COURT OF APPEAL FOR ONTARIO

CITATION: Estates Associates Inc. v. 1645112 Ontario Ltd., 2012 ONCA 75

DATE: 20120206

DOCKET: C54242

Laskin, Sharpe and Juriansz JJ.A.

BETWEEN

Estates Associates Inc. and Musharaff Iqbal

Appellant

and

1645112 Ontario Ltd.; 1793411 Ontario Ltd.; Mr. Ronald McCowan;

Mr. Bryon C. Cohen; Remax (All Stars Realty Inc. Brokerage);

Reine Schickedanz

Respondents

Tolulope Adewumi, for the appellant

Jeffrey W. Kramer and S. Kuruganty, for the respondents 1645112 Ontario Ltd.; 1793411 Ontario Ltd.; and Mr. Ronald McCowan

Heard: January 13, 2012

On appeal from the judgment of Justice Kevin Whitaker of the Superior Court of Justice, dated July 26, 2011.

Juriansz J.A.:

[1] This is an appeal from the order of Whitaker J. granting summary judgment to the defendants 1645112 Ontario Ltd. (“164”), 1793411 Ontario Ltd. (“179”) and Ronald McCowan, three of the six defendants in an action arising out of a real estate transaction.

[2] The appellant, Estates Associates Inc. (“Estates”), was the vendor of the real estate. Musharraf Iqbal is the owner of the appellant. 164 was the purchaser, and on closing, 179. provided two mortgages to Estates as partial payment for the real estate. McCowan owns both 164 and 179. Estates sued 164, 179 and McCowan, as well as its real estate agency, real estate agent and solicitor. Only 164, 179 and McCowan moved for summary judgment. Their motion was successful. Estates appeals the decision of the motion judge. For the reasons below, I would grant the appeal.

A. Facts

[3] On January 15, 2009, Estates entered into an agreement to sell certain property to 164 for $1.4 million. The parties agreed that the purchase price would be paid, in part, by the assignment of two mortgages in the amount of $350,000 and $300,000 respectively on two properties owned by 179. At the time, those two properties were under agreements of purchase and sale between 179 as vendor and Daniel Barnabic as purchaser for $450,000 and $350,000 respectively.[^1]

[4] Estate did not have 179’s two properties appraised before accepting the assignment of the two mortgages as part of the purchase price. Subsequently, it turned out that the values of the two properties were well below the face values of the two mortgages. In the action, Estates alleges that the respondents fraudulently misrepresented the values of the two mortgaged properties thus, inducing Estates to accept the mortgages as part payment in the real estate transaction.

Decision of the motion judge

[5] The motion judge applied a four part test for fraudulent misrepresentation. I paraphrase the test he set out:

(i) the defendant made a false statement through words or conduct;

(ii) the defendant knew the statement was false or was reckless as to its truth;

(iii) the defendant made the representation with the intention that it would be acted upon by the plaintiff;

(iv) the plaintiff relied upon the statement; and suffered damage as a result.

[6] The motion judge concluded, “Having reviewed the detailed record which includes the discovery of Iqbal and the examination of [Estates’ solicitor], I cannot find (nor can Estates point to) any false representation made by [McCowan, 164 or 179] to Estates during the course of the transaction” (at para. 27).

[7] The motion judge observed that Iqbal was warned repeatedly by his solicitor to act with more prudence and diligence, to obtain appraisals and to visit the properties, and take other steps to be assured of the true value of the mortgages. The motion judge went on to find, without discussion, that none of the four elements of fraudulent misrepresentation was made out and granted summary judgment to McCowan and his two companies.

Analysis

[8] While the appellant may have failed to identify the relevant evidence before the motion judge, the record does contain evidence that McCowan made representations to Iqbal as to the value of the mortgaged properties. In addition, there is evidence in the record that could support a finding that McCowan’s conduct constitutes a representation as to the value of the mortgaged properties. The test applied by the motion judge recognizes that false representations can be by conduct.

[9] The theory of the plaintiff’s case, succinctly set out in paras. 30 and 31 of the statement of claim, is that McCowan made available to Estates the agreements of purchase and sale between 179 and Barnabic for the two mortgaged properties to convince Iqbal that the two properties were more valuable than they turned out to be. The plaintiff pleads “that these agreements are phony and fraudulent and it was intended to deceive the Plaintiff into agreeing to close the transactions if he has doubts regarding the value of the properties”.

[10] There is evidence in the record that McCowan arranged and attended the meeting between Iqbal and Barnabic; that at that meeting, Barnabic told Iqbal what he was agreeing to pay for the properties; that McCowan claimed he had renovated the properties and described to Iqbal in detail the renovations he claimed to have made; that those renovations, for example putting in a new kitchen and flooring, were not in fact made; that McCowan told Iqbal that the properties had “very good potential” and “that there is big chances for this and that this property will be a million dollar”, that he had sold the property “for the amount and over the mortgage price”, and that he had given the value of “maybe $500,000 for [one of the properties] and $300,000 [for the other property]”; that subsequent appraisals suggest that these figures are well above the properties’ market value; that Barnabic and McCowan had known each other for many years; that the transactions between Barnabic and McCowan did not close before the institution of Iqbal’s lawsuit; and that Barnabic and McCowan offered contradictory versions of why the closings were delayed.

[11] In my view, the foregoing evidence makes it a genuine issue for trial whether the transactions between McCowan and Barnabic were phony and intended to mislead Estates as to the value of the mortgages. A trial judge could infer from all the circumstances that McCowan, by words and/or conduct, made a representation that he knew was false; namely, that the mortgaged properties were of the values indicated in the agreements of purchase and sale with Barnabic.

[12] The other factors considered by the motion judge, i.e. that Iqbal did not heed the advice of his solicitor, and that Iqbal was not concerned about the value of the mortgaged properties, did not provide the motion judge with a basis to conclude that it was appropriate to grant summary judgment.

[13] First, whether Iqbal’s solicitor gave him wise advice cautioning him to be more careful in assuring himself about the value of the mortgaged properties has no logical bearing on whether McCowan made a false representation to Iqbal. In fact, Iqbal’s decision to proceed without following his solicitor’s advice could strengthen the inference that he relied on the representations of McCowan. In any event, Iqbal’s action against the solicitor is proceeding to trial. It will be for the trial judge to decide whether to believe the solicitor’s assertions that he gave such advice to Iqbal or Iqbal’s assertion that he did not.

[14] Second, in my view, the motion judge made too much of the evidence that Iqbal was not concerned with the value of the two mortgaged properties. Iqbal was asked, “The two properties, was it important to you to know exactly how much those properties were worth?” (emphasis added). Iqbal responded that he “was interested in the mortgage only.” Clearly, Iqbal was interested in the value of the two mortgages, and he made clear he expected they would provide him with income of $6,000 every month and repayment of the principle of $650,000 after two years. It is not possible to divorce the value of the mortgages from the value of the underlying real estate.

[15] The respondents argued on appeal that even if the discrepancies between the purchase prices and appraised values of the two mortgaged properties considered in all the circumstances supported an inference of a false representation of their value, the appellant suffered no damages. The respondents point out that the appellant, on receiving the mortgages in the transactions, immediately reassigned them. The appellant assigned one mortgage to McCowan as security for a $132,000 loan, and assigned the other mortgage to the real estate agent as security for commissions.

[16] I would not give effect to this argument. The appellant suffered damage by receiving mortgages of less value than the amount credited to the purchaser in the real estate transaction. The quantification of the damage he suffered in light of his subsequent dealing is a question for trial.

Conclusion

[17] I would allow the appeal, set aside the order of the motion judge and replace it with an order dismissing the respondents’ motion for summary judgment. The motion judge’s award of costs in the amount of $40,000 against the appellant and Iqbal is replaced by a costs award of $20,000 in the appellant’s favour. The appellant’s costs of the appeal are fixed in the amount of $12,500 including disbursements and applicable taxes.

“R.G. Juriansz J.A.”

“I agree John Laskin J.A.”

“I agree Robert J. Sharpe J.A.”

Released: February 6, 2012

[^1]: These are the facts found by the trial judge, which reflect the content of the affidavits, cross-examinations and discoveries of the parties. The agreements of sale in the record, however were between a company 1083018 Ontario Ltd. and Barnabic in trust for a company to be incorporated. Neither party provided any explanation.