Court File and Parties

COURT FILE NO.: CV-11-427310
DATE: 20120531
SUPERIOR COURT OF JUSTICE – ONTARIO

RE: TANFI LIMITED , Plaintiff

AND:

JAMES HAROLD FREDERICK SLADE and NANCY JEAN SLADE, Defendant

BEFORE: Stinson J.

COUNSEL:
Louis S. Vittas , for the Plaintiff

James Slade and Nancy Slade, in person

HEARD: April 4, 2012

ENDORSEMENT

[ 1 ] This is a motion for summary judgment against the defendants for the sums claimed in the statement of claim arising from default on two mortgages, and for an order for possession of the mortgaged property. The property is also the subject of a power of sale process commenced by the plaintiff as mortgagee. To date, according to counsel for the plaintiff, the mortgagee has not entered into an agreement of purchase and sale to sell the property pursuant to the notice of sale.

[ 2 ] The property in question is a five acre plot of land located in a semi-rural area near Claremont, Ontario. The purpose of the mortgage funding was to finance the construction of a house being built on the site by the defendants. Their intention was to live in the house and establish a tree nursery business on the surrounding acreage.

[ 3 ] On a motion for summary judgment by a plaintiff pursuant to rule 20.01(1), I am required to grant summary judgment if I am satisfied that there is no genuine issue requiring a trial with respect to the claim or the defence. For the reasons that follow, having considered the evidence submitted by the parties, I am not satisfied that there are no genuine issues that require a trial. The plaintiff's motion must therefore be dismissed.

[ 4 ] In light of the conclusion I have reached, with the necessary result that the lawsuit will continue, my comments regarding the issues below should be viewed as a preliminary analysis only, based upon the evidence filed on the motion. Their ultimate determination will, of course, depend upon the findings of fact that will be made by the trial judge, based upon all of the evidence presented at trial.

factual background

[ 5 ] As noted, the defendants own a five acre parcel of land on which they intended to construct a house. Their plan was to build it using insulated concrete forms, an innovative form of house construction designed to achieve energy savings. Contractors and trades are very difficult to find for this type of construction. Mr. Slade acted as general contractor and had to educate trades persons on this construction method.

[ 6 ] In relation to financing, the defendants' plan was to borrow funds during the construction phase, relying on the equity in the property. Once construction was completed, their intention was to arrange conventional mortgage financing to pay out the construction loan.

[ 7 ] Through the intermediary of a mortgage broker, the defendants were put in touch with the plaintiff. In due course, on October 16 and 17, 2009, they entered into a mortgage commitment letter, the full terms of which were as follows:

From: Tanfi Ltd.

To:

James and Nancy Slade 11750 9 th line, Stouffville, Ontario

1st mortgage of $560 000 on 5400 Sideline 32 Pickering, Ontario Part Lot 33, Concession 9, Parcel 5 Hamlet of Clairmont, City of [sic] City of Pickering

I am prepared to offer the following construction financing for the completion of the property as noted above.

The mortgage will be released in an initial stage of $490,000.

The funds will be dispersed [sic] as follows and all mortgages and trade invoices will be paid directly by my lawyer Martin Zaretsky upon receipt of mortgage statements and invoices:

1st mortgage of

$240,000

2nd mortgage of

$125,000

Citifinancial

$17,881.62

Roofmart

$19,514

Dan's Discount Windows

$11,411.49

WilsonWater

$18,597.60 Oct 20 th

Universal Forest Products

$15,105

TOTAL

$447,000 approximate amount

The property will be appraised when the remaining funds have run out and the lender will visit the property to see the quality of workmanship.

The remaining $70.000 will be released in 2 $35,000 amounts. The 1 st $35,000 will be for brickwork and the 2 nd $35,000 will be for cabinetry and flooring etc.

The loan will be payable at 14% Interest Only payments of $6,533.33 per month based on the entire $560,000 and will begin accruing on the date of the 1 st release of $490,000 ..

The term of the loan will be 1 year, open on 3 months penalty.

There will be a 2% lenders fee of $11,200 deducted from the first release of $490.000

The mortgage will carry a $250 nsf fee. .

Lender's legal work will be billed to the borrowers and will be done by:

Martin Zaretsky 905 477 9400/905 477 9498 fax

3950 14 th Ave.

Markham. Ontario L3R OA9

Legal work for the borrowers will be done by:

Alan Luftspring 905 479 1200/905 479 9769 fax

7181 Woodbine Ave.

Markham, Ontario L3R 1A3

Borrowers:

James Slade {signature} Date: Oct 17/09

Nancy Slade {signature} Date: Oct 17/09

Lender:

Tanti Ltd {signature} Date: October 16, 2009

[ 8 ] It is noteworthy that the interest rate of 14% was substantially higher than rates being charged for conventional mortgages at the relevant time. As well, interest on the full principal of $560,000 began accruing on the date of the first release of $490,000 but despite the fact that the remaining funds had yet to be released. Interest only payments of $6,533.33 (based on the entire $560,000) were payable monthly.

[ 9 ] According to the plaintiff's evidence, the loan was made on the basis of the defendants' equity in the property. The plaintiff did not conduct any due diligence regarding the ability of the defendants to repay. The evidence of the defendants is that they intended to make the monthly interest payments out of funds advanced under the mortgage. As well, according to the defendants, they required timely release of the construction financing in order to proceed with the project in an orderly and cost efficient fashion.

[ 10 ] It is common ground that following the registration of the mortgage at the end of October 2009, the plaintiff advanced the initial sum of $490,000 to the defendants. These funds were applied to discharge prior mortgages and to pay various construction expenses associated with the project.

[ 11 ] The problems between the parties commenced when the defendants sought to draw down the remainder of the financing. According to them, they were ready to do so prior to the end of November, but the plaintiff failed to comply. Despite the defendants' request, no appraisal was conducted, as contemplated by the construction financing agreement. The evidence on behalf of the plaintiff suggests that a representative of the lender conducted a "drive by" inspection and became concerned by the state of construction.

[ 12 ] Although the agreement provided for a further $70,000 to be drawn down in two $35,000 amounts, this did not occur. The reasons for this non-compliance with the agreement are not entirely clear on the record before me. In effect, each side blames the other in what is a complicated cause-and-effect relationship.

[ 13 ] The next advance following the October 30 advance of $490,000 was $14,800 made on December 11, 2009. Thereafter, the next advance of $19,800 was not made until February 1, 2010. Further advances totalling $20,000 were made on February 24, 2010. The bulk of the remaining funds (approximately $14,000) were not disbursed until the beginning of April 2010.

[ 14 ] According to the defendants, the failure or refusal of the plaintiff to make timely advances of the remaining construction funds caused a series of problems. First, the defendants were unable to make the interest payments on the mortgage. Second, the defendants were unable to proceed with the construction in a timely and efficient manner, as the winter months set in. A further complication was the defendants' inability to retain stonemasons and other trades at favourable rates of pay, thus increasing the cost of construction when replacement trades were hired. An additional consequence of the slow disbursement of funds was that the defendants were compelled to seek additional construction financing from the plaintiff at a similarly high rate of interest. The further loan was put in place in early April 2010 and was secured by a mortgage for $50,000 over the next four months, a total of $47,000 was dispersed pursuant to the second loan.

[ 15 ] From the plaintiff's perspective, it asserts that it met its obligations and more and that it granted various indulgences to the defendants. Despite those indulgences and the advances made by the plaintiff under the two mortgages, the defendants have not made any payments on account of interest or otherwise, on either mortgage. The plaintiff asserts that the defendants bear the responsibility for the delays in construction, cost overruns and failure to meet their financial obligations.

issues raised

[ 16 ] The foregoing overview highlights a number of interconnected issues that, in my view, required a detailed examination and analysis of the factual matrix that can only take place at a trial. This is not an obvious case where a defaulting debtor defendant has raised specious arguments by way of defence to a collections action. Rather, this case involves a series of questions that cannot properly be determined on a motion such as this. These include the following:

(a) What were the plaintiff's obligations to advance funds under the financing agreement?

(b) Did the plaintiff fail to make timely advances of funds or otherwise to perform its obligations under the construction loan agreement, or was the plaintiff justified in disbursing the funds as it did?

(c) Were the defendants at fault for either misapplying the mortgage funds, non-payment of mortgage interest and cost overruns, or were they put into the positions they were by the plaintiff's failures?

(d) What were the causes of the delays and cost overruns on the construction project, and who should bear them?

(e) Are the defendants required to pay the mortgages in full by their very terms or are they justified in not paying some of the interest or principal by reason of the alleged defaults of the lender?

(f) What is the proper payout number for each mortgage in light of the answers for the foregoing questions?

[ 17 ] In relation to each of these questions, the record before me does not permit me to dismiss the defendants' position as unfounded. That is not to say that, following a proper trial, the findings of fact made by the trial judge will necessary favour the defence's position. That said, on the evidence before me, I am not satisfied that there is no genuine issue requiring a trial with respect to either the plaintiff's claim or the defendants' defence (and potential counterclaim).

conclusion and disposition

[ 18 ] For these reasons, the plaintiff's motion for summary judgment is dismissed.

[ 19 ] In relation to costs, if the parties cannot agree, they may make written submissions as follows:

(a) The defendants shall serve their bill of costs on the plaintiff, accompanied by written submissions within fifteen days of the release of these reasons.

(b) The plaintiff shall serve its response on the defendants within fifteen days thereafter.

(c) The defendants shall serve their reply, if any, within ten days thereafter.

(d) In all cases, the written submissions shall be limited to three pages, plus bills of costs.

(e) These submissions shall address liability and quantum for the motion for summary judgment.

(f) I direct that counsel for the plaintiff shall collect copies of all parties' submissions and arrange to have that package delivered to me in care of Judges' Administration, Room 170 at 361 University as soon as the final exchange of materials has been completed. To be clear, no materials should be filed individually: rather, counsel for the plaintiff will assemble a single package for delivery as described above.

Stinson J.

Date: May 31, 2012