Introduction

[1] Mr. Kim wanted to purchase a rental property for $980,000. He arranged a first mortgage for $539,000. He arranged a second mortgage through a private lender, 2254069 Ontario Inc. (2254069). The second mortgage was for $343,000 plus interest at a rate of 4.99% annum. The mortgage included a $78,890 commitment fee. 2254069 submits that Mr. Kim breached the Mortgage Contract by not accepting the funds for the mortgage when they were provided. Mr. Kim submits that 2254069 breached the mortgage by not confirming that the funds were available.

[2] 2254069 seeks a declaration that 2254069 hold an equitable mortgage against title on the two properties owned by Mr. Kim that were to secure the mortgage. 2254069 claims an equitable mortgage in the amount of $343,000 plus interest at a rate of 4.99% per annum from April 5, 2017. In the alternative, 2254069 seeks damages of $100,285.40, which includes the commitment fee and interest for the year. 2254069 also seeks pre-judgment and post-judgement interest at the rate of 4.99% per annum.

[3] Mr. Kim submits that 2254069 breached the contract when its lawyer did not confirm that he had the funds available for the mortgage. Mr. Kim submits that given the prior history and the lack of communication from 2254069, he was entitled to presume an anticipatory breach of the mortgage. Mr. Kim submits that an equitable mortgage should not be placed on the two properties and he should not have to pay damages.

[4] During submissions, I raised the issue of whether I could resolve the application based on the written material filed. I have determined that I cannot resolve the issue of who breached the Mortgage Contract for the reasons set out below. There will be a trial on the issue of who breached the Mortgage Contract pursuant to Rule 38.10 of the Rules of Civil Procedure.

Background Facts

[5] The application record contains a written mortgage loan commitment (Mortgage Contract) between 2254069 and Mr. Kim. It is dated March 28, 2017. The Mortgage Contract was faxed from Mr. Kim to 2254069’s lawyer on April 3, 2017.

[6] 2254069 has a sole director, Hardyal Singh Minhas. His son is Mr. Minhas. Mr. Minhas is the lawyer for 225069.

[7] The Mortgage Contract sets out the terms and conditions for the mortgage loan. The mortgage was for $343,000. It was a second mortgage. A charge was to be placed on 89 Byron Street, Niagara-on-the-Lake and 69 Firelane 2, Niagara-on-the-Lake. A first mortgage for $539,0000 was secured by Mr. Kim from a third-party lender.

[8] The Mortgage Contract states that once accepted by the borrower, it “shall constitute a binding agreement” between the borrower and the lender. It states that the loan “shall be secured by the Charge” on the properties. The mortgage was for a term of 12 months, with an annual interest rate of 4.99%. There was a commitment fee in the amount of $78,890. There is no information contained in the Mortgage Contract regarding how the commitment fee was calculated or any payment terms. The Mortgage Contract also contained some smaller additional fees.

[9] The Mortgage Contract required Mr. Kim to provide 2254069 twelve post-dated cheques for “interest only” in the amount of $1,426.36 per month. The Mortgage Contract includes a Pre-Payment Privilege clause, permitting Mr. Kim, upon satisfaction of certain conditions, to pre-pay the entire principle sum, with an early discharge administrative fee equivalent to three months interest on the outstanding balance of the principle. The Mortgage Contract also states that “upon default in payment of principle or interest under this Charge or in performance of any of the terms and conditioned(sic) hereof, the Mortgagee may enter into and take possession of the Property…”

[10] Mr. Kim states that the closing date was originally scheduled to take place “at the end of March 2017 but the applicant was not in funds.” The closing was pushed back to April 5, 2017. There is some documentation to support this assertion. First, there is a Letter of Requisition from 2254069’s lawyer, Mr. Minhas to Mr. Kim’s real estate lawyer (Aasara Lawyers) which lists a closing date of March 27, 2017. Second, there is a Certificate of Home Insurance obtained by Mr. Kim, listing 2254069 as the mortgagee, with an effective date of March 28, 2017. Third, there is a Solicitor’s Interim Report on Title, prepared by Parul Dua of Aasara Lawyers, requesting a wire transfer of the mortgage funds to her trust account on March 27, 2017. Finally, On March 30, 2017 Aasara Lawyers sent an email to Mr. Minhas stating “we have received the funds from Home Trust… Please advise status of funding at your end.” There is no evidence that Mr. Minhas responded to this message.

[11] 2254069 submits that any prior discussion of financing is not relevant because there was no Mortgage Contract signed with a March closing date. The only relevant consideration is the Mortgage Contract. It states that the funds are required on April 5, 2017. 2254069 submits that while the Mortgage Contract was dated March 27, 2017, the fax confirmation states that it was returned on April 3, 2017. 2254069 made the funds available on April 5, 2017.

[12] On April 3, 2017, Mr. Minhas delivered a Letter of Requisition to the Aasara Lawyers, containing 15 documents required to complete the mortgage loan transaction. These documents included, Statutory Declarations, an Acknowledgement of Title Insurance on both properties, a Direction authorizing 2254069 to advance the funds to Aasara Lawyers in trust, and a request for 12 post-date cheques. The letter also enclosed four documents for Mr. Kim to execute. This included the Mortgage Contract dated March 28, 2017.

[13] Mr. Kim provided 2254069 the post-dated cheques. He signed the Mortgage Commitment, along with other documents including the requisite Statutory Declarations, a Certificate of Independent Legal Representation and a Direction to Minhas’ law office, authorizing them to advance the mortgage funds to Aasara Lawyers in trust. These documents were faxed to Mr. Minhas on April 3, 2017. Ms. Dua, Mr. Kim’s real estate lawyer at Aasara Lawyers, provided an undertaking to 2254069 agreeing to “[r]egister the second mortgage right after the transfer deed and first mortgage” and to “[r]eturn the funds back to Minhas Lawyers LLP, in trust if the above noted transaction does not close within 24 hours.”

[14] On April 4, 2017, Aasara Lawyers faxed Mr. Minhas a Trust Ledger with a cover page that stated, “Please advise us of the status of the funds or any other requirements ASAP.”

[15] Mr. Minhas stated in his affidavit dated August 2, 2017 that after he received this fax on April 4, 2017, he contacted Subhash Sharma at Aasara Lawyers via telephone and advised Mr. Sharma that the “lender is in funds” but that Mr. Kim needed to secure title insurance for both properties in accordance with the letter of requisition. He deposed that “the mortgagee had the funds; however, the funds would not be advised (sic) until and unless the letters of requisition were complied with and the funds were not going to be advanced prior to April 5, 2017 as agreed upon.”

[16] Mr. Minhas’ evidence is inconsistent with respect to when he secured the title insurance. In his affidavit dated July 10, 2017, Mr. Minhas stated that on or about March 28, 2017 he obtained title insurance for Mr. Kim on the Byron Street property. A copy of that insurance policy is dated March 28, 2017. Mr. Minhas was not cross-examined about the conversation with Mr. Sharma and there is no evidence before the court from Mr. Sharma.

[17] 2254069 submits that the issue of title insurance was used by Mr. Kim to try and get out of the mortgage because he arranged a mortgage with another lender. There is no evidence that Mr. Kim or his counsel communicated that the title insurance issue was the reason why Mr. Kim sought an alternative mortgagee.

[18] Mr. Kim stated that as of April 4, 2017, 2254069 was still “not in the funds and could not confirm that … the funds would be available for closing on April 5, 2017.” In support of his position, he relies upon an email Aasara Lawyers sent to Mr. Minhas on April 4, 2017 at 10:58 pm:

SUBJECT: URGENT: FUNDS REQUIRED

Please be advised that we have been repeatedly requesting for funds. Vendor’s lawyer has not given extension. Our clients will suffer huge losses in case funds are not delivered to use ASAP as the deal would fall through. You are aware that we are holding funds from Home Trust from March 30, 2017 and we will have to return their funds.

[19] Mr. Minhas denies that 2254069 was not in funds for the mortgage. He stated in his affidavit dated August 2, 2017 that he had several telephone conversations with Aasara Lawyers where he advised them that “the funds are in my firm’s trust account” and if the letter of requisition is complied with, the funds will be advanced in accordance with the Mortgage Commitment. Mr. Minhas stated that he did not see the email sent on April 4, 2017 at 10:58 p.m. until the next date after he deposited the funds into the Aasara Lawyers’ trust account. 2254069 submits that in any event, there is no breach of the Mortgage Contract because there was no contractual obligation that 2254069 confirm the availability of the funds prior to April 5, 2017.

[20] Mr. Minhas’ statement in his affidavit that the funds were in the firm’s trust account is not accurate based on the banking evidence and trust ledger. These documents show the money was not deposited into his trust account until April 5, 2017. On April 5, 2017, a cheque in the amount of $150,000 from 2254069 was deposited into Mr. Minhas’ trust account. Mr. Minhas also deposited a bank draft for $111,949.73 on April 5, 2017 into his trust account. This bank draft came from Mr. Minhas’ personal line of credit. Mr. Minhas stated that the money was a loan to his father’s corporation, 2254069 Ontario Inc. The draft was drawn in favour of Minhas Lawyers LLP. The draft was not made out to 2254069. Mr. Kim states that the late deposit of the money and the fact that Mr. Minhas’ used his personal funds for the mortgage demonstrates that Mr. Kim was correct that 2254069 did not have the funds available for the mortgage.

[21] Mr. Kim instructed his lawyers to arrange for a loan from an alternate mortgagee. He stated that he did this to ensure that the “closing could definitely take place on April 5, 2017.” He was concerned that it would not close because 2254069 failed to provide funds on the original closing date, 2254069 was a private lender and 2254069 did not confirm that it had the funds prior to the closing date.

[22] There is no dispute that $262,949.73 (the net amount of the mortgage funds after deduction of fees including the commission fee) was advanced by 2254069 into Aasara Lawyers’ trust account at 8:19 a.m. on April 5, 2017.

[23] Mr. Minhas stated that he had a conversation with an unnamed individual at Aasara Lawyers on the morning of April 5, 2017 and “advised them that the funds have already been deposited into the trust account as per the Mortgage Commitment.” An email from Mr. Minhas to Ms. Dua at 1:11 p.m. on April 5, 2017 states “I have already discussed the matter with Mr. Sharma this morning.”

[24] On April 5, 2017 at 3:50 pm. Ms. Dua wrote to Mr. Minhas as follows:

Our client was there at our office till 10 pm yesterday was very upset, embarrassed and frustrated because funds were delayed at your end. You never deposited the funds as promised. The title insurance issue was already resolved at our end way earlier when we apprised our title insurance (sic) issues for 4th mortgage and asked that you may obtain it at your end. Thereafter, you did not respond to our repeated requests for fund. Our client was treated in breach in view of the funds being delayed on your part as already apprised to you.

[25] In the same email, Ms. Dua requested that Mr. Minhas provide a void cheque “in order for us to return your deposit”. The void cheque was provided, and the funds were repaid into Mr. Minhas’ trust account on April 5, 2017.

Preliminary Issue

[26] The central issue in this application is who breached the Mortgage Contract. I cannot resolve the issue of who breached the Mortgage Contract based on the paper record before me. This issue must be resolved before it can be determined if there should be an equitable mortgage placed on the properties or whether damages should be awarded. There must be a trial on this issue.

[27] This application was brought under Rule 14.05(3) of the Rules of Civil Procedure. Rule 38 sets out the jurisdiction and procedure for an application. Rule 38(10) states that the judge after hearing an application may “order that the whole application or any issue proceed to trial and give such directions are as just.” Rule 38(10)(3) states that where a trial of an issue is directed, “the order may provide that the proceedings be treated as an action in respect of the issue to be tried, subject to any directions in the order, and shall provide that the application be adjourned to be disposed of by the trial judge.”

[28] An application should not be converted into an action unless there is good reason to do so because there is a prima facie right to proceed as an application. See: Collins v. Canada (Attorney General), 2005 CanLII 28533 (ON SC), [2005] O.J. No. 2317, at paras. 29-32 (S.C.J.); Metropolitan Toronto Condominium Corp. No 747 v. Korolekh, 2010 ONSC 4448, [2010] O.J. No. 3491, at paras. 54-55 (S.C.J.).

[29] In deciding whether to convert an application into a trial of an issue, the court will consider such factors including whether there is a material fact in dispute; the presence of complex issues; whether there is a need for the exchange of pleadings and discovery; and the importance and nature of the relief sought.

[30] If issues of credibility can be fairly decided based on the summary process of affidavits and cross-examinations, then the application should proceed. It is only where issues of credibility cannot be properly made on the application that the application should be converted into an action. A similar analysis is applied when determining if a motion for summary judgment had been brought in an action: see Gordon Glaves Holding Ltd. V Care Corp. of Canada Ltd., 2000 CanLII 29058 (ON CA), [2000] O.J. No. 1989 (C.A.), at para 30; A.M. Machining Inc. v. Silverstone Marble & Granite Inc., 2010 ONSC 71, at paras. 4- 14.

[31] After having carefully considered the parties’ submissions and reviewed the evidence in the application records, I am of the view that there must be a trial on the issue of who breached the Mortgage Commitment. I cannot fairly decide on the affidavits who breached the Mortgage Commitment: Mr. Kim or 2254069.

[32] There are numerous factual and legal issues that cannot be fairly resolved without a trial. These issues include:

i.) whether 2254069 repudiated the Mortgage Contract by demonstrating through its words or actions its intention not to perform its contractual obligations upon closing;

ii.) if there was a breach or repudiation of the contract, whether Mr. Kim communicated to 2254069 his election to accept the repudiation; and if not,

iii.) whether Mr. Kim and/or 2254069 failed to satisfy their contractual obligations upon closing.

[33] Both parties have left several gaps in the evidence that make it impossible for the court to fully understand what transpired in the days prior to the closing date for the purchase of the property.

[34] There is limited evidence, and a lack of clarity in what evidence there is, regarding what happened at the end of March 2017 between Mr. Kim and 2254069.

[35] 2254069 does not address how the relationship between Mr. Kim and 2254069 began or whether there was an initial closing date at the end of March 2017. 2254069 states it is irrelevant. I disagree. There is some suggestion to support Mr. Kim’s position that the initial closing was set for the end of March, but it did not happen because 2254069 did not have the funds to close the real estate transaction. This supports Mr. Kim’s position that 2254069 did not have the funds available and whether 2254069 through its actions repudiated the contract. Mr. Kim has also not provided sufficient detail to fully understand what happened at the end of March 2017 between the parties.

[36] There is also a lack of evidence with respect to the commitment fee that is contained in the Mortgage Contract. Neither party explained its purpose.

[37] There are gaps in the evidence with respect to what transpired between Mr. Minhas and the real estate lawyers for Mr. Kim between April 4, 2017 and April 5, 2017. Mr. Kim has filed some written correspondence. Mr. Minhas states that there were several telephone conversations between him and Mr. Kim’s lawyers. There is no evidence from Mr. Kim’s lawyers regarding what transpired.

[38] There are credibility issues that relate to material issues that cannot be resolved based on the affidavits and cross-examinations that have taken place.

[39] There are inconsistencies between Mr. Minhas’ affidavits and Mr. Kim’s affidavit with respect to when Mr. Kim’s lawyers were told that 2254069 was in funds. Mr. Minhas states that he spoke to Mr. Kim’s lawyers on April 4, 2017 and told them 2254069 was in funds. Mr. Kim denies this.

[40] There are also inconsistencies between Mr. Minhas’ own affidavits and the evidence. In his affidavit he stated that funds were in the trust account before April 5, 2017. This evidence is contradicted by the banking documents that show that the money was deposited at 8:19 a.m. on April 5th, 2017.

[41] In addition, there is no evidence from the sole director of 2254069, Hardyal Singh Minhas. His evidence regarding whether and how he had the funds to finance the mortgage is also relevant.

[42] There are also credibility issues that need to be resolved concerning Mr. Kim. He states that he sought funding the last minute so that the real estate deal would not fall through. He has not filed any documentation in support of that position. When he arranged for the financing is critical to his credibility regarding why he obtained a new mortgage.

[43] Given the limited information provided by the parties and the credibility issues that arise from the evidence that has been provided, the court cannot make a just determination concerning who breached the Mortgage Commitment.

[44] Pursuant to Rule 38(10) of the Rules of Civil Procedure, a trial will be held to determine who breached the Mortgage Contract and the application shall be adjourned to be disposed of by the trial judge.

Terms and Conditions

[45] The applicant’s application and applicant’s affidavits shall constitute the statement of claim;

[46] The respondent’s affidavits shall constitute the statement of defence.

[47] The parties will rely on the affidavits of Mr. Minhas and Mr. Kim filed in the application as the evidence in examination in-chief.

[48] Additional affidavits from Mr. Kim and Mr. Minhas may be filed as evidence for examination in-chief within thirty days of this order.

[49] Additional affidavits from other parties not previous provided may be filed with the court within thirty days of this order.

[50] Brief examinations in-chief may be permitted by the trial judge, in addition to the affidavits.

[51] Cross-examinations of the witnesses will take place before the trial judge.

[52] Counsel will contact the trial co-ordinator within two weeks after the affidavits are filed with the court to obtain a date for the trial on an issue.

[53] Costs in relation to the application that was heard will be determined by the trial judge.

[54] If there are any procedural issues that arise between the parties about how to proceed to the trial, the parties may contact the trial coordinator and they may be addressed before me.

Dennison J.

Released: July 26, 2019

COURT FILE NO.: CV-17-2837-00

DATE: 2019 07 26

ONTARIO

SUPERIOR COURT OF JUSTICE

B E T W E E N:

2254069 Ontario Inc.

Applicant

and -

Shin Kwon Kim

Respondent

REASONS FOR CONVERTING AN ISSUE ON AN APPLICATION TO AN ACTION

Dennison J.

Released: July 26, 2019

2254069 Ontario Inc. v. Kim, 2019 ONSC 4492

Case Summary

Introduction

Background Facts

Preliminary Issue

Terms and Conditions

Judge

Counsel

Parties

Areas of Law

Fact Patterns

Financial Outcomes

Issues

Legal Tests 1