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A recent case serves as a cautionary tale for private lenders: The prompt discharge of a mortgage is not optional, and delay can give rise to liability for the borrower’s lost business opportunities.

This was the outcome in De Rita v. 1266078 Ontario Inc., where the Ontario Court of Appeal upheld a decision ordering a mortgage lender to pay over $150,000 in damages to a borrower for failing to discharge a mortgage in a timely manner – which delay ultimately caused the borrower to lose out on a lucrative real estate investment opportunity.

The borrower was a real estate investor named De Rita. He had repaid the mortgage over his commercial property held by the lender; however, the lender failed to discharge the mortgage promptly. This in turn put a cloud on the property’s title, and prevented De Rita from using the equity to finance the purchase of another nearby property at a very favourable price. By the time De Rita was able to get a court order discharging the mortgage, the lucrative second deal had fallen through.

De Rita sued the lender for damages, arguing that its delay cost him a valuable investment opportunity on that second deal. The trial judge granted the claim, and the lender appealed, unsuccessfully.

The lender had sought to resist liability on the basis that De Rita did not need the equity from the first property to buy the second one, because he had other financing options. The Court disagreed, noting the trial evidence to the contrary. It showed that the lender’s failure to arrange for a timely discharge, and De Rita’s resulting lack of access to funds, was the direct cause of him losing out on the second property deal.

Next, the lender was unconvincing on its argument that the losses on the second deal were unrelated to the mortgage, and thus too remote. The lender knew De Rita was a commercial real estate investor who relied on equity in one property to fund other purchases, all with a view to making a profit. It was reasonable to expect that if the lender impaired title, this could lead to lost business opportunities for De Rita. The Court clarified that the legal test for “remoteness” is about whether the type of loss was foreseeable, not whether the exact amount of the loss or specific loss was foreseeable.

De Rita was also blameless for not applying sooner for a court-ordered discharge, and potentially saving the lucrative second deal. He had acted reasonably: He advised the lender that its discharge delay was threatening his business opportunity, and gave it multiple chances to comply with its contractual obligations before taking legal steps. The lender could have simply “delivered the discharge and avoided the consequences about it which it now complains”, the court said. The lender, not the borrower, had the obligation to mitigate its own potential liability, but did not do so.

Finally, the Appeal Court also revisited the issue of damages, which are normally assessed as of the date of breach – which in this case, was the date when the discharge should have occurred. But the trial judge properly used a later date, being the one on which De Rita was actually able to re-enter the market after the missed deal. The law allows courts to use a different date if the plaintiff was not realistically in a position to mitigate their losses earlier, as was the case here.

The Court of Appeal dismissed the appeal and upheld De Rita’s $150,375 damages award. See De Rita v. 1266078 Ontario Inc., 2024 ONCA 46.