank instructed its lawyer to pass on the message that if Mrs. Druhan did not sign the security documents in 1992 the bank would foreclose on the 1991 mortgage and sell her home. “The bank must be answerable” for what its lawyer did in these circumstances. See Bank of Montreal v. Stuart, [1911] A.C. 120 at p. 138.
In Musgrave v. Morton (1924), 57 N.S.R. 369 this Court set aside a chattel mortgage which a married woman had been induced to sign on the basis of a false misrepresentation as to what would happen to her personal property if she did not sign.
The trial judge was, therefore, correct to set aside the 1992 security documentation insofar as Mrs. Druhan is concerned.
It is not necessary to deal with the alternative findings of the trial judge with respect to undue influence and independent legal advice. I will say, however, that the need for Mrs. Druhan to have had independent legal advice in these circumstances is obvious. I need only use the words of Sir Eric Sachs in the regularly cited case of Lloyds Bank Ltd. v. Bundy, [1975] Q.B. 326 at p. 345:
The situation was thus one which to any reasonably sensible person, who gave it but a moment’s thought, cried aloud [Mrs. Druhan’s] need for careful independent advice.
I would, therefore, dismiss the bank’s appeal as it relates to Mrs. Druhan.
The circumstances which led to the execution of the 1992 security documentation by Mr. Druhan are entirely different. They are to be distinguished from those which led Mrs. Druhan to sign the documents; and, in my respectful opinion, the trial judge erred in not making that distinction.
Since Mr. Druhan only signed the collateral mortgage to release his interest under the Matrimonial Property Act, R.S.N.S. 1989, c. 275, I need only consider the question of his liability under the promissory note.
The evidence shows that Mr. Druhan arranged financing for his business at the bank, and he used the funds which the bank provided to him. The bank had a legitimate concern in 1992 when the principal portion of his loan was not being reduced. Under the circumstances, the bank’s demand for new arrangements, providing for a reduction of principal by monthly payments, was not unreasonable. Further, Mr. Druhan accepted those terms. There was no reluctance on his part as there was with Mrs. Druhan. He was not induced by any misrepresentation, or unduly influenced, to accept those terms.
There is no basis in law, or in equity, to relieve Mr. Druhan from his obligation to repay the bank, as he had agreed, the money which he borrowed, and used. He signed the promissory note on November 5th, 1992, fully understanding its import, and agreeing to its terms.
I would, therefore, allow the bank’s appeal with respect to Mr. Druhan’s obligation on the promissory note.
In summary, I would allow the appeal, in part, by providing that Mr. Druhan is not relieved of his obligation, to the bank, under the promissory note dated November 5th, 1992. In all other respects I would dismiss the appeal.
While the bank was partially successful in this appeal, it did not succeed on the main issue with respect to Mrs. Druhan’s obligations under the mortgage and the promissory note. Under these circumstances, I would order the bank to pay part of the respondents’ costs of this appeal which I would fix at $2,000.00 plus disbursements.
Flinn, J.A.
Concurred in:
Hart, J.A.
Freeman, J.A.
C.A. No. 137878
NOVA SCOTIA COURT OF APPEAL
BETWEEN:
ROYAL BANK OF CANADA
)
Appellant )
- and - ) REASONS FOR
) JUDGMENT BY:
PAULA DRUHAN and JOHN PAUL )
DRUHAN ) FLINN, J.A.
)
Respondents )
)
)
)
)
)
)