COURT FILE NO.: 16-5504 DATE: 20180628 ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

OCHEA IKPA Plaintiff – and – GODKNOWS ITAMUNOALA, ONTARIO CORPORATION NUMBER 1743833 (c.o.b. as FITON ENVIRONMENT RECOVERY INC.), TONYE ITAMUNOALA, and FIONA DUCKETT Defendants

Counsel: Shawn M. Philbert, for the Plaintiff R. Lee Akazaki, for Defendants Tonye Itamunoala and Fiona Duckett

HEARD: April 4, 2018

REASONS FOR JUDGMENT

Woollcombe J.

Introduction and Positions of the Parties

[1] This motion arises from a dispute about who is entitled to $175,867.22 that is held in trust from the sale of property that was previously owned by one of the defendants, Godknows Itamunoala (“Mr. Itamunoula”).

[2] The plaintiff, Ochea Ikpa, alleges in his statement of claim that he loaned money to Mr. Itamunoala and was not repaid. He alleges that the loan was for $100,000 USD and was secured by a promissory note bearing interest after 90 days of $400,000 USD and a further finance fee of $100,000 USD. The promissory note provides that this loan was secured by an unregistered mortgage on the property owned by Mr. Itamunoala, which was subsequently sold. The plaintiff claims that he is entitled to the sale proceeds because he holds an “equitable mortgage”.

[3] There are four defendants to the plaintiff’s action.

[4] Neither the defendant Mr. Itamunoala, nor the corporate defendant Fiton Environment Recovery Inc. (“Fiton”), delivered a statement of defence against the plaintiff’s claim. Both have been noted in default.

[5] The two other defendants are the daughter, Fiona Itamunoala (“Ms. Itamunoala”) and ex-wife Fiona Duckett (“Ms. Duckett”) of Mr. Itamunoala. They bring a motion for summary judgment to have the plaintiff’s claim against them dismissed. For the purpose of this judgment, I shall refer to them as the defendants.

[6] While both parties agreed previously that entitlement to the sale proceeds was an issue properly dealt with my way of summary judgment motion, they disagree about how this issues should be addressed.

[7] At the time Mr. Itamunoala’s property was sold, Ms. Itamunoala and Ms. Duckett had a $350,000 second mortgage registered against it. These defendants say that their valid, registered second mortgage on the property stands in priority to any unregistered interest in the property that the plaintiff may have. They challenge his claim of an equitable mortgage. The defendants submit that the plaintiff can never have priority over them unless he can prove that they had notice of his loan, a matter about which they say there is no evidence. Further, the defendants submit that the loan allegedly made to Mr. Itamunoala by the plaintiff involved a criminal rate of interest that should not be enforced as an equitable mortgage. They submit that the funds held in trust from the proceeds should be released to them.

[8] The plaintiff says that while Ms. Itamunoala and Ms. Duckett had registered a second mortgage on the property for $350,000 at the time it was sold, their mortgage was a fraudulent conveyance designed to defeat his claim. In addition, he submits that the defendants have not provided sufficient evidence to justify their entitlement to a $350,000 mortgage and that, in fact, their claim on the money held in trust should be limited to that which they can prove was actually advanced by them. He says that there are real credibility issues respecting the defendants, particularly Ms. Itamunoala, relating to the issue of loans to her father, money that he owed to her, and whether the money that the defendants advanced to Mr. Itamunoula was in fact theirs, as opposed to having been from Mr. Itamunoala himself. The plaintiff says that the validity of the defendants’ mortgage, and the amount of money to which the defendants are entitled, are issues requiring a trial.

[9] The plaintiff also submits that the validity of his loan agreement with Mr. Itamunoala should not be determined by summary judgment. He says were the court to grant summary judgment against him in relation to the defendants Ms. Itamunoala and Ms. Duckett on the basis that his loan agreement was illegal, this would prejudice him in his proceedings as against Mr. Itamunoala, whom he has already had noted in default.

Brief Summary of Background

[10] While the materials filed are extensive, only a brief review of the background facts is necessary in order to address the issues before the court.

The mortgage held by defendants Ms. Itamunoala and Ms. Duckett’s

[11] Ms. Itamunoala says in her affidavit that her father, Mr. Itamunoala, co-signed, as a tenant, the lease of a condominium in which she lived, and that he agreed to pay a portion of her rent. In the period between 2012 and 2016, she says that he became unable to keep up with these payments and so he asked her to lend him his portion. While she did not keep track of all of the payments to him, she produced bank records showing what she says are payments of $24,500 over this period.

[12] Mr. Itamunoala was the owner of a property at 1236 Queen Victoria Avenue in Mississauga. The evidence before me suggests that he fell into arrears of a mortgage held by Canadian Imperial Bank of Commerce (“CIBC”). CIBC issued a Notice of Sale on September 20, 2016.

[13] A letter dated November 23, 2016 indicates that in order to bring the CIBC mortgage into good standing, the amount of $84,593.10 was owing, an amount that was inclusive of the mortgage payment arrears and legal fees up to that date.

[14] Ms. Itamunoala says in her affidavit that her father approached her in November 2016 and told her about the Power of Sale proceedings. She says that she and her mother, Ms. Duckett, decided to bring the mortgage current in order to buy some time to sell the property, rather than having it sold through the Power of Sale proceedings. She says that as a condition of doing so, they required Mr. Itamunoala to provide them with a second mortgage on the property that would cover what she said was her father’s indebtedness to her for the period between 2012 and 2016, as well as the costs of maintaining the house and mortgage payments until the property could be sold.

[15] Ms. Itamunoala and Ms. Duckett enlisted the assistance of lawyer Erica James, who facilitated the mortgage transaction. The evidence demonstrates that Ms. James obtained a clear execution search for the property on November 22, 2016.

[16] Ms. Itamunoala and Ms. Duckett brought the CIBC mortgage into good standing by paying the $84,593.10. A mortgage in favour of the two of them was registered against the property on November 24, 2016. That mortgage was in the amount of $350,000.

[17] Ms. Itamunoala says that after this, she paid $8,092.38 on account of the CIBC mortgage in December 2016, and that her mother made payments for the heating system of $450.00.

The plaintiff’s statement of claim

[18] On December 16, 2016, the plaintiff’s statement of claim was issued.

[19] The plaintiff claims $500,000 USD pursuant to the provisions of a promissory note dated August 26, 2016, as well as interest of $50,000 USD from December 1, 2016 and punitive damages of $20,000.

[20] The plaintiff claims that on August 26, 2016, he and the defendant entered into an agreement, as evidenced by the promissory note upon which he relies. The statement of claim alleges that in August, 2016, Mr. Itamunoala was in critical need of capital and required a loan to complete an oil purchase that he had advised would lead to profit of $4 million USD a month and $48 million USD total.

[21] As a result of their discussions, the plaintiff claims to have provided to Mr. Itamunoala, on September 4, 2016, a principal amount of $100,000. The promissory note provided for an interest payment of $400,000 due in 90 days (by November 30, 2016) and a further finance brokerage charge of $100,000. The defendant was to provide security for the loan by giving the plaintiff what was characterized in the agreement as an “equity mortgage (unregistered mortgage)” on the property. The promissory note provides that all disputes arising from it shall be governed in accordance with the laws of Ontario.

[22] It is the plaintiff’s position that Mr. Itamunoala became unresponsive to him after November 6, 2016. The plaintiff made demands for payment through his lawyer between November 6 and December 4, 2016. Mr. Itamunoala is said to have ignored these. The plaintiff claims that Mr. Itamunoala has not paid the principal or interest owing.

[23] In respect of Ms. Itamunoala and Ms. Duckett, the plaintiff alleges that the second mortgage registered in favour of them was a fraudulent conveyance. In the alternative, the plaintiff says that they are not entitled to the full amount of the funds held in trust from the sale of the property because they did not advance the full $350,000, the amount of their mortgage.

[24] On December 20, 2016, the plaintiff obtained, ex parte, a Certificate of Pending Litigation. By Order of Price J. dated April 13, 2018, the CPL was discharged and deleted from title. He further ordered that the proceeds from the sale of the property (in excess of the amount necessary to discharge the first mortgage) were to be held in trust pending resolution of the plaintiff’s action.

The sale of the property

[25] The property was listed for sale on December 5, 2016. It was eventually sold for $1,065,000 and closed on April 18, 2017. After the discharge of the CIBC mortgage, the net proceeds remaining are $175,867.22. This is being held in trust pending outcome of the litigation.

Legal principles applicable to a summary judgment motion

[26] Rule 20.04(2)(a) provides the court with jurisdiction to grant summary judgment. It provides:

20.04…

(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:

1. Weighing the evidence.
2. Evaluating the credibility of a deponent
3. Drawing any reasonable inference from the evidence

(2.2) A judge may, for the purposes of exercising any of the powers set out in subrule (2.1), order that oral evidence be presented by one or more parties, with or without time limits on its presentation.

[27] In Hryniak v. Maudlin, 2014 SCC 7, the Supreme Court of Canada set out the principles applicable to when summary judgment may be granted on the basis that there is “no genuine issue requiring a trial” at para. 49:

There will be no genuine issue requiring trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[28] The most important question is whether a summary judgment motion will provide a "fair process and just adjudication". The court went on to say, at para. 50, that "the standard for fairness is not whether the procedure is as exhaustive as a trial, but whether it gives the judge confidence that she can find the necessary facts and apply the relevant legal principles so as to resolve the dispute".

[29] The Court set out the approach to be taken on a summary judgment motion. The motion judge:

…should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-findings powers. There will be no genuine issue requiring trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure under rule 20.04(2)(a).

[30] If there is no genuine issue for trial the motion should be granted. If there is a genuine issue requiring a trial then the motion judge is to assess whether a trial can be avoided by using the new powers under Rule 20.04 subrules (2.1) and (2.2).

[31] The Ontario Land Titles Act provides:

Effect of unregistered instruments

72 (1) No person, other than the parties thereto, shall be deemed to have any notice of the contents of any instruments, other than those mentioned in the existing register of title of the parcel of land or that have been duly entered in the records of the office kept for the entry of instruments received or are in course of entry. R.S.O. 1990, c. L.5, s. 72 (1) .

Charges

Effect of charge when registered

93(3) The charge, when registered, confers upon the chargee a charge upon the interest of the chargor as appearing in the register subject to the encumbrances and qualifications to which the chargor’s interest is subject, but free from any unregistered interest in the land. R.S.O. 1990, c. L.5, s. 93 (3) .

Where advances under registered charge to have priority over subsequent charges

(4) A registered charge is, as against the chargor, the heirs, executors, administrators, estate trustees and assigns of the chargor and every other person claiming by, through or under the chargor, a security upon the land thereby charged to the extent of the money or money’s worth actually advanced or supplied under the charge, not exceeding the amount for which the charge is expressed to be a security, although the money or money’s worth, or some part thereof, was advanced or supplied after the registration of a transfer, charge or other instrument affecting the land charged, executed by the chargor, or the heirs, executors, administrators or estate trustees of the chargor and registered subsequently to the first-mentioned charge, unless, before advancing or supplying the money or money’s worth, the registered owner of the first-mentioned charge had actual notice of the execution and registration of such transfer, charge or other instrument, and the registration of such transfer, charge or other instrument after the registration of the first-mentioned charge does not constitute actual notice. R.S.O. 1990, c. L.5, s. 93 (4) ; 1998, c. 18, Sched. E, s. 135 (2).

Analysis

Do the defendants have a valid mortgage in the property?

[32] The starting point is that the defendants had a properly registered second mortgage on the property at the time it was sold. The first mortgage has been discharged. As the only other registered claimant on the proceeds of the sale, the defendants are presumptively entitled to those funds, up to the extent of their second mortgage.

[33] In my view, there is no need for a trial on the issue of whether the defendants Ms. Itamunoala and Ms. Duckett had a valid second mortgage. There is no evidence to suggest that they did not. There is also no evidence of any other claim on the property (other than the first mortgage) having being registered at the time. In fact, a clear execution search was obtained immediately before their charge was registered.

Does the plaintiff have a valid equitable mortgage in the property?

[34] The next question that must be answered, therefore, is whether the plaintiff had a valid equitable mortgage on the property that has priority over the defendants’ registered mortgage.

[35] The nature of an equitable mortgage was described by Macfarlane J.A. in Re Elias Markets et al, 2006 ONCA 31904, [2006] O.J. No. 3689 (C.A.) (“Elias”). She explained, at para. 65, that “the concept of an equitable mortgage seeks to enforce a common intention of the mortgagor and mortgagee to secure property for either a past debt or a future advance, where that common intention is unenforceable under the strict demands of the common law”.

[36] In Elias, the Court of Appeal adopted the analysis of Sutherland J. in Scherer v. Price Waterhouse, [1985] O.J. No. 881 at para. 20 respecting the manner in which an equitable mortgage is created. An equitable mortgage may be due to: (1) the fact that the interest mortgaged is equitable or future; (2) the fact that the mortgagor has not executed an instrument sufficient to transfer the legal estate because the legal instrument intended to operate as a legal mortgage is deficient or (3) the title deeds is deposited with the lender.

[37] In this case, neither the first nor third conditions are present. In respect of the second, there does not seem to me to be any deficiency in the legal instrument intended to operate as the mortgage because there does not appear to ever have been any intention to register the loan. Rather, there appears to have been an intention not to do so. Although I am prepared, for the purposes of this motion, to assume the possibility of there having been an equitable mortgage created in the circumstances by the signing of the promissory note, I do have some concerns about that as a starting point.

[38] That said, there are two more compelling reasons why I find that the plaintiff could not have an equitable mortgage that takes priority of the defendants’ registered mortgage.

[39] First, the law only permits an equitable mortgage to take priority over a registered mortgage if the holder of the registered mortgage has notice of the unregistered interest in the property before registering its interest. In other words, for the plaintiff to have a valid equitable mortgage, the defendants would have had to have notice, and be aware of the plaintiff’s claim of an equitable interest in the property before taking their second mortgage. See: 719083 Ontario Ltd. v. 2174112 v. Ontario Inc., 2013 ONCA 11 at para. 12; 909403 Ontario Ltd. v. DiMichele, 2014 ONCA 261 at paras. 107-108.

[40] There is, in my view, no evidence to support the plaintiff’s claim that these defendants had any knowledge of a claim over the property by anyone else. More specifically, there is no need for a trial on the issue of whether these defendants were on notice as to the plaintiff’s claim.

[41] The plaintiff argues that there are three aspects of evidence that suggest that these defendants were aware of his equitable mortgage. I do not accept that the evidence relied on by the plaintiff in fact supports his assertion that these defendants were aware of his mortgage.

[42] First, the plaintiff relies on messages exchanged between Ms. Itamunoula and her father on an App called WhatsApp. I have reviewed her cross-examination on this issue, said by the plaintiff to support his position. That cross-examination provides no evidence whatsoever of her knowledge of a loan from the plaintiff. She acknowledged being aware that he had financial difficulty in the fall of 2016 and that she spoke to him infrequently. At no point did she say she was aware of a loan from the plaintiff.

[43] Second, the plaintiff relies on Mr. Itamunoala’s references to his daughter in a conversation with the plaintiff. I have reviewed the transcript of this recorded conversation. I cannot find any evidence in that conversation of either of the defendants being aware of the plaintiff’s claim on the property at the point at which they registered their second mortgage.

[44] Third, the plaintiff points to the fact that these defendants were both named as Mr. Itamunoala’s power of attorney on the sale of the property. While this is true, in my view that fact is not evidence from which it can be inferred that they were aware of the plaintiff’s mortgage or claim.

[45] I conclude that there is no need for a trial on the issue of these defendants’ knowledge of the plaintiff’s claim of an equitable mortgage as there is no evidence that they were aware of the existence of an equitable mortgage at the point at which they registered their second mortgage. This finding, alone, forecloses the plaintiff’s claim to an equitable mortgage in priority to the defendant’s registered mortgage.

[46] In addition, however, I accept the defendants’ position that an equitable mortgage is not available when the loan itself is invalid and unenforceable. While not strictly necessary to decide this issue, in view of my finding that the defendants’ lacked knowledge of the plaintiff’s claim on the property and so the plaintiff could not have an equitable mortgage in priority to the registered mortgage, I think it important to comment on the nature of the promissory note in this case. I do so notwithstanding the plaintiff’s concerns that any determination by me of the enforceability of the promissory note may affect its claim for default judgment as against Mr. Itamunoala and Fiton.

[47] I find that there is no need for a trial on the question of whether the promissory note itself is valid. I find that it cannot be valid.

[48] As set out above, the promissory note provided that the plaintiff would advance to Mr. Itamunoala $100,000 USD, with interest of $400,000, both to be repaid in 90 days, with a further $100,000 transaction fee to Blue Dot Wealth.

[49] The Bills of Exchange Act, R.S.C 1985 c. B-4, which, through the operation of ss. 2 and 186(1), would define the promissory note as a bill for the purposes of s. 58, provides, in s. 58 that:

58. No bill, although given for a usurious consideration or on a usurious contract, is void in the hands to the holder, unless the holder had at the time of its transfer to him actual knowledge that it was originally given for a usurious consideration or on a usurious contract. [emphasis added]

[50] Section 347 of the Criminal Code makes it an offence to enter into an agreement or arrangement to receive interest at a criminal rate. It provides:

Criminal interest rate

347 (1) Despite any other Act of Parliament, every one who enters into an agreement or arrangement to receive interest at a criminal rate, or receives a payment or partial payment of interest at a criminal rate, is

(a) guilty of an indictable offence and liable to imprisonment for a term not exceeding five years; or

(b) guilty of an offence punishable on summary conviction and liable to a fine not exceeding $25,000 or to imprisonment for a term not exceeding six months or to both.

(2) In this section,

criminal rate means an effective annual rate of interest calculated in accordance with generally accepted actuarial practices and principles that exceeds sixty per cent on the credit advanced under an agreement or arrangement…

[51] There can be no issue that the promissory note provided for the plaintiff to receive interest at a criminal rate. There would seem to be no issue that the $100,000 fee, in addition to the $400,000 interest, is a cost of borrowing. This means that the promissory note contained loan terms bearing interest of 1600 per cent (if the $100,000 fee is not included) or 2000 per cent if the fee is included. Considered from April 4, 2018, the interest was $570,000 over the course of 20 month, which amounts to an interest rate of 570 per cent.

[52] The plaintiff accepts that the agreement involved a criminal interest rate. However, its position is that the court is not precluded from finding that it has an equitable mortgage against the property for the $100,000 of the loan, and from reading down the interest rate to a rate that does not exceed 60 per cent.

[53] The defendants accept that the court can scale back an interest obligation that technically crosses the 60 per cent criminal rate, but appears otherwise to be an ordinary commercial transaction.

[54] Section 347 applies to a wide range of agreements. As Major J, writing for the Court explained in Garland v. Consumers Gas Co., 1998 SCC 766, [1998] 3 S.C.R. 112 at para. 25, while “the ostensible purpose of s. 347 was to aid in the prosecution of loan sharks”, it now applies to a wide range of commercial and consumer transactions including secured and unsecured loans, mortgages and financing arrangements.

[55] It appears well-settled that the court has considerable discretion in determining whether or not a contract tainted by illegality under s. 347 is enforceable. The Court of Appeal explained how this discretion should be exercised in its decision in William E. Thomsen Associates Inc. v. Carpenter, 1989 ONCA 185, [1989] O.J. No. 1459 (C.A.) at paras 25-32. See also: Transport North America Express Inc. v. New Solutions Financial Corp., 2004 SCC 7.

[56] Applying those factors, it is my view that the contract, in this case the promissory note, should be found void for reasons of public policy. I say that for two main reasons.

[57] First, it appears that the purpose of the parties here was to enter into an agreement with an illegal purpose. The very purpose of the agreement was to exact usurious interest so as to permit Mr. Itamunoala to engage in what appears to be a high risk / high potential rewards investment, leading to potential profits of $4 million monthly. This was not an interest rate that was close to being legal and the parties must have known so. Indeed, the fact that they agreed not to ever register the loan is evidence that both were well aware that the agreement imposed a criminal interest rate. In my view, the court ought not to assist parties who enter into this sort of agreement. (See: Croll v. Kelly (1983), 1983 BCSC 583, 48 B.C.L.R. 306 (S.C.); William E. Thomsen Associates Inc. v. Carpenter at para. 29).

[58] Second, the relative bargaining power of the plaintiff and Mr. Itamunoala is troubling. All of the evidence before me suggests that Mr. Itamunoala was a desperate borrower who was submitted to usurious terms dictated by the plaintiff. The court should hesitate to enforce the usurious terms of the contract in this situation: William E. Thomsen Associates Inc. v. Carpenter at para. 30.

[59] I conclude that the usurious interest charged in the promissory note should, in the circumstances of this case, make the promissory note unenforceable as an equitable mortgage in priority to the defendants’ registered mortgage.

The Plaintiff’s Claim of a Fraudulent Conveyance

[60] It is the plaintiff’s position that the defendants’ registered mortgage was a fraudulent conveyance designed to defeat its claim against Mr. Itamunoala.

[61] The Fraudulent Conveyances Act, R.S.O. 1990, c. F.29 provides:

Where conveyances void as against creditors

2. Every conveyance of real property or personal property and every bond, suit, judgment and execution heretofore or hereafter made with intent to defeat, hinder, delay or defraud creditors or others of their just and lawful actions, suits, debts, accounts, damages, penalties or forfeitures are void as against such persons and their assigns. R.S.O. 1990, c. F.29, s. 2.

Where s. 2 does not apply

3. Section 2 does not apply to an estate or interest in real property or personal property conveyed upon good consideration and in good faith to a person not having at the time of the conveyance to the person notice or knowledge of the intent set forth in that section. R.S.O. 1990, c. F.29, s. 3.

Where s. 2 applies

4. Section 2 applies to every conveyance executed with the intent set forth in that section despite the fact that it was executed upon a valuable consideration and with the intention, as between the parties to it, of actually transferring to and for the benefit of the transferee the interest expressed to be thereby transferred, unless it is protected under section 3 by reason of good faith and want of notice or knowledge on the part of the purchaser. R.S.O. 1990, c. F.29, s. 4.

Saving as to mortgages

7(2) No lawful mortgage made in good faith, and without fraud or covin, and upon good consideration shall be impeached or impaired by force of this Act, but it has the like force and effect as if this Act had not been passed. R.S.O. 1990, c. F.29, s. 7 (2).

[62] In order to conclude that the defendants’ mortgage was a fraudulent conveyance intended to defeat the plaintiff’s claim, the plaintiff must overcome the hurdle of s. 3. In other words, for there to have been a fraudulent conveyance, Ms. Itamunoala and Ms. Duckett would have had to have had notice of Mr. Itamunoala’s alleged indebtedness to the plaintiff and of the plaintiff’s alleged interest in the property at the time of their mortgage. As set out above, there is no evidence that they had such notice or knowledge. Accordingly, there can be no fraudulent conveyance.

[63] I acknowledge that there are timing issues that might raise some suspicion about the defendants’ mortgage. But, this alone, given the rest of the evidence, does not give rise to a need for a trial on the issue of whether there was a fraudulent conveyance.

The Plaintiff’s Claim that the Defendants are not entitled to the full $175,867.22

[64] The plaintiff submits that the amount of the mortgage taken by the defendants is improper because they did not give sufficient consideration for it.

[65] The evidence on the motion is that the defendants claimed the following was owed to them by Mr. Itamunoala at the time that they registered the mortgage for $350,000 and shortly thereafter:

a. $84,593.10 paid by the defendants to bring the CIBC first mortgage into good standing; b. $8,092.38 paid by the defendants in December 2016 towards servicing the first mortgage to CIBC; c. $24,500 loaned by Ms. Itamunoala to Mr. Itamunoala to pay for her rent; d. $450.00 for emergency heating.

[66] The total consideration therefore, both before and after the registration of the mortgage, was $117,635.48.

[67] The second mortgage did, without doubt, secure more than the amount actually ever advanced by the defendants. However, it appears clear that at the time the mortgage was taken, the parties considered that there would be future indebtedness. And, in fact, the defendants did pay the December 2016 mortgage.

[68] It is the plaintiff’s position that the securing of the mortgage by the defendants for $350,000 is suspicious and that there are badges of fraud. The plaintiff says that at the most, the defendants would have a claim for $92,685.48 as there was no proper basis for Mr. Itamunoala to have permitted them to register a claim for $350,000. The plaintiff says that it would be appropriate to grant them summary judgment on this amount, but that there needs to be a trial on anything more than that.

[69] Furthermore, the plaintiff says that the evidence of Ms. Itamunoala and Ms. Duckett gives rise to real credibility issues about what consideration they actually gave for the $350,000 mortgage.

[70] In my view, there is much to be said for the defendants’ position that if there is a complaint about the amount of the defendants’ mortgage, the person with standing to complain is Mr. Itamunoala, and not the plaintiff. I do not see how, in the absence of a valid equitable mortgage, the plaintiff has any standing to complain about the amount of the second mortgage held by the defendants.

[71] Furthermore, I am not persuaded that there is any need for a trial on the legitimacy of the amount of the mortgage registered in favour of the defendants. As the defendants point out, a “bonus mortgage”, in which the amount secured exceeds the amount actually advanced, are not uncommon, particularly in second and subsequent mortgages where the security is at a higher risk: Bank of Nova Scotia v. Nova Scotia, [1977] CarswellNS 352 (N.S.C.A.) at para. 35.

[72] I accept that in a situation in which advances of the entire amount of the mortgage have not been made, the court must proceed to ascertain the intent of the parties. If the intent was to benefit the mortgagee, even absent actual advances, then effect should be given to that intent: Bank of Nova Scotia v. Simonot, 1992 SKCA 8249, [1992] CarswellSask 383 at paras. 10-11.

[73] In this case, the question is whether or not the intent of Mr. Itamunoala and the defendants was to benefit the mortgagees, the defendants. It is clear that there was some uncertainty at the time the mortgage was registered as no one knew how long the property would take to sell and what the defendants would need to pay in order to keep the mortgage in good standing until that time. There is no evidence to suggest that this was not the intent at the time the mortgage was given.

Conclusion

[74] In my view, there is no need for a trial on the validity of the defendants’ mortgage. I also conclude that the defendants had no knowledge of the plaintiff’s alleged claim of an equitable mortgage and, accordingly, their mortgage was not as a result of a fraudulent conveyance and any alleged equitable mortgage could not take priority over their claim. Further, and in any event, the court should not give effect to the promissory note in this case as it had a manifestly illegal interest rate. In the absence of an equitable mortgage, the plaintiff lacks standing to complain about the quantum of the second mortgage.

[75] I conclude that the action by the plaintiff against these defendants should be dismissed.

[76] I accept that the plaintiff has had Mr. Itamunoala noted in default in relation to the plaintiff’s action against Mr. Itamunoala and Fiton. Mr. Itamunoala is deemed to have admitted the pleadings regarding the promissory note and the default on the loan. I also accept that the plaintiff may well have a valid claim against Mr. Itamunoala for the loan advanced and a claim for breach of contract. But, because he lacks a valid equitable mortgage and has no evidence to support a claim of there having been a fraudulent conveyance, he does not, in my opinion, have any claim as against the proceeds from the sale of the property that requires a trial.

Costs

[77] The parties have not yet provided submissions as to costs. If they are unable to agree on costs, I will entertain written submissions. The defendants were clearly the successful party and are presumptively entitled to costs. They are to file their written submissions within two weeks of the release of this judgment. Submissions are to be not more than three pages, double-spaced, in addition to any bill of costs and case law. The plaintiff may file costs submissions in response, of the same length, is to be filed within 10 days of the defendants’ costs submissions. There will be no reply without leave of the court.

Woollcombe J. Released: June 28, 2018