COURT FILE NO.: CV-15-335-00
DATE: 01-Feb-2018
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOE PELOSO and 1496197 ONTARIO LIMITED
Plaintiffs
– and –
PETER W. GRIESBACH
Defendant
Susanne M. Sviergula, for the Plaintiffs
Christopher Afonso, for the Defendant
HEARD: January 19, 2018 at Kingston
HURLEY, j.
REASONS FOR decision
Introduction
[1] The plaintiffs loaned $288,000 to Catherine Dervan on July 30, 2012, secured by a mortgage on property she owned at 3 Hutcheson Lane, Kingston. She did not make a single payment on this loan. Exercising their rights under the mortgage, the plaintiffs took possession of the property in late 2012 and sold it on December 12, 2014 for $240,000. Earlier that year, in June, they had obtained a judgment against Ms. Dervan for $345,321.98 plus costs of $1,295.63.
[2] On July 30, 2015, they commenced a lawsuit against the defendant Peter Griesbach seeking damages of $568,000 for breach of contract and negligence, alleging that they had relied upon an appraisal of the property prepared by him in loaning the money to Ms. Dervan and that they were entitled to aggravated and exemplary damages because he colluded with Ms. Dervan to inflate the value of the property so that she could obtain the loan. This latter allegation has been withdrawn by the plaintiffs.
[3] In this motion, the defendant is seeking summary judgment dismissing the action because it was commenced beyond the two year limitation period contained in the Limitations Act, 2002, S. O. 2002, c. 24, Sch. B. He says that the plaintiffs knew that they had incurred a loss because of his alleged wrongdoing no later than April 2013 and therefore this action was commenced out of time.
[4] The plaintiffs disagree, asserting that because of the particular nature of the loss in this case, they did not know, nor ought they have known, that a legal proceeding was the appropriate means to seek to remedy their loss until the property was sold in December 2014 and, as a result, the action was commenced well within the prescribed time.
[5] The lawsuit remains at the pleadings stage. In support of this motion, all parties delivered affidavits. The plaintiffs were cross-examined; the defendant was not. Included in the record are the transcripts of these cross- examinations and the answers to undertakings given at them.
The Evidence
[6] The defendant prepared an appraisal of 3 Hutcheson Lane (the “property”) in May 2012 when Ms. Dervan was seeking a loan from a company named Canada Wide Financial. He valued the property at $360,000.
[7] The following month another company, Verico Best Interest Mortgages Inc., offered to loan her $288,000, secured by a mortgage on the property. The term of this mortgage was one year with interest only monthly payments of $2,616 commencing August 10, 2012. The interest rate was 10.9%.
[8] A document entitled “Mortgage Lending Agreement” was signed by a representative of Verico on June 28, 2012 and by Ms. Dervan on July 24, 2012. According to this document, the agreement was binding once executed by both parties. At his cross-examination, Anthony Fritz, one of the principals of 1496197 Ontario Limited, confirmed that this was the mortgage agreement between the plaintiffs and Ms. Dervan.
[9] Mr. Fritz is also a mortgage broker. On July 17, 2012, one of his employees, Karen Burtch, emailed the defendant, requesting permission for the plaintiffs to rely upon his appraisal for mortgage purposes. The plaintiff replied to her on July 25 stating:
“This letter will authorize Joe Peloso and Leo Carrol (1496197) to rely on information contained in the appraisal completed on 3 Hutcheson Lane, Kingston being part of a cooperative landholding valued at $360,000. This authorization is made with the assumption that the above-noted parties are using well-founded under righting (sic) methods, identifying a sound credit risk in the covenant and are familiar with the risks imposed by the unique property rights appraised.”
[10] Although the mortgage went into default immediately, it appears that the plaintiffs agreed that Ms. Dervan could try and sell the property in the Fall 2012. It was initially listed for $369,000 but the price was reduced to $319,000 in November. When the plaintiffs assumed control of the sale in January 2013, the listing price was increased to $360,000. It was reduced to $319,000 the following month and then to $299,995 in April.
[11] On April 9, 2013, Mr. Fritz wrote to the defendant stating that he represented Canada Wide Financial, 1496197 Ontario Limited, Joe Peloso and Leo Carroll. After summarizing some of the facts in relation to the loan to Ms. Dervan, he stated that his clients had obtained two appraisals valuing the property at, respectively, $265,000 and $268,000 and had also solicited opinions from local real estate agents who had come to a similar conclusion about its value. He further stated that local real estate values had remained constant since the date of the defendant’s appraisal and that the property was in the same or better condition.
[12] He concluded the letter as follows:
“Can you please provide me with a written explanation in respect to the contrasting valuations between your appraised value and the current valuations? In addition, could you please inform me if you had any pre-existing relationship with the borrower?
The list price of the property is in the process of being reduced to $299,995, however we have been advised that it is still too high to generate interested buyers.
Please respond no later than April 19, 2013.”
[13] His letter was copied to his clients and a Smiths Falls law firm.
[14] The legal relationship between Verico, Fritz Financial and 1496197 Ontario Limited was not explained in the affidavit material but all of them share the same mailing address which is Suite 113, 21 Beckwith Street North, Smiths Falls.
[15] The defendant responded to this letter on April 24, 2013. He denied that he had any relationship with Ms. Dervan other than she had once been a client and avowed that she was a deadbeat. He requested copies of the appraisals which were provided to him on April 29. There was no further correspondence or communication between the parties before this lawsuit was commenced.
[16] The listing price of the property continued to be reduced through 2013 and 2014 until its sale in December 2014. These price reductions were: $299,900, $289,900, $279,900, $269,000, and $259,900.
[17] In addition to the missed interest payments, the plaintiffs had incurred expenses totaling $9,253.50 in relation to the repossession and sale of the property as of the end of April 2013.
[18] In their affidavits responding to this motion both Mr. Peloso and Mr. Fritz deposed that they did not know the extent of their loss until the sale of the property and, without this knowledge, were unsure about whether or not it would be financially appropriate to commence a legal claim against the defendant.
[19] However, at his cross-examination, Mr. Peloso admitted that they knew in April 2013 that they would probably lose money on the deal:
Q. You were concerned at this point in fact it might sell for less than what was owing on the mortgage?
A. Well I was hoping to get more.
Q. You were hoping to but it was possible it wasn’t going to?
A. Possible, yes.
Q. Did you discuss this possibility with Mr. Fritz?
A Yes, we did.
Q. – but realistically this property had been listed from January to May. You didn’t get any offers. You’d lowered the price to $299,000. You’d agree with me you at that time understood it was likely you were going to lose money on this mortgage, correct?
A. Yes.
[20] Although not stated by either in their affidavits, both Mr. Fritz and Mr. Peloso adverted during their cross-examinations to the potential of a “bidding war” for the property but there was no evidence that this was any more than a forlorn hope on their part.
[21] There was also no evidence adduced by the plaintiffs about Ms. Dervan’s financial circumstances and whether or not there was a reasonable prospect of recovering anything on their judgment against her.
The Law
[22] Sections 5 (1) and (2) of the Limitations Act, 2002 provide:
- (1) A claim is discovered on the earlier of:
(a) the day on which the person with the claim first knew,
(i) that the injury, loss or damage had occurred,
(ii) that the injury, loss or damage was caused by or contributed to by an act or omission,
(iii) that the act or omission was that of the person against whom the claim is made, and
(iv) that, having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it; and
(b) the day on which a reasonable person with the abilities and in the circumstances of the person with the claim first ought to have known of the matters referred to in clause (a).
(2) A person with a claim shall be presumed to have known of the matters referred to in clause (1) (a) on the day the act or omission on which the claim is based took place, unless the contrary is proved.
[23] As the Court of Appeal explained in Lawless v Anderson, 2011 ONCA 102, a claim is discovered on the date the claimant knew, or ought to have known, of the material facts giving rise to the claim:
Determining whether a person has discovered a claim is a fact-based analysis. The question to be posed is whether the prospective plaintiff knows enough facts on which to base an allegation of negligence against the defendant. If the plaintiff does, then the claim has been “discovered”, and the limitation begins to run (para.23).
[24] Although the plaintiffs have pleaded that they had a contract with the defendant, it is clear that there was no contractual relationship between them. What is not so clear is whether the claim is based on negligence or negligent misrepresentation. However, the resolution of that issue is not necessary for the purposes of this motion. For both causes of action, the limitation period commences when the plaintiffs know that they have suffered damage as a result of the defendant’s wrongful conduct.
[25] In Hamilton [City] v. Metcalfe and Mansfield Capital Corporation, 2012 O ONCA 156, Mr. Justice Laforme stated at para. 54:
Damage is the loss needed to make out the cause of action. Insofar as it relates to a transaction induced by wrongful conduct, as I have explained, damage is the condition of being worse off than before entering into the transaction. Damages, on the other hand, is the monetary measure of the extent of that loss. All that the City had to discover to start the limitation period was damage.
[26] At para. 61, he stated:
The authorities make it very clear that “some damage” is sufficient for the cause of action to accrue and to start the limitation period. The Supreme Court of Canada set out the discoverability principle in Peixeiro v. Haberman, 1997 CanLII 325 (SCC), [1997] 3 S.C.R. 549, at para. 18:
Once the plaintiff knows that some damage has occurred and has identified the tortfeasor (see Cartledge v. E Jobling and Sons Limited, [1963] A.C. 758 (H. L.), at p. 772 per Lord Reid and July v. Neal [1986], 50 O.R. (2nd) 129 (C.A.), the cause of action has accrued. Neither the extent of damage nor the type of damage need be known. To hold otherwise would inject too much uncertainty into cases where the full scope of the damages may not be ascertained for an extended time beyond the general limitation period.
[27] When legal action is appropriate within the meaning of section 5 (1) (a) (iv) is fact driven: 407 ETR Concession Company Limited v. Day, 2016 ONCA 709 at para. 34. However, there must be a juridical reason for the plaintiff to wait. In Markel Insurance Company of Canada v. ING Insurance Company of Canada, 2012 ONCA 218, Mr. Justice Sharpe opined at para. 34:
This brings me to the question of when it would be “appropriate” to bring a proceeding within the meaning of section 5 (1) (a) (iv) of the Limitations Act. Here as well, I fully accept the parties should be discouraged from rushing to litigation or arbitration and encouraged to discuss and negotiate claims. In my view, when section 5 (1) (a) (iv) states that a claim is “discovered” only when “having regard to the nature of the injury, loss or damage, a proceeding would be an appropriate means to seek to remedy it”, the word “appropriate” must mean legally appropriate. To give “appropriate” an evaluative gloss, allowing a party to delay the commencement of proceedings for some tactical or other reason beyond two years from the date the claim is fully ripened and requiring the court to assess to tone and tenor of communications in search of a clear denial would in my opinion, inject an unacceptable element of uncertainty into the law of limitation of actions.
[28] The Court of Appeal expanded on this requirement in Velgakis v. Servinis, 2017 ONCA 541 at paras. 5-6:
Under s. 5(1) (a) of the Act, a claim is discovered on the date the claimant knew or ought to have known the material facts giving rise to the claim, and that a proceeding would be an “appropriate” means to seek to remedy the claim. When an action is “appropriate” depends on the specific factual setting of each individual case: 407 ETR Concession Company Limited v. Day, 2016 ONCA 458, 403 D.L.R. (4th) 485, at paras. 33 – 34. Finally, when section 5 (1) (b) of the Act is applied, deciding whether legal action would be “appropriate” takes into account what a reasonable person with the abilities and the circumstances of the plaintiff ought to have no one – a modified objective test: Presidential MSH Corporation v. Marr Foster & Co. LLP, 2017 ONCA 325, at para. 18.
In Presidential MSH, at paras. 17 – 20, this court clarified certain principles governing cases such as the one before us on the issue of discoverability:
A legal proceeding against an expert professional may not be appropriate if the claim arose out of the professional’s alleged wrongdoing but may be resolved by the professional himself or herself without recourse to the courts, rendering the proceeding unnecessary.
The defendant’s ameliorative efforts and the plaintiff’s reasonable reliance on such efforts to remedy its loss are what may render the proceeding premature. The plaintiff and defendant must have engaged in good faith efforts to right the wrong it caused.
[29] Although there have been concerns expressed by appellate courts, including the Supreme Court of Canada, about the advisability of embarking on litigation prematurely, before an accurate assessment of the damages can be made, none have concluded that a plaintiff can avoid the application of a limitation period on the basis that it was waiting to determine the economic feasibility of potential litigation.
[30] A limitation period in a claim against an appraiser can be determined in a summary judgment motion if there is no genuine issue for trial: Mortgage Investment v. Szpivak, 2014 ONSC 2261 and Devincenzo v. Moir, 2017 ONSC 5122.
Analysis
[31] By the end of April 2013 the plaintiffs knew that they would suffer a loss on their investment; they just didn’t know how bad it would be. Interest payments totaling $23,544 had not been made, expenses of $9,253.50 had been incurred and the listing price had been reduced to $299,995. If the property had been sold at that price and the sale costs limited to only the real estate commission of 5%, the plaintiffs would have received approximately $285,000, a lesser amount than what had been loaned.
[32] They had also done their due diligence in determining whether or not there was evidence (including expert opinions) to support a legal claim against the defendant. Although Mr. Fritz’s letter of April 9, 2013 is more fairly described as a “demand for an explanation” letter than the standard notice of pending legal action, it nevertheless corroborates the defendant’s position that, as of April 2013, the plaintiffs were aware of the necessary material facts to sue him.
[33] The plaintiffs are, as they themselves acknowledge, experienced lenders, particularly when it comes to real estate investing. It is simply not credible for them to claim, as they did in their affidavits, that they were in any doubt about what was going to happen – indeed, Mr. Peloso admitted as much during his cross-examination.
[34] This does not mean that, in every secured transaction, the limitation period begins once the lender believes that he or she might not fully recoup their investment upon the sale of the collateral. Market conditions or the financial circumstances of the primary debtor could fluctuate over time such that a court could conclude it was appropriate for the plaintiff to postpone the commencement of litigation.
[35] But that is not this case. I find that the limitation period began to run no later than the end of April 2013. As a result, it had expired by the time the plaintiffs commenced this lawsuit.
Disposition
[36] Summary judgment is granted and the action is dismissed with costs. I asked the parties to exchange cost outlines at the end of the hearing. In the event that they cannot agree on the amount of costs, the defendant shall file his written submissions, not to exceed two pages, together with his cost outline within 20 days of the release of this decision. The plaintiffs will have 10 days to file their reply submissions, also limited to two pages, exclusive of their cost outline.
[37] Finally, I thank counsel for their written and oral submissions which were focused, concise and of great help to me in writing this decision.
Hurley, J
Released: February 1, 2018
COURT FILE NO.: CV-15-335-00
DATE: 01-Feb-2018
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOE PELOSOS and 1496197 ONTARIO LIMITED
Plaintiffs
– and –
PETER W. GRIESBACH
Defendant
REASONS FOR DECISIONS
Hurley, J.
Released: February 1, 2018