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Money - Loans
COMMENT
Money was started as a means of trade, the trade of useful physical goods and services - an alternative to barter (my potatoes for your chicken). But the coming into being of physical currency allowed money to be traded itself - the buying and selling of money.
It's not that simple though. It seems odd to trade the same commodity with itself - ie. why would you trade a sack of coal for another sack of the same quality and quantity, why not just burn what you have? This reality reveals what you are really trading in a loan: on the one hand, the immediate availability of more money than you have right now in exchange for, on the other hand, staggered payments of smaller quantities of money over time as (you hope) your future labouring capacity can generate.
Because this is a purely 'money' transaction, much of the purchase price paid is de facto a return of the original money advanced, but the balance is quite rightly thought of as the 'cost' of the loan - commonly stated in percentage terms based on the original 'principal' - called Interest. 'Interest' is really the price in future labour that the debtor is paying for the loan. It's obvious that those who have excess money now can 'lend' it to those that have less, at no costs to themselves other than the risk of default and inflation. Money-lending involves no productive labour on the part of the creditor, only by the debtor.
. Chand Morningside Plaza Inc. v. Healthy Lifestyle Medical Group Inc. [ILA]
In Chand Morningside Plaza Inc. v. Healthy Lifestyle Medical Group Inc. (Ont CA, 2026) the Ontario Court of Appeal allowed an appeal, here brought against "the dismissal of their collection action" seeking "payment of the amounts that remain owing under a guarantee and a mortgage".
Here the court considered issues of contractual 'undue influence', here in a loan-guarantee context and involving 'independent legal advice' (ILA):[45] The new defence related to the appellants’ actual or constructive knowledge of the inadequacy of the independent legal advice arose out of – but was materially different than – the question of the appellants’ knowledge, actual or constructive, concerning the pleaded defences of non est factum, duress, undue influence or unconscionability in the signing of guarantees, promissory notes or mortgages.
[46] It is well established that where a lender has actual or constructive knowledge of issues supporting the defence of undue influence in the signing of guarantees, promissory notes or mortgages, in order to protect against a claim that the instruments relied upon are vitiated, the lender must take reasonable steps to try to ensure that the persons signing the instruments understand the transaction and are entering into it freely: Bank of Montreal v. Duguid (2000), 2000 CanLII 5710 (ON CA), 47 O.R. (3d) 737 (C.A.), at para. 12, leave to appeal granted but appeal discontinued, [2000] S.C.C.A. No. 298. A lender may accomplish this by suggesting that the signers seek and obtain independent legal advice and a full explanation of the transaction: CIBC Mortgage Corp. v. Rowatt (2002), 2002 CanLII 45110 (ON CA), 61 O.R. (3d) 737 (C.A.), at para. 16, leave to appeal refused, [2002] S.C.C.A. No. 526; Bank of Montreal, at paras. 14-15; and JGB Collateral v. Rochon, 2020 ONCA 464, 151 O.R. (3d) 601, at para. 11. This is equally true in instances where a lender has actual or constructive knowledge of issues supporting the defences of non est factum, duress and unconscionability.
[47] However, any deficiencies in the independent legal advice are a matter between the lawyer who gives the advice and the clients who receive it, unless the lender knows or ought reasonably to have known of them. The lender is entitled to rely on a certificate of independent legal advice from a lawyer licensed to practice law in the jurisdiction, so long as the lender did not have any knowledge, direct or otherwise, that there is an issue of the authenticity or propriety of the independence of the legal advice: Royal Bank of Canada v. Biddell et al, 2015 ONSC 6535, 61 R.P.R. (5th) 62, at para. 75; Bertolo v. Bank of Montreal (1986), 1986 CanLII 150 (ON CA), 57 O.R. (2d) 577 (C.A.), at para. 7. . Steinberg v. Adderley
In Steinberg v. Adderley (Ont CA, 2024) the Court of Appeal considered (and partially granted) an appeal (by a non-party lender) against an order that reduced 20-24% compound interest on 'litigation loans', which were loans taken out to fund MVA litigation expenses (but not contingent on success).
In the lower court, the borrower unsuccessfully argued provisions of the rarely-used Unconscionable Transactions Relief Act (UTRA):[6] According to the loan documents, as of June 5, 2023, Mr. Steinberg owed BridgePoint $312,936.18 (after credit for the $70,000 paid in May 2022), with interest continuing to accrue. Mr. Steinberg’s position before the motion judge was that BridgePoint’s interest should be capped at 1.5 times the principal borrowed and that any additional interest charges were unconscionable. He relied on the Unconscionable Transactions Relief Act, R.S.O. 1990, c. U.2 (“UTRA”). Section 2 of UTRA allows a court to set aside loan agreements, in whole or in part, if the cost of the loan is excessive and the transaction is harsh and unconscionable.
[7] The motion judge rejected the contention that the interest on the loans was unconscionable. She said:I find that the litigation loans are contractually sound. Mr. Steinberg cannot now claim that the interest rate is unconscionable in light of the legal advice he received when obtaining the loans and based upon his signed acknowledgment on two different occasions where he acknowledged the quantum of interest that would accrue with time. ....
[10] On appeal, BridgePoint challenges the reduction of interest. We agree that the reduction cannot stand.
[11] Once the motion judge found that the loan transactions were not unconscionable, there was no basis to vary the interest owing. UTRA, which was the only basis upon which Mr. Steinberg relied on the motion, does not give the court the power to vary interest charges without a finding that the transaction is “harsh and unconscionable”.
[12] Mr. Steinberg argued, on appeal, that the reduction could be justified based on the equitable doctrine of unconscionability described in Uber Technologies Inc. v. Heller, 2020 SCC 16, [2020] S.C.R. 118. Leaving aside the issue of how that doctrine applies to loan agreements, which are the subject of a specific statutory regime in UTRA, there are two problems with this argument. First, that was not the basis on which Mr. Steinberg brought his motion. Second, the doctrine requires a finding of unconscionability, which the motion judge did not make. Her finding that the transactions were not unconscionable, because Mr. Steinberg had independent legal representation and signed acknowledgments confirming his understanding of how interest would accrue, was supported by the record and is entitled to deference in this court.[4]
[13] ... Courts are not generally empowered to rewrite contracts or relieve parties against the consequences of an improvident bargain: Pacific National Investments Ltd. v. Victoria (City), 2004 SCC 75, [2004] 3 S.C.R. 575, at para. 31.
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