CITATION: Magenta Mortgage Investment Corporation, et al. v. Ashlar Construction Ltd., et al., 2017 ONSC 6621
COURT FILE NO.: 15-66318: 16-69031; 16-69032
DATE: 2017/11/06
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
Magenta Mortgage Investment Corporation and Magenta Capital Corporation in its Capacity of General Partner of Magenta Mortgage Investment Limited Partnership and Magenta II Mortgage Investment Corporation
Plaintiffs
– and –
Ashlar Construction Ltd. and Stefan Samné aka Stefane Samné aka Stefan Hamed
Defendants
Jennifer Therrien, for the Plaintiffs
Self
AND BETWEEN:
Ashlar Construction Ltd.
Plaintiff by Counterclaim
– and –
Magenta Mortgage Investment Corporation and Magenta Capital Corporation in its Capacity of General Partner of Magenta Mortgage Investment Limited Partnership and Magenta II Mortgage Investment Corporation
Defendants by Counterclaim
HEARD: June 22, June 23, and September 25, 2017
Motions for Summary JUDGMENT
Justice A. Doyle
Overview
[1] The Plaintiffs bring a motion for summary judgment against the Defendants, jointly and severally, for:
− liquidated damages due under mortgages registered against properties previously owned by the Defendants;
− pre-judgment and post-judgment interest at the contractual rates, calculated semi-annually, not in advance, from October 29, 2015 to the date of payment or in the alternative, pursuant to the provisions of the Courts of Justice Act, R.S.O. 1990, c. C.43 (“CJA”);
− dismissal of the counterclaim brought by the Defendants; and
− costs associated with the default and sale of the four properties.
[2] The Defendants bring a motion for partial summary judgment rendering the Plaintiffs liable for damages for breach of contract and on equitable estoppel. They are also requesting an order that a hearing be set for the assessment of damages.
[3] Both parties agree that there is no genuine issue requiring trial except that there would be a hearing for the assessment of damages if the Defendants are successful.
[4] These motions, dealing with three different actions on four different properties, were heard together, i.e.:
− File # 15-66318 relates to mortgages on 1604 and 1605 Magic Morning, Ottawa and 108 Aaron Merrick, Merrickville;
− File # 16-69031 relates to the mortgage on 99A and 99B Concord, Ottawa; and
− File # 16-69032 relates to the mortgage on 114 Isabella, Ottawa.
[5] The Defendants admit:
− to being parties to these mortgages and that the mortgages were registered against the respective lands;
− that the mortgages were subject to the terms set out in the standard charge terms as registered on title;
− that the Defendant Stefan Samné was the guarantor on all the mortgages; and
− that the properties were sold by way of a power of sale although Mr. Samné disagrees with the deficiencies claimed.
[6] The motions proceeded on the evidence contained in the numerous Affidavits of Brandy Thompson, Senior Default Specialist; Margaret Pratt, Manager of Operations; and Stefan Samné.
[7] At the attendances on these motions, the Defendants indicated that they were proposing to file a motion requesting an order to amend their pleadings to allege improvident sales on the sales of the properties. The Court indicated that such motion should be brought promptly before me prior to the release of my decision on these motions. The first attendance before me was on June 22, 2017, although there were previous attendances and adjournments.
[8] As of the release of this decision, the Defendants have not brought a motion before the Court. The Defendants have had sufficient time to move for an amendment and have failed to do so. Accordingly, the issue of improvident sales is not before the Court.
Issue
[9] Are the Plaintiffs entitled to a summary judgment for the deficiencies on the power of sales on the four properties or are the Defendants entitled to a partial summary judgment?
Background
[10] The Plaintiffs (Magenta) are involved in the business of holding investments and providing mortgages.
[11] The Defendant Stefan Samné (Mr. Samné) is a self-employed home builder who is the president of the Defendant Ashlar Construction Ltd. (Ashlar), which was incorporated by Stefan Hamed in 2008.
[12] Mr. Samné’s surname at birth was Hamed. Since he felt he was a victim of discrimination due to his Middle Eastern name, he legally changed his name to Stefan Samné. He notified the Plaintiffs of this change on January 20, 2012.
[13] The Defendants chose to do business with the Plaintiffs due to their policy of advancing mortgage funds in the amount of 85% of the final value rather than the building costs (which were less).
[14] The structure and payment schemes on the four mortgages on the four properties were similar.
[15] All mortgages were subject to the terms set out in the Standard Charge # 200033 and the Concord property had other standard clauses. The terms included:
− charge of service fees for missed payments or Not Sufficient Funds (NSF) cheques or default of a prior charge;
− right of possession of the properties by the mortgagee upon default;
− any extensions of time allowed by the mortgagee would not prejudice in any way the rights of the mortgagee;
− unpaid costs such as insurance, taxes, levies, utilities and legal fees would be added to the principal; and
− the Defendants were permitted to defer a monthly payment up to three times per year so long as the mortgage was not in default.
Plaintiff’s position
[16] By April 2015, the mortgages on all four properties were in default. The Defendants had defaulted on payments, made late payments, bounced cheques, failed to pay contractors and failed to maintain the required insurance coverage.
[17] The sale of each property resulted in deficiencies as the sale proceeds did not cover the outstanding mortgage amounts and the ancillary costs.
[18] The Plaintiffs allege the following deficiencies:
− Isabella property: $ 93,336.36;
− Magic Morning property: $ 167,801.06;
− Aaron Merrick property: $ 99,918.36; and
− Concord property: $ 431,471.84.
Total: $ 792,527.62
[19] The Plaintiffs respond to the Defendants’ allegations as follows:
− They deny that there was an oral agreement that mortgage payments would be permitted to be paid from the Concord draw;
− The plaintiffs did not by their statement or conduct, create a mutual assumption that mortgage payments from the other mortgages could always be paid from the Concord draw.
− They deny that they told the Defendants that all mortgages would automatically be renewed;
− They provided the Defendants with reasonable notice that the mortgages would not be renewed due to their payment history;
− It was within their rights, in accordance with the terms of the mortgage, to pay unpaid contractors and lien holders from the draws; and
− They deny that there was a mutual assumption that the defendants would be able to defer payments at their discretion.
Defendants’ position
[20] The Defendants have raised a number of issues in their defence and counterclaim. The Defendants’ main argument is that there was an oral agreement with the Plaintiffs, that there was equitable estoppel and the Plaintiff’s payments to unpaid contractors caused the Defendants to fall into financial hardship on the construction project.
[21] Ashlar had built 7 new homes and completed 50 home renovation projects. From 2009 until April 2015, Magenta was the principal financial backer for Ashlar’s commercial activities and 5 out of 7 home construction projects were financed by Magenta.
[22] Usually Ashlar would be engaged in construction work on only one project at a time. Given that the loans were calculated on the basis of the project values and not the construction costs, the draws to fund the current project would be used to service debt on pre-existing loans from earlier projects which had not yet been sold and to cover operating expenses.
[23] For example, Magenta advanced funds on the Malcolm’s Way project which were used, in part, to finance loan interest payments on the Aaron Merrick project. Also, advances on Pebble Trail project were used to fund the Malcolm Way’s project, and Concord draws were used to pay mortgage payments on the Aaron Merrick, Isabella and Magic Morning properties.
[24] On June 25, 2014, the Defendants purchased the Concord properties from TYSE Limited as part of a broader transaction with TYSE. They arranged for a vendor mortgage back. Mr. Samné said that he told Magenta that the financing was for the construction of two dwellings and other operating funds for Ashlar. In his June 17, 2016 affidavit, he stated that he had told Magenta that the Concord project loan would be Ashlar’s primary source of income for the duration of the project and that these funds would be used for general operations and payments on other loans, as well as to cover costs directly related to the Concord development. He alleges that Magenta accepted this arrangement.
[25] Mr. Samné says that the payment of other mortgages from the Concord construction draw (pay debt with debt) was done routinely and it was a long-established practice.
[26] He states that before signing the loan contract, he had told Magenta that it would take at least 2 months to complete the necessary preliminary steps on the Concord project, such as permitting an additional 14 months to complete the build.
[27] The Defendants allege that the Plaintiffs did not honour their contract, that there was an oral agreement and pleads equitable estoppel. They allege as follows:
− The mortgage on the Concord property was a construction mortgage which would provide advances to the Defendants as the building project advanced;
− The Plaintiffs were aware that the Defendants relied on the Concord draw to pay for the other mortgages with the Plaintiffs and they permitted this to occur on numerous occasions. When the Defendants signed the Isabella commitment on October 18, 2012, Mr. Samné submits that he specifically requested that all payments of other mortgages be paid out of the draws of the construction projects that were ongoing at the time;
− The mortgages were normally automatically renewed and the Plaintiffs failed to forewarn him that they would not be renewing the mortgages; and
− Finally, the Plaintiffs paid contractors without notifying Mr. Samné or obtaining his consent. For example, Linfra Developments Inc. (Linfra), operated by Frank Baraki, received funds from the Plaintiff without consent or advance notice to the Defendants. For example, the Plaintiffs paid $35,000 to Frank Baraki, even though he was not entitled to these funds, and then advanced him $17,000 when Mr. Baraki falsely told them he had paid the city for taxes. Also, the Plaintiffs paid funds to a roofer without prior notification to him. This was an unnecessary payment as his lawyer was negotiating with the roofer’s lawyer to settle the matter for a lesser amount.
[28] Consequently, as a result of Magenta’s actions and breaches of contract, Ashlar’s operations on Concord “were effectively brought to a standstill”.
[29] Due to the Plaintiffs’ breaches of contract, the Defendants lacked the liquidity needed to perform the work itself or replace Linfra and so the project could not advance and the Defendants could not receive further draws.
[30] In addition, the Defendants indicate that there was an abrupt shift of attitude by the Plaintiffs in 2014. He attributes that this is due to a corporate reorganization which would preclude any mortgages over $1.5m. The Isabella mortgage was over this maximum amount and he submits that the Plaintiffs wished to remove this mortgage from their books. Given that there is no evidence before the court regarding the issue, the Court will not consider this allegation.
[31] The Defendants submit that the deficiencies were as follows:
− Isabella property: $ 63,789.00;
− Magic Morning property: $ 111,385.67;
− Aaron Merrick property: $ 77,922.80; and
− Concord property: $ 190,754.05.
Total: $ 443,851.52.
[32] Finally, the Defendants argued that the Plaintiffs failed to exercise their duty of care to obtain fair market values for the properties. His materials included evidence on this issue and appraisals. As indicated above, this issue is not properly before me. If improvident sales had been pleaded, then the Plaintiffs would have filed evidence outlining the efforts made to sell, market values of the properties and the reasonable efforts to obtain market value for the properties. Therefore, the court will not consider the issue of whether the Plaintiffs exercised their duty of care on the sales.
The Law
Summary Judgment
[33] Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the “Rules”) provides that a court must grant a summary judgment when there is no genuine issue requiring trial. The powers of the Court are set out below:
20.01 (1) A plaintiff may, after the defendant has delivered a statement of defence or served a notice of motion, move with supporting affidavit material or other evidence for summary judgment on all or part of the claim in the statement of claim.
(2) The plaintiff may move, without notice, for leave to serve a notice of motion for summary judgment together with the statement of claim, and leave may be given where special urgency is shown, subject to such directions as are just.
(3) A defendant may, after delivering a statement of defence, move with supporting affidavit material or other evidence for summary judgment dismissing all or part of the claim in the statement of claim.
20.4 (2) The court shall grant summary judgment if,
(a) the court is satisfied that there is no genuine issue requiring a trial with respect to a claim or defence; or
(b) the parties agree to have all or part of the claim determined by a summary judgment and the court is satisfied that it is appropriate to grant summary judgment.
(2.1) In determining under clause (2) (a) whether there is a genuine issue requiring a trial, the court shall consider the evidence submitted by the parties and, if the determination is being made by a judge, the judge may exercise any of the following powers for the purpose, unless it is in the interest of justice for such powers to be exercised only at a trial:
Weighing the evidence.
Evaluating the credibility of a deponent.
Drawing any reasonable inference from the evidence.
[34] Where summary judgment is refused or granted only in part, pursuant to Rules 20.05(1) and (2), the court can specify what material facts are not in dispute, define the issues to be tried, order that the action proceed to trial expeditiously, and make numerous further orders and directions that may be just in the circumstances.
[35] As stated in Hryniak v. Maudlin, 2014 SCC 7, at para. 49, there is no genuine issue requiring a trial when the court is able to reach a fair and just determination on the merits on the motion. This will be the case where the process (1) allows the Court to make necessary findings of fact; (2) allows the Court to apply the law to the facts; and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.
[36] Regarding partial summary judgment motions, Karakatsanis J. noted, at para. 60, that the “resolution of an important claim against a key party could significantly advance access to justice, and be the most proportionate”.
[37] In Butera v. Chown, Cairns LLP, 2017 ONCA 783, the Court of Appeal found that partial summary judgment is also available. It stated that:
[34] When bringing a motion for partial summary judgment, the moving party should consider these factors in assessing whether the motion is advisable in the context of the litigation as a whole. A motion for partial summary judgment should be considered to be a rare procedure that is reserved for an issue or issues that may be readily bifurcated from those in the main action and that may be dealt with expeditiously and in a cost effective manner. Such an approach is consistent with the objectives described by the Supreme Court in Hryniak and with the direction that the Rules be liberally construed to secure the just, most expeditious, and least expensive determination of every civil proceeding on its merits.
[38] A responding party is required to put his best foot forward and cannot simply assert a bald denial but rather set out relevant evidence with specific facts and coherent evidence setting out that there is a genuine issue for trial.
Equitable estoppel
[39] The principle of equitable estoppel was summarized in John Burrows Ltd. v. Subsurface Surveys Ltd. and G. Murdoch Whitcomb, 1968 CanLII 81 (SCC), [1968] SCR 607, at p. 614-16:
Since the decision of the present Lord Denning in the case of Central London Property Trust Ltd. v. High Trees House Ltd., there has been a great deal of discussion, both academic and judicial, on the question of whether that decision extended the doctrine of estoppel beyond the limits which had been theretofore fixed, but in this Court in the case of Conwest Exploration Co. Ltd. et al. v. Letain, Mr. Justice Judson, speaking for the majority of the Court, expressed the view that Lord Denning’s statement had not done anything more than restate the principle expressed by Lord Cairns in Hughes v. Metropolitan Railway Co., in the following terms:
It is the first principle upon which all courts of equity proceed, that if parties, who have entered into definite and distinct terms, involving certain legal results—certain penalties or legal forfeiture—afterwards by their own act or with their own consent, enter upon a course of negotiation which has the effect of leading one of the parties to suppose that the strict rights arising under the contract will not be enforced, or will be kept in suspense, or held in abeyance, the person who otherwise might have enforced those rights will not be allowed to enforce them where it would be inequitable, having regard to the dealings which have thus taken place between the parties.
In the case of Combe v. Combe, Lord Denning recognized the fact that some people had treated his decision in the High Trees case as having extended the principle stated by Lord Cairns and he was careful to restate the matter in the following terms:
The principle, as I understand it, is that where one party has, by his words or conduct, made to the other a promise or assurance which was intended to affect the legal relations between them and to be acted on accordingly, then, once the other party has taken him at his word and acted on it, the one who gave the promise or assurance cannot afterwards be allowed to revert to the previous legal relations as if no such promise or assurance had been made by him, but he must accept their legal relations subject to the qualification which he himself has so introduced, even though it is not supported in point of law by any consideration, but only by his word.
It seems clear to me that this type of equitable defence cannot be invoked unless there is some evidence that one of the parties entered into a course of negotiation which had the effect of leading the other to suppose that the strict rights under the contract would not be enforced, and I think that this implies that there must be evidence from which it can be inferred that the first party intended that the legal relations created by the contract would be altered as a result of the negotiations.
It is not enough to show that one party has taken advantage of indulgences granted to him by the other for if this were so in relation to commercial transactions, such as promissory notes, it would mean that the holders of such notes would be required to insist on the very letter being enforced in all cases for fear that any indulgences granted and acted upon could be translated into a waiver of their rights to enforce the contract according to its terms.
As Viscount Simonds said in Tool Metal Manufacturing Co. Ltd. v. Tungsten Electric Co. Ltd.:
…the gist of the equity lies in the fact that one party has by his conduct led the other to alter his position. I lay stress on this, because I would not have it supposed, particularly in commercial transactions, that mere acts of indulgence are apt to create rights…
The learned trial judge dealt with the rule of estoppel by representation as applied to the circumstances of the present case in the following brief paragraphs:
It is my opinion, however, that for such a rule to apply, the plaintiff must have known or should have known that his action or inaction was being acted upon by the defendant and that the defendant thereby changed his legal position. I do not believe that John Burrows ever gave any consideration to the fact that in accepting late payments of interest on the note, he was thereby leading Mr. Whitcomb—as an officer of the defendant corporation—into thinking that strict compliance would not be required at any time. [footnotes omitted]
Oral Agreements
[40] As stated in Henderson J. in Fleischhacker v. Dekaneas (2006), 44 R.P.R. (4th) 315 (Ont. S.C.), the Statute of Frauds, R.S.O. 1990, c. S.19, does not prevent a person from using an oral agreement as a defence. In that case, the Defendant mortgagors alleged that the mortgagee orally agreed that the Defendants would not be required to make any payments on the mortgage and would not be charged interest until they had completed the development of the subdivision. The Court of Appeal, (2006), 49 R.P.R. (4th) 63, confirmed Henderson J.’s granting summary judgment to the mortgagee where he found that the Defendants could not avoid the Statute by reason of part performance, as there were no acts of the Defendants that could be interpreted to be unequivocal evidence of the existence of an oral agreement. The Defendants could not succeed by alleging on oral agreement nor by alleging equitable estoppel. There was no oral agreement because there was no consideration from the Defendants to the mortgagee, and the Defendants could not succeed on equitable estoppel as no act or omission by the Defendants existed that relied upon the mortgagee’s promise to extend time for payment on the mortgage.
[41] As discussed in McMurdo v. Saleem, 2010 ONSC 5641, the oral agreement alleged by the Defendants was contrary to the mortgage terms. In addition, there is no consideration to support a valid contract or raise equitable estoppel. There was no unequivocal acceptance of the terms alleged by the Defendants.
Analysis
Summary Judgment
[42] Both parties are requesting summary judgment. The Court finds that the evidence before it is extensive and comprehensive, and is sufficient for it to make findings of fact, draw inferences and apply the law to the facts to render a final summary judgment. Rendering a summary judgment would ensure that the justice rendered is proportional, expeditious, timely and cost effective.
[43] The Court is able to reach a fair and just determination on the merits of the motions on these files as:
− The documentary evidence regarding each of the mortgages, the terms, the payment history, correspondence between the parties and the sales is complete and comprehensive; and
− The parties have provided extensive facta and the Court is able to apply the law to the facts.
[44] For the reasons set out below, the Court finds the Plaintiffs are entitled to summary judgment for the deficiencies on the power of sale of all four properties. The Court finds that the Defendants were in default pursuant to the terms of the mortgage. Pursuant to the terms of the mortgages, the Plaintiffs were entitled to take possession of the properties and sell them.
Oral Agreement and Equitable Estoppel
[45] Section 4 of the Statute of Frauds states that:
“No action shall be brought … to charge any person upon any contract or sale of lands … or any interest in or concerning them, unless the agreement upon which the action is brought, ... is in writing…”.
[46] For the reasons set out below, the court finds that the Defendants have failed to establish the existence of an oral agreement and they cannot avoid the Statute of Frauds by reason of part performance. The Court finds that there are no acts of the Plaintiffs that could be interpreted to be unequivocal evidence of the existence of an oral agreement. In addition, there was no consideration.
[47] As shown below, the Defendants requested that payment of debt from debt and were permitted on occasion but they were not entitled to do so indiscriminately.
[48] All the mortgages were standardized loan agreements prepared by Magenta with minor variations including varied loan amounts and repayment terms.
[49] The process to obtain a mortgage would include discussions with Magenta and his mortgage broker and the Defendants. Once Magenta agreed in principle, he would submit an application online to the mortgage broker who would then would forward it to Magenta.
[50] Magenta would prepare a pre-approved document entitled “Mortgage Commitment”. The Defendants had no ability to negotiate the terms.
[51] The Defendants allege that in written correspondence, Magenta explicitly stated that the loan would be automatically renewed if the project took longer than the initial term. Unless there was material change of circumstances or problem with payment history, then Magenta would have to raise the issue with Ashlar so Ashlar had the opportunity to address them (see Mr. Samné’s affidavit dated June 17, 2016 para. 40). However, the Defendants did not produce this correspondence or any evidence indicating that there was an oral agreement to an automatic renewal of the mortgage.
[52] The Court finds that the Defendants have failed to establish that there was an oral agreement because:
− The Defendants indicate that at the time of the mortgage commitment on the Isabella property, Mr. Samné had discussed the concept of paying “debt from debt”.
− Firstly, a review of the mortgage commitment makes no referral to this agreement. The document indicates the payments from this mortgage would be paid out of the draw. There is no reference or term that mortgages on other properties would be paid out of this draw.
− As the evidence below indicates, the Defendants were not indiscriminately permitted to pay debt from debt. Mortgage payments were made from the Concord draw on June 13, 2014. In the past, mortgage payments were permitted from construction draws on June 7, 2012, August 22, 2012 and October 23, 2012.
− However, the payment of debt from debt was not a pattern or a set of assumptions as negotiated which would continue indefinitely. The Court finds that there was no oral agreement that would permit the Defendants to pay “debt with debt” indiscriminately. In fact, the Defendant asked permission in the summer of 2014 which shows that it was something that was not assumed.
− The Plaintiffs’ response to this request was provided in August 2014. In an email, the Plaintiffs told the Defendants that they would not permit debt to be paid from debt.
− The Court does not accept the Defendants’ allegations that they were permitted to pay debt with debt after August 14, 2014. There was no evidence of this filed with the Court.
− Deferrals occurred and were permitted by the Plaintiffs. Although the maximum was three times per year, it was at the Plaintiffs’ discretion if more deferrals were allowed. The Court finds that there was no pattern that provided an unfettered right for the Defendants to defer payments. Permission had to be obtained and, as shown below, was denied on numerous occasions.
[53] Regarding equitable estoppel, in accordance with Burrows, there is no evidence that the Plaintiffs had led the Defendants to believe that the contract had been altered. The Defendants were permitted to pay debt with debt but only upon request, which was not continuously given.
[54] The evidence discussed below does not show that the Plaintiffs entered into negotiation with the Defendant which had the effect of leading the Defendants to suppose that the strict rights arising under the mortgage would not be enforced, or alternatively would be suspended.
[55] The mortgage was not automatically renewed. It was not a given. In each of the mortgages, the Plaintiffs would send an offer to renew with terms and a deadline. It would be renewed if the Defendants did not respond by the deadline.
[56] The mortgage terms maintained the renewal was in the discretion of the Plaintiffs and the Defendants may have been under the impression that they would be renewed, but this was contingent that the mortgage was in good standing in accordance with the terms of the mortgage which he had agreed to.
[57] Having regard to the dealings with the parties, the Plaintiffs were enforcing their rights under the mortgage and, as discussed in more detail below, there is evidence of the Plaintiffs indicating their intention to do so.
[58] The Court agrees with Justice Henderson’s summary regarding oral agreements and equitable estoppel in Fleischhacker v. Dekaneas 2006 CanLii 9966(ON SC):
− If an oral agreement is raised as a defence, in my view it is possible to do so in one of two ways; either by alleging a valid oral contract, or by alleging equitable estoppel. In this case, there can be no valid oral contract because there is no consideration going from the (D) to the (P). Therefore, the only possible defence for the (D) in this case is by way of the principle of equitable estoppel.
− However, the (D) have a major problem with equitable estoppel because there is no act or omission by the (D) made in reliance upon the (P’s) promise to extend the time for payment on the mortgage. That is, in reliance on the (P’s) promise, the (D) simply did not pay the mortgage. That is not enough.
− In my view, where a plaintiff and a defendant have an existing legal relationship and the plaintiff promises not to hold the defendant to the defendant’s legal obligations, the fact that the defendant does not fulfill their obligations does not amount to an act or omission in reliance on the plaintiff’s promise.
− This concept is explained in The Law of Contracts by S. M. Waddams (4th Edition) at paragraph 196, wherein Professor Waddams writes:
“One of the clearest instances of the injustice . . . arises in the modifications of existing relationships. No difficulty arises when changes are made that might possibly be beneficial to both sides. The problem of absence of consideration arises, however, where a change is agreed that can only benefit one party.”
Payment of contractors
[59] The Plaintiffs did not breach the contract by paying unpaid contractors. Payments were stopped on the Concord project because of the payment history, overdue contractors’ invoices and liens registered against the property. The Plaintiffs were exercising their rights under the mortgage terms.
[60] More specifically:
− The roofer, who had a lien on the property, had to be paid his approximate $10,000. There was no evidence that the Defendants’ and roofer’s lawyers had negotiated a deal.
− Regarding the liens, the mortgagee must protect its security hence the clause in the mortgage permits them to be paid without notice or consent of the Defendants. They were within their rights under the mortgage to pay the liens registered by Linfra and Mr. Baraki
− In addition, the Defendants sued Linfra and Mr. Barkaki. The Plaintiffs were not made a party to the action against Linfra and Mr. Baraki. The liens paid by the Plaintiffs were appropriate as the mortgage terms entitle them to protect their security. If the Defendants had an issue with respect to the payments made to Linfra and their actions in the project they should have made the Plaintiffs parties to the action. The final order of Justice Roger dated April 1, 2016 grants the Defendants judgment against Mr. Baraki and Linfra for $97,314.68 in damages for fraud and damages of $840 for breach of contract plus punitive damages.
Reasonable notice
[61] The Defendants were warned that the mortgages may not be renewed in the fall 2014.
[62] In an email dated November 12, 2014, Brandy Thompson wrote to Mr. Samné and indicated the following: “Magenta is very concerned about your files. The Magic Morning property matures January 11, 2015; Isabella matures January 1, 2014; and Arron [sic] Merrick is not maturing until May 1, 2015. At this point, I am uncertain if Magenta will be able to offer renewals on Magic Morning or Isabella, we may be demanding to be paid in full”.
[63] On February 9, 2015, Denise Buckley on behalf of Magenta wrote to Mr. Samné re: Concord funding:
We have reviewed the numbers. I am quite concerned as I have mentioned on a number of occasions. We had to pay the lien and this has impacted your draw and all your files are currently in arrears. Brandy will advise this morning about what funds if any are available to you. With regards to your request for NSF fee reimbursement. I have never agreed to this. You have yet to provide us the documents we continue to request. We will advise later today how this build will continue.
The Mortgages
[64] The discussion of each mortgage below will show that the Plaintiffs did not agree to terms other than those set out in the contract. The Plaintiffs did not, by their actions, lead the Defendants to suppose that the Plaintiffs would not enforce the strict rights under the mortgages.
[65] For each mortgage, I will provide a general overview of the mortgage, the payment history showing the Defendants in default and the Plaintiffs’ reaction to these defaults (which the Court finds complied with the terms of the mortgage) and detail the deficiencies on the sale of each property.
Action File # 15-66318: 108 Aaron Merrick, Merrickville and 1604-1605 Magic Morning Ottawa
108 Aaron Merrick property, Merrickville, Ontario
Overview
[66] On March 10, 2010, Ashlar Construction Ltd., as mortgagor, and Stefan Hamed, as guarantor, entered into a mortgage with the Plaintiffs, i.e. Magenta Mortgage Investment Corporation and Magenta Capital Corporation in its capacity of General Partner of Magenta Mortgage Investment Limited Partnership and Magenta II Mortgage Investment Corporation, for the principal amount of $370,209 at an interest rate of 8.25% (“first mortgage”). It was secured against the 108 Aaron Merrick property. It was registered on April 6, 2010. The monthly payment was $2,545.19.
[67] It was registered as Charge # 200033.
[68] Schedule A included conditions of approval which were incorporated into the mortgage commitment and which provided that the mortgagee would give the mortgagor, prior to the maturity date of the mortgage, a notice for renewal offer or a demand for payment in full.
[69] It states:
Renewal is not guaranteed. Renewal (including the rate and term) is determined by your repayment history on this mortgage. Missed mortgage payments, insurance cancellations, and late property tax, water and sewer, and condo arrears (where applicable) will be considered, along with your current credit bureau report when your mortgage matures.
[70] The deferral clause indicated that payments could be deferred up to a maximum of three times per year as follows:
Provided that the mortgage is not in default, the regular payment amount may be deferred, upon to a maximum of three times during each year of the mortgage term, with the anniversary date being the interest adjustment date. The deferred payment must be effected no later than the next regularly scheduled payment date. The request to defer a mortgage payment must be in the form of an email or fax received by the Lender no fewer than 2 business days prior to the regular payment date. The Lender will confirm receipt. If you do not receive confirmation, your notice has not been received. An administration fee in the amount of $90.00 will be charged for the first and all subsequent deferrals. Deferred payments must be made as scheduled. NSF, as opposed to deferred payments, may result in an increase in the interest rate accorded at renewal. NSF payments may also result in a demand for payment at maturity.
[71] On July 18, 2011, the Plaintiffs received notice from Frank Napolitano, the Defendants’ mortgage broker, that they would be paying out on the mortgage, but this was subsequently cancelled on August 18, 2011.
[72] On March 12, 2012, there was a renewal of the mortgage for one year in the amount of $370,209 at rate of 8.25%.
[73] On April 22, 2013, the mortgage was renewed at $372,102.19 at 9% rate of interest. Since the property was later rented, the Plaintiffs agreed to reduce the rate of interest to 7.95%. The mortgage was renewed again in June 2014.
Payment History
[74] The payment history is as follows:
− On February 28, 2014, Mr. Samné asked for a deferral of the March 1 payment;
− on May 30 2014, Mr. Samné asked for deferral of the June 1, 2014 payment;
− on June 10, 2014, Mr. Samné asked for deferral of the July 1, 2014 payment;
− on July 29, 2014, the Defendants asked for deferral of the August 1, 2014 payment and the Plaintiffs agreed to extend it to August 31, 2014;
− on September 29, 2014, Mr. Samné asked for deferral of the October 1, 2014 payment; the Plaintiff refused this deferral as the maximum deferrals of three per year had been reached;
− the October 2014 payment was NSF, as the cheque bounced;
− the December 2014 payment indicated that the account was closed;
− the January 2015 payment indicated that the account was closed;
− the Defendants paid the accrued interest on Isabella and Magic Morning and agreed not to take payments from his account until maturity in April 2015 to avoid additional NSF fees.
[75] Mr. Samné has explanations for the number of issues that arose during the lives of the mortgages:
− The July 11, 2014 payment was missed due to business cheques that were printed from his personal account;
− No payments were missed before April 2015 and until then there had been no suggestion that the mortgage would not be renewed; and
− The policy limiting deferrals to three per year did not exist at the beginning of their relationship; Mr. Samné did not notice it in commitments and the Plaintiffs did not follow this rule in the early part of the relationship.
[76] On April 11, 2015, the Plaintiffs wrote to Mr. Samné indicating that they were not renewing the mortgage and that he owed $372, 801.97 plus $81.03 per diem.
[77] The Plaintiffs received a notice of Cancellation of Insurance on May 7, 2015 and arranged their own insurance.
Power of Sale
[78] On September 9, 2015, the Plaintiff issued a notice of sale pursuant to the mortgage.
[79] On November 23, 2015, the property was listed for sale on REALTOR.ca for 94 days and on February 26, 2016 it was sold to two individuals for $369,000.
[80] The Plaintiff indicated that the deficiencies from the sale were $99,918.36 which included principal owing, outstanding interest and fees, repairs and maintenance, appraisals, heat and hydro, legal fees, Vista, realtor commission and default and discharge fees.
[81] The Defendant alleges that the Plaintiff did not act in good faith in obtaining the fair market value. The time span between the default and listing was 221 days. The issue of improvident sale is not before the court and hence this allegation is irrelevant.
[82] The Court will deal with each of the Defendants’ objections to the amount claimed. The Defendant pled that the deficiencies were actually $76,629.80 due to the following disputes:
− Mr. Samné claimed that he not responsible for legal work involving a third-party lawyer, M. Ranaivoson, who is not related to this matter. The Court finds that the work involving this individual involves work on another case dealing with the Defendants. The other ongoing litigation required the attendance of the Plaintiffs at court. The Court finds that this was in the realm of the clause allowing the Plaintiffs to add legal fees to the principal owing. The mortgage terms permit the Plaintiffs to charge legal fees related to the defaults of the mortgage and the Plaintiffs are entitled to review the legal fees on a global basis. However, the court notes that this work was involving the Concord property and should be included in the power of sale deficiencies in that file. In addition, the Court notes that the Plaintiffs have included the legal fees invoice June 21, 2016 Invoice # 128244 on all four properties for an amount of $6454.92. It will be deducted from the deficiencies on all properties except the Concord property.
− All legal actions involving the properties as a result of the defaults should be included as per clause 8 of the mortgage which permits all legal fees associated with the default of the mortgage are added to the principal owing. Clause 8 states:
[M]ay pay or satisfy any lien, charge or encumbrance now existing or hereafter created or claimed upon the land, which payments with interest at the rate provided for in the charge shall likewise be a charge upon the land in favour of the charge. Provided, and it is hereby further agreed… that all amounts paid by the Chargee as the aforesaid shall be added to the principal amount secured by the Charge and shall be payable forthwith with interest at the rate provided for in the Charge, and on default all sums secured by the Charge shall immediately become due and payable at the option of the Chargee, and all powers of the Charge conferred shall become exercisable.
− Insurance invoices were not provided. The Plaintiffs did not file copies of the invoices for insurance but there was evidence that insurance was in place. The Court refused to permit the Plaintiffs to orally provide a breakdown of the amount. Therefore, the amount of $1,458.42 claimed as deficiencies is not allowed.
− At the motion, Mr. Samné conceded $1,300.00 of the legal bills.
[83] Accordingly, the Court finds that the deficiencies are $92,005.02.
1604 and 1605 Magic Morning property
Overview
[84] On January 25, 2012, Ashlar Construction Ltd., as mortgagor, with Stefan Samné, as guarantor, entered into a mortgage with Magenta Mortgage Investment Corporation and Magenta Capital Corporation in its capacity of General Partner of Magenta Mortgage Investment Limited Partnership and Magenta II Mortgage Investment Corporation as mortgagee. The principal amount was $566,933.33 at the interest rate of 7% with a monthly payment of $4,724.44. It was registered against the Magic Morning property (“second mortgage”).
[85] The mortgages were subject to the Standard Charge Term # 200033, which provided the following:
13 In default of the payment of the interest secured by the Charge the principal amount secured by the Charge shall, at the option of the Chargee, immediately become payable, and upon default of payment of instalments of principal promptly as the same mature, the balance of the principal and interest secured by the Charge shall, at the option of the Chargee, immediately become payable.
19 No extension of time given by the Chargee to Chargor or anyone claiming under him, or any other dealing by the Chargee with the owner of the land or any part thereof, shall in any way affect or prejudice the rights of the Chargee against the Chargor or any other person liable for the payment of the money secured by the Charge…
[86] There were three renewals. There was a renewal on or about December 16, 2012 when the Defendant Mr. Samné entered into a mortgage approval for a mortgage in principal amount of $627,708 for a one year term at an interest rate of 10.00%.
[87] In a letter dated April 22, 2013, Magenta wrote to the Defendants with an offer for renewal which stated that the mortgage would be automatically renewed if the signed mortgage agreement was not received by April 30, 2013.
[88] The mortgage was automatically renewed on April 30, 2013 as the Defendant did not reply to the mortgage renewal agreement sent by the Plaintiffs by the date specified in the offer.
[89] On or about January 13, 2014, Magenta sent an offer to renew the mortgage with the principal amount of $627,580.57 for a term of 12 months at an interest rate of 9.00%. If the signed renewal mortgage agreement was not received by February 1, 2014, the mortgage would be automatically renewed. Since it was not received by the due date, Magenta advised that the mortgage had been automatically renewed pursuant to the terms of Magenta’s offer.
[90] On January 7, 2014, the Plaintiff wrote to the Defendant to advise that the mortgage was up for renewal. If the properties were leased then the rate of interest was 5.99%; otherwise, it would have continued at 9%.
[91] On January 13, 2014, the Plaintiff made an offer for a renewal of the mortgage for the amount of $627,580.56 at the rate of 9% for one year and requiring a response by February 1, 2014. No response was received, so the mortgage was renewed on February 5, 2014 for 12 months with an open term at the interest rate of 9%.
[92] The additional provisions provided that the mortgage was also being registered on 1605 Magic Morning Way and 108 Aaron Merrick Drive. Payment under one mortgage would constitute payment under the other mortgage. A clause provided that a default on the second mortgage constituted a default on the first mortgage.
[93] The mortgage was assigned to Magenta Capital Corporation in its capacity of General Partner of Magenta Mortgage Investment Limited Partnership.
Payment History
[94] On February 6, 2014, the Defendant Stefan Samné requested Magenta to defer payments on 1604 and 1605 Magic Morning Way and on that date, the Plaintiff wrote to Mr. Samné to remind him of deferral fees and that the deferred payments would have to be paid within 30 days.
[95] The Plaintiff wrote to Mr. Samné on February 19, 24 2014 and March 6, 2014 to request confirmation of when the deferred payment would be paid. On March 7, 2014, the Plaintiff stated that they would collect the February 11, 2014 payments on March 11, 2014.
[96] They agreed to defer the March 11, 2014 payments to April 11, 2014 on the Magic Morning Way properties.
[97] The Defendant asked for a deferral of the payment on April 8, 2014.
[98] On April 9, 2014, the Plaintiff advised the Defendant that they must get the deferred payments from March 11 on April 11 as they could not let the mortgages go past 30 days in arrears.
[99] The Plaintiff agreed to defer the April 11 payment to May 11. They confirmed that Mr. Samné had now deferred January, February, March and April payments. He was told to pay the April and May payments on May 11 and that they could not offer any further deferrals as the maximum of three times per year had been reached.
[100] The April 11, 2014 payment was returned by the Defendants’ bank and the May 2014 payment was NSF.
[101] On July 10, 2014, Mr. Samné asked for a breakdown of payments and the Plaintiff told him when the payments were due each month:
− 1604 Morning Way, $5,066.02 monthly payment due on the 11th
− Aaron Merrick, $2,972.10 monthly payment due on the 1st
− Concord, $3,091.57 monthly payment due on the 13th
− Isabella, $3,826.22 monthly payment due on the 1st
[102] The Defendant’s July 2014 payment was NSF and the Plaintiffs sent him an email on July l6, 2014 to advise. His September 2014 cheque was returned NSF.
[103] On September 3, 2014, the Plaintiff was advised that the insurance had been cancelled, so the Plaintiff arranged for their own insurance.
[104] In an email dated November 12, 2014, Brandy Thompson advised Mr. Samné that Magenta was very concerned about their files. She said: “I am uncertain if Magenta will be able to offer renewals on Magic Morning or Isabella, we may be demanding to be paid in full”.
[105] In December 2014, the Defendant was trying to sell the property and further details will be provided below.
[106] After the deal did not go through in December 2014, Mr. Samné advised the Plaintiffs that he was going to sue the buyer.
[107] The Plaintiff advised him that the payments had to continue.
[108] The January 2015 payment was NSF.
[109] On April 7, 2015, the Plaintiff wrote that they would not renew the mortgage on Morning Way. The total owing, with principal and accrued interest and property tax, was $635,743.81 and $103.74 per diem.
Proposed Sale of the Property by the Defendants
[110] On November 13, 2014, Mr. Samné advised the Plaintiffs that he had signed an Agreement of Purchase and Sale with a closing date of December 7, 2014 and requested a payout statement.
[111] On November 14, 2014, Brandy Thompson sent a discharge statement to the Defendants.
[112] The sale would not be able to cover the mortgage on the property and the Plaintiffs made some suggestions, including a blanket mortgage, to deal with the shortfall but the Defendant’s lawyer was not prepared to agree to this.
[113] Discussions between the parties involved proposals by the Plaintiffs that Mr. Samné would pay the real estate commission and the balance owing would be held as a mortgage against the remaining properties and paid by the next Concord advance.
[114] In the December 9, 2014, a letter from Seymour Mender, Mr. Samné’s lawyer, advised that he had not registered the discharge of the mortgage as the buyer had not proceeded with the deal; the buyers were not satisfied with the work done on the construction deficiencies.
[115] On December 21, 2014, the Defendant advised the Plaintiff to hold payments as he was going after the buyer.
[116] On December 23, 2014, Magenta wrote to confirm that the sale proceeds would not have been enough to pay out the existing mortgage on Magic Morning and willing to work on assisting him. However, payments needed to be made on the mortgage as there was “no room to accrue any interest”.
[117] The Court finds that the Plaintiffs cooperated with the defendants and their solicitors to facilitate the sale. The court finds that they sent the discharge statement promptly and made suggestions and options to deal with the anticipated shortfall from the sale.
Power of Sale
[118] The Magic Morning property had been appraised at $656,000 by Carty Appraisals.
[119] On September 9, 2015, the Plaintiff issued a notice of sale under the mortgage as the Defendants failed to pay off the balance owing on the mortgage.
[120] On November 23 2015, the property was listed for sale on REALTOR.ca for $609,900.
[121] On December 10, 2015, it was set to close for $535,400 but was delayed until Jan 5, 2016.
[122] It was listed on REALTOR.ca for 17 days until sale.
[123] The Plaintiff claims that the deficiencies after the sale totaled $192,956.96, minus $25,155.90 = $167,801.06, with HST at $40,776.91.
[124] The Defendant states it was $111,385.67 because:
− this was not a new home and therefore, there should not have been HST payable of $65,932.81. The court file indicates that real estate lawyers were involved and HST was paid with a credit owed to the purchaser transferred to the Plaintiffs. There is no evidence that this is inappropriate. There is no evidence that the property was occupied by previous owners which would mean that there would be no HST payable. Both solicitors for the purchasers and vendors included the payment of the HST. The Defendant relies on his own assumptions and speculation with no evidence to indicate that HST was not applicable on the sale of this property. At the motion, the Plaintiffs notes that there was a credit that had not been accounted for and the Plaintiffs state that the amount should be $40,776.91.
− the Vista hot water rental had a security registration and it is standard practice for a buyer to take over the tank. The Court finds that the registration was registered against the title for nonpayment and in order for the Plaintiffs were to be able to sell the property with clear title they had to pay the lien in the amount of $4,088.09; and
− Mr. Samné states he should not be responsible for legal work to assist a third party involving M. Ranaivoson. As discussed above, legal fees involving matters dealing with the default of the mortgage are acceptable as described above as within the purview of dealing with a property where the mortgagor had defaulted on the mortgage. This lawyer was involved in an action where the Defendants were involved and the Plaintiffs were required to attend court. However as stated above, due to double counting the amount of $6454.92 will be removed.
[125] Therefore, the deficiencies are $161,346.14.
Action File # 16-69032: Isabella Property
Overview
[126] On October 19, 2012, a mortgage was signed for $1,854,912.50 for a year at an interest rate of 10.75%, with monthly payments of $17,033.59. It was a construction mortgage for a 7-unit apartment building with a completed value of $2,150,000 with a maturity date of November 1, 2013. The mortgage was registered on October 30, 2012 with Magenta III Mortgage Investment Corporation as mortgagee, Ashlar Construction Ltd. as mortgagor and Stefan Samné as the guarantor.
[127] The mortgage was renewed once in 2013.
[128] Renewal was not guaranteed; it was discretionary and the mortgage had to be in good standing. Regular payments could be deferred up to a maximum of three times during the year.
[129] The standard clauses included a clause that if the mortgagor’s payments are not honoured the mortgagor will pay to the mortgagee, for each returned or late payment, a service fee as a liquidated amount to cover the mortgagee’s administrative costs.
[130] The charge provided that, upon default of payment to principal or interest or in performance of any of the terms and condition, the mortgagee may enter into and take possession of the land. The mortgagee may commence a legal action for whatever relief is appropriate including, but not limited to, foreclosure. The mortgagor will pay all costs.
[131] The charge also provided that if there is a default under any prior charge, it shall constitute a default here and the mortgagee may exercise all powers in pursuit of remedying the default. The mortgagor will furnish documentation to the mortgagee upon request confirming the status of any prior charge.
[132] The charge was also subject to a clause that in case of a default of payment, compound interest shall be payable and that arrears for interest from the time before and after default and judgment shall bear interest at a rate as provided in the charge.
[133] The charge also provided that the mortgagee may pay premiums of insurance, taxes, rates levies, charges, assessments, utility and heating charges which fall due and that all costs related to the proceedings taken in connection to realize upon the security given in the charge – including legal fees, real estate commissions and other costs with interest rate as provided in the charge. The mortgagee may pay or satisfy any lien, charge or encumbrance claimed upon the land with interest at the rate set out in the charge.
[134] In default of interest, the principal at the option of the mortgagee, shall become payable. Upon default of principal and interest, the balance, at the Mortgagee’s option, can become due and payable.
[135] This is an important clause that is at the nub of these proceedings. It merits repeating in full:
- No extension of time given by the Chargee to the Chargor or anyone claiming under him or any other dealing by the Chargee with the owner of the land or of any part thereof, shall in any way affect or prejudice the rights of the Chargee against the Chargor or any other person liable for the payment of the money secured by the Charge, and the Charge may be renewed by an agreement in writing at maturity for any term with or without an increased rate of interest notwithstanding that there may be subsequent encumbrances. It shall not be necessary to deliver for registration any such agreement in order to retain priority for the Charge so altered over any Instrument delivered for registration subsequent to the Charge. Provided that nothing contained in this paragraph shall confer any right of renewal upon the Chargor.
[136] The Mortgagee advanced $292,012.50 with net proceeds of $236,253.00 (after holdback, application fee, property tax holdback, draw fee, and wire charges).
[137] On or about July 20, 2015, the Plaintiff served the Defendant with a notice of assignment of mortgage notifying them that Magenta III Mortgage Investment Corporation had transferred all of its title rights and interest in the mortgage to Magenta Capital Corporation.
[138] This assignment was part of a larger corporate reorganization of the Magenta corporations. Prior to June 1, 2014, all of the mortgages were held within a mortgage investment fund. Magenta Capital Corporation managed three of these funds. On June 1, 2014, Magenta restructured to form three limited partnerships. The mortgages were assigned/transferred from the mortgage investment fund to a limited partnership. Magenta Capital Corporation is the General Partner in all three partnerships and manages the day to day operations of the mortgages.
Payment History
[139] At the time of the maturity of the mortgage on November 1, 2013, the plan and appraisal were outstanding. They were received on December 13, 2013. On December 17, 2013, the mortgagee sent a mortgage renewal offer requiring a response by January 10, 2014. None was received by the deadline, so the mortgage was automatically renewed in accordance with the mortgage renewal agreement.
[140] Upon Mr. Samné’s requests, he was granted the deferrals of payments of the April 1, 2014 and May 1, 2014 payments. The payments were ultimately provided but both were returned NSF. He was granted a deferral of the August 1, 2014 mortgage payment.
[141] On August 11, 2014, Mr. Samné asked Denise Buckley of Magenta if he could pay for the mortgage on each property from the Concord draw.
[142] In an email dated August 12, 2014, Ms. Buckley advised Mr. Samné that the Plaintiff would not agree on an ongoing basis to take payments from the construction draw:
After a full review of your portfolio with our audit department, in reference to the request for the information statement requested on Aaron Merrick we are no longer able to offer this option. We will require payments made on an ongoing basis to the files that are not part of the construction.
[143] Mr. Samné was granted a deferral of the August 1, 2014 mortgage payment. Both the August 2014 and September 2014 payments were returned NSF.
[144] The Plaintiff wrote to Mr. Samné on September 5, 2014 advising him of the above defaults and demanded payments by September 19, 2014 plus fees.
[145] Mr. Samné’s request for deferral of the October 1, 2014 payment was denied on the Isabella and Aaron Merrick properties as each mortgage had the maximum deferrals per calendar year.
[146] The October and December 2014 mortgage payments were NSF.
[147] On October 6, 2014, the Plaintiff wrote to Mr. Samné asking for immediate payment for default plus fees by October 20, 2014.
[148] On November 12, 2014, the Plaintiff wrote to Mr. Samné warning him that due to defaults and payment history, there may not be a renewal of the mortgage. The Isabella mortgage matured January 1, 2015, Magic Morning on January 11, 2015 and Aaron Merrick on May 1, 2015.
[149] On January 1, 2015, the mortgage payment was returned with the mention “account closed”. On January 9, 2015, the Plaintiff wrote to Mr. Samné asking for payment before January 16, 2015.
[150] On April 9, 2015, the Plaintiff wrote to Mr. Samné advising him that they would not be renewing the mortgage, the outstanding mortgage amount of $361,119.42 was owed and payment had to be received by April 30, 2015, otherwise they would proceed with a power of sale.
[151] On July 20, 2015, the Plaintiff sent a notice of assignment of mortgage to Magenta Capital Corporation in its capacity as General Partner of Magenta III Mortgage Investment Limited Partnership.
[152] The Plaintiff received notice that insurance on the property was cancelled due to termination for non-payment. The Plaintiff was forced to find replacement insurance.
[153] The Plaintiffs state that the Defendants fell into default on April 30, 2015.
Power of Sale
[154] On July 20, 2015, the Plaintiff served a notice of sale under the mortgage. They commenced power of sale proceedings on August 10, 2015.
[155] On August 9, 2016, the Plaintiff entered into an agreement of purchase and sale with a numbered company for $404,000 with a closing date of September 30, 2016. The closing took place on October 28, 2016.
[156] The property was never listed on the Realtor.ca website. The Plaintiff’s statement of deficiency shows the amount of $93,336.36 which includes principal, interest, fees, repairs, appraisals, insurance, heat and hydro, legal fees, property taxes, realtor commission and default and discharge fees.
[157] The Defendant’s position is that the deficiency is $63,789.
[158] The Court makes the following determinations regarding the Defendants’ objections to the deficiencies:
− The Colliers’ appraisal, dated April 29, 2015 and filed by the Defendants, indicates the following on pg. 46:
− In contrast, the MPAC (city of Ottawa) property value assessment shows $486,000 as of January 1, 2016. In any event, the issue of improvident sales is not before the Court.
− Mr. Samné also states that there must be a bank balance to the tax account as he prepaid. On the contrary, the evidence indicates that in fact the realty taxes were in arrears and the Plaintiffs received a notice indicating that monies were owed to the municipality.
− Mr. Samné again suggests that the legal fees account refers to M. Ranaivoson who is not related to this litigation and so legal fees should be reduced from $11,866.54 to $7,995.83. Again, the Court finds that all legal fees associated with these properties were within the mortgage term for the Plaintiffs to be reimbursed in the event of default. However as stated above, due to double counting the amount of $6454.92 will be removed.
[159] Therefore, the amount in deficiencies is $86,881.44.
Action File # 16-69031: 99A and 99B Concord, Ottawa
Overview
[160] This mortgage was with Magenta Capital Corporation and Magenta Mortgage Investment Corporation. The Concord project consisted of a front unit (Unit B) and a back unit (Unit A).
[161] On April 10, 2014, the mortgage commitment was for $1,155,912.45 at the rate of 9.9%. interest, with a monthly payment of $9,622.97. It was changed to $940,397.50 for a one year term (as the purchase price was lower than expected) and monthly payments of $8,120.48. The mortgage was registered against the property located at the municipal address of 99A and 99B Concord Street North, Ottawa. The maturity date was June 30, 2015 and it was not renewed.
[162] It was subject to Standard Charge # 200033.
[163] Mr. Samné was represented by mortgage broker Frank Napolitano, of Mortgage Brokers Ottawa, and by lawyer Seymour Mender, of Barnes Sammon.
[164] The mortgage was registered on June 26, 2014 and it contained similar standard clauses as in the other properties, including:
− service fee for late payments or NSF cheques;
− possession upon default,
− must pay all insurance, taxes, etc. and if in default, at the option of the Mortgagee, all become due; and
− no extension of time given by the mortgagee shall affect or prejudice the rights of the Mortgagee.
[165] Advances were provided from June 13, 2014 to March 16, 2015. The first draw of $346,500 was for the purchase of the land. The remaining draws were released to finance the construction.
Payment History
[166] Constructions advances were provided once the Defendants had provided an appraisal report certifying what proportion of the total work had been completed. The Plaintiffs admit that from time to time they allowed the Defendants to pay the mortgage payments from the Concord draws. However, on August 11, 2014, Mr. Samné asked that this be done on an ongoing basis for all mortgage payments.
[167] In an email dated August 12, 2014, Ms. Denise Buckley, on the Plaintiffs’ behalf, advised that the Plaintiff would not agree to take payments from the construction draws on an ongoing basis and that it would require regular monthly payments. The Plaintiff would not agree that the Defendant could “use debt to pay debt”.
[168] On February 9, 2015, Ms. Buckley wrote an email to Mr. Samné outlining Magenta’s concern that all files were in arrears.
[169] On February 9, 2015, Mr. Samné wrote:
What are you concerned about? Things are moving very quickly with paint and trim to be completed by next week and kitchen in four weeks that were already ordered. At the Gala, I spoke to you about the stopped transfers and explained that I had been asking all along that the mortgage payments come out of subsequent draws and had stopped these payments as to not negatively impact the project and facilitate cash flow.
[170] Brandy Thompson described the Concord mortgage as follows:
The purpose of the Concord mortgage was to fund construction for building at the Concord property. Plaintiff did not accept or approve payments for unrelated expenses. The draws were never intended by Magenta to finance unrelated expenses. All lines and invoices paid directly by Magenta under the concord mortgage were in relation to the build of Concord property.
[171] In February 2015, the Plaintiff was contacted by trades for non-payment of their accounts. On February 18, 23 and 27, 2015 and March 24, 2015, the Plaintiff paid trades for their unpaid accounts.
[172] On March 12, 2015, 5he Plaintiffs terminated their draws on the construction mortgage.
[173] A lien was registered in favour of Frank Baraki and Linfra Developments on April 17, 2015. A certificate of action was filed with the Court on June 22, 2015.
[174] This filing was done 66 days after the lien was registered and 21 days after the 45-day time limit provided by the Construction Lien Act, R.S.O. 1990, c. C.30, s. 36(2):
A lien that has been preserved expires unless it is perfected prior to the end of the forty-five-day period next following the last day, under section 31, on which the lien could have been preserved.
[175] The claim was never served on the Defendants, and the solicitor obtained an order to remove himself from the record on October 9, 2015.
[176] On November 17, 2015, the Plaintiff issued the notice of sale under the mortgage and paid $42,702.96 into Court to secure the lien and have it removed.
[177] Draws from November 5, 2015 and March 26, 2016 were paid to trades to remove liens and encumbrances from title.
[178] On or about April 23, 2015, the second mortgagee, TYSE Limited, issued a notice of sale, a notice of intent to realize on security and a notice of intention to enforce security. The mortgage had been in default since December 30, 2014 and required payment of $243,217.77 by May 29, 2015, which was not paid. The second mortgage was a vendor take back mortgage and Magenta was aware of it.
[179] On September 3, 2014, the Plaintiffs were notified that the property insurance on the Magic Morning property was cancelled for non-payment.
[180] The Defendants’ September 14, 2014 payment was returned NSF. The Plaintiffs advised the Defendants of the default.
[181] Appraisals were used to determine the maximum that could be released for each stage of the project to help ensure the mortgagor would have sufficient funds to compete the project.
[182] Pursuant to the terms of the mortgage, payments were to be disbursed directly to contractors and suppliers upon receipt of relevant invoices consistent with the construction budget and pre-approved by Magenta in relation to the project.
[183] The mortgage provided:
The solicitor will supervise the disbursement of all funds. Funds will be disbursed directly to contractors and suppliers upon provision of relevant invoices, consistent with the construction budget and pre-approved for payment by the Mortgagee. The solicitor will sub-search for constructions liens prior to the disbursement of such funds.
[184] Magenta did not consent to the payment of accrued interest from the draws on an ongoing basis. The Defendants were required to pay accrued interest until construction commenced. During construction, the accrued interest was deducted from the draws. Once construction was complete, the Defendants were required to make monthly mortgage payments.
[185] The Defendants’ July 23, 2014 and August 13, 2014 accrued interest payments were taken from the Defendants’ account as agreed.
[186] Magenta paid various contractors, dating back to 2014 on invoices addressed to the Defendants, which were unpaid as of February/March 2015. Contractors were threatening lien actions and legal fees if invoices were not paid. They were paid to avoid more interest and legal fees.
[187] Ms. Thompson received a voicemail from Mr. Samné on February 25, 2015 saying that he and Frank Baraki wanted to come to the Magenta office to pick up their cheques for Linfra, in the amount of $60,000, and the Defendant, in the amount of $2,274.63.
[188] On April 7, 2015, the Plaintiffs advised the Defendants that due to the poor payment history, they were not planning to renew the mortgage and that as of April 28, 2015 the amount of $635,743.81 was owed.
[189] Since the Defendants did not pay the balance, a Statement of Claim was issued on October 29, 2015.
Power of Sale
[190] On April 25, 2016, units A and B on Concord were purchased by TYSE Limited for $712,650. The deficiencies claimed after the sale include principal amount owing, outstanding interest and fees, repairs, appraisals, legal fees, lien funds paid into court, default charges, and Linfra Development fees for a total $431,471.84. The income from sale was $713,358.87.
[191] The Defendants state that the deficiencies are $190,754.05 as:
− payments to Mr. Baraki were made without Mr. Samné’s consent. The Court finds that these payments were made to protect the security of the property. The lien funds of $70,228.24 paid into court and the development fees of $17,901.28 owing to the city were paid in good faith and in an effort to protect their security interest, all within the terms of the mortgage;
− the payment of $10,717.50 for the lien of the roofer was without Mr. Samné’s consent. The Court finds that the Plaintiff was entitled to pay this, pursuant to the mortgage commitment clauses and charge terms that they could pay off liens registered against the property without need to obtain consent or notify the Plaintiffs;
− Mr. Samné should not have to pay the Vista credit security on hot water tank, furnace and air conditioner rentals. The purchaser usually takes over the lease agreement; The court disagrees. This was registered on title and the plaintiffs were entitled to pay the same to ensure that their security was protected.
− legal bills show work done involving a third party, M. Ranaivoson, are acceptable as described above as within the purview of dealing with a property where the mortgagor had defaulted on the mortgage. This lawyer was involved in an action where the Defendants were involved and the Plaintiffs were required to attend court.
− it took them 371 days to sell from the default which the Plaintiff says took place on April 22, 2014 in their Statement of Claim;
− Allan Waugh attended on the property with the agreement of the Defendant to provide an estimate. Mr. Samné stated that he did not know there was a charge for him to attend the construction site to review it on behalf of the Plaintiff as he was a friend of the Plaintiff. Services rendered should be paid. There was no discussion that Mr. Waugh would not be paid for his services.
[192] Accordingly, the deficiencies on this property sale were $431,471.84
Hearsay ruling
[193] At the June 2017 hearings, the Defendant asked to introduce an offering memorandum, dated September 30, 2015 regarding the takeover by Magenta III of Magenta which would change a policy that they were not be able to lend on commercial mortgages over $1.5M. Mr. Samné alleged that this was Magenta’s motive to treat him differently.
[194] On June 23, 2017, the motion was adjourned to permit the Defendants an opportunity to place this memorandum in proper evidentiary form as the Court believed it could have some relevance to the issues in these motions. This adjournment also permitted the Plaintiffs to file up-to-date affidavits regarding the power of sale of each property and the deficiencies in each property.
[195] At the return of these motions on September 25, 2017, the Plaintiffs objected to the Defendants attaching a certified copy of a memorandum regarding a share offering – which the Defendants took from the website of the Vancouver Stock Exchange – as an exhibit to Mr. Samné’s affidavit. There was no evidence from any individual at Magenta confirming that these were the terms of the memorandum nor that it indeed was accepted by Magenta.
[196] The Defendant stated that it was a certified copy downloaded from the Vancouver Stock Exchange and should be accepted for the truth of its contents.
[197] It was not authenticated by the author of the offering memorandum nor anyone from the Plaintiffs or their affiliates.
[198] The Court ruled that this was hearsay evidence. It was not a document that could be authenticated by the Defendant and it was not placed before the Court in the proper format as either an affidavit or report from the author. Hearsay is presumptively inadmissible and is subject to a number of exceptions. The hearsay rule is a safeguard to the parties to ensure that they are in a position to cross-examine the author of the statement and test the evidence.
[199] Therefore, the offering memorandum found at Exhibit G of Mr. Samné’s affidavit sworn on July 17, 2017, is removed from the record.
Summary
[200] In conclusion, the court is satisfied that it can make a just and fair determination of this matter based on the evidence before it. The Plaintiffs have shown that they are entitled to the deficiencies as a result of the power of sale of the 4 mortgaged properties.
[201] Accordingly, the Plaintiffs are entitled to judgment against the Defendants as follows:
(i) Payment in the amount of $771,704.44;
(ii) Prejudgment interest from October 29, 2015 to the date of the judgment:
− at the rate of 7.95% for the Aaron Merrick property deficiencies,
− at the rate of 9% for the Magic Morning property deficiencies,
− at the rate of 10.75 % on the Isabella property deficiencies; and
− at the rate of 9.9% on the Concord properties deficiencies; and
(iii) post-judgment interest in accordance with the CJA.
[202] The Defendants’ counterclaim and motion are dismissed.
[203] Given the Plaintiffs’ success, they are entitled to costs. If the parties cannot agree on the amount, then the Plaintiffs may submit their two-page submissions, along with any offers to settle and bill of costs, by November 30, 2017 and the Defendants may submit their two-page submissions, along with any offers to settle, by December 15, 2017.
Justice A. Doyle
Released: 2017/11/06