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NEGOTIABLE INSTRUMENTS AND BILLS OF EXCHANGE - Bills, cheques and notes - Payment - Material alteration

Friday, October 08, 2021 @ 6:09 AM  

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Appeal by the plaintiff, a lawyer representing the lender, from summary judgment dismissing his action for enforcement of two promissory notes. The 2006 note was for a $531,000 loan to Chedli and his wife. It was secured by a collateral mortgage on the couple’s home held solely in the wife’s name. The loan was due in 2007. A few months later, Chedli paid the appellant $531,000 and asked that $500,000 be paid to another law firm so that Chedli could invest the funds in other opportunities until the note was due. The appellant agreed. The loan was later extended to 2008 and was later converted from a term loan to a demand note. The second note, signed by Chedli alone, secured a $650,000 loan obtained in 2008. Both loans had fallen into arrears by the late summer and fall of 2008. The last payment on both loans was made in March 2010. In March 2010, the appellant wrote to Chedli regarding the consolidation and revision of both loans. The letter noted that Chedli had arranged for additional security for the loans and that the appellant was prepared to agree to various terms. Chedli died in 2015. Demand was made for payment of both loans in 2016. This action was commenced in 2017. The motion judge found that when Chedli paid the appellant the $531,000, the first note was paid off, and the loan for $500,000 was then re-advanced to Chedli only, as a new loan. Because the first note loan was repaid, neither the first promissory note nor the collateral mortgage was enforceable by the appellant in this action. Two letters from the appellant referred to the notes becoming demand notes. The motion judge considered six potential pieces of corroborative evidence that Chedli had agreed to amend the notes from term notes to demand notes and rejected all six. Having found there was no independent corroborative evidence that Chedli had agreed to the amendment of the notes, the motion judge found that the notes were voided and not enforceable against the estate.

HELD: Appeal allowed in part. The motion judge’s finding that the appellant, as the lenders’ representative, issued a new loan for $500,000 was unreasonable and not available on the record. There was no evidence that either the appellant or Chedli intended to start fresh with a new loan for $500,000. It was clear from the appellant’s 2006 reporting letter that the appellant intended that both Chedlis would continue to be bound by the note and the collateral mortgage would continue to exist. There was no reference to a new loan. The first note was materially altered by the appellant in his 2006 letter to the Chedlis when he reduced the principal amount of the note from $531,000 to $500,000, and the timing of the interest payments on the new principal amount. The appellant acknowledged that Chedli’s wife never gave her assent to this or any subsequent changes to the first note. The first note was thus void as against the wife. Since the collateral mortgage was given only by her as the sole person on title to the couple’s home residence, the mortgage was also unenforceable. There were two pieces of potentially cogent, independent evidence to corroborate Chedli’s assent to the alteration of the first note, including its conversion from a term loan to a demand loan as described in the appellant’s 2008 letter. The payment on the first note after 2008 constituted circumstantial evidence that corroborated Chedli’s assent to the alteration of the first note, including its conversion to a demand note. The motion judge misapprehended the evidence, drew an unreasonable inference, and erred in law by failing to find that Chedli’s payment of $30,000 to the appellant after the appellant amended the first note and converted it to a demand note constituted independent corroborative evidence of his assent. There was, however, no similarly corroborative independent evidence that Chedli assented to the conversion of the second note to a demand note. While there was evidence of discussions, no payments were made after the appellant’s March 2010 letter that discussed the conversion of the second note to a demand note.

James v. Chedli, [2021] O.J. No. 4674, Ontario Court of Appeal, K.N. Feldman, D. Paciocco and S.A. Coroza JJ.A., September 9, 2021. Digest No. TLD-October42021010