Court File and Parties
COURT FILE NO.: CV-16-547909 Motion heard: April 25, 2017 SUPERIOR COURT OF JUSTICE - ONTARIO
RE: LIDIA KULESHNYK, Plaintiff AND HERTA KULESHNYK, Defendant
BEFORE: Master Lou Ann M. Pope
COUNSEL: Counsel for plaintiff: Robert Watt Fax: 416-907-1028 Counsel for defendant: Stephen M. Turk Fax: 416-317-6076
REASONS FOR ENDORSEMENT
[1] The plaintiff seeks orders to preserve mortgage payments made pursuant to a vendor take back mortgage from the sale of property owned by the defendant requiring that the payments be paid into court to the credit of this action. The plaintiff relies on Rules 45.01 and 45.02 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194.
[2] On March 14, 2017, I adjourned this motion to today and ordered that the entire mortgage payment due to be made on April 8, 2017 of some $187,000 be held in trust by Mr. Turk, defence counsel, until further order of this court. At the hearing today, Mr. Turk advised that he is holding in trust the said amount.
[3] The parties are daughter and mother. The defendant/mother (“Herta”) owned farm property in Ajax, Ontario (“property”). The plaintiff/daughter (“Lidia”) lived on the farm property over the years.
[4] Lidia and Herta entered into a written agreement dated June 7, 2009 whereby it was acknowledged in the preamble that Herta wished to recognize Lidia’s contribution of her time, expertise and money to maintain and protect the value of the property. The agreement provided that when the property was sold, Lidia would be entitled to receive 50 per cent of the net proceeds of the sale. “Net Proceeds” was defined as 50 per cent of all proceeds, in whatever form, after payment of realty taxes, encumbrances, real estate commissions, legal fees and utility arrears. It went on to state that in the event of a sale with a mortgage back, Lidia’s entitlement would include one half of the vendor take back mortgage. It further provided that Herta had sole discretion to sell the property and Lidia would take no steps to affect the title to the property and no steps to impede any sale. If Lidia took steps in contravention, she would not be entitled to any payment on the sale.
[5] Herta and Lidia’s signatures of the parties were witnessed by the same lawyer. The only evidence that the agreement was drafted by a lawyer is from Lidia. The agreement does not set out the name of a lawyer who drafted the agreement and there is no backing page which sets out a lawyer’s name. Lidia’s evidence is that the parties had independent legal advice prior to signing the agreement which is denied by Herta.
[6] Herta sold the property and the closing took place on April 18, 2015 for $3.4 million payable by cash and a vendor take back mortgage of $2 million. The terms of payment are as follows:
(a) April 8, 2016 - $150,000 principal plus $40,000 interest; (b) April 8, 2017 - $150,000 principal plus $37,000 interest; (c) April 8, 2018 - $150,000 principal plus $34,000 interest; (d) April 8, 2019 - $1,550,000 principal plus $31,000 interest.
[7] After the agreement was signed and prior to the sale of the property, Herta registered a reverse mortgage against title to the property in the approximate amount of $343,000, unknown to Lidia. On closing, the balance owing on the reverse mortgage was paid out of the sale proceeds. This had the effect of reducing the net proceeds and thus reducing the amount of Lidia’s entitlement under the agreement.
[8] On and after the closing, Herta made payments to Lidia under the agreement which total approximately $467,300. However, Lidia states that Herta has received approximately $922,741 from the sale proceeds including the monies from the reverse mortgage.
[9] The applicable rules are as follows:
45.01(1) The court may make an interim order for the custody or preservation of any property in question in a proceeding or relevant to an issue in a proceeding, and for that purpose may authorize entry on or into any property in the possession of a party or of a person not a party.
45.02 Where the right of a party to a specific fund is in question, the court may order the fund to be paid into court or otherwise secured on such terms as are just.
[10] The parties agree on the test for order for payment into court under rule 45.02 as set out in the decision in Sadie Moranis Realty Corp. v. 1667038 Ontario Inc., 111 O.R. (3d) 401, 2012 ONCA 475, at para. 18. The three-part test requires the plaintiff to establish that:
(a) the plaintiff claims a right to a specific fund; (b) there is a serious issue to be tried regarding the plaintiff’s claim to that fund; (c) the balance of convenience favours granting the relief sought by the plaintiff.
[11] Regarding the first requirement, the case law is clear that there be a specific fund readily identifiable when the order is sought and that the plaintiff asserts a legal right to the specific fund as a claim in the litigation. The test will not be met where a plaintiff’s claim is for damages because a claim for damages is not a claim to a legal right to that fund. (Sadie Moranis, para. 21)
[12] The second and third requirements ensure that interference with the defendant’s disposition of assets is limited to cases where the plaintiff has a serious prospect of ultimate success. In considering the balance of convenience, the plaintiff must adduce compelling evidence, such as a real concern that the defendant will dissipate the specific fund sufficient to outweigh the defendant’s freedom to deal with her property.
[13] In her statement of claim, Lidia claimed one half of the vendor take back mortgage payments and to an adjustment with respect to the monies taken out of the property by way of the reverse mortgage. She also sought an order that the net sale proceeds not yet distributed be paid into court and an order for directions on dispersal of the net proceeds of sale. She further sought damages for breach of contract given the unequal payments already made.
[14] Regarding the first requirement, it is clear from the statement of claim that the plaintiff has sought one half of the vendor take back mortgage payments. The terms of the mortgage regarding payment amounts and payment dates are clear.
[15] The defendant submits that the plaintiff does not have a claim to all the funds she is seeking to have paid into court. In the statement of claim, she makes a claim to one half of the mortgage payments; however, in her notice of motion she seeks an order that all the mortgage payments be paid into court, including the payments due on April 8, 2017, April 8, 2018 and April 8, 2019. As such the defendant submits that the plaintiff has not met the first requirement.
[16] The defendant submits further that the fund is not readily identifiable as the parties are not in agreement as to the funds based on the pleadings.
[17] It is my view that Lidia has satisfied the first requirement. In the statement of claim, she claimed a right one half of the mortgage payments. The terms of payment of the mortgage are clear and unequivocal. The specific fund that Lidia claims a right to are the mortgage payments payable on the due dates according to the terms of the mortgage. Thus, the fund was identifiable when the motion was brought based on each of the payment dates under the mortgage. In my view, the fact that the mortgage payments had not been made when the motion was brought does not prohibit the granting of an order under rule 45.02. In fact, if a plaintiff in these circumstances was required to wait until a mortgage payment was made to apply to the court for an order under rule 45.02 in order to establish that a fund existed, plaintiffs would be faced with opposing arguments that there is no fund as the monies had already been paid out. That, in my view, is not what was intended by rule 45.02.
[18] Regarding the second requirement, the plaintiff must establish that there is a serious issue to be tried regarding the plaintiff’s claim to that fund. The defendant relies on the principle that a plaintiff is required to establish that she has a serious prospect of ultimate success in the action. (Cohen v. Woodcliffe Corporation, 2016 ONSC 3951, at para. 12) The defendant also submits that there is uncertainty as to the terms of the agreement given Lidia’s allegations in the statement of claim that it was her understanding that the property was not to be mortgaged at any time pending any sale. Given that certainty of a contract’s essential terms are a necessary requirement in order for a contract to be enforceable, the defendant submits this agreement is not enforceable. Further, the defendant submits that there is no evidence that the plaintiff performed $1.7 million (being one half of the sale price of $3.4 million) worth of work that allegedly led to the agreement or that Lidia added value to the property. Lastly, the defendant contends that Lidia breached the terms of the agreement when she registered a Notice on title to the property.
[19] For the following reasons, I find that Lidia has established that there is a serious issue to be tried regarding her claim to the mortgage payments. There is no dispute that the parties entered into the subject agreement on June 7, 2009 and there is no issue that the signatures are the respective parties’ signatures. There is also no issue that Herta made payments to Lidia from the sale proceeds of the property. Further, this is not a case where the claim is based on an allegation of an oral agreement. If that were the case I would be less inclined to conclude that the plaintiff has a good prospect of success. Moreover, Herta has another child, a daughter, who resides in Austria. Therefore, it is reasonable to conclude that Lidia, having always resided with Herta on the farm, contributed to the upkeep and maintenance of the property over the years such that Herta was willing to recognize Lidia’s contributions by payment to her of half of the sale proceeds.
[20] I do not agree that the Notice registered on title to the property by Lidia amounted to a breach of the agreement as the Notice was registered after the closing of the sale. It is clear that the agreement refers to Lidia taking steps to impede a sale to which Herta agreed. In my view, paragraph 3 of the agreement refers to the period of time when the property was owned by Herta.
[21] On the other hand, Herta pled in her statement of defence and counterclaim that Lidia exerted undue influence on her and abuse to force Herta to enter into the agreement. It was also pled that she made payments to Lidia from the sale proceeds as a result of Lidia’s undue influence and abuse toward Herta. Herta has asserted a counterclaim seeking, inter alia, a declaration that the agreement is void ab initio, and an order that requires Lidia to return to Herta $476,799.50 paid to Lidia from the sale proceeds.
[22] Given the pleadings and the evidence filed on this motion, I am satisfied that there is a serious issue to be tried regarding the plaintiff’s claim to the mortgage payments and that the plaintiff has a serious prospect of success in this action.
[23] The third part of the test requires the plaintiff to establish that the balance of convenience favours granting the relief sought by the plaintiff. The Court of Appeal in Sadie Moranis stated at paragraph 20 that this requirement ensures that interference with the defendant’s disposition of assets is limited to cases where there is something compelling on the plaintiff’s side of the scales, such as a real concern that the defendant will dissipate the specific fund, sufficient to outweigh the defendant’s freedom to deal with her property.
[24] Herta is 75 years of age. Her evidence is that she has a number of health issues; however, there are no particulars. She resides alone in a one bedroom apartment. Herta states that from the sale proceeds she is required to pay capital gains tax of approximately $455,000 which she has and will continue to pay in installments. She states that $70,000 was due in February 2017 when she swore her affidavit and further amounts are due later this year. While I accept that capital gains tax was payable on the sale of the farm, the fact that Herta has not provided any documentary evidence to that effect puts the quantum of payments and timing of payments in issue.
[25] There is no evidence from the plaintiff of any real concern that Herta will dissipate the mortgage payments. Notably, Herta did not give Lidia any portion of the April 8, 2016 mortgage payment of approximately $190,000 and the April 8, 2017 mortgage payment is being held in trust by Mr. Turk of approximately $187,000. The next mortgage payment is due on April 8, 2018 of some $184,000 and a final payment on April 8, 2019 of some $1,581,000.
[26] In my view, the real concern is whether Herta will take steps to alienate some or all of the mortgage payments if they are not paid into court particularly in light of the fact that she took out a reverse mortgage without Lidia’s knowledge. As I have found that there is an identifiable fund to which Lidia has asserted a legal right and having found that there is a serious issue to be tried, it is my view, that a portion of the mortgage payments must be protected. At the same time, the court must recognize Herta’s right to deal with the mortgage payments, including paying any tax that is due.
[27] At best, Lidia is entitled to $1.7 million being one half of the sale price of $3.4 million without taking into consideration payments on closing and capital gains tax owing if proven. Lidia has received to date approximately $467,300 (or $467,800 according to Herta). I find no juristic reason why Herta’s portion of the mortgage payments, assuming Lidia is successful in the action, should be frozen as Lidia has not made a claim to those funds. Therefore, I find that it is just in the circumstances that the final mortgage payment due on April 8, 2019 of $1,581,000 be paid into court to the credit of this action. This will permit Herta to deal with the mortgage payments as they come due and to pay any tax obligations while at the same time it will protect sufficient monies in the event that Lidia is successful in this action. The monies currently held in trust by Mr. Turk shall be released to Herta.
[28] Both parties seek costs of this motion. The plaintiff was successful in part. I view the result as divided. Therefore, there shall be no order as to costs.
[29] For the above reasons, the following orders shall be issued:
(a) the defendant shall pay into court to the credit of this action the full amount of the mortgage payment that is due and payable on April 8, 2019 of approximately $1,581,000; (b) The mortgage payment of approximately $187,000 currently held in trust by Mr. Turk shall be paid out to the defendant forthwith.
(original signed) May 1, 2017 Master Lou Ann M. Pope