ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 1549/13
DATE: 2014-12-08

BETWEEN:

THE TORONTO-DOMINION BANK
Plaintiff

– and –

ZAIDA NOVIELLI and LINO NOVIELLI
Defendants

Natalie Marconi, for the Plaintiff

Peter I. Waldmann, for the Defendants

HEARD: December 4, 2014

REASONS FOR JUDGMENT

GRAY J.

[1] In this motion for summary judgment, the plaintiff seeks an order requiring the defendants to pay it the sum of $46,784.11, and seeks to rectify the register under the Land Titles Act by reinstating a mortgage that it had discharged after receipt of a smaller amount of money than that to which it was entitled. The plaintiff also seeks an order dismissing a counterclaim.

[2] The defendants do not take the position that a summary judgment motion is inappropriate, but take the position that the plaintiff is not entitled to the relief it seeks.

Background

[3] To say that the plaintiff was extraordinarily sloppy is an understatement. This will become apparent from a recitation of the facts.

[4] The plaintiff was a first mortgagee on a charge dated July 6, 2007, for a four year term, securing the principal sum of $545,000. There was, and still is, a second mortgage in favour of the parents of the defendant Lino Novielli, in the principal amount of $250,000.

[5] Payments on account of the plaintiff’s mortgage were taken from a bank account with the plaintiff in the name of one or both of the defendants.

[6] Hearings were held before the Ontario Securities Commission, in which it was alleged that the defendant Lino Novielli, and others, had committed fraud against investors of Goldpoint Resources Corporation. The hearings took place in September, October and December, 2009, and a decision was rendered by the Commission on May 5, 2011. The Commission decided that fraud had been committed. A sanctions hearing was held on August 15, 2012, and a decision on appropriate sanctions was delivered on February 1, 2013.

[7] On April 30, 2008, the Commission issued a direction which, among other things, required the plaintiff to freeze amounts contained in various bank accounts, including the account out of which the plaintiff was debiting amounts to make the payments on the plaintiff’s mortgage. By order dated June 30, 2008, Pepall J., as she then was, ordered that the direction of the Commission be continued until further order of the court.

[8] Notwithstanding the direction of the Commission and the order of the court, the plaintiff continued to debit the frozen bank account with payments towards the mortgage on various dates between May 1, 2008 and October 3, 2011. The total payments improperly debited from the account totalled $78,059.14.

[9] From time to time during that period, the plaintiff discovered that it had inadvertently debited the account from time to time. It reversed some of the debits and credited the account on various dates between August 6, 2008 and October 4, 2011, in the amount of $31,275.03. Somewhat inexplicably, the plaintiff did not reverse all of the improperly debited amounts from the frozen account, and as of September 1, 2011, there remained the sum of $46,784.11 that had been improperly debited from the account, and credited towards the mortgage.

[10] The mortgage matured on May 1, 2011. The plaintiff also alleged that default occurred in October 2011. The plaintiff commenced an action on March 12, 2012, and issued a Notice of Sale on or about March 27, 2012. The plaintiff decided that it did not wish to do business with the defendants any longer, and invited them to secure alternate financing.

[11] The defendants did so. They arranged a new first mortgage with Home Trust Company.

[12] On April 25, 2012, the defendants requested a discharge statement from the plaintiff. By letter dated April 26, 2012, the plaintiff stated it would require $525,765.52 as of April 26, 2012 to discharge the mortgage. The per diem rate was said to be $48.54. The plaintiff stipulated that the discharge statement could be relied upon for eleven days.

[13] The amount of $525,765.52, the discharge figure, included credit for the $46,748.11 that had been improperly debited from the bank account and credited to the mortgage.

[14] On May 3, 2012 the plaintiff received $526,056.76 from the defendants, and the plaintiff registered a discharge of the mortgage on May 16, 2012.

[15] On April 30, 2012, the defendants had registered a charge in favour of Home Trust Company, for a one year term securing the principal amount of $616,250. There remained on title the second mortgage in favour of Lino Novielli’s parents in the amount of $250,000, which was postponed to the mortgage in favour of Home Trust Company.

[16] On or about August 14, 2012, the plaintiff discovered it had improperly credited the mortgage with the sum of $46,748.11 and had improperly debited that amount from the bank account. Accordingly, the plaintiff credited the bank account with that amount. It is that amount that the plaintiff now seeks to recover.

[17] On or about May 20, 2014, proceedings were commenced by the Attorney General for Ontario, seeking forfeiture of various amounts, including the amounts in the defendants’ bank account out of which mortgage payments had been made. Ultimately, in August 2014, the plaintiff paid the amounts requested and the account was depleted.

[18] The defendants asserted a counterclaim for $100,000, arising out of the alleged improper registration of a CPL against the property. No particulars have been provided.

Submissions

[19] Ms. Marconi, counsel for the plaintiff, submits that the plaintiff is entitled to judgment against the defendants in the amount of $46,784.11, together with interest. Notwithstanding the discharge of the mortgage, the defendants remain indebted to the plaintiff in that amount.

[20] Ms. Marconi submits that the payments towards the mortgage from the frozen bank account should not have been made by the plaintiff, and the discharge figure given to the defendants erroneously credited the mortgage with the amount that should not have been debited from the frozen account. It was only after discharging the mortgage that the plaintiff discovered that it had erroneously credited the mortgage with the amounts that should not have been debited from the frozen account, and the plaintiff then restored the amount of $46,784.11 to the frozen account. The entire account was subsequently paid out as required by a forfeiture order.

[21] Notwithstanding the bank’s error, the defendants remain indebted to the bank and judgment should issue for the amount requested.

[22] Ms. Marconi also seeks to rectify the register pursuant to sections 159 and 160 of the Land Titles Act, by ordering that the discharge of mortgage be declared void, and that the mortgage be reinstated. Ms. Marconi acknowledges that the plaintiff cannot be put into exactly the same position as it was before the discharge was registered. The plaintiff’s mortgage cannot now be registered as a first mortgage, because of the two mortgages that are currently on title. However, Ms. Marconi submits that at the very least the plaintiff should be entitled to a mortgage registered as a third mortgage.

[23] Ms. Marconi submits that the bank’s error did not extinguish the debt owed to it by the defendants. To fail to grant judgment in favour of the plaintiff would mean that the defendants have been unjustly enriched.

[24] Ms. Marconi submits that the plaintiff is entitled to rectification of the register.

[25] Ms. Marconi acknowledges that “rectification” that she seeks is pursuant to a statute, but submits that I should apply the standards used by courts of equity to rectify contracts. She submits that rectification should be granted here because:

a) there is no dispute that the plaintiff requested the wrong amount to discharge the mortgage;

b) the defendants knew, or should have known, about the mistake;

c) had the plaintiff known that the wrong amount was demanded, it would not have granted a discharge of the mortgage; and

d) it would be unconscionable to allow the defendants to take advantage of the mistake in these circumstances.

[26] Ms. Marconi particularly relies on National Trust Co. v. Newmaster (2003), 2003 64233 (ON SC), 67 O.R. (3d) 310 (S.C.J.); Pettkus v. Becker, 1980 22 (SCC), [1980] 2 S.C.R. 834; Sylvan Lake Golf & Tennis Club Ltd. v. Performance Industries Ltd., 2002 SCC 19, [2002] 1 S.C.R. 678; Royal Bank of Scotland PLC v. Oblak, [2013] O.J. No. 2995 (S.C.J.); Bramber Consulting Management & Service Corp. v. Commerce Capital Mortgage Corp. (1981), 1981 1862 (ON SC), 36 O.R. (2d) 601 (H.C.J.); Sniderman v. Gibbs, [2004] O.J. No. 4272 (S.C.J); Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp. (1994), 1994 1429 (ON CA), 24 O.R. (3d) 506 (C.A.); and McLean v. McLean (2013), 2013 ONCA 788, 118 O.R. (3d) 216 (C.A.).

[27] Mr. Waldmann, counsel for the defendants, submits that the plaintiff’s claim should be dismissed in its entirety.

[28] Mr. Waldmann submits that for the plaintiff to succeed in its claim for $46,784.11 would contravene the maxim ex turpi causa non oritur actio. He submits that the plaintiff’s debiting of the amounts towards the mortgage from the bank account was directly contrary to the direction of the Ontario Securities Commission and the order of this court. He submits that the plaintiff committed unlawful acts by violating those orders and cannot now seek the assistance of this court. He submits that the plaintiff cannot call upon this court in assisting the plaintiff to remedy its unlawful conduct.

[29] With respect to the plaintiff’s claim for rectification of the register, Mr. Waldmann submits that the plaintiff was the author of its own misfortune, and the court should not assist it. He submits that there was no mistake. Both parties intended that the mortgage be discharged, and if the plaintiff made a mistake in the amount required that is not the fault of the defendants.

[30] Furthermore, Mr. Waldmann submits that the defendants would be prejudiced, even by the registration of a third mortgage rather than by a first. He points out that the Home Trust mortgage and the second mortgage both contain clauses that require the mortgagee’s approval before the registration of any subsequent encumbrance can be effected. If a third mortgage is now registered, his clients would be at risk. Furthermore, he points out that neither Home Trust nor the second mortgagees were given notice of this proceeding, and they may well have wished to appear and take a position since their interests might be affected.

[31] Mr. Waldmann particularly relies on Poje v. Attorney General for British Columbia, 1953 34 (SCC), [1953] 1 S.C.R. 516; Re Ajax and Pickering General Hospital et al. and Canadian Union of Public Employees et al. (1982), 1981 1849 (ON CA), 35 O.R. (2d) 293 (C.A.); and Royal Bank of Canada v. El-Bris Ltd. (2008), 2008 ONCA 601, 92 O.R. (3d) 779 (C.A.).

Analysis

[32] The first issue is whether the debt in the amount of $46,784.11 survives the discharge of the mortgage. In my view, it does.

[33] There is no question that the bank was incredibly, indeed inexplicably, sloppy. For reasons that remain unexplained, the bank continued to debit the defendants’ bank account and credit the debited amounts towards the mortgage, even after the bank had become aware that it was doing so improperly. In fact, even after the bank had reversed some of the improper payments, it continued to do so. Even after the bank was asked for a discharge statement, it did not discover its mistake until after the discharge of mortgage had been registered.

[34] None of the bank’s errors, in my view, serve to relieve the defendants of the debt. There are no equitable principles that would assist the defendants. They cannot be said to have relied to their detriment on the discharge statement furnished by the plaintiff. In this respect, I entirely agree with the analysis of my colleague, Corbett J., in National Trust Co., supra. He followed the analysis of the Court of Appeal in Central Guaranty Trust, supra, and I would as well. As held by the Court of Appeal in that case, to allow the defendants to take advantage of the plaintiff’s mistake would be to unjustly enrich them.

[35] Mr. Waldmann’s argument based on the maxim ex turpi causa, while creative, is without merit. This is not a case where a plaintiff is seeking the assistance of the court in committing an illegal act or in enforcing an illegal contract. I am persuaded that any violations of the direction of the Securities Commission and the order of this court were inadvertent and unintentional. There is no issue of public policy raised that would require the court to decline enforcement of the debt: see David Cooper Investments Ltd. v. Bermuda Tavern Ltd. (2001), 2001 3639 (ON CA), 56 O.R. (3d) 243 (C.A.).

[36] For these reasons the plaintiff is entitled to judgment for $46,784.11, together with interest at the mortgage rate, 3.5 per cent, to the date of judgment.

[37] More difficult is the claim for rectification.

[38] Sections 159 and 160 of the Land Titles Act provide as follows:

159 Subject to any estates or rights acquired by registration under this Act, where a court of competent jurisdiction has decided that a person is entitled to an estate, right or interest in or to registered land or a charge and as a consequence of the decision the court is of opinion that a rectification of the register is required, the court may make an order directing the register to be rectified in such manner as is considered just.

160 Subject to any estates or rights acquired by registration under this Act, if a person is aggrieved by an entry made, or by the omission of an entry from the register, or if default is made or unnecessary delay takes place in making an entry in the register, the person aggrieved by the entry, omission, default or delay may apply to the court for an order that the register be rectified, and the court may either refuse the application with or without costs to be paid by the applicant or may, if satisfied of the justice of the case, make an order for the rectification of the register.

[39] These provisions, separately or cumulatively, give the court the necessary jurisdiction to grant the relief sought. The issue is whether I ought to do so in the circumstances of this case.

[40] Rectification is an equitable remedy. It is clear that the principles of equity apply to claims governed by sections 159 and 160 of the Land Titles Act: see Durrani v. Augier (2000), 2000 22410 (ON SC), 50 O.R. (3d) 353 (S.C.J.), at para. 52; MacIsaac v. Salo (2013), 2013 ONCA 98, 114 O.R. (3d) 226 (C.A.), at para. 39; and McLean v. McLean, supra, at para. 8.

[41] It has been the case for some considerable time that rectification is available in the case of a mutual mistake. However, it is now also available for unilateral mistake, provided certain demanding preconditions are met.

[42] The leading case in which the modern principles of rectification are discussed is Sylvan Lake, supra. In that case, the Supreme Court of Canada discussed the principles of rectification as they relate to contractual issues.

[43] At para. 31, Binnie J. for the court stated:

Rectification is an equitable remedy whose purpose is to prevent a written document form being used as an engine of fraud or misconduct “equivalent to fraud.” The traditional rule was to permit rectification only for mutual mistake, but rectification is now available for unilateral mistake (as here), provided certain demanding preconditions are met. Insofar as they are relevant to this appeal, these preconditions can be summarized as follows. Rectification is predicated on the existence of a prior oral contract whose terms are definite and ascertainable. The plaintiff must establish that the terms agreed to orally were not written down properly. The error may be fraudulent, or it may be innocent. What is essential is that at the time of execution of the written document the defendant knew or ought to have known of the error and the plaintiff did not. Moreover, the attempt of the defendant to reply on the erroneous written document must amount to “fraud or the equivalent of fraud.” The court’s task in a rectification case is corrective, not speculative. It is to restore parties to their original bargain, not to rectify a belatedly recognized error of judgment by one part of the other.

[44] At para. 36 Binnie J. stated:

I referred earlier to the four conditions precedent, or “hurdles,” that a plaintiff must overcome. To these the appellants wish to add a fifth. Rectification, they say, should not be available to a plaintiff who is negligent in reviewing the documentation of a commercial agreement. To the extent the appellants’ argument is that in such circumstance the Court may exercise its discretion to refuse the equitable remedy to such a plaintiff, I agree with them. To the extent they say the want of due diligence (or negligence) on the plaintiff’s part is an absolute bar, I think their proposition is inconsistent with principle and authority and should be rejected.

[45] At paras. 37 – 41, Binnie J. discussed the four preconditions or “hurdles” that a party must overcome in order to succeed in a claim for rectification. In summary those are as follows:

1. There must be shown the existence and content of an inconsistent prior agreement ;

2. Not only must it be shown that the written document does not correspond with the prior oral agreement, but that the other party knew or ought to have known of the mistake in reducing the oral terms to writing. It is only where permitting the other party to take advantage of the error would amount to “fraud or the equivalent of fraud” that rectification is available. Fraud in this wider sense refers to transactions falling short of deceit but where the court is of the opinion that it is unconscientious for a person to avail himself of the advantage obtained. Fraud in the “wider sense” of a ground for equitable relief “is so infinite in its varieties that the courts have not attempted to define it,” but “all kinds of unfair dealing and unconscionable conduct in matters of contract come within its ken”.

3. The third hurdle is that there must be shown “the precise form” in which the written instrument can be made to express the prior intention. There cannot be imposed “what in hindsight seems to be a sensible arrangement that the parties might have made but did not.”

4. All of the foregoing must be established by proof that may fall well short of the criminal standard, but which goes beyond the sort of proof that only reluctantly and with hesitation scrapes over the low end of the civil “more probable than not” standard.

[46] Further assistance in understanding what is meant by “fraud or the equivalent of fraud” is found in Downtown King West Development Corp v. Massey Ferguson Industries Ltd. (1996), 1996 1232 (ON CA), 28 O.R. (3d) 327 (C.A.). At p. 338, Robins J.A. for the court stated:

In my opinion, rectification ought not to be limited to situations where a party had actual knowledge of the existence of the other party’s mistake at the time the contract was executed. Equity and fair dealing in modern commercial transactions require that this form of relief be available in situations where one party may not actually have known of the other’s mistake but the mistake was of such a character and accompanied by such circumstances that the party had good reason to know of it and know what was intended.

[47] These criteria, or hurdles, are applicable by analogy to claims for rectification under sections 159 and 160 of the Land Titles Act. In my view, the plaintiff fails on the third criterion discussed by Binnie J.

[48] There is no question, in my view, that the plaintiff satisfies the first criterion, at least by analogy. There is no dispute as to the amount that was required to discharge the mortgage. What was requested did not include the amount of $46,784.11 which had been improperly credited to the mortgage, contrary to the freezing order on the defendants’ bank account. The defendants do not contend otherwise.

[49] It is also clear that the defendants knew or ought to have known of the mistake. They clearly knew of the freezing order. They also knew, or ought to have known, that payments continued to be debited from their bank account and credited to the mortgage. Quite apart from evidence of discussions between the bank and Lino Novielli, by which the bank alleges that the defendants had actual knowledge of the mistake, there can be no question on this record that the defendants should have known of it.

[50] Where this claim for rectification fails is on the third criterion. In my view, the parties cannot be put into the same position they would have been in had the mistake not been made.

[51] Had payment been made in the correct amount, the mortgage would have been discharged without incident. Since the wrong amount was tendered, and the mortgage was mistakenly discharged, the question is whether the parties can be put into the position they should have been in had the mistake not been made.

[52] If the improper amount had been tendered, and the plaintiff had recognized it as such, the discharge would not have been granted or registered, the mortgage would have remained in place, and the plaintiff would presumably have taken the enforcement proceedings to their conclusion. There would have been no Home Trust mortgage, and the second mortgage would presumably have been paid out in whole or in part, or extinguished.

[53] The parties cannot now be put into that state of affairs through any order the court might make.

[54] The plaintiff recognizes that that is so. What it now seeks, instead, is a third mortgage, presumably in the amount of $46,784.11, plus whatever interest has accrued to date. While that does not accord with what the plaintiff had before, the plaintiff says it will be content if that is done. However, that is not all. The Home Trust mortgage and the second mortgage contain clauses that effectively require approval for any subsequent encumbrance, or provide for default if such an encumbrance is registered without consent. It is entirely uncertain as to whether either mortgagee will take the position that the relevant mortgage is in default if I were to order the registration of a third mortgage. The defendants would thus be at risk. Furthermore, neither mortgagee was given notice of these proceedings. They have had no opportunity to appear and state their position.

[55] In my view, it is not possible to order the registration of an instrument that can be made to express the prior intention of the parties. Rather, what I am being invited to do is “impose what in hindsight seems to be a sensible arrangement that the parties might have made but did not.” According to Binnie J. in Sylvan Lake, that cannot be done.

[56] For these reasons, I am not persuaded that the plaintiff is entitled to seek rectification of the register.

Disposition

[57] For the foregoing reasons, I order as follows:

a) the plaintiff shall have judgment against the defendants in the amount of $46,784.11, plus interest at the rate of 3.5 per cent per annum from May 16, 2012 to the date of judgment;

b) the request by the plaintiff to rectify the register is dismissed;

c) the counterclaim is dismissed.

[58] I will entertain brief written submissions with respect to costs, not to exceed three pages together with a costs outline. Ms. Marconi shall have five days to file submissions and Mr. Waldmann shall have five days to respond. Ms. Marconi shall have three days to reply.

Gray J.

Released: December 8, 2014