Court File and Parties
CITATION: OLE Real Estate Inc. v. Shanmugam et al., 2016 ONSC 6483
COURT FILE NO.: CV-15-540262
DATE: 2016-10-17
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: OLE Real Estate Inc., Plaintiff/Moving Party
AND:
Rameshkumar Shanmugam, Sivarrupan Thurairajan and Sugirtha Kumarasamy, Defendants/Respondents
BEFORE: S.F. Dunphy
COUNSEL: Antonio Villarin, for the Plaintiff/Moving Party Sivarrupan Thurairajan, self-represented
HEARD: October 13, 2016
ENDORSEMENT
[1] This matter came before me as a motion for summary judgment by a third mortgagee as against the mortgagor and two guarantors. The defendants did not respond to the motion for summary judgment and filed only the barest of blanket denials by way of statement of defence. The second defendant appeared at the hearing but filed no material and made no submissions. Nevertheless, I granted an order dismissing both the motion for summary judgment and the claim itself. In the circumstances, I made my order without prejudice to the plaintiff starting over by filing a fresh statement of claim that correctly pleads the actual debt claimed, from whom it is owed and the precise basis for claiming it. I also ordered that the costs of this proceeding are not to be added to the mortgage since the plaintiff’s claim has been dismissed, even if with leave to start again. My endorsement indicated that reasons would follow. These are those reasons.
[2] In summary, I found that the motion for summary judgment and exceptionally confusing story outlined in the supporting affidavit bore only the most fleeting of resemblances to the statement of claim itself. Evidence in support of the pleaded claim was almost entirely lacking unless obscured behind so much extraneous detail as to have been rendered invisible. The court’s job does not extend to sifting through evidence that is the legal equivalent of an overturned bowl of spaghetti seeking to tease out of it the one or two strands that might conceivably support the claim. Further, the tactics of the plaintiff evidenced on the motion appeared to me to be improper if not abusive. While it is reasonably clear to me that someone owes something to someone (hence my without prejudice leave to start again), the issues that leapt off the page to my eye ought to be recorded so that the defendants are not taken advantage of in a future proceeding.
[3] The statement of claim on its face appeared simple enough. It sought possession of the mortgaged premises and payment of the sum of $160,862.40 under a specific mortgage dated February 17, 2015 and registered as instrument AT3811804 against a property at 126 Pegasus Trail in Scarborough. The statement of claim further pleaded standard charge terms that were incorporated by reference in the mortgage.
[4] Default was pleaded to have occurred on July 14, 2015 when only a partial payment was made.
[5] The amount of the claim as at October 9, 2015 ($160,862.40) was detailed, including $146,819.84 in principal, $9,412.56 in interest at the rate of 20% from July 15, 2015 to October 9, 2015, a $5 per day missed payment fee, a lender discharge fee and legal fees.
[6] To this point in the analysis, the claim appeared to be fairly “plain vanilla”. However, the claim itself raised two initial issues in that (i) “penalty” interest of 20% per year was claimed in addition to the $5 per day penalty fee accrued in respect of missed payments and (ii) the mortgage on its face came due on May 15, 2015 and yet default was only pleaded to have occurred two months later without explanation or accounting as to what happened in the intervening months.
[7] The former issue – penalty interest – raises a well-known issue. Our courts do not generally enforce penalty clauses without a basis to determine whether the penalty amount is a genuine pre-estimate of damages. Furthermore, relief from forfeiture may be granted on equitable terms under s. 98 of the Courts of Justice Act after a consideration of the conduct of the parties, the gravity of the alleged breach and the value of the property forfeited in relation to the damages caused by the breach. Given the dizzying variety of fees and expenses tacked on to “high-yield” mortgages such as this one that indemnify and then some every conceivable consequence of default, the task of justifying penalty interest in addition to these various default charges would appear a difficult one. There was no evidence before me whatsoever to justify the enforceability of this penalty clause.
[8] I indicated to counsel a pressing concern that I have about this issue. Certain actors in the mortgage industry appear to be quite attached to the practice of including in the fine print of their application forms penalty clauses such as the one before me with the full knowledge that such clauses are highly likely to be unenforceable if indeed they were ever discussed with or pointed out to their clients. Their often less-sophisticated clientele may either not appreciate the issue when signing their contract or find themselves bullied into paying out on an unenforceable penalty when they find themselves unable to service these higher-risk mortgages. It is beyond my jurisdiction to attempt to regulate this industry, but it is not beyond my jurisdiction to highlight an abusive practice when I see it. I have seen this on multiple occasions and if a light is not shone upon the abusive practice, it will continue unabated. Herewith light.
[9] The issue of the date of default simply raised a question. Clearly some amount had been paid when the mortgage came due if default was only pleaded to have occurred two months later. What was paid and was the debt properly accounted for? For answers to these questions, resort had to be had to the evidence on the summary judgment motion.
[10] I will not attempt to summarize the confusing evidence spilled before me on the summary judgment motion. I found it impossible to reconcile the stories of all of the related party lenders who apparently advanced significant sums of money, very often in cash, to one or the other of the defendants or to contractors doing work on the house. The only thing to be remarked upon in this confusing tale that I have likened to an overturned bowl of spaghetti is that not a single breath of it was actually pleaded in the statement of claim.
[11] Buried deep within the motion materials before me however was the actual mortgage document mentioned in the statement of claim. I thought, perhaps, sufficient evidence to deal with the claim and the motion might be found upon examining this central document to the case. Instead of shining light, however, an examination of the text of the actual mortgage only put me further away from understanding the claim or reconciling the statement of claim to the motion for judgment being pursued.
[12] The mortgage was not signed by any of the defendants and contains the statement “this document is not authorized under power of attorney by this party” under the Chargor’s name. It was instead signed by Mr. Villarin as counsel to the mortgagee along with a statement “I have the authority to sign and register the document on behalf of the Chargor(s)”. Normally the authority for such a signature is found in a form of Direction signed by the Mortgagor and/or guarantors. If such a direction was signed in this case, I could not locate it in the pile of documents filed. On its face, I had no evidence before me that the mortgage was even valid. Not a promising start.
[13] The second and third defendants appear as guarantors but similarly are not signatories to the mortgage itself nor does the statement of claim plead any specific guarantee agreement by which they might be bound. In fairness, documents that might support a guarantee claim were included in the exhibits to Mr. Servito’s affidavit but, not having been pleaded, cannot form the basis of a judgment. Judgment can only be sought for the claim pleaded, not the one that ought to have been pleaded. No claim against the guarantors was validly pleaded as the mortgage was not signed by them and cannot therefore be the source of their obligation.
[14] The evidence before me also confirmed that the mortgage as registered was clearly a collateral mortgage of some sort. The principal amount indicated - $200,000 – was neither the amount claimed nor the amount actually advanced. There is nothing in particular wrong with a collateral mortgage. However, the pleading does not so describe it nor does the collateral nature of the mortgage emerge from the face of the mortgage document itself. If the pleading is pursuing a claim under a collateral mortgage, the origin of the debt secured must be found elsewhere than the mortgage. No loan agreement establishing the debt for which the mortgage might have collateral was pleaded. Instead, a cryptic reference to the plaintiff’s intent to refer to a “Commitment” at trial was included as a catch-all at the end of this entirely deficient claim.
[15] As pleaded, I concluded that the claim could simply not succeed. Applying for what was virtually default judgment is not the time to seek to amend the plaintiff’s way into a viable claim without notice to any party. Whether the mortgage is valid at all, what debt may be owing by virtue of what specific agreement I cannot say. The proper course in my view was to dismiss the claim and motion. I have done so on a without prejudice basis since the evidence before me suggests that the plaintiff may be able to piece together a coherent claim arising from the commitment letter signed by all of the parties if it is actually pleaded.
[16] In summary, the court’s job is not to try to figure out a claim that the plaintiff has been unable to state coherently. I am unwilling to do more than invite the plaintiff to start again and to state the reservations that my review of the material gave rise to for future reference. There is no apparent limitation issue and my order is functionally equivalent to requiring the plaintiff to serve and file a fresh as amended statement of claim that makes sense and actually corresponds to the facts it intends to prove.
S. F. Dunphy J.
Date: October 17, 2016