Marcotte, Rancourt, Cournoyer

Appeal from a judgment of the Superior Court dismissing an application for reimbursement of a loan of money and ordering the restitution of prestations. Allowed in part.

In July 2017, the appellant granted the respondents a $2,750,000 loan with an annual interest rate of 15%. In November 2017, the parties entered into a loan modification agreement raising the interest rate to 58.64% until the loan was paid in full. In February 2018, the respondents signed a promissory note for an additional amount of $5,000 a day until the loan was repaid in full.

In August 2018, the appellant filed an originating application to exercise its hypothecary rights. In its pleadings, it never raised the promissory note. Moreover, in response to the respondents’ allegations of a usurious loan agreement, the appellant waived the 58.64% interest rate set out in the modification agreement and claimed only the annual interest rate of 15% set out in the loan agreement. The trial judge concluded that the loan agreement, loan modification agreement, and the promissory note formed a whole within the meaning of art. 1438 of the Civil Code of Québec (1991, c. 64) (C.C.Q.) and that they should be declared null and void because the resultant annual interest rate was 125% and it violated s. 347 of the Criminal Code (R.S.C. 1985, c. C-46) (Cr.C.).

Even if we accept the appellant’s proposal to consider the promissory note separately from the loan agreement, it nevertheless contains a criminal interest rate that violates s. 347 Cr.C. It is an offence under this provision to “enter into an agreement or arrangement to receive interest at a criminal rate or receive a payment or partial payment of interest at a criminal rate”. Moreover, the fact that the appellant did not demand payment of the amounts set out in the promissory note is irrelevant to the determination of the legality of the interest rate, because the question of whether an agreement or arrangement falls within the offence of "entering into" under s. 347 Cr.C. is assessed on the date on which the transaction is carried out, i.e., when the promissory note was entered into, in February 2018.

There is no reason, however, to declare the loan agreement, which was originally entered into in good faith, with no malicious intent and in a perfectly lawful manner by the parties, null, especially when art. 1438 C.C.Q. required in this case scrutiny of the inseverability of the acts, both objectively and subjectively, which the judge did not do. That exercise would have led him to find that the object of the promissory note was different from that of the loan agreement and that this prevented him from concluding that they were indivisible. Thus, the judge could not hold that the promissory note was an indivisible whole with the loan agreement and declare the latter null ab initio. His conclusion is also a departure from the search for the remedy appropriate in the circumstances of the case advocated in Transport North American Express Inc. v. New Solutions Financial Corp. (S.C. Can., 2004-02-12), 2004 SCC 7, SOQUIJ AZ-50219754, J.E. 2004-446, [2004] 1 S.C.R. 249. The loan agreement must therefore be reinstated to recognize the appellant’s right to the repayment of the loaned capital, with interest calculated at the annual rate of 15%. 

Text of the decision: http://citoyens.soquij.qc.ca