CITATION: Piechocki v. Costa, 2009 ONCA 88
DATE: 20090130
DOCKET: C49346
COURT OF APPEAL FOR ONTARIO
Laskin, Gillese and Rouleau JJ.A.
BETWEEN
Diana Piechocki
Applicant (Appellant)
and
Manuel Costa
Respondent (Respondent in Appeal)
Igor Ellyn, Q.C., for the appellant
Maxwell M. Steidman and Harold Rosenberg, for the respondent
Matthew Morden, for the intervener, David Paiva
Heard: January 15, 2009
On appeal from the order of Justice Theresa Maddalena of the Superior Court of Justice dated September 9, 2008.
Rouleau J.A.:
OVERVIEW
[1] The appellant defaulted on two mortgages over her home situated in Richmond Hill. After issuing a notice of power of sale, the mortgagee entered into an agreement of purchase and sale with the intervener, David Paiva. The appellant’s application to enjoin the sale was dismissed.
[2] The appellant has appealed to this court and argues that the respondent did not prove that a valid agreement of purchase and sale existed because the proof tendered in support did not comply with r. 39.01(5). The appellant further submits that even if the existence of a valid agreement of purchase and sale has been established, the sale has all of the earmarks of a sham and ought to be invalidated. For the reasons that follow, I would dismiss the appeal.
FACTS
[3] The property is a 22,000 sq. ft. home located on a half-acre lot in Richmond Hill. It was purchased in trust for the appellant in April 2007, for the purchase price of $2.9 million. Since that date, the appellant has spent approximately $130,000 in renovations, upgrades and repairs. The property is subject to two mortgages: a first mortgage to the Bank of Montreal initially in the amount of $1,537,500, and a second mortgage to the respondent in the amount of $910,000.
[4] In April 2008, the appellant defaulted under both mortgages and, thereafter, the respondent has made the payments necessary to keep the first mortgage in good standing. The respondent issued a notice of power of sale on May 16, 2008. As at that date, the amount owing on the second mortgage was $830,150. Pursuant to the notice of sale, the appellant had until June 25, 2008, to redeem.
[5] The respondent listed the property for sale on June 24, 2008. On July 17, 2008, the appellant advised the respondent that she had the necessary funds to redeem the mortgage. The respondent refused to accept payment claiming that the property had been sold. When it became apparent that the sale had been agreed to before the 35-day notice period under the power of sale had expired, the respondent agreed that the sale had to be cancelled and that the appellant could redeem.
[6] The parties agreed that the appellant would have until August 12, 2008, to redeem. The redemption amount was fixed at $870,101.16, including over $30,000 that the respondent paid to keep the first mortgage in good standing.
[7] On August 12, 2008, the appellant’s solicitor advised the respondent’s solicitor that there was a slight delay in the delivery of the funds necessary to pay out the mortgage but he assured him that the funds would be available by noon on August 13.
[8] At the end of the day on August 13, the appellant’s solicitor advised that a further delay was required as the appellant was still short $284,649.06.
[9] At 4:30 p.m. on August 13, the respondent entered into a binding agreement of purchase and sale for the property. The sale was made to a third party, David Paiva.
[10] The appellant’s application to enjoin the sale was dismissed on September 9, 2008. On September 18, 2008, the application judge’s order was stayed by this court pending appeal on condition that specific sums were to be paid into court.
ISSUES
[11] The appellant argues that the application judge erred in failing to find that:
There was no admissible evidence of a valid sale of the property; and
The sale should be invalidated because the respondent did not take steps to obtain the true market value of the property and the sale has all of the earmarks of a sham.
DISCUSSION
1. Was there evidence of a valid agreement of purchase and sale?
[12] The appellant submits that the existence of a valid agreement of purchase and sale was a contentious fact. As a result, the appellant argues, r. 39.01(5) requires that proof of this fact must be tendered by a person with direct knowledge. The respondent could not, therefore, rely on his solicitor’s affidavit deposing as to his information and belief that a valid agreement of purchase and sale had been entered into.
[13] In my view, this ground of appeal must fail. The evidence before the application judge on this point was not limited to the respondent’s solicitor’s affidavit. There was also the evidence of the purchaser, Paiva, who testified that he had purchased the property and had paid a $50,000 deposit. Paiva identified a signed copy of the agreement of purchase and sale as accepted by the respondent.
[14] Whether or not the evidence of the respondent’s solicitor regarding the sale was sufficient, the direct evidence of the purchaser to the effect that he had entered into a binding agreement of purchase and sale is clearly adequate to establish the sale. This is particularly so given that there is no evidence suggesting that the agreement was invalid or had not been properly executed by the parties.
2. Should the sale be invalidated?
[15] As a general rule, the court will not intervene in a mortgagee’s exercise of its power of sale. As set out in Walter M. Traub, ed., Falconbridge on Mortgages, 5th ed., looseleaf (Aurora, Ontario: Canada Law Book, 2008), at para. 35:120.20:
A mortgagee who acts in good faith and without fraud will not be prevented from proceeding with a power of sale, even where there may have been some breach by the mortgagee in its duty to take all reasonable precautions to obtain market value, unless tender is made of the entire mortgage amount. The courts will not interfere with the exercise of the power of sale in these circumstances where damages can adequately compensate the mortgagor.
If a mortgagee exercises the power of sale in good faith for the purpose of realizing its mortgage debt, without corruption or collusion with the purchaser, the court will not interfere, even though the sale may be very disadvantageous, unless the price is so low as in itself to be evidence of fraud. [Footnotes omitted.]
[16] Therefore, once it is determined that a valid agreement of purchase and sale has been entered into, a mortgagor seeking to set aside the sale must put forward evidence of fraud or bad faith and satisfy the court that the purchaser had knowledge or was put on inquiry.
[17] In the present case, the appellant has listed a series of facts that, in her view, lead to the conclusion that the purchase was a sham and that the purchaser is not bona fide. Other than seeking to deprive the appellant of any equity she may have remaining in the property, no motive was advanced or is apparent for perpetrating what, in effect, is alleged to be fraud. If it is simply an improvident sale, the mortgagor can later seek damages from the mortgagee.
[18] Central to the appellant’s case, therefore, is the suggestion that the sale was at such a gross undervalue as to constitute evidence of fraud on the mortgagor or, at the very least, as to raise a strong suspicion in that regard. In my view, there is no basis on this record for reaching such a conclusion.
a) Was the sale at an undervalue?
[19] The appellant bears the onus of showing that the sale was at such an undervalue as to amount to fraud or bad faith. She relies almost exclusively on the fact that the property was sold for $2.45 million when, about two months earlier, the respondent had listed the property for $2.91 million.
[20] While list price may be some indication of value, it is in fact only an indication of what the respondent thought the property should be initially offered at. The fact that the respondent never expected to receive an offer in that amount is apparent from the fact that he accepted an offer to purchase the property for $2.45 million only two days after listing it at $2.91 million.[^1]
[21] Significantly, however, the record contains better evidence of value. We know that the appellant purchased the property for $2.9 million in April 2007, and that she spent over $130,000 in renovations, upgrades and repairs to the property, bringing the total investment to $3.03 million. By April 2008, about a year after acquiring the property, she defaulted on the mortgages. Coincident with this, an appraisal for the property was obtained for mortgage purposes. It appraised the property at $2.7 million, indicating a range of values from $2.558 million to $2.785 million, well below the $3.03 million invested by the appellant.
[22] The appraisal suggests that either the appellant paid more than the market value for this property or that property prices in that area declined in value from April 2007, to April 2008. Whichever it is, given the economic situation that has developed over the summer and fall of 2008, it is reasonable to assume that an update of the appraisal would be more likely to show a continuing decline rather than an increase in value. The fact that the appellant has had difficulty obtaining refinancing of the existing mortgages is a further indication of the decline in value.[^2]
[23] The appraisal is also of interest in that it shows that, before being purchased by the appellant, the property had been listed on and off for the preceding two years. The $2.9 million paid by the appellant was almost half a million dollars less than the $3.388 million at which the property was listed in July 2005.
[24] From the perspective of the respondent, he has been carrying the mortgages since April 2008. The sale to Paiva was rapid and the price is only $108,000 below the low end of values shown in the appraisal obtained some four months earlier. The economic climate is such that the property may well be declining in value and the property’s sales history suggests that a quick sale at higher values will likely be difficult to secure. Viewed in this context, I do not consider a price of $2.45 million obtained on a power of sale so low as to raise concerns or impose on Paiva a duty to inquire.
[25] Having concluded that the appellant has failed to meet its onus of showing that the sale was at such an undervalue as to be evidence of fraud or bad faith, there is simply no explanation of why the respondent and Paiva would engage in an alleged fraud and, in my view, the appellant cannot succeed in this proceeding. For completeness, however, I will nonetheless address the appellant’s submission that the purchase has all of the earmarks of a sham.
b) Is the purchase a sham?
[26] The appellant maintains that the circumstances surrounding the purchase, including how the purchase was concluded, are suspect and the court should conclude that the purchase by Paiva is a sham. Some of the points raised by the appellant are that the purchaser:
(a) was called around noon and signed the agreement of purchase and sale that afternoon without negotiation and without having visited the property or having consulted his wife;
(b) was unable to adequately explain how the agent came to offer him the property;
(c) had lived in his current home for 20 years and had not yet listed his home for sale;
(d) could not remember details about the property;
(e) had no idea when the closing would take place;
(f) could not adequately explain how he would raise the purchase price given that he lived in a neighbourhood where houses on the same street as his were listed for sale at only 15-20% of the price he proposed to pay for the new property; and
(g) did not know if the cheque had cleared his account and did not have his deposit cheque certified despite the fact that a previous listing agreement had stipulated that deposit cheques should be certified.
[27] I would not give effect to this submission. The application judge considered all of these facts and concluded that, while some of the points raised are somewhat unusual, there was “no evidence of lack of bona fides that would require the intervention of this court … [and] no basis in the evidence upon which to set aside the agreement of purchase and sale.” Before us, the appellant has not been able to show any error in the application judge’s reasons nor has she established that the application judge’s conclusion on this point is unreasonable or unsupported by the evidence. In my view, the application judge’s findings in this regard are entitled to deference and ought not to be interfered with.
[28] In any event, while some of the circumstances raised by the appellant are somewhat curious or unusual, they cannot support a finding that the purchase was a sham.
[29] It is clear that Paiva was interested in the property. About two years earlier, Paiva viewed the property, both inside and out, and took his wife to view the outside of the property. It is a reasonable inference that Paiva was considering moving to that area or, at least, purchasing a property of that size and cost. In July 2005, the property was listed for $3.388 million and by February 2006, the list price had dropped to $2.99 million. Paiva would not, or could not, buy it then at that price but, given his apparent interest in the property, it is not at all surprising that two years later when he was offered the property at $2.45 million under a power of sale, he was prepared to act quickly. His offer was left open only until 5:00 p.m. that day, leaving little time to have the deposit cheque certified (although there is no indication that certification was a requirement) or to arrange a viewing of the property for himself or for his wife.
[30] As for Paiva’s inability to provide details concerning the subject property, this is a 22,000 sq. ft. home that he had visited some two years earlier. It is understandable, in my view, that he could not describe the number of bedrooms and bathrooms contained in a house of that size. In any event, as he explained in his testimony, he had purchased his current house without even having seen the inside.
[31] With respect to how the agent came to offer him the house, Paiva testified that he had had a number of social meetings with the agent prior to the purchase and, in the course of those meetings, had told the agent about houses he had seen, including the subject property. Paiva’s testimony on this point is, admittedly, somewhat confused because at other points in his testimony he says he did not discuss the subject property with the agent prior to August 13. English is not Paiva’s first language and the confusion may well stem from the way the various questions were asked. The distinction appears to be that, prior to the date of purchase, Paiva had done business with other real estate agents but had not discussed purchasing a property, including the subject property, through this agent. Up until August 13, his conversations had been strictly social.
[32] Concerning Paiva’s ability to pay, as I have noted earlier, it is reasonable to assume that because Paiva was viewing properties in that price range some two years earlier, Paiva was able to raise the necessary funds to purchase them. Further, as Paiva testified, he, together with his company, owned two residential properties, a commercial property and had over half a million dollars on deposit at various banks. Paiva has the resources necessary to fund the purchase of the subject property.
[33] Finally, in light of the fact that the property was sold by power of sale and because of the ongoing litigation, it is understandable that a specific closing date had not been agreed to and that Paiva chose not to list his current home for sale or take steps to obtain a mortgage.
[34] In conclusion on this point, therefore, I see no basis for finding that the purchase is a sham.
CONCLUSION
[35] For these reasons, I would dismiss the appellant’s appeal with costs to the respondent fixed at $11,000, inclusive of disbursements and GST. The intervener will neither be liable for nor be awarded costs.
“Paul Rouleau J.A.”
“I agree J.I. Laskin J.A.”
“I agree E.E. Gillese J.A.”
RELEASED: January 30, 2009
[^1]: The cancelled sale of the property took place on June 26, 2008, two days after the property was listed for sale on June 24, 2008.
[^2]: The appellant was not in funds on August 13. Despite the appellant’s statement that she was in funds when the application was heard, the documents filed in support suggest that she was still short by close to $30,000. Before this court, the appellant tendered evidence to the effect that she could raise the necessary funds. The commitments, however, provide among other things, that the property is to have an appraised value of not less than $2.7 million. It is unclear, at this point, whether the conditions in the letters of commitment can be met.