ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-97-46870

DATE: 20130220 CORRIGENDA: 20130422

BETWEEN:

Jeffrey Salmon and Ramona Lynn Salmon

Plaintiffs

– and –

Laurentian Bank of Canada, 1079715 Ontario Inc. and 1047083 Ontario Limited

Defendants

Brent Cumming, for the Plaintiffs

Bois Wilson, for the Defendants

-and-

1079715 Ontario Inc. and 1047083 Ontario Limited

HEARD: May 22, 23, 2012 further written submissions received June 4 and June 12,2012

REVISED REASONS FOR DECISION

The text of the original ruling has been corrected with the text of corrigendum (released today’s date)

Edwards J.:

Background

[1] The plaintiffs in this matter are husband and wife and were until 1988 the owners of property municipally described as Part Lot 22,Concession 4 being Part 1, Plan of Reference 65R-12010, Town of East Gwillimbury, Regional Municipality of York, which I will hereafter refer to as the property. The Salmons purchased the property in 1985 for $285,000. The Salmon’s sold the property in 1988 for approximately $1.1 million. The plaintiffs took back a first mortgage of $700,000.00 from the purchaser at 10% interest. Payments were to be made bi-annually in April and October. I will refer to this mortgage throughout as (the “mortgage”). The mortgage matured on October 28, 1993.

[2] Subsequent to the sale of the property the plaintiffs on March 13, 1989, entered into a loan agreement with Guardian Trust Company (“Guardian”). I will refer throughout these reasons to this loan agreement as (the “loan”). Guardian lent the plaintiffs $350,000.00 with interest at 13¾% and a maturity date also of October 28, 1993. As security for the loan the plaintiffs assigned the mortgage to Guardian. The mortgagor’s payments were paid directly to Guardian. These payments were sufficient to discharge the plaintiff’s payment obligations to Guardian with a surplus that was ultimately remitted to the plaintiffs by Guardian.

[3] A review of the two books of documents filed as exhibits 1 and 2 together with the evidence of Mr. Salmon makes clear that the property was sold on three or four occasions between 1988 and 1993 and that the mortgagor was delinquent in its obligations to the point where Guardian was forced to retain counsel to threaten, and or, commence power of sale proceedings. As events unfolded Guardian assigned its assets to the Laurentian Bank of Canada (“Laurentian”) sometime in 1993. The assignment of these assets included the mortgage.

[4] When the loan matured on October 28, 1993 Laurentian required the plaintiffs to repay the loan in full. The plaintiffs were unable to repay the principal owing on the loan as they had expected the mortgage to be repaid in full on its maturity. The owner of the property, and as such the then mortgagor was Strategic Reality (“Strategic”), did not repay the principal owing on the mortgage to the Salmons leaving the Salmons in a position where they could not repay the loan. Mr. Salmon testified that when Laurentian called the loan he had discussions with a Tony Vidinu who he described as the representative of the owners. These discussions were aimed at trying to refinance the mortgage such that monies could be generated to repay Laurentian the loan which as of late 1993 totalled approximately $388,000.00. The discussions were unsuccessful with the result being that Mr. Salmon could not discharge the loan with Laurentian.

[5] At the same time as Mr. Salmon was having a discussion with Mr. Vidinu he received a phone call from a representative of Laurentian advising him that the loan had been assigned to 1079715 Ontario Inc. (“107”) and that the mortgage had also been assigned to 107. Mr. Salmon testified that after this phone call, which would have occurred sometime in May 1994, he received no other communication, verbal or written, confirming the assignment of the loan or the assignment of the mortgage. No payments on the loan were made by the Salmons to 107 and no payments were received by the Salmons on the mortgage. In essence things were at a standstill until 1997 when this action was commenced by the plaintiffs against Laurentian. While Laurentian did third party 107 on an Indemnity Agreement, the plaintiffs did not sue 107 or 1047083 Ontario Ltd (“104”) until late 2011 when the Statement of Claim was amended. At the commencement of the trial Laurentian was released from this action on consent of all parties. At the conclusion of the trial counsel agreed that 107 was no longer commercially viable and the action against 107 could be dismissed. As such throughout the balance of these reasons, and with the agreement of the parties, where reference is made to 107, I will refer to 107 and 104 as if they are one and the same entity.

[6] As of May 1994 and thereafter the loan had been assigned to 107 but no payments were being received by 107 from the Salmons. As of today’s date 104 is advancing a counterclaim on the loan in an amount in excess of $4,000,000, this despite no demand whatsoever having been made on the loan from 1994 through 2011.

[7] As to the property I heard very little evidence as to its disposition and value. While Mr. Salmon did concede that between 1988, when he sold the property and 1993 when the loan and mortgage matured, there had been a downturn in the value of real estate. Nonetheless he gave evidence that even with the downturn he believed the property had sufficient equity to secure the mortgage.

[8] Allan Rakowsky was called as a witness on behalf of 107 and 104. Mr. Rakowsky was the real estate lawyer for Guardian and later Laurentian when it acquired Guardian. As such he was involved with the threatened power of sale proceedings that were necessitated by the defaults in the mortgage between 1990 and 1993. Mr. Rakowsky confirmed in his evidence that the plaintiffs had no right to sell the property by way of power of sale proceedings as they had assigned this right to Guardian when they entered into the loan agreement. In that regard Mr. Rakowsky stated that the only way the plaintiffs could take back control of the property was by paying off the loan and having the mortgage re-assigned to them by Guardian.

[9] Ultimately when Laurentian decided to call the loan Mr. Rakowsky became aware of a transaction involving 107 pursuant to which 107 would purchase the loan for the outstanding loan indebtedness on a dollar for dollar basis. Simply put 107 paid approximately $386,000.00 to Laurentian and received as part of that transaction an assignment of the mortgage. The assignment of the mortgage was registered on May 17, 1994 in favour of both 107 and 104. As part of this transaction 107 gave Laurentian an Indemnity Agreement signed on behalf of 107 by D. Paparousis who Mr. Rakowsky identified in his evidence as one of the principals of 107.

[10] As to the plaintiffs and the transaction between 107 and Laurentian they were provided Notice on May 9,1994, through their then solicitor Howard Kerbel, that to obtain a re-assignment of the mortgage they had to pay Laurentian $385,721.49 by May 13,1994 failing which Laurentian would proceed to “deal with the security held by Guardian Trust Company”. A further letter dated May 12, 1994 was sent by Mr. Rakowsky on behalf of Laurentian to Mr. Kerbel warning that if the loan wasn’t paid in full by May 13, 1994 Laurentian would “proceed to deal with the security held by Guardian Trust Company by other parties who are interested in purchasing it”. In fact as matters transpired “the other parties” were not purchasing the mortgage but rather were purchasing the loan. The mortgage was assigned to the purchaser of the loan as part of that transaction. At no time from the evidence I heard nor the evidence contained in Exhibit 1 or Exhibit 2, is there any indication the Salmons were told that the purchaser of the loan (and de facto the assignee of the mortgage) was 107.

[11] Mr. Rakowsky confirmed in his evidence that after the transaction with 107 was completed he heard nothing further from the plaintiffs nor did he hear anything from either 107 or Laurentian until these proceedings were commenced. To paraphrase Mr. Rakowsky’s evidence “we collected the banks money and that was our job”.

[12] Perhaps the most important evidence that this Court heard as it relates to who the players were in relation to Strategic, 107, and 104 came from Mr. Danny Miskatis. Regrettably his evidence while of some assistance leaves this Court without an adequate evidentiary foundation to determine who the principals of these companies were at the relevant material times.

[13] In his evidence in chief Mr. Miskatis testified he was one of a number of investors in Strategic. As a result of money issues and a pending divorce he could no longer afford to remain an investor and as such he forfeited his share in Strategic. Nonetheless he still had some role in Strategic as he collected the rents from the tenants of the property and remitted the money to 104. Counsel for 104 would have me infer, that the rental money was money 104 was attorning as mortgagee. I am not prepared to draw that inference and reach that conclusion. If such a finding was to be made it would have been a simple task to call a representative of 104 who could have given first hand evidence of why the rental money was being picked up by Mr. Miskatits.

[14] Mr. Miskatis testified in chief that the rental monies were then remitted to 104, a company he knew as “Big Bert” which involved his two sons. In cross examination his evidence changed such that the rental monies were remitted to 107, a company he knew as Big Bert and again a company in which his two sons were involved. Mr. Miskatis was clearly confused in his evidence as was clarified by counsel at the completion of the trial. Mr. Miskatis also testified that after he stopped collecting the rents Danny Papoursis began collecting the rental monies from the tenants at the property. It will be recalled that Danny Papoursis was the person who negotiated the purchase of the loan from Laurentian as a result of which the mortgage was assigned to 104.

The Issue and The Result

[15] The plaintiffs in their amended Statement of Claim seek various heads of relief. In argument the relief claimed essentially comes down to an order that would declare that the plaintiffs have a valid and subsisting mortgage on the property in the form of the mortgage that was assigned to 104 and for which Strategic would be the mortgagor. The major difficulty with this claim relates to the fact that a party that may be affected by such an order is not before this Court i.e. Strategic. A declaratory order in the form sought by the plaintiffs could impact on the rights and obligations of Strategic. Strategic likely would plead laches, and a limitation defence. Whether such arguments would prevail is a matter for debate but it is inappropriate to seek such declaratory relief where an interested party is not before the court. As to any claim between the plaintiffs and 104 there is no cause of action that counsel could refer me to and as such the plaintiff’s action is dismissed.

[16] I received written submissions from counsel for the parties on June 4 and June 12, respectively. Counsel for the plaintiff argues that because 107 has been a party to this action by virtue of a third party claim, issued by Laurentian on January 30, 1988, 107 has had notice of the issues between the parties, almost from the inception of the action. It is noted that while 107 is an inactive corporation, 104 is a holding company whose primary function is to hold the subject mortgage for a pool of investors. Effectively, the argument is that some, or all of the controlling minds of 107 are one in the same in 104 . As such, 104 cannot be prejudiced if 107 is not prejudiced having been a party to this action since 1988.

[17] Counsel for the defendants, and specifically 104, takes the position that 104 would be prejudiced by allowing an amendment to plead a limitation defence. Alternatively, it is argued that 104 should be allowed to reopen its case. If 104 had evidence that there had been a tolling agreement or written waiver of any limitation period agreed to by the plaintiffs vis a vis the entitlement of either 104, 107, or for that matter any other party to claim against the Salmons, I would have expected in the written submissions from defence counsel, evidence of such tolling agreement or written waiver. No such evidence having been put before me, nor any argument that such evidence could be put before me, I am not satisfied that there is any prejudice, nor is there any reason to reopen this matter so as to address the question of whether or not the Salmons should be entitled to amend their defence to the counterclaim to plead a limitation defence. In accordance with the provisions of Rule 26 of the Rules of Civil Procedure I am granting leave to the Salmons to plead a limitation defence in their counterclaim.

[18] As to the counterclaim by 104 no claim was made on the loan until the counterclaim was filed in March of 2012. There had been no demand prior to the service of the counterclaim. In fact as far as the loan was concerned there had been total silence from 1993 until 2012 .Given that 104 only advanced its claim on the loan in March of 2012 through its counterclaim I fail to see how 104 would now be prejudiced with the amendment sought. By any stretch of the imagination the delay in advancing any claim on the loan from 1993 to 2012 offends the Limitations Act. The claim on the counterclaim is therefore dismissed.

[19] As both the main action and the counterclaim have been dismissed the appropriate disposition regarding costs may be no costs. I will entertain costs submissions to be received within 10 days from the receipt of these reasons limited to three pages in length.

Justice M.L. Edwards

Released: April 22, 2013

C O R R I G E N D A

1. The citation number on the first page has been changed from a 2012 number to a 2013 number.