CONTRACT INTERPRETATION - General principles - Context - Consider the entire contract - Commercial reasonableness

Appeal by the plaintiff Ryan Mortgage Income Fund Inc. from a trial judgment dismissing its action for breach of contract. The appellant was a mortgage investment company. The respondent Alpine Credits Limited was a licensed mortgage broker and related to the appellant. It sold the mortgages it underwrote to the appellant or to other third party investors. An appraiser had prepared an incorrect appraisal for two borrowers in relation to 11 lots of land. The respondent relied on the appraisal and then sold the mortgage to the appellant. When the borrowers defaulted, the appellant incurred significant losses when selling the lots. The appellant conceded that it had no claim in negligence against the appraiser because only the respondent had received a letter of transmittal extending the right to rely on the appraisal. Accordingly, the appellant had to demonstrate a successful breach of contract claim against the respondent in order for the respondent to then claim indemnity against the appraiser for negligently preparing the appraisal. The trial judge found the parties had entered into an oral agreement obligating the respondent to comply with certain Lending Guidelines for all loans later sold to the appellant. The trial judge found the respondent did not breach the Lending Guidelines by selling the appellant a mortgage that exceeded the loan-to-value ratio provided for in the Guidelines because the loan sold to the appellant did not exceed 55 per cent of the appraised value of the bare land. The trial judge found that the respondent’s obligation related to the loan-to-appraised-value ratio and therefore found no breach. Having found that appellant had no claim against the respondent for breach of the Lending Guidelines, the trial judge dismissed the claim for indemnity against the appraiser. The appellant argued that the trial judge erred in interpreting the agreement between the parties.

HELD: Appeal dismissed. The trial judge did not err in his interpretation of the Lending Guidelines. He interpreted the Lending Guidelines as a whole and did not fail to consider the respondent’s obligation to verify the value of the property by providing an appraisal, but rejected the argument that the obligation expressed in the Lending Guidelines imported a truth or correctness requirement to the appraisal. The trial judge was alive to the close relationship between the parties and the nature and particular risk of equity lending. He also considered the importance of appraisals to this business model and the expectation of those obtaining and relying on them that they were accurately prepared. The trial judge considered commercial common sense and concluded that it would not make any commercial sense to read into the Lending Guidelines the onerous responsibility on the respondent of insuring that the appraisals were correct. He found that it made more commercial sense for the respondent’s obligations to be limited to ensuring a qualified appraiser prepared a current appraisal. The trial judge did not err in refusing to effectively rewrite the agreement to achieve the parties’ subjective intentions.

Ryan Mortgage Income Fund Inc. v. Alpine Credits Ltd., [2017] B.C.J. No. 1028, British Columbia Court of Appeal, P.A. Kirkpatrick, E.A. Bennett and L. Fenlon JJ.A., May 31, 2017. Digest No. TLD-July32017005