Citizens Bank of Canada v. Babich et al.

Citizens Bank of Canada v. Babich et al.

The clause adjusting the mortgage rate to prime plus 5% seven days prior to maturity was, in substance, designed to extract a higher rate of interest on failure to repay at maturity and therefore contravenes s.8 of the Interest Act; it is unenforceable and interest is to be calculated at the contractual renewal rate of 7.000% per annum.

Citation
2000 BCSC 954
Parties
Petitioner: Citizens Bank of Canada (formerly Citizens Trust Company); Respondent: Ernest Babich; Respondent: Betty Babich; Respondent: LCB Holdings Inc.; Respondent: Westminster Savings Credit Union in Trust
Court
Supreme Court of British Columbia
Jurisdiction
Canada
Judgment Date
20 June 2000
Procedural Posture
Mortgage Foreclosure (petition) / Order Nisi of Foreclosure Granted; Judgment Reserved on Redemption Amount and Judgment; Determination of Interest Rate Post‑maturity
Outcome
Provision adjusting rate to prime plus 5% seven days before maturity held to contravene s.8 of the Interest Act and unenforceable; interest to be calculated at 7.000% per annum; order nisi of foreclosure granted; further accounting required.
Legal Topics
Enforceability of Interest Provision, Section 8 Interest Act, Mortgage Renewal, Rate of Interest After Maturity
Source Language
English
Mortgage Law Interest Act Contract Law Civil Procedure Enforceability of Interest Provision Section 8 Interest Act Mortgage Renewal Rate of Interest After Maturity

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Parties

Citizens Bank of Canada (formerly Citizens Trust Company)

Petitioner

Ernest Babich

Respondent

Betty Babich

Respondent

LCB Holdings Inc.

Respondent

Westminster Savings Credit Union in Trust

Respondent

Procedural Posture

Mortgage Foreclosure (petition) / Order Nisi of Foreclosure Granted; Judgment Reserved on Redemption Amount and Judgment; Determination of Interest Rate Post‑maturity

Legal Issues

  1. 1 Whether a provision adjusting the mortgage rate seven days before maturity to prime plus 5% violates s.8 of the Interest Act
  2. 2 Whether the adjustment clause is a legitimate commercial term or a device to extract higher interest on default
  3. 3 What interest rate should apply post‑maturity

Ratio Decidendi

The clause adjusting the mortgage rate to prime plus 5% seven days prior to maturity was, in substance, designed to extract a higher rate of interest on failure to repay at maturity and therefore contravenes s.8 of the Interest Act; it is unenforceable and interest is to be calculated at the contractual renewal rate of 7.000% per annum.

Court Disposition

Provision adjusting rate to prime plus 5% seven days before maturity held to contravene s.8 of the Interest Act and unenforceable; interest to be calculated at 7.000% per annum; order nisi of foreclosure granted; further accounting required.

Orders

  • Order nisi of foreclosure granted May 15, 2000
  • Provision in clause 1.1(l) held unenforceable under s.8 of the Interest Act