DATE: 20031121

DOCKET: C37092

COURT OF APPEAL FOR ONTARIO

LASKIN, GOUDGE AND FELDMAN JJ.A.

B E T W E E N:

MAPLE VALLEY ACRES LIMITED

Kevin R. Aalto and Patrick Eichenberg for the appellant

Plaintiff (Respondent)

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CANADIAN IMPERIAL BANK OF COMMERCE AND KEYSER, MASON BALL

Thomas W. G. Pratt for the respondent Maple Valley

Defendants (Appellant) (Respondent by Cross-Appeal)

Kirk F. Stevens and Kirk Boggs for the respondent

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Keyser, Mason, Ball

620923 ONTARIO INC., ROBERT MACKAY, KALMAN CZEGLEDY, MICHAEL BASS, J.F.X. O’CONNELL, GARY S. WALTERS and FRASER & BEATTY

Timothy P. D. Bates for the respondents Walters and Fraser & Beatty

Third Parties (Respondents)

(Appellants by Cross-Appeal)

Heard: October 2, 2003

On appeal from the judgment of Justice Ellen M. Macdonald of the Superior Court of Justice dated September 7, 2001.

BY THE COURT:

[1] The Canadian Imperial Bank of Commerce (the Bank) appeals from the judgment of Ellen M. Macdonald J. setting aside the postponement agreements by which its mortgage moved ahead of the two mortgages held by Maple Valley Acres Limited (Maple Valley) and declaring that those two mortgages be restored to first and second priority status with the Bank’s mortgage reverting to third priority status.

[2] The trial judge based her decision on her finding that the postponement agreements were induced by a misrepresentation made to Maple Valley by a sub-agent for the Bank. Maple Valley was told that the Bank’s mortgages secured loans for construction purposes. This was not so, but if it had been, Maple Valley would have been legally obliged to postpone. The trial judge also found that the removal of the Maple Valley mortgage from its original first priority unjustly enriched the Bank without juristic justification and that this also entitled Maple Valley to the remedy she granted.

[3] Because of her main conclusion, the trial judge dismissed as moot the claim of Maple Valley for damages for negligence against Keyser, Mason, Ball (KMB), their solicitors. Any negligence by KMB in permitting its client to sign the postponement agreements was rendered harmless once those agreements were set aside. The Bank appeals from the trial judge’s order that it pay KMB’s costs by way of a Sanderson order.

[4] The trial judge also dismissed the third party claim for indemnity brought by the Bank against Fraser and Beatty and one of its lawyers, Gary Walters. They were the solicitors for 620923 Ontario Inc. (620923), the purchaser of the mortgaged lands and the mortgagor in each of the three mortgages. Mr. Walters, who made the misrepresentation, was found by the trial judge to have acted as a sub-agent for the Bank in securing the postponement agreements from Maple Valley. In dismissing the third party claim, the trial judge denied Fraser and Beatty and Mr. Walters their costs because of her view of Mr. Walters’ conduct. They cross-appeal from this costs order.

[5] Although counsel ably canvassed a number of matters in argument, in our view, the disposition of the Bank’s challenge to the declaration granted at trial turns on a single issue: when Mr. Walters made the misrepresentation, was he acting within the scope of his authority?

[6] There is no dispute that Mr. Walters made the misrepresentation to Maple Valley and that it caused Maple Valley to sign the postponement agreements. Moreover, Mr. Aalto for the Bank properly concedes that to a limited extent Mr. Walters was acting as agent for the Bank’s solicitor, Mr. Vukelich when he dealt with Maple Valley. Counsel says that Mr. Walters’ authority simply did not extend to making this misrepresentation but he fairly acknowledges that if he is wrong, Maple Valley is entitled to rescission of the postponement agreements because of the misrepresentation.

[7] The trial judge found that Mr. Vukelich asked Mr. Walters to obtain postponement agreements from Maple Valley in order that the Bank’s third mortgage could become a first mortgage. She also found that the misrepresentation by Mr. Walters was made in the course of this agency relationship with Mr. Vukelich and that the Bank is therefore bound by it. In other words Mr. Walters acted within the scope of his authority.

[8] The trial judge’s conclusion that Mr. Walters acted within the scope of his authority is a finding of fact for which there was ample evidence, including Mr. Vukelich’s testimony and his correspondence with Mr. Walters. Mr. Vukelich gave Mr. Walters the open-ended mandate to obtain the postponement agreements for the Bank. He did not limit his instructions in any way. It was open to the trial judge to conclude that Mr. Walters acted within the scope of his authority. There is no palpable error in the trial judge’s finding. Indeed, we agree with it.

[9] It is conceded that the rescission of the postponement agreements flows directly from this finding. We agree with the trial judge’s conclusion that they must be set aside and the first priority of the Maple Valley mortgage restored.

[10] We also agree with her that this relief is justified on the basis of unjust enrichment. It is not disputed that the switch in priorities constitutes an enrichment of the Bank and a deprivation to Maple Valley. The only question is whether there is a juridical reason for the Bank to maintain its enrichment.

[11] Since the postponement agreements must be set aside, they cannot provide the juridical justification for this, nor can the lending agreement between the Bank and 620923. While the lending agreement entitled the Bank to the security of a first mortgage, the Bank made this loan without observing it and knowing that its mortgage security would be in third place. The Bank cannot rely on an agreement it chooses not to observe as juridical justification.

[12] By restoring the proper order of priority to the three mortgages the trial judge provided fair redress of the unjust enrichment. The remedy cannot be said to be an error on the basis that it, in effect, overrides legally binding postponement agreements. There were none here. Moreover, while it is not necessary to decide, we are of the view that the appropriate remedy for unjust enrichment should be driven by what simple fairness requires, which may include the setting aside of a valid contract in appropriate circumstances.

[13] We also find no error in the order that the Bank pay the costs of KMB by way of a Sanderson order. It was proper for Maple Valley to sue both the Bank and KMB. The action against KMB was dismissed because Maple Valley was entirely successful against the Bank. In these circumstances, it was an appropriate exercise of discretion for the trial judge to require the Bank rather than Maple Valley to pay KMB’s costs.

[14] We would therefore dismiss the Bank’s appeal.

[15] We would, however, allow the cross-appeal. The trial judge deprived Fraser and Beatty of its costs because of the role of Mr. Walters in achieving the postponement agreements. In her reasons on costs, the trial judge implies that Mr. Walters’ professional conduct was somehow improper.

[16] In our view there is no basis for this view. While the trial judge says that it was open to her to draw an adverse inference against Fraser and Beatty and Mr. Walters because the latter did not testify at trial, she does not proceed to draw any such inference. Moreover, she says that the fact that he did not testify does not influence her discretion in awarding costs. While she appears not to have accepted Mr. Walters’ explanation made on discovery (and read in at trial) of the source of the information on which he based what turned out to be a misrepresentation, she makes no finding as to why he made it. Mr. Walters’ non-response to Mr. Rosenblatt cannot create an “appearance of complicity” in achieving the postponement agreements. There is simply no basis for that conclusion or the innuendo that goes with it.

[17] We therefore find no foundation for the trial judge’s apparent adverse conclusion about Mr. Walters’ conduct. This being so, there is no reason why Fraser and Beatty and Mr. Walters should be denied their party-and-party costs.

[18] We would therefore allow the cross-appeal.

[19] We invite the respondents to provide us with written submissions on the costs of the proceedings in this court within two weeks of the release of these reasons. The appellant shall then respond within a further week.

Released: November 21, 2003 “JL”

“John Laskin J.A.”

“S.T. Goudge J.A.”

“K. Feldman J.A.”