Newfoundland Capital Corporation v. Maritime Life Assurance Company

Newfoundland Capital Corporation v. Maritime Life Assurance Company Court Court of Appeal Date 1996-01-10 Citation 1996 NSCA 26 Docket CA 118601 Judge/Registrar/Adjudicator Roscoe, Elizabeth A. (Honourable Justice) (CA); Flinn, Edward J. (Honourable Justice); Freeman, Gerald B. (Honourable Justice) (CA) Document Type Decision Decision Content C.A. No. 118601 NOVA SCOTIA COURT OF APPEAL Cite as: Newfoundland Capital Corporation v. Maritime Life Assurance Company, 1996 NSCA 26 Freeman, Roscoe and Flinn, JJ.A. BETWEEN: NEWFOUNDLAND CAPITAL ) David A. Miller, Q.C. and CORPORATION LIMITED ) David Farrar ) for the Appellant Appellant ) ) - and - ) ) Lawrence A. Freeman and ) Robert G. Belliveau, Q.C. THE MARITIME LIFE ASSURANCE ) for the Respondent COMPANY LIMITED ) ) Respondent ) Appeal Heard: ) December 6, 1995 ) ) ) Judgment Delivered: ) January 10, 1996 ) ) ) ) ) ) ) ) THE COURT: Appeal allowed with costs to the appellant per reasons for judgment of Flinn, J.A.; Freeman and Roscoe, JJ.A. concurring. FLINN, J.A.: In 1985 Atlantic Inns Limited (Atlantic Inns), a subsidiary company of the appellant (Newfoundland Capital), borrowed $2 million from the respondent, (Maritime Life). The loan was secured by a Debenture from Atlantic Inns to Maritime Life. Newfoundland Capital guaranteed Atlantic Inns' obligations under the Debenture. The property which was charged by the Debenture was sold, and the purchaser assumed the obligations under the Debenture. The purchaser experienced financial difficulty, the value of the property fell, and, as a result of a further sale, Maritime Life recovered less than $1 million of the indebtedness. Maritime Life brought action against Newfoundland Capital, on its Guarantee, for the deficiency. Following trial in the Supreme Court of Nova Scotia, Justice Edwards found Newfoundland Capital liable to Maritime Life for $1.2 million. Newfoundland Capital appeals that decision, claiming that it has no liability to Maritime Life under the Guarantee, and that the trial judge erred in law in finding liability. FACTS The circumstances leading up to this litigation span a period of eight years, and it is necessary to highlight the dealings between the respective parties over this eight year period. Atlantic Inns is a wholly owned subsidiary of Newfoundland Capital. On February 15th, 1985, Atlantic Inns executed a Debenture in favour of Maritime Life to secure a $2 million loan. The Debenture, in addition to providing for the terms of payment of the loan, created a first charge on the property of Atlantic Inns, located on Windmill Road in Dartmouth, Nova Scotia, including land, buildings, equipment, chattels, etc. (the motel property). The Debenture was for a period of five years, maturing on March 1st, 1990. Payments were amortized over a period of 20 years. The interest rate was 12.5% per annum. The Guarantee At the time the Debenture was executed by Atlantic Inns, Newfoundland Capital executed a Guarantee in favour of Maritime Life. The Guarantee by Newfoundland Capital was one of the terms of the loan. The Guarantee is dated February 15th, 1985. It is this document which formed the basis of the trial judge's finding that Newfoundland Capital was liable to Maritime Life. I will set out its relevant provisions. For ease of reference in setting out these provisions, I have changed the words "the Guarantor" to "Newfoundland Capital", the words "the Mortgagee" to "Maritime Life", and the words "the Mortgagor" to "Atlantic Inns". Clause 1 of the Guarantee sets out the extent of Newfoundland Capital's Guarantee, and restricts that Guarantee to the obligations of Atlantic Inns under the Debenture: "1. THAT Newfoundland Capital unconditionally guarantees to Maritime Life the due payment by Atlantic Inns of all moneys payable at any time or from time to time under the terms of the said Debenture and the due performance and observance by Atlantic Inns of all covenants, conditions, stipulations, provisos and agreements contained in the said Debenture; Clause 2 of the Guarantee gives wide latitude to Maritime Life in its dealings with Atlantic Inns, thereby precluding Newfoundland Capital from setting up certain common law defences: 2. THAT Maritime Life in its absolute discretion or in the absolute discretion of any of its officers or agents, and without diminishing the liability of Newfoundland Capital hereunder, may grant time or other indulgences to Atlantic Inns and/or to any other person or persons now or hereafter liable to Maritime Life in respect of the said Debenture, and/or the said loan, and may give up, modify, vary, exchange, renew or abstain from perfecting or taking advantage of the said Debenture or any other security now or hereafter held by it in respect of the said Debenture and/or the said loan, in whole or in part and may discharge any part or parts thereof, or accept any composition or arrangements, or realize upon the said Debenture and/or the said loan, or any such other security when and in such manner as Maritime Life or other officer or agent thereof, may deem expedient, and in no case shall Maritime Life be responsible to Newfoundland Capital for any neglect or omission with respect thereto. .....;" Sale from Atlantic Inns to Wandlyn On March 30th, 1988, Atlantic Inns sold the motel property to Wandlyn Inns Limited (Wandlyn). At the same time Wandlyn executed an Assumption Agreement. Under the terms of the Assumption Agreement Wandlyn agreed with Maritime Life and Atlantic Inns to assume payment of the Debenture; and covenanted with Maritime Life to pay the monies secured thereby and to observe, perform and be bound by the terms, conditions, covenants and provisions contained in the Debenture. Newfoundland Capital was not a party to the Assumption Agreement in the sense that it was bound by the covenants therein contained. However, following execution of the Assumption Agreement by Maritime Life, Atlantic Inns and Wandlyn, Newfoundland Capital signed the document under the following notation: "IN WITNESS WHEREOF N.C.C. [Newfoundland Capital] has executed this Agreement to acknowledge its consent to all transactions contemplated thereby." Subsequently, there were further dealings between Maritime Life and Wandlyn which Newfoundland Capital argues resulted in novation; i.e., Maritime Life's original contract with Atlantic Inns was extinguished and replaced with another; namely, with Wandlyn. I will highlight those subsequent dealings. Ninety Day Extension The five 5-year term of the Debenture was to expire on March 1st, 1990. Wandlyn requested a temporary extension of the mortgage renewal date from March 1st, 1990 to June 1st, 1990. At this time payments under the Debenture were in arrears, the financial position of the motel property was deteriorating, and Maritime Life was hopeful that Wandlyn would obtain alternate financing and that Maritime Life would be paid out. Maritime Life agreed to the extension to May 31, 1990 on the understanding that all outstanding obligations would be paid on that date. Newfoundland Capital was requested to agree to this extension and did so. However, Newfoundland Capital made it clear that it would not agree to an extension beyond May 31st, 1990. First one year Renewal In May, 1990, Wandlyn advised Maritime Life that it would accept a 1-year extension of the Debenture to March 1st, 1991, at 14.5%. However, Wandlyn also advised that Newfoundland Capital was not prepared to participate in any further extensions as Guarantor. On May 25th, 1990, Maritime Life offered a renewal for this 1-year, insisting that Newfoundland Capital's guarantee continue. Maritime Life indicated that if the renewal offer was not signed by both Wandlyn and Newfoundland Capital, by the expiry date, that Maritime Life would consider the loan in default. Subsequently, Maritime Life decided that it did not require Newfoundland Capital's consent, agreed to the 1-year renewal with Wandlyn, and simply advised Newfoundland Capital after the fact. Newfoundland Capital responded to Maritime Life, through its solicitors, that it considered the extension as: ".....a new financing arrangement between Wandlyn Inns Limited and Maritime Life which has released Atlantic Inns Limited from any liability under the covenants contained in the original Debenture. As a result Newfoundland Capital's obligations under the Guarantee have similarly terminated." Maritime Life responded through its solicitors taking exception with Newfoundland Capital's position. Second one year Renewal In February, 1991, Wandlyn requested a further 1-year extension. Maritime Life agreed and extended the Debenture to March 1st, 1992, at 12.5%. No correspondence or other information relating to this renewal offer was forwarded to Newfoundland Capital or Atlantic Inns, nor did Newfoundland Capital or Atlantic Inns at any time consent to this renewal. Newfoundland Capital was simply informed by Maritime Life that Wandlyn and Maritime Life had entered into a further extension of the Debenture. A copy of the renewal agreement was not provided to Newfoundland Capital. Work out Agreement and third Renewal By late 1991 the Wandlyn account with Maritime Life was in chronic arrears. On December 12th, 1991, Maritime Life entered into a "work out" agreement with Wandlyn, the substance of which is as follows: 1. Current arrears ($35,000) to be paid by December 31, 1991. The January 1, 1992, payment ($33,055) is to be made by January 17, 1992. 2. Maritime Life will renew the Debenture effective January 1, 1992, for five years at 10.25%. 3. From February 1, 1992, to July 1, 1992, Maritime Life will accept one-half of the regular principal interest and tax payment, placing the Debenture three months in arrears as of July 1, 1992. 4. On August 1, 1992, the three month arrears will be payable in one lump sum and regular payments of principal, interest and taxes will commence. Maritime Life decided that a copy of the renewal offer should be sent to Newfoundland Capital, requesting that they sign it. However, Maritime Life's staff were directed not to send to Newfoundland Capital any information dealing with the "work out" arrangement. Newfoundland Capital, upon receiving information concerning the renewal offer, reiterated its position which it had advanced at the time of the previous 1-year extension. On February 14th, 1992, Maritime Life and Wandlyn entered into a formal extension agreement. Companies' Creditors Arrangement Application On May 20th, 1992, Wandlyn made application for protection under the Companies' Creditors Arrangement Act, R.S., c. C-25. Eventually, a consolidated plan of arrangement was approved by the Court. This arrangement, with respect to Maritime Life, provided that the motel property: ".....will be deeded to Maritime on the settlement date or may be foreclosed upon by Maritime or Maritime may exercise any other remedies available to it under the existing security for sale or possession of this property, all with the consent of Wandlyn which is hereby given, together with such other consents as may be reasonably requested, in partial settlement of all mortgage debt, including unpaid interest, on that property. As to the balance of the settlement, being one-half of the difference between the principal balance of the mortgage, together with unpaid interest to the Settlement Date, and the appraised Forced Sale Value of the motor inn, Wandlyn will execute a mortgage on the motor inns at Amherst, Nova Scotia and Halifax, Nova Scotia to rank second, in the case of the motor inn at Amherst, Nova Scotia, only to the Existing Security to NSBCC [Nova Scotia Business Capital Corporation], and to rank second in the case of the motor inn at Halifax, Nova Scotia only to the Existing Security to Royal Trust." Further to this arrangement, Maritime Life and Wandlyn entered into an agreement dated February 19th, 1993, pursuant to which it was agreed that the motel property would be sold to one Sam Toulaney (a sale which had been negotiated by Maritime Life). Subsequently the motel property was transferred from Wandlyn directly to Mr. Toulaney's company (ABCS Motel Limited) for $1 million. Wandlyn then provided Maritime Life with the second mortgage on its other properties. At the time of the closing of these transactions Maritime Life executed a Discharge of Debenture. Maritime Life demanded its deficiency from Newfoundland Capital; and when Newfoundland Capital refused, it commenced the proceeding which is the subject of this appeal. THE TRIAL JUDGE'S DECISION The trial judge rejected the submission of Newfoundland Capital that a novation had occurred. He determined that nothing which was done by Maritime Life had the effect of releasing Newfoundland Capital from its obligation as Guarantor. He found Newfoundland Capital liable, and ordered it to pay Maritime Life $1,295,755.65 which includes costs. GROUNDS OF APPEAL Newfoundland Capital raises several grounds of appeal. However, I need only refer to one of them in order to dispose of this appeal: "The trial judge erred in failing to consider the Debenture discharged as a result of the filing of the Discharge of Debenture." DISPOSITION This issue was not dealt with by the trial judge. In fact, the trial judge did not even mention the Discharge of Debenture in his decision. In my opinion, the Discharge of Debenture provides a complete defence to Maritime Life's action against Newfoundland Capital, and this appeal should be allowed on that basis. The Discharge of Debenture is dated March 30th, 1993. The affidavit of execution was sworn to on March 31st, 1993. The Discharge of Debenture was not registered until October 12th, 1993, well after this action was commenced (August 16th, 1993) and after Newfoundland Capital filed its defence to the action (September 3, 1993). The Discharge of Debenture was not included in Maritime Life's List of Documents; and, indeed, it did not even come to light until the second day of the trial. Counsel for Newfoundland Capital indicated to the trial judge that he had just obtained a copy of the Discharge of Debenture at the Registry of Deeds that very day. It was introduced as an exhibit during the cross-examination of Robert Wornell, the manager of property administration for Maritime Life. During cross-examination, Mr. Wornell identified the document and acknowledged its execution by officers of Maritime Life. Maritime Life tendered no evidence with respect to this Discharge of Debenture to explain the obvious inconsistency between its right of action on the Guarantee, and the fact that the Debenture was discharged. At the time of the transfer of motel property from Wandlyn to ABCS Motel Limited, in March, 1993, Maritime executed the Discharge of Debenture. This Discharge of Debenture provides as follows: "DISCHARGE OF DEBENTURE THE MARITIME LIFE ASSURANCE COMPANY hereby certifies that ATLANTIC INNS LIMITED and WANDLYN INNS LTD. (hereinafter called the "Companies") have been subject to an obligation of money due or to grow due on a certain Debenture made by Atlantic Inns Limited in favour of The Maritime Life Assurance Company and dated the 15th day of February, 1985, which Debenture was filed at the Registrar of Joint Stock Companies under the provisions of the Corporations Securities Registration Act at Halifax, Nova Scotia on the 18th day of February, 1985 as Number 19053 and which was recorded at the Registry of Deeds Office for the County of Halifax, Nova Scotia on the 18th day of February, 1985 in Book 3954 at page 883 and which Debenture was assumed by Wandlyn Inns Ltd. by assumption agreement filed at the Registrar of Joint Stock Companies under the provisions of the Corporations Securities Registration Act at Halifax, Nova Scotia on the 27th day of May, 1988 as Supplement Number 013 and that said Debenture has not been assigned by us and that said Debenture is therefore fully discharged. IN WITNESS WHEREOF The Maritime Life Assurance Company has caused these presents to be executed by its duly authorized Attorneys in that behalf on the 30th day of March, 1993." This is not a partial Discharge of Debenture; that is, it does not discharge only the motel property, nor does it discharge only the obligation of Wandlyn. Maritime Life certifies that the Debenture is fully discharged. Newfoundland Capital's Guarantee to Maritime Life is limited to: a. the due payment, by Atlantic Inns, of all monies payable under the Debenture; and b. the due performance by Atlantic Inns of all the covenants, conditions, etc. contained in the Debenture. I repeat, here, the operative clause from the Guarantee. Newfoundland Capital unconditionally guarantees to Maritime Life: ".....the due payment by Atlantic Inns of all monies payable at any time or from time to time under the terms of the said Debenture and the due performance and observance by Atlantic Inns of all covenants, conditions, stipulations, provisos and agreements contained in the said Debenture." Since the Debenture has been fully discharged, there is no further obligation of Atlantic Inns under the Debenture to which the Guarantee of Newfoundland Capital could apply. The Debenture, here, is the primary security. It is the instrument of debt, and Maritime Life has certified that instrument of debt as being fully discharged. Since Newfoundland Capital's obligation to Maritime Life is limited to the Guarantee which Newfoundland Capital signed on February 15th, 1985, Maritime Life has no claim against Newfoundland Capital. There is a suggestion, in the decision of the trial judge, that Newfoundland Capital undertook additional Guarantee obligations at the time the motel property was sold from Atlantic Inns to Wandlyn. In the course of his judgment, the trial judge said: "By its consent to the Assumption Agreement N.C.C. [Newfoundland Capital] effectively guaranteed the obligations of Wandlyn in addition to those of Atlantic Inns." It is not clear why the trial judge made that statement. It is also not clear what effect, if any, that statement had on his ultimate decision. In any event, and, with respect, the trial judge clearly erred in law in concluding that Newfoundland Capital had guaranteed the obligations of Wandlyn to Maritime Life (in addition to those of Atlantic Inns), by consenting to the Assumption Agreement. At the time of the transfer of the motel property from Atlantic Inns to Wandlyn, no request was ever made of Newfoundland Capital for such a guarantee, and none was given. Further, it is clear, from examining the terms of the Assumption Agreement, that Newfoundland Capital did not bind itself to the covenants in that Agreement, nor did it guarantee anything to Maritime Life. Newfoundland Capital, simply, acknowledged its consent to the transaction. There is no evidence, therefore, that Newfoundland Capital guaranteed the obligations of Wandlyn to Maritime Life, in addition to having guaranteed the obligations of Atlantic Inns to Maritime Life. During oral argument of this appeal, counsel for Maritime Life suggested that the wording of the Guarantee permitted Maritime Life to discharge the Debenture without diminishing the liability of Newfoundland Capital. He refers to the words "may give up" in clause 2 of the Guarantee as support for that argument: "THAT Maritime Life ...,without diminishing the liability of Newfoundland Capital hereunder, ... may give up, modify, vary, exchange, renew or abstain from perfecting or taking advantage of the said Debenture or any other security now or hereafter held by it in respect of the said Debenture and/or the said loan, in whole or in part and may discharge any part or parts thereof, ..." {Emphasis added} Before dealing, specifically, with this argument, I wish to make two preliminary observations. Neither counsel for Maritime Life nor counsel for Newfoundland Capital have been able to find any judicial interpretation of the words "give up" in this context. Further, the evidence discloses that the Guarantee document was prepared by Maritime Life's solicitors on Maritime Life's instructions. Therefore, if there is any ambiguity in the document, the application of the contra proferentem rule dictates that the meaning least favourable to the author of the document should prevail, and the document should not be interpreted to create liabilities or impose obligations unless the wording is clear. See The Law of Contract, Friedman, 2nd Ed. at p. 445. There are two reasons why I do not accept this argument of counsel for Maritime Life. Firstly, the words "give up" cannot have the meaning attributed to them by counsel for Maritime Life, because such an interpretation would impose additional obligations on Newfoundland Capital that were obviously not intended by the parties. It must be remembered that Newfoundland Capital has not agreed to indemnify Maritime Life; nor is Newfoundland Capital primarily liable on the covenants in the Debenture. The primary liability on the covenants in the Debenture is that of Atlantic Inns (and of Wandlyn by virtue of the Assumption Agreement). The liability of Newfoundland Capital is only secondary; in the sense that its liability only arises if Atlantic Inns fails to perform its obligations under the Debenture. Therefore, it would be completely inconsistent with Newfoundland Capital's obligations under the Guarantee if Maritime Life was able to fully discharge Atlantic Inns and still be able to look to Newfoundland Capital. Secondly, when clause 2 of the Guarantee is read as a whole, it is apparent that the words "give up" refer to the ability of Maritime Life to release, or give up, part or parts of the property which is secured by the Debenture. In fact, clause 2 specifically permits Maritime Life to "discharge any part or parts thereof". If Maritime Life were to be able to discharge the whole Debenture - and thereby create additional obligations for Newfoundland Capital - the words of the Guarantee should be clear and express in that regard. Novation Even had I not concluded that the Discharge of Debenture operated as a complete defence to Newfoundland Capital in this action, I would have allowed this appeal on the basis of novation. This is a further ground of appeal advanced by Newfoundland Capital. Newfoundland Capital's position, on this issue, is that by its dealings with Wandlyn, Maritime Life substituted Wandlyn for Atlantic Inns as the debtor; and on the basis of the principle of novation, Atlantic Inns is released of its obligation. It then follows that if Atlantic Inns is released, so is its Guarantor Newfoundland Capital. Maritime Life's position on this issue is two-fold. Firstly, it takes the position that the trial judge found, on the facts, that novation did not occur, and that this Court should not interfere with that finding. Secondly, it takes the position that it does not matter if Atlantic Inns is released, by operation of the principle of novation, because the trial judge found that Newfoundland Capital had also guaranteed the obligations of Wandlyn. I have already dealt with this second point earlier in this opinion. The trial judge dealt with the novation issue as follows. Firstly, he stated: "In the circumstances of this case the argument that there was novation of the contract is really a non-starter." After referring to the case law, as to what constitutes novation, the trial judge's concluding remarks on this issue were: "Here the facts as I have found them demonstrate that there was no novation." The trial judge did not indicate what "facts" he was referring to, or how those facts demonstrated that there was no novation. He did say, during the course of dealing with this issue: "It is clear from the Assumption Agreement that Maritime Life did not accept the new contract in full satisfaction of the old contract." I certainly agree with that statement. However, it is the events subsequent to the date of the Assumption Agreement (signed by Wandlyn on March 30th, 1988) which were being put forth as amounting to a novation. In dealing with the novation issue, the trial judge made no reference to those subsequent events, nor anywhere in his decision does he make any findings with respect to those subsequent events vis-a-vis novation. That being the case, this Court is able to draw its own conclusions as to the effect of those subsequent events (Toneguzzo-Norvell v. Burnaby Hospital, [1994] 1 S.C.R. 114). Before considering those subsequent events, I note the principles involved in considering novation. In National Trust Co. v. Mead et al, [1990] 2 S.C.R. 410 the principle of novation was reviewed. Wilson J., writing for the Court on this issue, said at p. 427: "Because assent is the crux of novation it is obvious that novation may not be forced upon an unwilling creditor and, in the absence of express agreement, the court should be loath to find novation unless the circumstances are really compelling. Thus, while the court may look at the surrounding circumstances, including the conduct of the parties, in order to determine whether a novation has occurred, the burden of establishing novation is not easily met. The courts have established a three-part test for determining if novation has occurred. It is set out in Polson v. Wulffsohn (1890), 2 B.C.R. 39 as follows: 1. The new debtor must assume the complete liability; 2. The creditor must accept the new debtor as principal debtor and not merely as an agent or guarantor; and 3. The creditor must accept the new contract in full satisfaction and substitution for the old contract." In considering these three factors, Justice Wilson addressed the specific question of changes to the terms of the mortgage, and referred to Canada Permanent Trust Co. v. Neumann (1986), 8 B.C.L.R. (2d) 318 (B.C.C.A.) at p. 428-429: "What if changes have been made to the terms of the original mortgage? In Canada Permanent Trust Co. v. Neumann, supra, the Neumanns joined together with another couple, the Mas, and granted a mortgage to Canada Permanent. Later wishing to absolve themselves of this liability, the Neumanns conveyed all their interest and title to the Mas in return for the latter's promise to assume sole liability for the mortgage debt. Canada Permanent was not a party to this transfer and did not specifically release the Neumanns from their debt. The Mas later entered into a modification agreement reducing the interest rate as well as the amount of the monthly instalments. The Neumanns were not aware of this agreement until the Mas defaulted and the trust company demanded payment. Canada Permanent brought suit against the Neumanns on their personal covenant. The trial judge allowed the action and granted judgment in an amount calculated in accordance with the modification agreement. Carrothers J.A. allowed the Neumanns' appeal, finding that there had been a novation. He based his judgment on the fact that the modification agreement had altered the mortgage in several respects, holding at p. 321: There cannot be two contracts of mortgage and two methods of calculating the mortgage debt existing in respect of the same mortgage at the same time. This is legally repugnant and can only be construed as a novation and an acceptance on the part of the trust company of the Mas exclusively as principal debtors, thus releasing the Neumanns of their obligation. These circumstances are, in my view, consistent with novation." Justice Wilson then said at p. 430: "In my view, significant changes in the terms of a mortgage effected without the consent of the original mortgagor constitute very strong evidence of novation. It is not necessary, of course, for a different contract to be brought into existence for a novation to take place. The essence of novation is the substitution of debtors. However, where significant changes in terms occur and the creditor has not applied to the original mortgagor for its consent. I believe this is a strong indication that the creditor is no longer looking to the mortgagor for payment." The issue in Mead was whether or not the execution of an assumption agreement, by a purchaser of the equity of redemption from the original mortgagor, amounted to a novation. The Court concluded that the execution of the assumption agreement, alone, did not amount to a novation. The following are the circumstances which Newfoundland Capital allege should result in a finding that novation has occurred. Shortly after Wandlyn acquired the motel property there were problems. Payments on the Debenture were in arrears and the financial position of the motel property was deteriorating. Further, the term of the Debenture expired on March 1, 1990, and Maritime Life was under no obligation to renew it. Notwithstanding these factors, Maritime Life, for all intents and purposes, ignored Atlantic Inns and entered into three separate renewal agreements with Wandlyn (May 1990 - February 1991 - December 1991) without the knowledge or consent of Atlantic Inns. Further, in December 1991 Maritime Life entered into the "work out" agreement with Wandlyn, again without the knowledge or consent of Atlantic Inns. Finally, the sale of the property, pursuant to the plan of arrangement under the Corporations' Creditors Arrangement Act, while, in a sense, forced upon Maritime Life because of the court order approving the arrangement, was negotiated and brought to fruition by Maritime Life and Wandlyn without any knowledge or input of Atlantic Inns. The conclusion that must be drawn from these events is that Maritime Life is no longer looking to Atlantic Inns for payment of the amount owing on the Debenture, and that Maritime Life has accepted Wandlyn, exclusively, as the principal debtor. This is confirmed by the testimony of Gary Martin, the manager of mortgage underwriting for Maritime Life. He gave the following evidence during cross-examination by counsel for Newfoundland Capital: "Q. Okay. And is it also correct then to say, sir that as you looked at it, at the time of the renewal negotiations, you were aware that originally Atlantic Inns had made the debenture which included the promise to pay? Q. Yes. Q. Okay. And that as you understood them and you looked at it, in the course of those renewal negotiations, Atlantic Inns was, in effect, replaced by Wandlyn? A. As the owner of the property and through the assumption agreement, year, they took over the debt, so to speak. Q. And there was an internal view of Maritime Life that the Newfoundland Capital guaranty continued on? A. That's right. Q. So that in going through this renewal process and reaching agreement with Wandlyn, the parties you were looking to with respect to the financial obligations were Wandlyn and Newfoundland Capital? A. That's correct. Q. Wandlyn, as the borrower, and Newfoundland Capital, pursuant to its guaranty? A. At the time of the renewal? Q. Yes. A. Yes." The most compelling evidence of novation relates to the execution of the Discharge of Debenture. At the time of the sale of the motel property from Wandlyn to A.B.C.S. Motel Limited, in 1993, Maritime Life was, obviously, not looking to Atlantic Inns for payment under the Debenture; otherwise they would not have certified the Debenture as being fully discharged. In my opinion novation has occurred here, and, therefore, the obligation of Atlantic Inns under the Debenture is extinguished. Further, as I have pointed out earlier in this opinion, if Atlantic Inns has no obligation under the Debenture to Maritime Life, it follows that Newfoundland Capital has no liability to Maritime Life under the Guarantee. I would allow this appeal. I would set aside the order of the trial judge, and order that Maritime Life's action against Newfoundland Capital be dismissed. Further, I would order that Newfoundland Capital have its costs of the trial in the amount of $41,813 plus disbursements; together with its costs of this appeal, which I would fix at $7,500 plus disbursements. Flinn, J.A. Concurred in: Freeman, J.A. Roscoe, J.A. C.A. No. 118601 NOVA SCOTIA COURT OF APPEAL BETWEEN: NEWFOUNDLAND CAPITAL CORPORATION LIMITED ) Appellant ) - and - ) REASONS FOR ) JUDGMENT BY: THE MARITIME LIFE ASSURANCE ) COMPANY LIMITED ) ) FLINN, J.A. ) Respondent ) ) ) ) ) ) )