ONTARIO SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-09-372379
DATE: 20130531

BETWEEN:

TRINITY INVESTMENT GROUP LIMITED AND ANTONIO PINARRETA
Plaintiffs

– and –

EZEQIDEL SILVA AND MARGARET SILVA A.K.A. MARGARIDA SILVA
Defendants

Wendy Greenspoon-Soer, for the Plaintiff
Saul Glober, for the Defendants

HEARD: April 22, 23, 24 and 26, 2013

Stinson J.

[1] This case is about a dispute arising from a residential construction project. The project involved the demolition and construction of a house. Both sides were involved as business partners in the project, pursuant to an oral agreement. The project did not unfold as planned and the anticipated profit was never realized. The parties now come to court, each blaming and seeking compensation from the other in relation to the alleged expenses and losses incurred by them.

[2] The case involves some accounting issues, some disputes of fact, and findings of credibility. Most importantly, the case involves determining the terms of the parties' oral contract.

[3] By agreement of the parties, the case has been divided into two phases. Phase 1 is concerned with the issue of liability, namely, what were the terms of the parties' agreement, what were their respective obligations, and who, if anyone, breached their obligations? Phase 2 will be concerned with damages, namely, the calculation of what sums may be due from one side to the other, based on the determination of liability. It will involve an extensive review of documents, vouchers and accounting records. That exercise has been deferred for now, on the basis that it will proceed, if required, following the release of this decision. The parties have further agreed that Phase 2 of the hearing shall be tried by me, if possible, or as further directed by me; such further direction may include a reference to the Master.

facts

Background

[4] The plaintiff Antonio Pinarreta is a real estate agent and investor. He carries out his real estate investment and redevelopment projects through the corporate plaintiff, Trinity. He is the sole shareholder and director of Trinity. For purposes of the legal issues associated with this case, their respective involvements are indistinguishable. I shall therefore refer to them jointly as the plaintiff.

[5] The defendants Ezeqidel Silva and Margaret Silva are spouses. Mr. Silva carries on business as an electrical contractor, through a corporation known as Volcanic Electric. Prior to his acquaintance with Mr. Pinarreta, Mr. Silva ran the operations of Volcanic out of an industrial condominium unit located at 1444 Dupont in Toronto. Its business involves electrical work for industrial, commercial and residential applications.

Prior dealings of the parties

[6] It is common ground that Mr. Pinarreta and Mr. Silva were introduced through a mutual acquaintance, a builder/contractor named Vincent Mandanha, in February 2006. By means of that introduction, although he had no past experience redeveloping property, Mr. Silva decided to purchase a house listed by Mr. Pinarreta at 29 Hanson in Toronto. That deal closed in April 2006, and over the next year or so, Mr. Silva renovated that property extensively. He resold it in July 2007. After expenses, he made a profit in excess of $100,000.

[7] Mr. Silva was unhappy with the overhead, taxes and other expenses associated with his industrial condominium unit at 1444 Dupont. He therefore listed it for sale with Mr. Pinarreta. A purchaser was found and that transaction closed in or about the spring of 2007. Following that time, Mr. Silva operated his business on a temporary basis out of a garage. Through Mr. Pinarreta, however, Mr. Silva was looking for other premises to purchase for his business. Ideally, he wanted a property with some residential component that he could renovate and lease out, together with a shop at which he could conduct his electrical contracting business.

[8] In the fall of 2007, Mr. Pinarreta obtained the listing as seller's agent for a residential property located at 33 Fennings in Toronto. Like Hanson, it was a property that was ripe for redevelopment. He brought it to Mr. Silva's attention and Mr. Silva decided to purchase it. He signed an agreement of purchase and sale on October 9, 2007 by which he agreed to pay $418,000 for the purchase, with a closing date on January 25, 2008. This was not a suitable replacement for 1444 Dupont, however, since it was essentially another residential redevelopment project like Hanson.

[9] Mr. Pinarreta continued to look for a suitable combination commercial/residential site for Mr. Silva. He found one in late October 2007, on Scarlett Road in Toronto. Although Mr. Silva put in an offer, their attempts to negotiate an acceptable agreement of purchase and sale were unsuccessful.

[10] In December 2007, Mr. Pinarreta drew to Mr. Silva's attention a property at 48 Mulock in Toronto. It was an ideal location for his business, because it included a residential component at the front and a shop at the rear. In early December 2007, Mr. Silva signed an agreement of purchase and sale to buy 48 Mulock, with a closing in March of 2008.

[11] In late December 2007, Mr. Pinarreta brought another property to the attention of Mr. Silva, at 315 Harvie in Toronto. On December 26, 2007, Mr. Silva signed an agreement of purchase and sale to buy that property, with a closing date in July 2008.

[12] It may thus be seen that, subsequent to his initial foray into property redevelopment with 29 Hanson, in the fall of 2007 Mr. Silva engaged in a flurry of property transactions. The one that forms the subject matter of this litigation concerns the property at 33 Fennings.

The 33 Fennings Transaction

[13] Mr. Pinarreta and Mr. Silva gave different accounts of the arrangements between them in connection with 33 Fennings. In due course, I will address the credibility and reliability of their evidence and make appropriate findings of fact. For now, what follows is a general overview of what transpired, with reference to undisputed evidence.

[14] The property at 33 Fennings contained a single storey bungalow, on a lot that measured 25 feet across by 125 feet deep. Mr. Silva's initial intention was to redevelop it as he had 29 Hanson, by putting on an addition and a second storey. In due course, that plan changed such that the building was demolished and a new, three storey residence was constructed.

[15] When the 33 Fennings purchase was completed on January 25, 2008, title was taken in the name of Ezeqidel Silva and Margaret Silva. The total purchase price was $418,000. Mr. Silva paid a $20,000 deposit, and a further down payment of $70,000. The balance of the purchase price was financed by a first mortgage from the Bank of Montreal. It is common ground between the parties that, at some point prior to the closing of the purchase, Mr. Pinarreta and Mr. Silva entered into an oral joint venture or partnership agreement in relation to the property and its redevelopment. They disagree as to specifically when they made that agreement and certain of its terms. They agree, however, that the property was to be purchased in the names of Mr. and Mrs. Silva and that Mr. Silva was to pay the deposit and the amount required on closing. They also agree that the property was to be redeveloped, expenses were to be paid, and any profits were to be split 50/50 once the project was completed and sold.

[16] According to Mr. Pinarreta, the arrangement was that after the transaction was closed, Mr. Pinarreta was to provide funds to Mr. Silva to deposit into a bank account opened for the purpose of the project, to be used for paying ongoing expenses. Both Mr. Pinarreta and Mr. Silva were to contribute equally to the construction costs, although the parties were not required to match each other's payments to the penny. Both parties were to contribute their time to overseeing the project and providing general labour where possible. Mr. Silva was to do the electrical work without compensation. Once the project was completed Mr. Pinarreta was to list the property for sale on MLS but he was not to charge his portion of the commission against the sale proceeds. Once the house was sold, expenses were to be paid off the top and the net proceeds of sale were to be divided equally between Mr. Silva and Mr. Pinarreta.

[17] Mr. Silva's version is somewhat different. According to him, their agreement was a partnership or joint venture. The purchase was to be carried out in his name. The costs of the project, however, were to be borne entirely by Mr. Pinarreta. Mr. Silva was to be in charge of the work on site. Mr. Pinarreta's responsibility was to provide the financing. At the end of the day, the profits were to be divided equally, or the losses, if that occurred.

[18] Shortly after the transaction closed, Mr. Pinarreta provided Mr. Silva with a cheque for $60,000. In the months that followed, steps were taken to prepare plans, obtain permits and refine the design. The project itself began in earnest in July 2008 with the demolition of the existing house. While there was some controversy on the point, it is fair to say that both Mr. Silva and Mr. Pinarreta were involved on the site, performing various aspects of the work, over the next several months. According to Mr. Silva, he was in charge, while Mr. Pinarreta attended on site only from time to time. According to Mr. Pinarreta, while he deferred to Mr. Silva on some aspects of the project, he was actively engaged doing labour and assisting in various aspects of the work. It is common ground, however, that as the project proceeded, each side paid ongoing expenses associated with it, whether for materials, labour or other costs. While it is not part of my function during Phase 1 to conduct an accounting, the evidence adduced indicated that the outlays on each side were substantial, well in excess of several hundred thousand dollars in all.

[19] To begin with the project ran relatively smoothly. Over time, some difficulties were encountered and certain tensions arose as between Mr. Silva and Mr. Pinarreta. Once again, there is some controversy as to exactly why this occurred and who was responsible. The evidence establishes, however, that by September of 2008, Mr. Silva was running low on funds. An attempt was made to refinance the project through a larger mortgage with the Bank of Montreal. An appraisal was conducted and the Silvas applied for more financing from the bank. Their application for refinancing was turned down. For his part, Mr. Pinarreta continued to pay various expenses. He advanced Mr. Silva further a $15,000 on August 27, 2008. He paid various bills during September of 2008. As late as October 8, 2008, Mr. Pinarreta wrote cheques totalling more than $16,000 for brick for the project.

[20] It is common ground that Mr. Silva and Mr. Pinarreta ultimately had a falling-out. Matters came to a head on October 12, 2008, the Sunday of the Thanksgiving weekend. On that date, Mr. Pinarreta stopped by the Fennings construction site. Mr. Silva was carrying out some work, together with another individual. An argument developed, the outcome of which was Mr. Silva adamantly insisting that Mr. Pinarreta leave and permanently stay away from the site. As a consequence, Mr. Pinarreta never returned.

[21] There is a dispute as to the cause of the argument. According to Mr. Silva, he was upset because Mr. Pinarreta was not living up his obligations to fund the project. Additionally, Mr. Pinarreta was interfering with the trades and the fashion in which the work was being done. As a result, the project was being delayed and the costs increased.

[22] For his part, Mr. Pinarreta says that the argument had its origins in Mr. Silva's unhappiness because Mr. Pinarreta had (in Mr. Silva's view) usurped his authority from time to time as the de facto project manager. Mr. Silva was unhappy with instructions given by Mr. Pinarreta to workers on site from time to time. They had been unable to agree on all project decisions. Moreover, Mr. Silva was unhappy that Mr. Pinarreta had spoken directly to Mrs. Silva about getting a declaration of trust signed to protect Mr. Pinarreta's interest in the property.

[23] The confrontation on Thanksgiving Sunday was the beginning of the end of the business relationship. After Mr. Silva told Mr. Pinarreta to stay off the site, Mr. Pinarreta responded that he was a 50/50 partner, and that he was not prepared to put any more money into the project unless the trust agreement was signed. Mr. Pinarreta left, and had no further contact from Mr. Silva.

[24] On October 23, 2008, Mr. Pinarreta's lawyer wrote to Mr. Silva's lawyer requesting that adequate arrangements be made to secure Mr. Pinarreta's interest in the property. On October 27, 2008, the Silvas' lawyer responded, stating among other things that:

The initial agreement between our clients was as follows:

1. my client [Mr. Silva] was to purchase and carry the property;

2. your client [Mr. Pinarreta] was to supply all the money for the construction;

3. my client [Mr. Silva] was responsible for the construction;

4. profits (or losses) were to be split 50/50.

Unfortunately, your client has not kept up its end of the bargain. Your client was unable or unwilling to provide the construction money and in addition interfere with construction – always complicating matters.

[25] Further exchanges ensued between the lawyers. Mr. Pinarreta's lawyer provided a list of expenses his client had incurred in relation to the property and requested a list from Mr. Silva. A draft trust declaration was prepared, but never signed. A list of expenses was ultimately supplied by Mr. Silva's lawyer, with the advice that "If your client [Mr. Pinarreta] is not interested in purchasing my clients' [the Silvas'] interest then my clients would like to list the property for sale as is." At this stage, the house was largely completed on the exterior, but required significant additional interior work, such as installation of floors, kitchen and other cabinets, completion of installation of plumbing fixtures, etc.

[26] In response, Mr. Pinarreta's lawyer again requested delivery of the signed trust declaration. That document was never forthcoming.

[27] As of December 23, 2008, the Silvas had retained counsel. On that date, their counsel wrote to Mr. Pinarreta's lawyer stating, among other things, as follows:

In any event, my clients are proceeding to complete the building at which time it can be sold and a proper accounting will be done at that time. In the meantime, I would ask you to instruct your client to stay away from the property as I have authorized Mr. Silva to contact the police should your client continue to attend at the premises and disrupt the efforts of my clients to complete the house.

[28] Mr. Silva had continued to do work on the house during the fall of 2008, after he barred Mr. Pinarreta from the premises. Meanwhile, unknown to the plaintiff, Mr. Silva applied for and obtained a second mortgage on the property. He was able to do so without involving the plaintiff, because title to 33 Fennings was in the names of Mr. and Mrs. Silva alone. The second mortgage proceeds totalled $170,000. According to the evidence of the Silvas, the funds were used to pay accumulated expenses associated with the project.

[29] The next event of significance occurred in January 2009, when Mr. Silva listed the property for sale, with another realtor. At this stage, the house was unfinished. Thus the listing was contrary to the statement contained in the letter from the Silvas' counsel dated December 23, 2008 in which he had advised that they intended to complete the work before selling. According to Mr. Pinarreta, he did not learn about the listing until January 22, 2009.

[30] There are two significant features about the listing. The first is that the asking price was $799,000. This was substantially below the expectation of all parties as to the price that could be realized on the property once the renovation work was completed. This lower price was attributable to two factors. The first was a general but significant downturn in the real estate market in Toronto, that accompanied the general economic recession in the fall of 2008. The second was the unfinished state of the house. To make it habitable would likely require an expenditure in the order of several hundred thousand dollars.

[31] The other significant feature of the listing agreement was that it provided for a total commission of 8 percent, being 2.5 percent to the selling broker and 5.5% to the listing broker; this is to be contrasted to the usual 2.5% to each. Mr. Silva explained in his evidence that he was referred to a specific agent who initially said he was too busy to handle the listing. When Mr. Silva prevailed upon that agent to take the listing, he would only do so if he was paid a higher commission rate.

[32] On February 13, 2009, the Silvas signed an agreement of purchase and sale to sell 33 Fennings. The agreed upon purchase price was $735,000. The plaintiff was not consulted before this agreement was signed. By coincidence, the plaintiff commenced this action on February 13, 2009. The sale was completed on March 6, 2009.

[33] As a result of the events described above, Mr. Pinarreta claims to have invested in excess of $150,000, and received nothing in return. For their part, the Silvas assert that they expended an even greater amount, and suffered a loss when the property was sold. Each side blames the other for failing to perform their respective obligations under their agreement, and for the resulting losses. In response to Mr. Pinarreta’s damage claim against them, the Silvas have advanced a counterclaim against him.

issues and analysis

Positions of the parties

[34] The positions of the parties may be summarized relatively simply. The plaintiff asserts that he performed his obligations pursuant to the parties' agreement between February and October 2008, by advancing funds to Mr. Silva, by purchasing materials and supplies for the project, by assisting in the design and material selection process, and by providing his own physical labour on site. He alleges that the relationship broke down due to Mr. Silva's adverse reaction to a series of minor incidents, the Silvas' inability to fund their share of the costs and ultimately when Mr. Silva barred him from the project and refused to provide a written acknowledgement of his interest in the property. In the face of this unilateral repudiation of their agreement by Mr. Silva, the plaintiff asserts that he was excused from further performance of his obligations. The demise of the project, and the losses that resulted, are therefore the responsibility of Mr. Silva.

[35] The position of the defendants is founded on a different characterization of the underlying agreement between the parties. Mr. Silva asserts that Mr. Pinarreta's sole role and obligation in the relationship was as financier. Mr. Silva was the project manager, responsible for overseeing the construction, directing the trades, and bringing the project to completion. As financier, Mr. Pinarreta was required to advance the funds necessary to see the project through to completion. Their falling-out came as a result of Mr. Pinarreta's failure and refusal to perform his obligations to fund the project. As a result, the Silvas were forced to seek a second mortgage to pay off the liabilities that had accrued and ultimately to sell the house on an "as is" basis, resulting in a substantial loss.

[36] The fundamental issue in this case, therefore, concerns the basis upon which the two sides agreed to participate in the 33 Fennings redevelopment project: what were the terms of their agreement? Given the divergent explanations and accusations by the parties, the answer to that question turns on findings of fact. In turn, this requires me to assess the credibility and reliability of the testimony of the two principal witnesses, Mr. Pinarreta and Mr. Silva.

Assessment of Mr. Pinarreta's evidence

[37] For the most part, Mr. Pinarreta gave his evidence in a straight forward, logical and consistent fashion. His description of events largely made sense, and had a ring of truth. He had a good recollection of details and significant events. I realize, of course, that he is an experienced business person, for whom details and record keeping are an important day-to-day function. Nevertheless, he was not seriously challenged on cross-examination.

[38] One area in which Mr. Pinarreta's testimony was somewhat unclear concerned the time at which he and Mr. Silva decided to become full partners in the Fennings project. In the statement of claim, it was alleged that their agreement was made "in or about November of 2007, before the defendants completed the closing of their purchase of the property". In his testimony in chief, Mr. Pinarreta stated that the discussion that led to the agreement took place during a joint vacation in Cuba over New Years 2007 – 2008. On his examination for discovery, however, he said that the discussion about being partners began in late November and into December, 2007. His explanation at trial was that their discussion was ongoing, resulting in an understanding and agreement that Mr. Pinarreta would be a silent 50/50 partner in all aspects of the deal. I accept that explanation for the timing of their agreement, because it makes sense in the context of the other events that were unfolding over this timeframe.

[39] Defence counsel argued that Mr. Pinarreta somehow took advantage of Mr. Silva and used him as a "front man" in the various real estate transactions in late 2007, and that this somehow reflects adversely on Mr. Pinarreta's credibility. It was argued that Mr. Pinarreta somehow induced Mr. Silva, a relatively unsophisticated individual, to participate in a series of real estate transactions to the point where Mr. Silva "got in over his head". Those allegations and complaints are found nowhere in the pleadings, and in my view, are largely irrelevant. Besides, the evidence suggests that Mr. Silva was a willing participant in 33 Fennings, especially after he realized a net profit of more than $100,000 in the Hanson redevelopment project. An equally plausible explanation is that Mr. Silva's success in the Hanson project "whetted his appetite" for real estate and he continued to do business with Mr. Pinarreta because Mr. Pinarreta had assisted him in relation to that very successful first deal. This would explain Mr. Silva’s purchase of both 33 Fennings and 315 Harvie. His purchase of 48 Mulock was consistent with Mr. Silva’s desire to find a new location for his business operations. In these circumstances, I find this avenue of attack on Mr. Pinarreta's integrity and credibility to be unwarranted and unsuccessful.

Assessment of Mr. Silva's evidence

[40] It is true that compared to Mr. Pinarreta, Mr. Silva is a relatively unsophisticated investor in real estate. That said, he has operated a successful electrical contracting business for more than twenty-five years. He was also involved in at least one previous successful real estate redevelopment – Hanson. I thus did not perceive him to be as naïve or unfamiliar with the subject matter as his counsel suggested.

[41] In my view, Mr. Silva's testimony suffered from a number of flaws. First of all, he had very little recollection of details. By itself, this is not a ground for disbelieving his testimony. On repeated occasions during cross-examination, however, when cross-examined on topics about which had already given evidence, and pressed about the accuracy or correctness of his previous answers, he frequently retreated to the standard answer of "I don't remember." This suggests to me that his difficulty was not a lack of recollection but rather an unwillingness to provide information that he perceived might be unhelpful or damaging to his case.

[42] On several occasions, Mr. Silva gave inconsistent evidence. For example, he initially testified that under the terms of the parties' agreement, he was to be reimbursed for his deposit and down payment right away. He later changed his evidence to say the payment was to be made at some time. At one stage he testified that he was to pay the carrying costs; he later said that the plaintiff was to pay them. In the first communication authored by his lawyer after the parties' falling-out, the assertion was repeated that Mr. Silva was to purchase and carry the property, but there was no mention of Mr. Pinarreta's supposed obligation to repay the $90,000 for the deposit and down payment.

[43] Some aspects of Mr. Silva's evidence were illogical. For example, Mr. Pinarreta testified that he and Mr. Silva discussed the pending Fennings transaction and their proposed partnership in relation to it during their joint trip to Cuba over the New Years holiday in 2007-2008. In light of the flurry of real estate transactions in which Mr. Silva had become involved over the prior few months, in light of the upcoming closing of the Fennings transaction, and in light of the fact that their relationship was largely business-based and business-oriented, it is both logical and likely that these two individuals would have had some discussions about the Fennings transaction. Nevertheless, Mr. Silva firmly denied that they spoke at all about Fennings during their trip, a denial I have difficulty accepting.

[44] Certain other features of Mr. Silva's testimony were at odds with other, objective evidence. For example, in late August or early September 2008, the Silvas applied for increased funding from the Bank of Montreal. Ultimately they were turned down. Mr. Pinarreta’s evidence established that he continued to have adequate personal resources to cover expenses. If, as Mr. Silva asserts, Mr. Pinarreta was to be responsible for financing all the costs of construction at Fennings, there would have been no need for the Silvas to seek additional financing from the bank. Thus, the very act of applying for refinancing with BMO at the time they did is inconsistent with, and contradicts Mr. Silva’s trial evidence regarding the partners’ respective financial obligations on the project.

[45] Mr. Silva also asserted that his falling-out with Mr. Pinarreta on the Thanksgiving Sunday was due to the fact that Mr. Pinarreta was refusing to live up his commitment to pay bills. Yet only a few days earlier, on October 8, Mr. Pinarreta had paid more than $16,000 for brick for the project. This causes me to question the accuracy of Mr. Silva's complaint about alleged default on the part of Mr. Pinarreta in relation to his obligations. Mr. Pinarreta’s account of the background to their falling-out makes more sense.

Conclusion regarding assessment of evidence

[46] The foregoing analysis leads me to conclude that the evidence of Mr. Pinarreta, while not without its flaws, was far more reliable and credible than that of Mr. Silva. Mr. Pinarreta's evidence contained no major inconsistencies, it conformed to other, objective evidence and it made sense. By contrast, the issues I have described above gave me serious reason to doubt the evidence of Mr. Silva.

[47] For these reasons, I conclude that wherever the testimony of Mr. Pinarreta and that of Mr. Silva conflicted on a material point, I prefer and accept the evidence of Mr. Pinarreta over that of Mr. Silva.

Findings of fact

[48] The key testimony in this case came from Mr. Pinarreta and Mr. Silva. While other witnesses testified, they were relatively brief, and provided background or ancillary information only. None was privy to the discussions leading to the agreement that is at the heart of this case.

[49] Having regard to my assessment of the credibility and reliability of the testimony of the two principal witnesses, I make the following findings of fact:

1. In relation to the terms of the agreement regarding the redevelopment of the Fennings property, before the transaction closed, the parties agreed as follows:

(a) the property was to be purchased in the names of Mr. and Mrs. Silva;

(b) the deposit and down payment were to be paid by the defendants;

(c) Mr. Pinarreta was to provide funds to Mr. Silva after the purchase for use in paying ongoing expenses;

(d) both sides were to contribute equally to construction costs on an ongoing basis, subject to an accounting and reconciliation at the end of the project;

(e) each side was to contribute their personal time and labour to overseeing and carrying out the project, without personal compensation;

(f) Mr. Silva was to do the electrical work without personal compensation;

(g) Mr. Pinarreta was to list and sell the property once the project was completed, and was not to charge his portion of any commission that would otherwise be payable on the sale; and

(h) all expenses associated with the project were to be paid off the top, and the net proceeds of sale were to be divided equally between the two participants.

2. During the period between February and August 2008, each side performed their respective obligations under the agreement. They jointly participated in the planning and design process, including permitting applications. They both assisted in the demolition work. They both contributed their time and labour to overseeing and coordinating the project and in supervising and assisting the various trades deployed on site. They both paid various expenses.

3. By late August or September, the Silvas were running low on cash to fund their share of ongoing costs, and unsuccessfully sought additional financing from the bank. Mr. Pinarreta remained ready, willing and able to pay his share of the expenses and he continued to do so up until October 8, 2008.

4. On and subsequent to October 12, 2008, Mr. Silva barred Mr. Pinarreta from the premises. He did so not because of any failure or refusal on the part of Mr. Pinarreta to share or bear ongoing expenses. Rather, Mr. Silva was unhappy with certain aspects of Mr. Pinarreta's conduct, including Mr. Pinarreta's communications with Mrs. Silva regarding the preparation and execution of a legal document that was intended to acknowledge Mr. Pinarreta's interest in the property.

5. After he was barred from the property, through his lawyer, Mr. Pinarreta made repeated requests of the Silvas, through their lawyer, for a written acknowledgement of his interest in the property, by way of a declaration of trust. No such acknowledgement was forthcoming.

6. After he barred Mr. Pinarreta from the premises, Mr. Silva continued with the construction. He made no formal demand on Mr. Pinarreta for further financial contribution towards the ongoing expenses. For his part, Mr. Pinarreta was unwilling to advance any funds because (1) he had been barred from the property; (2) the Silvas had been unwilling to acknowledge in writing his interest in the property; and (3) Mr. Silva refused to negotiate a resolution to allow the parties to continue the construction.

7. Without communicating their intention to do so to Mr. Pinarreta, the Silvas placed a second mortgage on the property. Then, after informing Mr. Pinarreta that they intended to complete construction, they listed and sold the property on an "as is" basis. None of these steps was taken with Mr. Pinarreta's approval or consent.

Legal significance of the foregoing findings

[50] Based upon my findings as to the terms of the parties' agreement, they were jointly engaged in a business enterprise, namely, the redevelopment of the site at 33 Fennings. As both sides acknowledged, the purpose of the project was to make and share a profit. Thus, the parties were carrying on business, in common, with a view to profit. Their arrangement falls within the classic definition of a partnership: see the Partnerships Act, R.S.O. 1990, c. P.5. s. 2.

[51] In light of that finding, the following additional provisions of the Partnerships Act also applied to their relationship:

24. The interests of partners in the partnership property and their rights and duties in relation to the partnership shall be determined, subject to any agreement express or implied between the partners, by the following rules:

25. All the partners are entitled to share equally in the capital and profits of the business, and must contribute equally towards the losses, whether of capital or otherwise, ….

26. Every partner may take part in the management of the partnership business.

27. Any difference arising as to ordinary matters connected with the partnership business may be decided by a majority of the partners, ….

28. No majority of the partners can expel any partner unless a power to do so has been conferred by express agreement between the partners.

[52] On the facts that I have found no express or implied agreement between the partners varied the rules set out in s. 24. The evidence shows that, up until October 12, 2008, the parties more or less conducted themselves in accordance with the provisions of the Partnerships Act. Each participated in the operations and decision-making of the partnership and the business was conducted as intended. That all changed on October 12, when Mr. Silva barred Mr. Pinarreta from the premises at 33 Fennings, refused to allow him to participate in the management of the partnership business, and refused to acknowledge his ownership interest. In effect, Mr. Silva expelled Mr. Pinarreta from the partnership, since he refused to permit him to continue to participate in the partnership business. Given that, as I have found, Mr. Pinarreta had performed all his obligations under the parties' agreement up to that point, there was no legal justification for Mr. Silva to act as he did. Additionally, Mr. Silva's actions were a breach of s. 25 of the Partnerships Act.

[53] I therefore conclude that the actions of Mr. Silva amounted to a breach of the parties' agreement and a violation of Mr. Pinarreta's rights. In effect, by acting as he did, Mr. Silva purported to dissolve the partnership. I acknowledge that in his letter dated October 27, 2008, Mr. Silva's lawyer recognized that the profits (or losses) were to be split 50/50, and to that extent there was an express recognition of Mr. Pinarreta's ultimate entitlement to participate in the profits of the venture. Mr. Silva's other conduct, however, was inconsistent with the ongoing partnership relationship. This included the following:

(a) barring Mr. Pinarreta from the partnership premises and any involvement in the management of the partnership business;

(b) placing the second mortgage on the premises;

(c) deciding to sell the premises on an as is basis, over the express objection of Mr. Pinarreta;

(d) signing a listing agreement that involved paying a premium to the listing agent; and

(e) selling the premises.

[54] It is arguable that there were other breaches of the parties' agreement, arising from the manner in which certain of the loan proceeds from the second mortgage were applied. There was some suggestion that, in the face of the parties' agreement not to be paid personally for their work on the project, Mr. Silva may have paid himself. Since Phase 1 of the trial does not involve a calculation of damages or an accounting for funds received and spent, the defendants did not lead evidence to explain their side of that issue. I am therefore not in a position to decide that point because it is not established that Mr. Silva personally received payment or for how much; this will be an issue to be addressed in Phase 2, if required. For greater clarity on this point, however, I confirm my finding of fact that the partners agreed that they would not receive payment for their personal efforts in relation to the project. There was no agreement, however, that goods, equipment, materials or supplies furnished by either side would be free; rather, the expenses associated with them were payable by the partnership. Similarly, there was no agreement that the partners’ family members or employees of Volcanic Electric would provide their services free of charge; rather, the expenses for the wages of those persons were payable by the partnership.

[55] At this stage, therefore, I am not in a position to decide whether the proceeds of the second mortgage were or were not misapplied. That accounting will have to await Phase 2, based upon a full and proper record.

[56] It remains the case, however, that by acting as he did Mr. Silva breached the partnership agreement. I conclude that, in the circumstances, Mr. Pinarreta was, in the face of Mr. Silva's actions, justified in not making any further contributions toward construction costs. It follows that Mr. Silva must be held responsible for what then unfolded.

[57] In reaching the above conclusion, I should not be taken as deeming Mr. Silva responsible for all losses incurred. Even if the project had proceeded without interruption to its anticipated fruition, it is to some extent speculative whether a profit would or could have been realized at the end of the day. There were broadly based international and domestic economic setbacks beginning in the fall of 2008. The economic downturn was accompanied by a significant softening in the Toronto real estate market. It is therefore uncertain what price the property at 33 Fennings might have realized had it been sold on a completed basis. It is also uncertain how much further expense would have been required in order to complete all of the interior finishing work. Those determinations and calculations, however, are outside the scope of Phase 1.

[58] For present purposes, it is sufficient to conclude that, by acting as he did on and after October 12, 2008, Mr. Silva repudiated the parties' agreement, which repudiation was accepted by Mr. Pinarreta. Thereafter, Mr. Pinarreta was discharged from his obligations of further performance under the parties' agreement. Proper calculation of the amount due to Mr. Pinarreta (if any) will entail the application of established principles for the calculation of damages for breach of contract, as well as an accounting that will take into account expenses incurred, advances made, and funds received by all parties to date.

Conclusion and Disposition

[59] A declaration in accordance with the conclusions I have reached shall issue accordingly. To the extent the parties require further clarification or resolution of other issues arising during Phase 1 or the terms of the declaratory order, they may make arrangements through my assistant for a telephone conference to address a suitable process for resolving those additional issues. Further, should the parties conclude that it is necessary to proceed with Phase 2, they should also contact my assistant for purposes of a case conference to address future steps.

[60] I will also defer for now the subject of costs. It is always open to parties to agree on an appropriate disposition as to costs, and I encourage the parties here to do so. If they are unable to reach an agreement, then counsel should arrange a telephone conference with me to discuss the timing and an appropriate process to address the matter of costs.

Stinson J.

Released: May 31, 2013

COURT FILE NO.: CV-09-372379
DATE: 20130531

ONTARIO
SUPERIOR COURT OF JUSTICE

BETWEEN:

TRINITY INVESTMENT GROUP LIMITED AND ANTONIO PINARRETA
Plaintiffs

– and –

EZEQIDEL SILVA AND MARGARET SILVA A.K.A. MARGARIDA SILVA
Defendants

REASONS FOR JUDGMENT

Stinson J.

Released: May 31, 2013