BARRIE COURT FILE NO.: CV-17-348-00
DATE: 2019-01-22
ONTARIO SUPERIOR COURT OF JUSTICE
BETWEEN:
Barrie Leasing Services Inc. and James Shirley Plaintiffs
– and –
Richard Wainman, Michele Wainman, 1783069 Ontario Inc. and 1872984 Ontario Inc. Defendants
Counsel: Jack Armstrong, for the Plaintiffs Daniel Wyjad, for the Defendants
HEARD: May 25, 28, 29, 30 and 31, 2018
REASONS FOR JUDGMENT
DiTOMASO J.
INTRODUCTION
[1] The plaintiffs, Barrie Leasing Services Inc. (“Barrie Leasing”) and James Shirley (“James”), loaned money to the defendant, Michele Wainman (“Michele”), who owned property on Lake Muskoka (Lake Muskoka Property”). The loans were secured by three mortgages that were registered against the Lake Muskoka Property. All three mortgages went into default. Barrie Leasing and James seek to recover monies owed in respect of those defaulted mortgages.
[2] Further, Barrie Leasing and James advanced funds for the construction of a new cottage and boathouse on the Lake Muskoka Property with a view to enhancing the value of the property, selling the property and thereafter using the sale proceeds to pay off the outstanding mortgages and construction costs. A dispute has arisen as to the amount of the construction costs, how much interest is owing, if any, and who is liable to pay those amounts.
THE PROCEEDINGS
[3] Barrie Leasing is controlled by James, who used Barrie Leasing as an investment vehicle.
[4] The defendant, Michele, was the registered owner of the property located on Lake Muskoka. The defendant, 1872984 Ontario Inc. (“1872984”) is a corporation controlled by Michele.
[5] The defendant, Richard Wainman (“Richard”), is a building contractor and the husband of Michele. He operated his business through the defendant corporation, 1783069 Ontario Inc. (“17830969”), which he controlled.
[6] The Lake Muskoka Property was purchased on May 9, 2008 for development purposes. The property was subject to three mortgages, all of which eventually came under the direct or indirect control of Barrie Leasing and James.
[7] This matter consists of two actions brought by the plaintiffs which have been consolidated into a single action.
[8] The first action (court file number CV-16-0904-SR) was brought by Barrie Leasing only against Michele, and only for the recovery of funds advanced under a third mortgage registered against the Lake Muskoka Property, originally in favour of B2B Trust, and having an original principal balance of $118,000. However, it was claimed that the balance owing under the third mortgage was $813,938.86, which included funds alleged to have been borrowed by Michele for construction costs.
[9] The second action (court file number CV-17-348-00) was brought by Barrie Leasing and James against Michele and Richard and their respective companies, claiming recovery of a loan in the amount of $500,000 made to the defendants for construction of the cottage and boathouse, which included the following allegations:
(a) The three mortgages on the Lake Muskoka Property were in default and the total balance owing under the three mortgages was $1,339,000;
(b) The money was advanced by Barrie Leasing for the construction of the cottage and boathouse with interest at 15%; and,
(c) The plaintiffs had an equitable mortgage over the Lake Muskoka Property for the recovery of the entire amount claimed.
[10] Michele has not denied liability for the original mortgage advances, but challenged the plaintiffs’ accounting of the balances owed under the mortgage. She challenged the calculation of interest and the imposition of various charges which she claimed were disallowed under the Interest Act, RSC 1985, c I-15. Further, she also challenged the allegation that the construction costs were secured under the third mortgage and that she was liable for those construction costs. In addition, the allegation that the construction costs were secured against the Lake Muskoka Property by an equitable mortgage was denied.
[11] The defendants, Richard and 1783069 admit that funds were advanced to them directly for construction in the amount of $253,500 and indirectly by way of the value of material supplied at the cost of Barrie Leasing; namely, the United Lumber account. They deny that interest was applicable but, if so, plead the Interest Act in that regard.
[12] The defendant, 1872984 owned by Michele, denies liability for all the claims.
[13] These two actions were consolidated by Court Order of McCarthy J., dated April 25, 2017.
THE ISSUES
[14] The issues to be determined in this matter are as follows:
(a) What were the balances properly owing as at July 12, 2017 under the three mortgages?
(b) Whether there had been an agreement to amend the rates of interest charged under the three mortgages, which was enforceable by the defendant, Michele.
(c) The amount of construction costs advanced.
(d) The rate of interest to be charged, if any, on the advances for construction costs.
(e) Whether the construction costs advanced by the plaintiffs to Richard and his corporation were secured as part of the third mortgage.
(f) If the answer to (e) is no,
(i) Did the circumstances warrant the finding that the construction costs were secured against the property by way of an equitable mortgage or a constructive trust?
(ii) If not, who is liable for the construction costs?
(g) Whether 1872984 is liable for anything.
THE MORTGAGES
Balances Owing
[15] The purchase of the Lake Muskoka Property by Michele was financed in part by a first mortgage of $200,000 to Contemporary Investment Corp. (Exhibit 5, Tab 4) with interest at 9.25% per annum, calculated monthly (Exhibit 1).
[16] The purchase was also financed in part by a loan from Karla Chopp for $80,000 with interest at 10.5% per annum, calculated monthly and secured against the Lake Muskoka Property as a second mortgage (Exhibit 5, Tab 25 and Exhibit 2). Richard was a guarantor for this second mortgage.
[17] On October 22, 2008, Michele borrowed $118,000 at 15% per annum, calculated semi-annually from James through an investment with B2B Trust and secured against the Muskoka Lake Property as a third mortgage (Exhibit 5, Tab 26 and Exhibit 3).
[18] At various times, these mortgages went into default with payments made either by Barrie Leasing or James as a result of default of payment by Michele and/or Richard regarding these mortgages.
[19] The first mortgage has been in default since November 2011, the second mortgage has been in default since November 2012 and the third mortgage has been in default since December 2009.
[20] The second and third mortgages ultimately came under the control of Barrie Leasing by way of assignments, while the first mortgage was eventually assigned to a community trust company but remaining under the control of James (Exhibit 5 at Tabs 27 to 30). The third mortgage was assigned to Barrie Leasing on February 3, 2014.
[21] The second action was commenced on June 21, 2016. Subsequent to the commencement of the second action, the Lake Muskoka Property was sold at a price of $1,250,000 on July 12, 2017. Pursuant to an agreement between the parties and the Order of McCarthy J. dated July 11, 2017, the sum of $933,505.63 was paid to the solicitor for the plaintiffs in trust. Of that amount, $555,494.96 was ordered to be released and applied on account of the mortgage balances of the three mortgages, pending determination of the actual amounts owed.
[22] On May 31, 2018, on the fifth and last day of trial, the parties agreed that the amounts owing under the three mortgages as at July 12, 2017, were as follows:
First mortgage $ 75,658.03 Second mortgage $156.361.25 Third mortgage $347,373.74 Total: $579,393.02
[23] The plaintiffs and all defendants accepted that the total amount owing as at July 12, 2017 was the sum of $579,393.02 in respect of the three mortgages, which included interest at the rates set out in the three mortgages. During the trial, counsel for the plaintiffs had abandoned claims in respect of extra and administrative charges, and proceeded with a claim in respect of principle and interest only outstanding on the three mortgages.
[24] Each of Exhibits 1, 2, 3 and 4 contain a calculation where the plaintiffs applied the sum of $933,505.63 in respect of the three mortgages and the construction costs.
[25] Michele objects to the notional pro-ration of the $933,505.63. More to the point, she objects to the pro-ration of the actual funds released in the amount of $555,494.94 on account of the three mortgages on a pro-rata basis.
[26] She claims that the released sum should have been applied in accordance with the priority of the mortgages. Had that been done, the balance which remained owing of the $579,393.02 would have been the sum of $23,898.08 and that balance would have remained owing on the third mortgage with interest accruing thereon to payment at 15%, calculated semi-annually.
[27] The Order of McCarthy J., dated July 11, 2017, provides at paragraph 6, that the plaintiffs shall forthwith apply the said proceeds as follows:
(1) to first pay out the first mortgage to Community Trust in accordance with a statement produced by Community Trust, and to provide the defendant with proof of payment and copy of the statement for discharge;
(2) to apply the balance to the extent required to discharge the second mortgage, and any amount remaining on account of the third mortgage, and to supply amended statements of mortgage for the second and third mortgages showing balances remaining, or zero balance as the case may be.
[28] Simply put, Michele maintains that the released sum of $555,494.94 ought to have been applied against the outstanding amounts owing on the mortgages in priority, pursuant to the Order of McCarthy J. and not on some notional pro-rated basis, which included pro-ration of the hotly disputed construction costs.
[29] I find that on consent of the parties at trial, the balances properly owing at July 12, 2017 under the three mortgages is the sum of $579,393.02, with the outstanding amounts for each of those mortgages as set out above.
[30] I further find that in accordance with the Order of McCarthy J., the sum released in the amount of $555,494.94 ought to have been applied in priority and not pro-rated, regarding the first, second and third mortgages.
[31] I agree that if this had been done, the balance which remained owing of the $579,393.02 would have been $23,898.08. This is the balance that would have remained owing on the third mortgage with interest accruing thereon to payment at the rate of $15% per annum, calculated semi-annually.
[32] As of May 31, 2018 (last day of trial), Michele submits that the accrued interest on $23,898.08 at 15% per annum, calculated semi-annually from July 12, 2017 is the sum of $3,171.77, and that the total owed at May 31, 2018 is the sum of $27,069.85, for which she is solely liable, as Richard has no liability under the third mortgage.
[33] I accept this submission and find that as of May 31, 2018, the outstanding balance on the third mortgage is the sum of $23,898.08, with interest accrued on the third mortgage at the rate of 15%, calculated semi-annually. I find the total owing as at May 31, 2018 on the third mortgage is the sum of $27,069.85.
[34] I also find that Michele is solely responsible for the payment of this outstanding amount and Richard has no liability to pay anything under any of the mortgages. I find that Michele shall pay the sum of $27,069.85 to the plaintiffs, as at May 31, 2018.
[35] It is further submitted by Michele that no interest should accrue on the balance of $23,898.08 (the outstanding balance as at July 12, 2017) after May 31, 2018, as that sum (with interest) was agreed upon and it was open to the plaintiffs to forthwith withdraw that sum (with interest) from funds held by them in trust. Further, it is submitted that if a formal consent of the defendants was required and if requested, it would have been granted.
[36] I do not agree. I find that interest continues to accrue after May 31, 2018 in respect of the third mortgage, at the rate of 15% per annum, calculated semi-annually, until payment.
[37] Michele concedes that if interest continues to accrue after May 31, 2018, the total interest to August 1, 2018 would be $689.72, and the total balance due and owing on the third mortgage would be the sum of $27,759.57, with a per diem of $11.12 on $27,069.85.
[38] I find that Michele owes the plaintiff the sum of $27,069.85 as at May 31, 2018, with interest at the rate of 15% per annum, calculated semi-annually, with a per diem of $11.12 until payment. It is hereby ordered that said amount shall be immediately paid out of the funds held in trust by counsel for the defendants to the plaintiffs.
[39] Because the parties had agreed on the outstanding balances of the three mortgages, including interest, it is unnecessary for me to decide whether there had been any agreement to amend the rates of interest charged under the three mortgages.
CONSTRUCTION FUNDS
Amount Owed
[40] One of the issues relating to construction funds is the amount of construction costs advanced by the plaintiffs.
[41] The plaintiffs claim that as of June 30, 2017, the amount owed for construction costs, including interest at 15% per annum, calculated monthly, and other charges, was the sum of $649.389.00.
[42] The defendants agree that the sum of $253,500 was advanced by Barrie Leasing directly to fund construction of the cottage and boathouse on the Lake Muskoka Property owned by Michele. They also agree that additional funding was provided by way of the value of materials obtained from United Lumber through an account in the name of and paid for by Barrie Leasing. This amount was agreed by the parties, totalling the sum of $145,966.04, less one invoice of $92.77 attributed to James personally. The parties agreed that the net balance of $145,873.27 for materials obtained from United Lumber was attributed to the Lake Muskoka Property project.
[43] The parties agreed that the total construction costs owing was the sum of $399,373.27, subject to the issue of interest. This amount was also agreed upon on the last day of trial.
Interest Owing on Construction Costs
[44] The plaintiffs claim from the beginning and throughout the trial that construction costs were secured by the third mortgage and at the same rate of interest set out in the third mortgage, namely 15% per annum, calculated semi-annually. There was no documentation to support this position. The plaintiffs conceded that they could not overcome the provisions of the Statute of Frauds. There was nothing in writing to evidence the construction costs being secured by the third mortgage. The plaintiffs conceded that construction costs were not secured by the third mortgage. However, they did not abandon their claim in respect of their interest on the construction costs at the rate of 15% per annum, calculated monthly. Again, there was no written documentation to support this claim. I find there was no evidence to support the calculation of interest at the rate of 15% per annum. Further, the plaintiffs had calculated interest at 15% by compounding interest monthly instead of semi-annually, as provided in the third mortgage. There is no evidence anywhere that the construction costs attracted interest at the rate of 15%, either compounding interest monthly or compounding interest semi-annually. There is absolutely no documentation in writing to support this claim.
[45] Lori Shirley (Ms. Shirley), James’ daughter, testified that there had been an agreement that construction costs would bear interest at the rate of 15%. She did not state with what compounding factors. There was nothing in writing. However, she admitted that she had not been present at any of the meetings between the Wainmans and her father, during which the construction project was discussed and did not specify how she came to that understanding.
[46] The only clear evidence on this point was given by Richard and the real estate agent, Hugh Nichols (“Mr. Nichols”). Their evidence was that there had been a meeting between Mr. Nichols, Richard and James in the Fall of 2012, at which Mr. Nichols said the property needed a main residence and a boathouse to be more marketable. The agreement reached was that Richard would build the buildings and James would finance the project. Neither Ms. Shirley nor Michele were present.
[47] I accept Richard’s evidence that very little detail was discussed and, in particular, nothing regarding the amounts to be advanced, interest, accounting or security. There was nothing reduced to writing. Neither Mr. Nichols nor James contradicted this evidence.
[48] It is submitted on behalf of the defendants that, given the absence of any evidence that there was an agreement, or even an implied expectation that interest would be charged, no interest should be charged on construction costs. In the alternative, if the court should find evidence which indicates an implied agreement that interest would be charged, but without any agreement as to the rate, s. 3 of the Interest Act applies and the rate is limited to 5% per annum, calculated annually. It is also submitted by the plaintiffs that if the court rejects that the applicable interest rate is 15%, then the plaintiffs submit that the Interest Act rate of 5% should be applied.
[49] I find that the plaintiffs agreed to fund construction of the cottage and boathouse on the Lake Muskoka Property from 2013 to 2016 and, to this end, there were cash advances and materials paid for by the plaintiffs on the United Lumber account to which they permitted Richard access. Materials were purchased from United Lumber and charged to the United Lumber account set up in the name of Barrie Leasing at the discretion of James. Documents from the United Lumber account showed that there were financing charges which Barrie Leasing was obliged to pay.
[50] It is clear that all funds, either by way of cash advances or through the United Lumber account ,were being advanced on the understanding that all of those monies would be repaid from the proceeds of sale. It was never clear as to when this property would sell and it would be unreasonable to expect the plaintiffs to carry the costs of construction indefinitely without interest accruing or that the plaintiffs would bear the interest or forego the interest. This would be unreasonable, given the fact that Michele was in arrears in respect of three mortgages and more money would have to be expended in order to attract a sale of the property. I find there was an implied expectation that the plaintiffs were not prepared to either forego interest or incur interest expenses and never expect the defendants to pay anything in respect of interest on significant construction costs. To the contrary, I find the implied expectation was that the defendants would pay interest on the construction costs.
[51] We do find ourselves in a situation where no interest rate was provided. There was nothing in writing in respect of the interest rate on construction costs. Nevertheless, I find that there was an implied agreement that interest would be charged to the defendants. The plaintiffs would be out of pocket for a significant amount in respect of construction costs. Interest would accrue on those amounts and that interest would be charged to the defendants. In all of these circumstances, even where no interest rate would be expressly specified, I do not accept that it was ever expected that the plaintiffs would put up approximately $400,000 for construction costs without any interest being charged to the defendants on the come-by-chance that someday the property would sell and the plaintiffs would be paid the mortgage arrears and the construction costs out of the proceeds of sale. I find that the funds advanced by the plaintiffs were not interest-free.
[52] That being said, I find that s. 3 of the Interest Act applies and that the rate of interest is fixed at 5% per annum.
Interest Rate When None Provided
[53] Section 3 of the Interest Act provides:
Whenever any interest is payable by the agreement of parties or by law, and no rate is fixed by the agreement or by law, the rate of interest shall be five per cent per annum.
[54] I accept the calculations presented by the defendants’ counsel, found at Schedule A of the written submissions.
[55] I find that 5% per annum calculated annually on the sum of $399,373.27 results in a total owing as at August 1, 2018 in the amount of $491,507.60. After August 1, 2018, interest accrues on the sum of $491,507.60 at the rate of 5% per annum.
Liability for Repayment of Construction Costs
[56] The evidence indicates that by the Fall of 2011, the efforts of Michele to sell the Lake Muskoka Property had failed and that the responsibility of selling the property was handed over to James by way of powers of attorney executed by both Michele and Richard Wainman in favour of James Shirley. This confirms that Richard was an integral part of the Lake Muskoka project as early as 2011 – before the construction advances began in the Fall of 2013.
[57] The Lake Muskoka properties did not sell during the Summer of 2012 and the evidence provided by Richard and Mr. Nichols, real estate agent, is clear that as of the Fall of 2012, James was concerned about recovering the amounts advanced and secured by the three mortgages. Both Richard and Mr. Nichols confirmed in their evidence that a meeting was convened by James at the Shirley residence between the three of them to discuss the problem at which time it was decided that the marketability of the property had to be improved in order to facilitate a sale. In particular, a main residence and a boat house should be built. Neither Michele nor Ms. Shirley were at that meeting. I find it was agreed at that meeting between James and Richard that James would finance the construction of the improvements and that Richard would do the construction work, apparently through his company, 1783069 Ontario Inc.
[58] James met with Michele at a later date, at which time he informed her of his arrangement with Richard. She testified that she made it clear to James that she had no intention of personally incurring more debt. In the result, she testified that it was agreed her participation would be limited to obtaining the permits necessary for the work. The uncontradicted evidence is that she did obtain those permits so that construction could begin. The position on behalf of Michele is that she did not agree to be liable for the construction debt, even though the structures would be built on the Lake Muskoka Property owned by her, and even though those structures would enhance the value of her property.
[59] What is clear on the evidence is that all of these arrangements were oral. Nothing was reduced to writing. However, there was no evidence by Mr. Nichols or James, which contradicted the evidence of Richard and Michele that Richard was to undertake construction financed by James or Barrie Leasing on the Lake Muskoka Property and Michele would attend to obtaining the necessary work permits.
[60] Further, Richard’s evidence is that he received some advances from the plaintiffs in his own name, which were deposited to his corporate account. Afterwards, there were bank to bank transfers from Barrie Leasing’s account to Richard’s corporate account. Richard testified that all payments made to him were intended for his company and were deposited into his corporation’s account. No payments were made to Michele, and James was aware that he was dealing with Richard’s corporation.
[61] The defendants submit that the evidence suggests that James and Richard, through Richard’s numbered company, had, in essence, formed a joint venture under the direction of and for the primary benefit of James in his effort to recover his mortgage money. The relationship between James and Richard’s numbered company was a contractual one, which did not include Michele as a party. If Michele had any liability, it was to Richard’s numbered company and not to James. In the result, it is submitted that the contractual liability for the repayment for the construction loan lies with Richard’s numbered company.
[62] I do not agree.
[63] I find from the evidence of Mr. Nichols that the sale price of the Lake Muskoka Property would not have exceeded $600,000 but for the funds advanced by the plaintiffs in 2013 through to 2016 to construct the cottage and boathouse. I find these funds allowed Michele to sell the property in July 2017 for $1,250,000 – more than double what Mr. Nichols stated it was worth before the advance of funds by the plaintiffs.
[64] Michele has received a substantial benefit from the plaintiffs of more than $400,000.
[65] Richard’s evidence was clear that the construction funds would be repaid from the proceeds of sale of the property. His evidence was unequivocal. His intention and understanding was clear.
[66] I reject any suggestion that monies advanced by the plaintiffs were a “gift” to Michele and Richard of about $400,000, so that James could recover payment on the three defaulted mortgages that totalled about $600,000. It is clear that the sale price was only possible because of funds advanced by the plaintiffs to Michele and Richard in accordance with the evidence of Mr. Nichols.
[67] I find that Richard was a necessary and essential part of the Lake Muskoka Property project and without his full participation, cooperation and assistance, the project would not have proceeded. The full participation of Richard is confirmed by documentation where he guaranteed the second mortgage, executed various powers of attorney in favour of James to list and sell the Lake Muskoka Property. None of the powers of attorney were ever revoked by Michele or Richard.
[68] I do not accept that the advancement of construction funds either directly to Richard for deposit to his corporate account or by way of interbank transfer would absolve Richard of any liability in respect of the payment of construction costs. Nor do I accept the argument that Michele received no benefit in respect of the advances which resulted in the sale of the Lake Muskoka Property at an enhanced price. Her position, which I reject, is that Richard’s company has incurred a corporate debt for which neither she, Richard nor her company is liable. To accept such an argument would be unreasonable, in that it would suggest she would take the benefit of the plaintiff’s advancement of financing for construction costs, but that Richard’s construction company would bear all the liability for repayment. Such a conclusion is not borne out by the facts of this case. Rather, the evidence establishes that for some ten years prior to the Lake Muskoka project, James had been involved in numerous transactions with both Richard and Michele. According to the evidence of Ms. Shirley, they were always considered as a single unit. The evidence does not support the defendants’ position that somehow only James and Richard were involved in a “joint venture”.
Equitable Mortgage
[69] The statement of claim in the second action alleges that the plaintiffs are entitled to an equitable mortgage/ lien over all proceedings arising from the sale of the Lake Muskoka Property. The Order of McCarthy J., dated July 11, 2017, at paragraph 5(5) provides that all net proceeds are to be paid in to court pending determination of the issues in the consolidated action. At no time have the net funds been designated as belonging solely to Michele. This was the very matter which was before the court to be determined.
[70] The defendants deny that either an equitable mortgage or a constructive trust claim is available to the plaintiffs to recover the construction funds advanced to the benefit of Michele and Richard. The plaintiffs disagree. Richard’s evidence is clear and uncontradicted that the mortgage arrears and the construction costs would be repaid out of the proceeds of the sale of the Lake Muskoka Property.
[71] It is submitted on behalf of the defendants that Michele as owner of the property and not Richard was in a position to create the foundation for an equitable mortgage and she did not. It is submitted that she did not agree to be liable for the construction costs and had no intention in common with James in this regard.
[72] Notwithstanding her evidence, which I do not accept on this critical issue, it is unmistakable and uncontradicted that there was a common intention that the sale proceeds would be used to pay off the mortgage arrears and to pay off the construction costs. That was always the intention between the parties, never denied by Richard and Michele.
[73] The plaintiffs rely on Elias Markets Ltd. (Re), 2006 ONCA 31904, [2006] O.J. No. 3689. In Elias, MacFarland J.A. considered the nature of an equitable mortgage at paras. 63, 64, 65 as follows:
[63] An equitable mortgage is distinct from a legal mortgage. “An equitable mortgage is one that does not transfer the legal estate in the property to the mortgagee, but creates in equity a charge upon the property”: A.H. Oosterhoff & W.B. Rayner, Anger and Honsberger: Law of Real Property, 2d ed. (Aurora, Ont.: Canada Law Book) at 1643.
[64] The concept of an equitable mortgage would seem to find its foundation in the equitable maxim that “equity looks on that as done which ought to be done”. Historically, the courts of equity mitigated the rigour of the common law, tempering its rules to the needs of particular cases on principles of justice and equity. The common law courts were primarily concerned with enforcing the strict legal rights of the parties, whereas equity was a court of conscience; it would step in to prevent an injustice that would otherwise arise from the strict application of the law.
[65] In essence, 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 future advances, where that common intention is unenforceable under the strict demands of the common law.
[74] In our case, there was a common intention on the part of Richard and Michele to pay the mortgage arrears and the construction costs from the proceeds of sale. This was founded on the advance of valuable consideration by the plaintiffs. The conduct between the parties showed an intention to create a security. It has been James’ position throughout that the construction funds (and mortgage debts) were to be repaid from the proceeds of the sale of the property, which position was supported by Richard’s evidence at trial.
[75] I find the net proceeds of sale held in trust by both the solicitors for the plaintiffs and the defendants are impressed with an equitable mortgage/lien based upon the conduct of the parties from at least 2013 to 2016. An equitable lien can be imposed upon the parties as it arises by the operation of equity from the relationship of the parties. See: Trez v. Wynford, 2015 ONSC 2794 at paras. 24 and 25.
Constructive Trust Claim
[76] The plaintiffs also submit they have a constructive trust claim against all defendants. The defendants deny the existing of any such claim. It is submitted by the defendants that the plaintiffs have not adduced sufficient evidence at trial to prove the elements necessary for constructive trust, being (a) a benefit to the recipient of the construction funds; (b) a corresponding deprivation to the plaintiffs; and, (c) no juristic reason for the advances. See: Kerr v. Baranow, 2011 SCC 10, [2011] 1, S.C.R. 269.
[77] It is submitted that neither Richard nor Michele were unjustly enriched. The defendants deny that there was any basis for a constructive trust claim against any of them, as there was a juristic reason in that construction funds were advanced to 1783069 Ontario Inc. on the basis of an oral contract for a construction loan.
[78] The plaintiffs submit that they are claiming restitution for funds advanced by way of a loan (not a gift) – monies advanced by the plaintiffs for construction costs admitted by Richard at trial. As the property has been sold, the outstanding construction costs which have been admitted of almost $400,000 need to be paid. The net proceeds of sale are being held in trust by both counsel (after the release of the sum of $555,494.96 in accordance with the Order of McCarthy J.). The plaintiffs’ counsel holds approximately $378,000 and the defendants’ counsel holds about $124,500.
[79] During the course of this litigation, the defendants have not been harbouring any illusion that the plaintiffs were making a restitution/unjust enrichment claim against them and look to the proceeds of sale of the property for payment.
[80] As stated in Peter v. Beblow, [1993] 1 S.C.R. at para. 25, “For a constructive trust to arise, the plaintiff must establish a direct link to the property, which is the subject of the trust by reason of the plaintiff’s contribution.” The plaintiffs’ submit, and I find, there is no doubt on the facts in this case that the plaintiffs have done so and that their position has been confirmed by Richard’s evidence.
[81] The combined actions of Richard and Michele operating jointly, as they have done with James for more than ten years, produced an increase in the value of the property from $600,000 in 2012 (evidence of Mr. Nichols) to the sale of the property in July 2017 in the amount of $1,250,000 – an increase of $625,000 that accrued to the benefit of Michele – for no juristic reason.
[82] Further, from the proceeds of sale, sufficient funds were realized to pay off Michele’s debt obligations to CRA of about $190,000, plus real estate commission and legal costs on closing. A sale of $600,000 would have left Michele owing CRA $190,000 after sale because all the net proceeds would have gone to pay the outstanding mortgage arrears to the plaintiffs. I have no doubt Michele received a benefit of at least $190,000 for which there was no juristic reason. The enhanced proceeds of sale allowed Michele to receive a substantial benefit by discharging her CRA obligations.
[83] Although Michele was the registered owner of the Lake Muskoka Property, the evidence is clear that Richard played an integral role in the Lake Muskoka Property project, even prior to the commencement of construction in August 2013. The plaintiffs were looking to him to construct the cottage and boathouse, notwithstanding funds were channeled through him and by him into his corporation.
[84] The evidence is that over the years, James dealt with the Wainmans in respect of multiple projects, including the Lake Muskoka Property project. The evidence is that the Wainmans would purchase, improve and sell properties. The plaintiffs would finance those projects and be repaid from the proceeds of sale. At no time during that period did the plaintiffs deal with anyone other than the Wainmans. There is no contract in Exhibits 1, 2, 3, 4 or 5 that is signed by or for 1783069 Ontario Inc. I find all contracts and documents in those five Exhibits have been signed by and for the benefit of Michele and Richard Wainman.
[85] For these reasons, I find that the net proceeds of sale held in the trust accounts of the plaintiffs’ counsel and defendants’ counsel are impressed with a constructive trust in favour of the plaintiffs.
Liability of 1872984 Ontario Inc.
[86] The plaintiffs admit that the extent of the involvement of Michele’s company, 1872984 Ontario Inc. remains unclear. I find there was no factual basis in the plaintiffs’ pleadings and no evidence adduced at trial which indicated that 1872984 was involved in any way whatsoever in the construction on the Lake Muskoka Property. I would therefore dismiss this action as against 1872984 Ontario Inc.
CONCLUSION
[87] For these reasons, there shall be judgment in favour of the plaintiffs as follows:
(a) The defendant, Michele Wainman, shall pay the plaintiffs, Barrie Leasing Services Inc. and James Shirley, the sum of $27,069.85 as at May 31, 2018, as the balance owing on the third mortgage, together with interest thereon at the rate of 15%, calculated semi-annually until date of payment;
(b) Said amounts referred to in paragraph (a) above, shall be paid out of the monies held in trust by the defendants’ solicitors, forthwith to the plaintiffs;
(c) The first, second and third mortgages shall be discharged by the plaintiffs upon payment of the amounts referred to in paragraph (a) above;
(d) The defendants, Richard Wainman, Michele Wainman and 1783069 Ontario Inc., shall jointly and severally pay the plaintiffs, Barrie Leasing Services Inc. and James Shirley, the sum of $399,373.27 for construction costs, together with interest at the rate of 5% per annum. As at August 1, 2018, the outstanding amount plus interest is the sum of $491,507.60. After August 1, 2018, interest continues to accrue on said amount at the rate of 5% per annum until payment, for which these defendants are jointly and severally liable;
(e) Plaintiffs’ counsel is authorized to release all funds held in trust ($380,486.30) to Barrie Leasing Services Inc. and James Shirley, in partial satisfaction of the said amount set out in paragraph (d) above; and,
(f) Thereafter, any shortfall of the amounts adjudged owing in respect of construction costs shall be paid forthwith from any remaining funds held in trust by the defendants’ solicitors. To the extent there remains any outstanding unsatisfied judgment amount, these defendants, Richard Wainman, Michele Wainman and 1783069 Ontario Inc., shall jointly and severally pay that amount to the plaintiffs, Barrie Leasing Inc. and James Shirley.
[88] As for costs, if the parties cannot agree upon costs, within seven days from the date of these Reasons, the plaintiffs shall serve and file a concise two-page summary regarding costs, together with a costs outline, Bill of Costs and any authorities. The defendants shall have seven days thereafter to serve and file the same materials. If any reply is required, the plaintiffs shall serve and file their reply within five days of defendants’ submissions. All materials by the parties are to be filed with my judicial assistant at Barrie.
G.P. DiTOMASO J.
Released: January 22, 2019