Zabanah v. Capital Direct Lending Corp., 2014 ONCA 872

Zabanah v. Capital Direct Lending Corp. et al.

[Indexed as: Zabanah v. Capital Direct Lending Corp.]

Ontario Reports

Court of Appeal for Ontario,

Blair, Watt and Lauwers JJ.A.

December 5, 2014

123 O.R. (3d) 350 | 2014 ONCA 872

Case Summary

Limitations — Discoverability — Plaintiff purchasing second mortgage from defendant in 2007 — Plaintiff discovering in April 2008 that mortgagor had fraudulently informed defendant that balance of first mortgage was $83,000 when in fact it exceeded $200,000 — House sold [page351] under power of sale — First mortgagee informing plaintiff in February 2011 that sale had yielded insufficient funds to pay off first mortgage and that there was nothing left for plaintiff — Plaintiff commencing action against defendant in November 2011 for damages for negligence and breach of contract — Plaintiff's claim against defendant discoverable in April 2008 — Applicable limitation period being two-year limitation period in Limitations Act, 2002 rather than ten-year limitation period in s. 43 of Real Property Limitations Act — Action statute-barred — Limitations Act, 2002, S.O. 2002 — Real Property Limitations Act, R.S.O. 1990, c. L.15, s. 43.

The plaintiff purchased a second mortgage on a home from the defendant in 2007 as an investment. The mortgagor had fraudulently informed the defendant that the balance of the first mortgage was about $83,000 when in fact it exceeded $200,000. The plaintiff became aware of the mortgagor's fraud in April 2008, but renewed the second mortgage in 2008, 2009 and 2010. The home was ultimately sold under power of sale. The first mortgagee informed the plaintiff in February 2011 that the sale had yielded insufficient funds to pay off the first mortgage, leaving nothing for the plaintiff. The plaintiff commenced an action against the defendant in November 2011 for damages for negligence, breach of contract and breach of fiduciary duty. The defendant's motion for summary judgment dismissing the action as statute-barred was granted. The plaintiff appealed.

Held, the appeal should be dismissed.

There was no basis to conclude that a solicitor-client relationship existed between the parties, or that their relationship gave rise to fiduciary responsibilities. The motion judge did not err in finding that the claim against the defendant was discoverable in April 2008. As the claim was based in negligence and contract, the applicable limitation period was the two-year limitation period in the Limitations Act, 2002, not the ten-year limitation period in s. 43 of the Real Property Limitations Act. The action was statute-barred.

Equitable Trust Co. v. Marsig (2012), 109 O.R. (3d) 561, [2012] O.J. No. 1605, 2012 ONCA 235, 16 R.P.R. (5th) 173, 289 O.A.C. 345, 348 D.L.R. (4th) 733, 214 A.C.W.S. (3d) 266, consd

Other cases referred to

Kowal v. Shyiak, [2012] O.J. No. 3420, 2012 ONCA 512, 296 O.A.C. 352, 13 C.L.R. (4th) 7

Statutes referred to

Limitations Act, 2002, S.O. 2002, c. 24, Sch. B [as am.]

Real Property Limitations Act, R.S.O. 1990, c. L.15 [as am.], s. 43 [as am.], (1) [as am.]

Rules and regulations referred to

Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 20

APPEAL from the order of Himel J., [2014] O.J. No. 1967, 2014 ONSC 2219 (S.C.J.) dismissing an action as statute-barred. [page352]

Antonio Conte, for appellant.

Anthony Cole and Kim T. Duong, for respondent Capital Direct Lending Corp.

Ted Evangelidis, for respondent Chicago Title Insurance Company.

1BY THE COURT: -- In 2007, the appellant purchased a second mortgage on a home from the respondent Capital Direct Lending Corp. as an investment. The mortgagor, Patricia Kabongo, had fraudulently informed Capital Direct that the balance of the first mortgage on her home was about $83,000, when in reality it exceeded $200,000. The appellant advanced about $83,000 to the mortgagor through the brokering effort of Capital Direct. Capital Direct bought title insurance on the second mortgage from the respondent Chicago Title Insurance Co., and assigned the insurance policy to the appellant when she purchased the mortgage.

2The appellant became aware of the mortgagor's fraud in early 2008, but renewed the second mortgage nonetheless in 2008, 2009 and 2010. The mortgagor made an assignment in bankruptcy in 2010. The first mortgagee advised the appellant in February 2011 that sale of the home under power of sale had yielded insufficient proceeds to pay off the first mortgage, leaving nothing for the appellant.

3The appellant issued the statement of claim on November 23, 2011, seeking damages for negligence, breach of contract and breach of fiduciary duty against Capital Direct, and an order that Chicago Title cover her loss under the title insurance policy. Capital Direct moved for summary judgment on the basis that the action was started after the two-year limitation period in the Limitations Act, 2002, S.O. 2002, c. 24, Sch. B. Chicago Title moved for summary judgment under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 on the basis that the appellant's title insurance policy specifically excluded recovery for any loss or damage that arose under the first mortgage. The motion judge granted summary judgment to both parties and dismissed the action against Capital Direct and Chicago Title.

4There are two issues on this appeal.

5The first is whether the appellant's loss was covered by the Chicago Title's insurance policy. The motion judge concluded that there was no genuine issue requiring a trial with respect to the claim under the policy. She found, at para. 83:

The clear language of the policy of insurance excludes the Maple Trust mortgage. The CTIC policy was intended to cover the validity and priority of the second mortgage (neither of which are challenged in this action) and [page353] cannot be construed as "investment" insurance. . . . CTIC had no role in giving the plaintiff assurances concerning the first mortgage before any advances of funds were made.

6The motion judge did not err in her interpretation of the policy and in dismissing the claim against Chicago Title.

7The second issue concerns the limitation period. The first sub-issue is when the claim against Capital Direct was discovered. The second sub-issue is whether the limitation period applicable to the claim against Capital Direct was two years, as prescribed by the Limitations Act, 2002, or ten years, as prescribed by the Real Property Limitations Act, R.S.O. 1990, c. L.15 ("RPLA").

8The appellant's discoverability argument was that she did not know who was responsible for her loss, injury or damage until 2011. In addressing this argument, the motion judge concluded that by April 2008, the appellant had the knowledge to infer that Capital Direct may have been the cause of her loss. She relied on this court's statement in Kowal v. Shyiak, [2012] O.J. No. 3420, 2012 ONCA 512, 13 C.L.R. (4th) 7, at para. 18, that:

Certainty of a defendant's responsibility for the act or omission that caused or contributed to the loss is not a requirement. It is enough to have prima facie grounds to infer that the acts or omissions were caused by the party or parties identified.

[Citation omitted]

9The motion judge found that the appellant must be taken to have discovered her claim on or before April 3, 2008. She found, at para. 56:

Zabanah knew, by February 27, 2008, that the second mortgage was not adequately secured because there was insufficient equity in the property. She knew that Capital Direct was the party who had failed to inform her of these facts. By April 3, 2008, her husband was told that Capital Direct or CTIC might be liable and the possibility of retaining legal counsel had been raised. Yet she chose to renew the mortgage with the borrower three times (2008, 2009, and 2010), without making any further inquiries about what was being done to protect the investment or whether the insurance policy would provide coverage for the known problem.

10These are factual findings and the appellant has not demonstrated that the motion judge made a palpable and overriding error. We agree with the motion judge that there is no basis to conclude that a solicitor-client relationship existed between the appellant and Capital Direct, or that their relationship gave rise to fiduciary responsibilities.

11An important factor in the motion judge's decision was her finding, at para. 13, that "[i]t is undisputed that, in February 2008, [page354] Capital Direct offered to reimburse Mr. Zabanah for up to $500 in fees if he chose to consult with or obtain a lawyer. Mr. Zabanah and the plaintiff did not consult with counsel."

12The appellant has not demonstrated that the motion judge made a palpable and overriding error with respect to when the appellant's cause of action against Capital Direct was discoverable.

13With respect to the applicable limitation period, the appellant submits that the motion judge erred in determining that the two-year limitation period prescribed by the Limitations Act, 2002 applies. Instead, she argues that s. 43 of the RPLA applies and sets a ten-year limitation period.

14The appellant relies on this court's decision in Equitable Trust Co. v. Marsig (2012), 109 O.R. (3d) 561, [2012] O.J. No. 1605, 2012 ONCA 235 for the proposition that the Limitations Act, 2002 deals with limitation periods for claims other than those affecting real property. She draws particular support from a few lines in Marsig, at paras. 27 and 30, where Perell J. (ad hoc) stated:

Put simply, the Limitations Act, 2002, was enacted to deal with limitation periods other than those affecting real property.

It has been the case historically that guarantees associated with land transactions have different limitation periods from guarantees associated with contract claims. Moreover, as already noted, it is my view that the Legislature intended that all limitation periods affecting land be governed by the Real Property Limitations Act.

15The appellant argues that the motion judge erred in concluding, at para. 46, that "Zabanah's claims do not affect any land", because the loss she suffered was the reduced value of her security interest in the land.

16We disagree. The appellant's claim against Capital Direct is based in negligence and in contract. The negligence relates to what Capital Direct is alleged to have done and to what its representative said to her, and assurances that were given following discovery of the fraud. The contract relates to the transaction whereby the appellant acquired the second mortgage in question. Neither of these claims constitutes an "action upon a covenant contained in an indenture of mortgage or any other instrument . . . to repay the whole or part of any money secured by a mortgage", which is what is required for the application of s. 43(1) of the RPLA.

17Marsig involved a guarantee covenant "contained in" a mortgage and is distinguishable on that basis: see Marsig, at paras. 19-21 and 23. The motion judge recognized this. Admittedly, the potential reach of the language in the last sentence in [page355] para. 30 of Marsig, "that the Legislature intended that all limitation periods affecting land be governed by the Real Property Limitations Act", is very broad. But, in our view, these words must be interpreted in the context of Perell J.'s immediately preceding point [at para. 30]: "It has been the case historically that guarantees associated with land transactions have different limitation periods from guarantees associated with contract claims."

18We agree with the motion judge's qualification [at para. 46] regarding s. 43 of the RPLA, that "[t]o the extent that language could be read as encompassing every action in which a mortgage or piece of real estate is in any way involved, I do not believe that it accurately describes the present state of the law". The motion judge's statement, at the end of para. 46, is unassailable, and makes all the difference: "Nothing that this court decides will affect any party's relationship to the second mortgage or the property . . . ." The appellant's action, as against Capital Direct, is simply a negligence and contract claim, and is not a claim to an interest in land, as in Marsig.

19Accordingly, we agree with the motion judge that the Limitations Act, 2002 governs the appellant's claims against Capital Direct, and the RPLA does not apply. The action against Capital Direct is time-barred and the motion judge correctly dismissed it.

20The appeal is dismissed, with costs payable by the appellant in the amount of $7,500 to Chicago Title, and $12,500 to Capital Direct, both all inclusive.