Alleghe Mortgage Fund Ltd. v. Winona Park Towns Ltd., 2024 ONSC 5321

COURT FILE NO.: CV-23-00695541-0000 DATE: 20240926

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Alleghe Mortgage Fund Ltd. Plaintiff – and – Winona Park Towns Ltd. and Pedram Talebzadeh Defendants

Counsel: Robert B. MacDonald, for the plaintiff Christopher Somerville and Jeanette Saliba, for the defendants

AND BETWEEN:

Winona Park Towns Ltd. Plaintiff by counterclaim – and – Alleghe Mortgage Fund Ltd. and 2819152 Ontario Corporation Defendant to the counterclaim

Counsel: Christopher Somerville and Jeanette Saliba, for the plaintiff by counterclaim Robert B. MacDonald, for the defendant to the counterclaim

HEARD: September 13, 2024

Robert Centa J.

[1] On August 22, 2022, Alleghe Mortgage Fund Ltd. loaned $2 million to Winona Park Town Ltd. so that the borrower could use that money to pay the soft costs of a building project, including building permit fees payable to the City of Toronto. The lender agreed to loan this money to the borrower for seven months at 12 percent per annum for the first six months and 18 percent per annum from the seventh month until payment and after default and maturity. The lender obtained an impressive amount of security for its loan:

a. the borrower and its principal, Pedram Talebzadeh, signed a promissory note for $2 million plus any accrued interest;

b. the borrower granted a second mortgage on the Winona property to the lender that contained standard charge terms granting the lender a wide range of rights and remedies;

c. the borrower and Mr. Talebzadeh signed absolute and unconditional guarantees of all amounts owing under the loan;

d. the borrower and Mr. Talebzadeh granted a general security interest to the borrower in a wide range of accounts receivable, inventory, equipment, and intangibles;

e. the borrower and Mr. Talebzadeh signed an assignment of material documents in favour of the lender; and

f. the borrower and Mr. Talebzadeh signed an irrevocable direction to the City of Toronto to pay out the money held by the City on account of certain development charges and fees paid on account of the borrower’s intended development of the Winona property.

[2] On November 23, 2022, the borrower breached its obligations to the lender when it failed to make the contractually obligated interest payment to the lender. The loan matured on March 23, 2023. Since November 23, 2022, neither the borrower nor Mr. Talebzadeh have paid one penny to the lender.

[3] The lender delivered a notice of sale under mortgage and a notice of intention to enforce security on January 17, 2023. The lender commenced this action on March 1, 2023. The borrower and Mr. Talebzadeh filed a statement of defence and counterclaim. Each of the parties has now brought a motion for summary judgment.

[4] The lender seeks judgment for the amounts owed to it by the borrower and Mr. Talebzadeh and leave to issue a writ of possession for the Winona property. This relief would allow the lender to enforce its mortgage security and to complete the process of selling the Winona property.

[5] The borrower and Mr. Talebzadeh seek an order:

a. suspending the lender’s rights to enforce its mortgage under subsections 22(3) or 23(1) of the Mortgages Act, R.S.O. 1990, c. M.40, and setting aside the notice of sale by the lender as a breach of the lender’s duty to exercise its discretion reasonably and in good faith, and pursuant to s. 31 of the Mortgages Act;

b. declaring that the borrower may redeem the lender’s mortgage by paying to the lender the amount due to it under the mortgage calculated as of November 23, 2022, and directing a reference to an associate judge to determine the amount of the redemption payment, in which the funds advanced to the City of Toronto for the building permits shall be credited towards the total amount owing; and

c. dismissing the lender’s action under s. 23(1)(a) of the Mortgages Act.

[6] In the alternative, the borrower and Mr. Talebzadeh submit that all claims should proceed to trial.

[7] In my view, based on the record before me there are no genuine issues that require a trial. Although the borrower and Mr. Talebzadeh have raised a significant number of issues, none of them require a trial or have any merit. They have also never tendered the amounts currently payable or provided any evidence that they are capable of paying the amounts they owe to the lender.

[8] The lender is entitled to judgment against the borrower and Mr. Talebzadeh for the amounts owing, to proceed with its sale under the mortgage, leave to issue a writ of possession, and an order dismissing the counterclaims of the borrower and Mr. Talebzadeh.

Principles of Summary Judgment

[9] Summary judgment is an important tool for enhancing access to justice where it provides a fair process that results in a just adjudication of disputes. [1] Used properly, it can achieve proportionate, timely, and cost-effective adjudication. On a motion for summary judgment, I am to:

a. determine if there is a genuine issue requiring a trial based only on the evidence before me, without using the enhanced fact-finding powers under rule 20.04(2.1) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194;

b. if there appears to be a genuine issue requiring a trial, determine if the need for a trial could be avoided by using the enhanced powers under:

i. rule 20.04(2.1), which allows me to weigh evidence, evaluate the credibility of a deponent, and draw any reasonable inference from the evidence; and

ii. under rule 20.04(2.2), which allows me to order that oral evidence be presented by one or more parties. [2]

[10] In para. 66 of Hryniak v. Mauldin, 2014 SCC 7, the Supreme Court of Canada emphasized that I must focus on whether the evidence before me permits a fair and just adjudication of the dispute, and cautioned that judges should not use the enhanced powers where their use would be against the interests of justice:

On a motion for summary judgment under rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interest of justice. Their use will not be against the interest of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole.

[11] On a motion for summary judgment, the court assumes that the parties have each advanced their best case and that the record contains all the evidence that would be led at trial. Each party is obliged to put their best foot forward. They are not permitted to sit back and suggest that they would call additional evidence at trial. [3]

No Genuine Issues Requiring a Trial

[12] In my view, there are no genuine issues requiring a trial. The parties agree that:

a. the mortgage and all of the other security documents are valid;

b. the mortgage has been in default since November 23, 2022, and the borrower has made no payments since that time;

c. the loan matured on March 23, 2023, and the borrower has not repaid the loan in whole or in part; and

d. the Winona property is currently unoccupied.

[13] These facts go a very long way towards entitling the lender to the summary judgment on its claim and an order granting the relief it seeks. [4] The summary judgment process is tailor-made to enforce liquidated claims by creditors against debtors and guarantors. [5]

[14] I will address the particular issues raised by the submissions of the borrower and Mr. Talebzadeh below. By way of overview, none of the issues require trial. The borrower and Mr. Talebzadeh essentially seek an injunction to prevent the sale of the Winona property. The evidence is overwhelming that they are not entitled to the relief they seek in this proceeding.

A. The amount of the loan advanced

[15] At oral argument, the borrower and Mr. Talebzadeh claimed that the amount of the funds advanced by the lender was in dispute. This was the first time they raised this argument, which is not found in their statement of defence and counterclaim, their evidence, or in their factum.

[16] The borrower and Mr. Talebzadeh submit that the letter of credit signed by the parties required the lender to advance the $2 million to the borrower. In fact, they submit, the money was paid directly to the City of Toronto for fees, including those related to building permits. Therefore, the argument continues, the lender is in breach of the letter of commitment and there are genuine issues for trial arising from that breach. There is no merit to this submission.

[17] The letter of commitment provided for a loan of $2 million. The parties agreed on the purpose of the loan, which was included in the letter:

Purpose: Soft costs of the project including fees to release building permits.

[18] In their statement of defence and counterclaim, the borrower and Mr. Talebzadeh admitted that:

The Defendant mortgaged the property hereinafter described for a term of seven (7) months securing a sum of two million dollars ($2,000,000.00) and interest on that sum at the rate of 12.00% per annum for the first six (6) months of the mortgage term and at 18.00% per annum (the "Overholding Rate") for every month thereafter, which incorporate by reference Standard Charge Terms 200033.

[19] They also pleaded that “in exchange for the registration of [that mortgage] the [lender] agreed to lend funds to [the borrower] for the specific purpose of paying building permit fees to the City of Toronto.” The borrower then pleaded as follows:

21. In August 2022, Alleghe and Winona began discussions regarding a mortgage loan from Alleghe to Winona for the specific and discrete purpose of financing Winona's development charge and levy payments to the City of Toronto for obtaining building permits for the Development (the "Building Permits").

22. On or about August 22, 2022, Alleghe and Winona executed a mortgage commitment letter, guaranteed by the defendant Dr. Pedram Talebzadeh, whereby Alleghe loaned Winona $2.000,000 for the specific and discrete purpose of enabling Winona to make the payments required to obtain the Building Permits. ..

23. Alleghe advanced the Mortgage funds on Winona's behalf to the City to obtain the Building Permits, which the City issued on or about August 30, 2022. [6]

[20] The lender and Mr. Talebzadeh cannot now suggest that the lender breached the letter of commitment by transferring the funds to the City of Toronto for the exact purpose the parties had agreed upon. Whether the money passed momentarily through a bank account controlled by the borrower is of no moment. The parties agreed on the amount of the loan, the purpose of the loan, and the use to which the funds would be put. All parties agreed that the lender would advance funds to the City of Toronto so that the borrower could obtain the building permits necessary for the development of the Winona property. Those funds were clearly for the benefit of the lender who could not obtain the building permits without the $2 million from the lender. The borrower and Mr. Talebzadeh agree that the lender advanced the funds, net of applicable fees, to the City of Toronto.

[21] There are no issues requiring a trial regarding the flow of funds or the amount of the loan proceeds.

B. The discharge of the previous first mortgage

[22] The borrower and Mr. Talebzadeh object to the lender including in its mortgage debt the amount the lender paid to 2819151 Ontario Corp. to discharge the previously registered first mortgage on the Winona property. They submit that the discharge statement and notice of sale should not include this amount because the lender acted in bad faith. This submission does not raise a genuine issue requiring a trial.

[23] Between June 2, 2023, and July 14, 2023, the lender advanced $6.158 million to 2819151 Ontario Corp. to discharge a first mortgage against the Winona Property. The lender relied on s. 8 of the standard charge terms in the mortgage it held. [7] Section 8 permits the lender to pay out any other encumbrance on title to the property. [8] The section also stipulates that any money paid by the lender to pay out another encumbrance will be added to the principal of the lender’s charge, at the interest rate provided for in the charge. It is important to note that the borrower and Mr. Talebzadeh agreed to include this term in the mortgage. There is nothing intrinsically unfair about the clause or its operation.

[24] The borrower and Mr. Talebzadeh submit that the borrower took too long to have the first mortgage discharged and that this is evidence of the lender’s bad faith, which disentitles them to sell the Winona property. I do not accept this submission. The original first charge has now been discharged. The lender’s representative confirmed on cross-examination that there were disputes with the original holder of the first mortgage about the exact amounts required to discharge that instrument, and once those disputes were resolved, the original mortgage was removed from title. While there may have been a dispute between those parties, that does nothing to assist the borrower or Mr. Talebzadeh.

[25] I reject the submission of the borrower and Mr. Talebzadeh that the lender’s decision to pay out the first mortgage is evidence that the lender did not act reasonably and in good faith. The lender simply exercised an explicit contractual right agreed to by the borrower.

[26] Neither the lender’s decision to pay out the first mortgagee nor the timing of the removal of the first charge from title create a genuine issue requiring a trial regarding whether the lender acted in good faith. The inclusion of this amount in the debt owed to the lender is appropriate and is not an impediment to the lender selling the Winona property to recover the amounts it is owed.

C. The notice of sale

[27] The borrower and Mr. Talebzadeh submit that the notice of sale should be set aside. The lender has satisfied me that there is no genuine issue requiring a trial regarding the notice of sale and that it should not be set aside.

[28] A notice of sale will not be held inoperative simply by reason of minor irregularities, as long as it meets the purpose for which it is required. [9] The notice of sale must accurately set out the amounts due in order for the mortgagor or subsequent encumbrancers to intelligently assess their position with respect to redemption of the mortgage. [10]

[29] As I will set out below, in my view, the notice of sale set out the amounts owing with sufficient precision and accuracy to allow the borrower to assess its position.

[30] The primary objection of the borrower and Mr. Talebzadeh to the lender’s calculation of the mortgage debt is that the lender did not credit the funds held by the City of Toronto for the building permits against the money going to the lender. The Mortgages Act provides them with several options to address their concerns. [11] However, as the lender points out, each of the available options required the borrower and Mr. Talebzadeh to tender the amounts due under the mortgage, which they have not done. Indeed, not only have they not tendered the funds, there is no evidence in the record that suggests they would be able to tender the necessary funds.

Funds held by the City of Toronto

[31] The borrower and Mr. Talebzadeh submit that the notice of sale should be set aside as inaccurate because the lender was obliged to first exercise its rights to have the City of Toronto cancel the building permits and return the funds that had been advanced to obtain those building permits. I do not accept this argument for three reasons.

[32] First, there is no provision in any of the loan or security documents that required the lender to realize on its security in any particular order. The borrower could have attempted to bargain with the lender over what steps the lender was required to take before it could issue a notice of sale under the mortgage. Instead, it signed a covenant agreeing to pay the lender the amounts owing “without any deduction or abatement.” Indeed, the text and structure of the loan and security agreements strongly support the conclusion that the lender was at liberty to realize on any of its remedies, which were cumulative and not to the exclusion of any other remedy. It is not for me to re-write the bargain between the creditor and the debtor after the default of the latter.

[33] Second, I do not accept the submission that the fact that the lender required the borrower and Mr. Talebzadeh to sign the “Direction re: Development Charges” obliged the lender to exercise this security. I do not accept that the lender obtained this direction for the purpose of repaying the mortgage in case of default. Instead, I accept that this direction gave the lender the option, not the obligation, to obtain the return of the funds advanced to the City for the building permits. For completeness, and although I do not think it is necessary to decide this issue, I do not accept Mr. Talebzadeh’s evidence that when he attempted to contact the City to get them to release the funds to him personally, he was doing so in order to give the funds to the lender. The fact that he took these steps after the commencement of this proceeding, did so behind the back of the lender and, once found out, did not immediately offer this explanation, strongly suggests that he was acting for less altruistic purposes.

[34] Third, neither the duty of good faith performance of contractual duties nor anything in the text of the loan or security documents required the lender to subordinate its interests to those of the lender in the event of a default. [12] The lender was free to act to maximize its chances of recovering the amounts owed to it by the borrower after the default. If the lender concluded that it preferred to sell the land with the building permits attached, it was allowed to do so.

[35] The lender and the borrower submit that “these motions come down to one fundamental issue: whether the lender exercised its unique discretionary powers under the mortgage agreement reasonably and in good faith.” Assuming for the moment that this is the correct question, I am satisfied by the evidence on this motion that the lender acted reasonably and did not breach any duties of good faith owed to the borrower by not cancelling the building permits associated with the development or crediting that sum against the debts owed by the borrower and Mr. Talebzadeh.

[36] I do not accept the submission of the borrower and Mr. Talebzadeh that there is a novel issue regarding whether s. 31 of the Mortgages Act requires a lender to credit deposits in giving the notice of sale. I see no reason in law or policy to compel the lender to obtain the funds from the City or credit that amount towards the indebtedness of the borrower. I see nothing in the text, context, and purpose of s. 31 of the Mortgages Act that suggests such a requirement.

[37] The borrower submits that the lender failed to deliver an accurate discharge statement as required by s. 22 of the Mortgages Act and an invalid notice of sale because it failed to account for the permit funds. For the reasons set out above, I disagree. The discharge statement and the notice of sale did not need to credit the amount of money held by the City with respect to the building permits. I reject the borrower and Mr. Talebdzadeh’s submission that I should declare that the notice of sale is invalid pursuant to s. 31 of the Mortgages Act, or that this creates a genuine issue for trial.

Section 36 of the Mortgages Act

[38] The borrower and Mr. Talebzadeh submit that the notice of sale should be set aside pursuant to s. 36 of the Mortgages Act. I disagree. Section 36 of the Mortgages Act provides as follows:

36. Where a notice has been given in professed compliance with this Part and, where applicable, with Part II, the title of the purchaser is not liable to be impeached on the ground that the provisions of this Part or, where applicable, Part II respecting default and the provisions of this Part respecting notice, have not been complied with, but any person damnified thereby has a remedy against the person exercising the power of sale.

[39] On its face, s. 36 protects purchasers who have purchased property under powers of sale, not debtors who are having their properties sold under power of sale. Section 36 poses no impediment to the lender selling the Winona property under the notice of sale it issued.

The demand for payment

[40] The borrower and Mr. Talebzadeh submit that the lender failed to make a demand for payment prior to issuing the notice of sale. They submit that this disentitles the lender from proceeding with the sale. This submission has no merit because the notice of sale is a demand for payment on both a mortgagor and a guarantor (if served), as was the case here. [13] Moreover, the loan was not a demand loan and has now matured without payment. This issue does not raise a genuine issue for trial.

Section 17 interest

[41] The borrower and Mr. Talebzadeh submit that the lender has demonstrated bad faith by including a claim for interest pursuant to s. 17 of the Mortgages Act, which disentitles the lender from proceeding with the notice of sale.

[42] At the hearing of the motions, counsel for the lender advised that it was abandoning any claim to the s. 17 interest. For that reason, I need not decide whether in the circumstances of this case, the lender would be entitled to charge the three months’ interest.

[43] In any event, and assuming without deciding that the lender was not entitled to charge s. 17 interest, this conduct is not evidence of bad faith. I was not taken to any evidence demonstrating that the borrower and Mr. Talebzadeh objected specifically to the inclusion of s. 17 interest in the discharge statement and the notice of sale. Perhaps more importantly, this amount was significantly smaller than the $1.7 million held by the City in connection with the property tax arrears. There is no evidence in the record, and no logical reason to believe, that the elimination of the $60,000 in s. 17 interest would have made any difference to the lender’s ability to discharge the $2 million principal mortgage debt, or the interest that had accrued, much less the amount to take out the first mortgage.

D. The amount owing under the mortgage

[44] The borrower and Mr. Talebzadeh submit that the lender is only entitled to repayment of the amount that was owing under the mortgage on November 23, 2022, not the additional amounts added to the debt since that time, including accumulated interest and the take-out of the previous first mortgage. This submission does not raise a genuine issue requiring a trial.

[45] Neither the contracts between the parties, nor the Mortgages Act compel this result. The covenants under the mortgage make clear that the borrower is not entitled to redeem the mortgage by paying the amount that was due 22 months ago. The borrower agreed that interest would accrue, and that the money expended by the lender to discharge the mortgage would be added to the principal.

[46] The borrower has the right to redeem the mortgage unless and until the lender enters into an agreement of purchase and sale. However, it must pay the entire amount owing, not a fictional amount calculated at a date of its choosing without regard to the terms of the contracts it signed. For this reason, I dismiss that portion of the borrower’s claim seeking a declaration that it may redeem the mortgage by paying the amount due as of November 23, 2022.

E. The additional financing from MarshallZehr

[47] The borrower and Mr. Talebzadeh submit that the lender “led them to believe” that the lender would advance additional funds to finance a Tarion deposit but then declined to do so. They also submit that the lender did not provide a mortgage discharge statement promptly when asked to do so. The borrower and Mr. Talebzadeh submit that these events led to MarshallZehr terminating its commitment letter to provide construction funding. I note that the borrower and Mr. Talebzadeh did not file an affidavit from a representative of MarshallZehr to confirm their version of events. I am satisfied that there is no genuine issue for trial regarding the unsuccessful MarshallZehr financing.

[48] First, the borrower and Mr. Talebzadeh agree that the lender was under no obligation to advance any additional funds. They also agree that there is no written or oral representation that the lender agreed to advance additional funds. Indeed, the emails exchanged between the parties make clear that the lender made no such promise. Even if the lender had discussions about the possibility of advancing further money to the borrower, those discussions never led to an agreement or a representation on which the borrower could reasonably rely.

[49] Second, the borrower and Mr. Talebzadeh concede that the lender provided the discharge statement within the 15-day time limit required by s. 22(3) of the Mortgages Act. Their complaint appears to be that the lender did not move more quickly to provide the discharge statement on an expedited schedule. In my view, the lender was under no obligation to do so. The obligation fell on the borrower to request the discharge certificate early enough to meet its needs.

[50] Moreover, I observe that the letter from MarshallZehr explaining its decision to terminate loan commitment makes no reference to either of the issues raised by the borrower and Mr. Talebzadeh. In its letter dated October 26, 2022, MarshallZehr explained its decision to terminate the lending commitment letter as follows:

Please accept this letter as notice that MarshallZehr is hereby terminating the Commitment Letter effective immediately.

In this regard, we hereby confirm that the Borrower is unable to meet the Initial Funding Conditions set out in Article B, Section 1 of the Commitment Letter, including without limitation, the conditions relating to MarshallZehr's review and satisfaction of the (i) Project Budget (ii) terms of the amendment to the Permitted Encumbrance in favour of Moshe Eichorn and Winona Park Developments Limited and (iii) Borrower's non-compliance with the registration requirements of the Ontario New Home Warranties Plan Act (Ontario).

In accordance with Appendix "G" of the Commitment Letter, the Good Faith Deposit is non-refundable to the Borrower and fully earned by MarshallZehr. Accordingly, the Good Faith Deposit will be retained by MarshallZehr in accordance with the provisions thereof. The Borrower shall be responsible for the Lender's legal and other professional fees and out of pocket expenses in connection with the Loan, per the attached.

[51] Even if MarshallZehr’s decision to terminate its funding commitment caused the borrower to default on the loan, that does not mean the lender loses its rights under the mortgage.

[52] I reject the submission of the borrower and Mr. Talebzadeh that the lender’s conduct is evidence that it did not act reasonably or in the good faith exercise of its discretion under the loan or security documents.

F. Objections to the sale process

[53] The lender and Mr. Talebzadeh object to several features of the lender’s sale process. To summarize, they submit that the lender’s process has led to the property being listed at too low a price.

[54] In my view, none of these submissions are relevant to the motions before me today. None of these submissions are relevant to whether the lender has the right to sell the property following the borrower’s default.

[55] If the lender is able to sell the property, and if the borrower and Mr. Talebzadeh believe the sale price is too low, they may have a claim for damages. I do not see, however, how these submissions could support what would amount to an injunction to prevent the lender from continuing with the sale process.

G. Conclusion

[56] In my view, the borrower and Mr. Talebzadeh have not raised any genuine issues requiring a trial. In my view, the record before me is more than sufficient to decide the issues they raise in a just and fair manner. I find that there is no basis to suspend the lender’s rights to enforce its mortgage under s. 22(3) or 23(1) of the Mortgages Act. I reject their submission that the lender breached any duty that it was under to exercise its discretion reasonably and in good faith pursuant to s. 31 of the Mortgages Act.

[57] In addition, I dismiss their request for a declaration that the borrower is either entitled to redeem the lender’s mortgage on the basis of the debt as it stood on November 23, 2022, or to have the funds advanced to the City of Toronto to obtain building permits credited to the total amount owing.

[58] I grant summary judgment and dismiss the counterclaim of the borrower and Mr. Talebzadeh.

[59] I grant summary judgment in favour of the lender on the terms set out in paragraphs 1 and 2 of the draft order uploaded to Case Center at page A1421.

The Writ of Possession

[60] There is no dispute that the land is vacant. There are no buildings or structures on the land. No one lives there. I am satisfied that all persons in actual possession of the land have received sufficient notice of this proceeding such that they could have applied to this court for relief. In the circumstances, and pursuant to rule 60.10 of the Rules of Civil Procedure, I grant leave to the lender to issue a writ of possession.

[61] I grant summary judgment in favour of the lender on the terms set out in paragraphs 3 and 4 of the draft order uploaded to Case Center at page A1421.

Costs

[62] If the parties are not able to resolve costs of this action, the lender may email its costs submission of no more than three double-spaced pages to my judicial assistant on or before October 3, 2024. The borrower and Mr. Talebzadeh may deliver their responding submission of no more than three double-spaced pages on or before October 10, 2024. No reply submissions are to be delivered without leave.

Robert Centa J.

Released: September 26, 2024