Legal Blog

Hardball (2)

In our April 2012 newsletter, we discussed the case of Valenti v. Equitable Trust Co. That case was appealed to the Court of Appeal and overturned at 2012 ONCA 93.

Recap

A mortgagor asked the mortgagee for its consent to a proposed lease of the property. The mortgagee refused its consent, but the mortgagor leased the property regardless.

The mortgagee did not react adversely until the mortgagor failed to make a mortgage payment. The mortgagee called the tenant and obtained assurances that the tenant would not make the second instalment of rent until further notification. The mortgagor failed to make the next mortgage payment and the mortgagee issued an application against the mortgagor and the tenant to set aside the lease, obtain a writ of possession, and enjoin the tenant from paying the second rent instalment to the mortgagor.

Two days later, the mortgagee served a notice of breach of covenant and demanded that the mortgagor deliver a notice of surrender of lease within two weeks. Four days after that, the mortgagee served its notice of application on the tenant and demanded that the tenant not pay the next rent instalment. The tenant complied and ultimately terminated its tenancy with the mortgagor half way through the lease term.

The mortgagor commenced an action against the mortgagee claiming damages for inducing breach of contract and wrongful interference with economic relations. The mortgagee brought a motion under Rule 21 claiming that the mortgagor had no cause of action.

     The motions judge dismissed the action. He felt that the mortgagor could not complain about the mortgagee’s negative response to its lease and the mortgagee’s actions in forcing the tenant to vacate the premises early because the mortgagor had no right in the first instance to enter into the lease.

Appeal

     In a Rule 21 motion, all allegations in the statement of claim are deemed to be true. The Court of Appeal, in a brief decision, held that the mortgagor had raised enough facts regarding the causes of action to allow him to proceed past the pleadings stage. In doing so, it did not disagree with the motions judge’s reasoning; it disagreed with the judge’s attempt to curtail the action at the pleadings stage.