Executive Summary: Key Legal and Evidentiary Issues

• Central dispute involves the interpretation of "assumption of mortgages" versus merely making mortgage payments under a 2015 real estate contract.

• The Defendant, a numbered company owned by a Law Society member, drafted the contract but failed to formally assume mortgagor obligations for over 10 years.

• Plaintiffs' credit profile remains at risk as they continue to hold and renew mortgages on remaining properties for the Defendant's benefit without corresponding consideration.

• Specific performance, rather than damages, was argued as the appropriate remedy due to the unique and non-compensable nature of credit as an asset.

• Implied terms analysis focused on whether the Defendant's interpretation requiring Plaintiffs to remain as mortgagors for up to 23 years aligned with the parties' objective intentions.

• No remedial clauses existed in the contract, requiring the Court to imply appropriate terms to give business efficacy to the agreement.

Background of the transaction

In October 2015, Douglas and Wendy Moran owned 10 condominium units in Lethbridge, Alberta. They approached 1715664 Alberta Inc, a company owned and directed by Mr. Craig (a member of the Law Society of Alberta), seeking to transfer these properties. The parties entered into a two-page letter of agreement, drafted by the Defendant's company, whereby the Morans would transfer title to all 10 units in exchange for $1 and the Defendant's "assumption of the mortgages" on each property. At the time of signing, approximately 23 years remained on the mortgages' amortization periods, with five mortgages held by National Bank and five by TD Bank.

The contractual dispute unfolds

Following the title transfer, the Defendant sold five units and discharged those related mortgages from the sale proceeds. More recently, the Defendant sold two additional units, with those mortgages being discharged or in the process of discharge. However, the Defendant never formally "assumed" the mortgages in the sense of stepping into the shoes as mortgagor with the lending institutions. Sometime after the title transfer, Mr. Craig advised the Plaintiffs that he cannot qualify for mortgage financing. Consequently, for more than 10 years, the Plaintiffs have continued to hold and renew the mortgages on the remaining three units while the Defendant makes the mortgage payments. The Plaintiffs filed their Statement of Claim in 2022, alleging breach of contract and seeking specific performance, disgorgement of gains, and damages.

Interpretation of "assume the mortgages"

The Court applied the modern approach to contractual interpretation established in Sattva Capital Corp v Creston Moly Corp, which emphasizes determining the objective intention of the parties through a practical, common-sense reading of the contract as a whole, consistent with the surrounding circumstances known at the time of formation. The Defendant argued the contract only required it to make the payments on the mortgages without stepping into any contractual obligations with any mortgagee. The Court disagreed, finding that the practical reality of this interpretation would oblige the Plaintiffs to continue to remortgage the properties for the Defendant's benefit for up to 23 years, putting their credit rating at risk and potentially impeding their ability to obtain other types of financing, all without any consideration for this continued obligation.

The significance of credit as an asset

The Court recognized credit as a unique asset, encompassing a good history, borrowing power, and the capacity to secure favourable borrowing terms and achieve financial goals. The evidence established that the Defendant had relied on the Plaintiffs' strong credit profile as a resource to unlock lower interest rates than the corporation or Mr. Craig could otherwise obtain, effectively using the Plaintiffs' credit profile to unlock broader investment opportunities for itself while simultaneously putting the Plaintiffs' credit profile at risk and reducing their borrowing capacity. The Court found it difficult to imagine how damages are capable of compensating the Plaintiffs for the Defendant's continued and ongoing use of their credit profile.

The court's ruling and remedy

The Court determined that the Defendant clearly breached its obligation under the contract, as the term "assume the balances owing on the mortgages" connotes a greater obligation than merely taking over the monthly payments. The Court emphasized that since the Defendant, which is in the business of purchasing and holding real estate for investment purposes, drafted the contract, it would have chosen different language if the parties intended for the Defendant to merely take over the mortgage payments while the Plaintiffs continued to hold and renew the mortgages. The Court granted specific performance as the implied term necessary to give business efficacy to the agreement.

The judgment ordered the Defendant to secure financing for the properties within 30 days of receipt of the Reasons. If the Defendant fails to secure financing at the end of those 30 days, the Defendant shall forthwith list the properties for sale. The Defendant shall apply the sale proceeds to discharge the remaining mortgages, and if the sale proceeds are insufficient, the Defendant shall be responsible for any outstanding amounts necessary to discharge the mortgages. The Defendant shall promptly notify the Plaintiffs when the remaining mortgages are discharged. The Plaintiffs are entitled to the costs of this action, with provisions for written submissions on costs within 30 days if the parties are unable to agree. While no specific monetary award was determined, the remedy requires the Defendant to fully discharge all remaining mortgage obligations, releasing the Plaintiffs from their obligations as mortgagors.