COURT FILE NO.: CV-17-581573
DATE: 20190418
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
STONEY CREEK CENTRE INC.
Applicant
– and –
2459437 ONTARIO INC.
Respondent
David P. Preger, for the Applicant
Chris Reed, for the Respondent
HEARD: April 15, 2019
reasons for decision
LEIPER J.
Introduction
[1] This is an application to interpret a financing agreement.
[2] The applicant, Stoney Creek Centre Inc., asks the court to resolve a dispute between it and the respondent, 2459437 Ontario Inc. over the amount owed on a mortgage loan made to the applicant by the respondent by way of a "Private Mortgage Financing Agreement – Letter of Intent" (the Mortgage Financing Agreement). The agreement and registered mortgage on title described the loan amount as $3 million. When the loan transaction closed, lending fees and financing costs were deducted and the net amount advanced to the respondent was in the order of $2.6 million.
[3] The dispute arose on May 2, 2017 when the applicant sought to pay out the mortgage and received a discharge statement from counsel for the respondent. The respondent sought repayment of the face value of the loan, $3 million with interest. The applicant said however, that it was only bound to repay principal and interest on the amount the respondent received from its financing company which was $2.7 million.
[4] Dickinson Wright LLP, counsel for the applicant agreed with counsel for the respondent that it would hold the disputed funds in trust pending the resolution of the dispute by court order or settlement by the parties. The parties agreed that the successful party should receive the funds being held ($374,693.00) and interest in the amount of 23% from May 2, 2017 to the date of judgment.
[5] An application is appropriate where there are no material facts in dispute. The parties agreed that there are no material facts in dispute and that this application is appropriate because it involves the interpretation of the Mortgage Financing Agreement.
The Relief Requested
[6] The applicant seeks a declaration that the funds held in trust by Dickinson Wright LLP are the property of the applicant. The applicant requests an order directing Dickinson Wright LLP to release the funds to the applicant and to be paid interest on the funds in the amount of 23% from May 2, 2017 to the date of judgment.
[7] The respondent seeks the identical relief in its favour.
The Background Facts
The Parties and their Principals
[8] The principal of the respondent company is Dr. Gillian Stanley. Her company held title in two waterfront properties in Burlington, Ontario.
[9] The principal of the applicant company is Mr. Anthony Perruzza, a real estate developer. This company borrowed funds from the respondent.
Mr. Perruzza Makes a Conditional Offer to Purchase Dr. Stanley's Burlington Properties
[10] In May of 2015, Mr. Perruzza was introduced to Dr. Stanley by Mr. Mark Vosylius who worked at a real estate brokerage. Dr. Stanley was interested in selling her Burlington properties.
[11] Mr. Perruzza viewed the Burlington properties and expressed interest in purchasing them. In late July and early August of 2015, Mr. Perruzza signed conditional agreements to purchase the Burlington waterfront properties on behalf of a "company to be incorporated." The total purchase price was $6.25 million.
[12] Mr. Perruzza took no steps to waive the conditions on the agreement between August of 2015 and January of 2016.
Dr. Stanley and Mr. Perruzza Agree on a Financing Plan to Assist Mr. Perruzza and to Move the Sale of the Burlington Properties Along
[13] By January of 2016, Dr. Stanley was anxious to complete the sale of her properties. Dr. Stanley became aware that Mr. Perruzza was having difficulty getting financing for a separate development deal involving a share purchase to acquire a Stoney Creek, Ontario property.
[14] Mr. Perruzza, Dr. Stanley and Mr. Vosylius discussed their business interests. Dr. Stanley agreed to lend Mr. Perruzza the money he needed to complete the Stoney Creek share purchase, using her waterfront properties as collateral for a mortgage loan to her company. The arrangement was that Dr. Stanley's company would loan funds to Mr. Perruzza in return for a mortgage on the Stoney Creek properties that he was seeking to obtain via share purchase. In return, Mr. Perruzza would waive the purchaser's conditions on the Burlington waterfront properties so that the real estate transactions could close and Dr. Stanley could sell her properties.
[15] Dr. Stanley tried to obtain funding through her existing bank lender and through friends. She did not succeed. Mr. Perruzza was anxious to have the funding from Dr. Stanley because his share purchase transaction closing date was approaching. Although Mr. Perruzza had a loan commitment from another company (Verico Pro Funds), it was not feasible for him to use this source of funding. In order to solve the problem of funding, Mr. Perruzza introduced Dr. Stanley to a person he knew at Toronto Capital Corp. to facilitate the loan to her so that she in turn could loan him the funds necessary for his share purchase.
Toronto Capital Corp Makes a Loan Commitment to the Respondent
[16] Dr. Stanley agreed to borrow $3 million from Toronto Capital at 14% interest, as a 4-month loan. The use of the proceeds were described in the Toronto Capital Letter of Commitment signed by Dr. Stanley as follows:
-2,703,000 to "Complete share purchase"
-140,000 for "Declining Interest Reserve"
-135,000 for "Fees"
-22,350 for "Closing Costs"
[17] At page 4 of the Letter of Commitment, the fees were further described as follows:
Lender Fee: A Lender Fee shall be deducted of 2.5% on the advance amount. The Lender Fee represents compensation to the Lender for its efforts and expenditures in the review and study of all documentation pertaining to the transaction.
Legal Fees: All Legal Fees are for the sole account of the Borrowers. Legal fees are estimated at $15,000 plus disbursements and HST.
Broker Fee: A Broker Fee shall be deducted of 3% on the advance amount.
-2% payable at Time of Closing
-1 % payable at Maturity
Broker Fee payable to Toronto Capital Corp
A NON-REFUNDABLE DEPOSIT of $10,000 TO BE COLLECTED UPON ACCEPTANCE OF THIS COMMITMENT
On January 25, 2016, Dr. Stanley signed and initialed the Loan Commitment letter from Toronto Capital, including the provisions as to the fees.
[18] Mr. Perruzza was aware of these arrangements. He received an email from counsel for Toronto Capital (as did Mr. Vosylius, Dr. Stanley and other members of the lender's firm) attaching the Letter of Intent between the respondent and Toronto Capital prior to the closing of his loan from the respondent. Mr. Perruzza agreed in his examination that he had received the Letter of Intent.
[19] In addition, there was other evidence that Mr. Perruzza was aware that financing fees would be charged by Toronto Capital on its loan to the respondent. An undated note made by Mr. Perruzza described costs "to Tony", "as per LOI:"
-INTEREST (ANNUAL) 23%
-TORONTO CAPITAL LENDER ANNUAL 2.50
- " " BROKER " 3.00
-GILL BROKER "ANNUAL" 3.00
8.5
CREDIT AS PER C. IN COST 2.
AMORTIZED 6.5 /16 X 12 = 5% 28%
Counsel for the respondent included the note for the limited purpose of demonstrating that the cost of the Toronto Capital loan to Dr. Stanley was part of the discussions between Dr. Stanley and Mr. Perruzza, and to refute the suggestion by the applicant in written argument that Mr. Perruzza did not know the details of the Toronto Capital costs to Dr. Stanley.
The Parties Execute a Mortgage Financing Agreement and Related Documents
[20] Dr. Stanley and Mr. Perruzza, on behalf of their respective companies, signed the Mortgage Financing Agreement on January 15, 2016 for the loan that is at the heart of this dispute. The Letter of Intent described the purpose of the Loan:
The purpose of this Loan is to provide financing for the completion of the Share Purchase Agreement. This Loan is conditional upon amongst other things the waiving of all conditions of the Purchase and Sale Agreements of 105 Avondale Crt dated August 3 2015 and 143 Bluewater Place dated July 22 2015, and adjusting the closing date to May 31, 2016.
The money advanced to Dr. Stanley was paid to Mr. Perruzza's company. Mr. Perruzza completed the share sale for the Stoney Creek property interest. Mr. Perruzza's company gave a mortgage to Dr. Stanley for the face amount of $3 million. The conditions for the sale of the waterfront properties were waived by Mr. Perruzza. The Burlington waterfront transaction closed successfully.
[21] The Mortgage Financing Agreement between the parties included the following pertinent terms:
TYPE OF LOAN: Third Mortgage. Principal and interest.
TERM: 16 Month Term following the date of initial advance.
LOAN AMOUNT: $3,000,000 (Face value of the mortgage charge) is based on appraisal provided.
ADVANCE AMOUNT: $3,000,000 less the Lender's financing charges. Due on closing
LENDER FEE: A lender fee of 3% shall be deducted on advanced amount.
PAYMENT PROVISION: The Borrower will forward monthly payments of $30,000.00 until the sale of the properties known as 105 Avondale and 143 Bluewater close as noted in the conditions below. And payments will be applied as credit to Lump Sum payment.
CLOSING DATE: January 29, 2016
LEGAL: The borrower will pay the Lender's legal fees for closing, registration and discharge
The Mortgage Financing Agreement required a commitment fee of $5,000 to be paid to the lender to be applied against the lender fee, and due and payable on closing of the transaction. Further in the agreement, the parties agreed to additional conditions, considerations on default and borrower disclosure.
[22] The default clause in the Mortgage Financing Agreement provided:
If the 105 Avondale and 143 Bluewater properties do not close as per agreed (on May 31, 2016), then the Stoney Creek property loan of $3,000,000 will be considered in default.
[23] The "Borrower Disclosure" provisions in the Mortgage Financing Agreement included this clause:
If the transactions contemplated by this Letter of Intent are not completed as a result of the default of the Borrower, the Lender shall be entitled to all Lender Fees, Syndication/Broker Fees, Mortgage Administration Fees and Legal/Closing Fees and will retain any deposit as liquidated damages. Such fees shall be deemed earned and due. If the Borrower does not proceed, this Agreement shall act as a Letter of Direction.
[24] On closing, Toronto Capital advanced $2,711,691.48 to the respondent's credit. The net amount advanced after deductions for legal fees, title insurance and the Lender Fee described in the Mortgage Commitment Letter left a balance paid to Mr. Perruzza's company of $2,604,691.48.
[25] The transaction closed, the mortgages were registered and as agreed, the sale of the Burlington properties took place between the two corporate entities. In June of 2016, Dr. Stanley repaid Toronto Capital from the sale proceeds of the Burlington properties. Mr. Perruzza financed the share purchase related to the Stoney Creek properties as contemplated by the loan to him from the respondent which was made possible by the Toronto Capital loan to the respondent.
The Disagreement about the Mortgage Payout in May of 2017
[26] On April 6, 12 and 24, 2017, Mr. Perruzza requested a discharge statement in order to pay out the mortgage loan to Dr. Stanley's company. On May 1, 2017, counsel for Dr. Stanley provided a discharge statement which provided for repayment of principal owing of $3million and interest as of May 1, 2017, at 23% of $865,807.78.
[27] The applicant submitted that there was only one inference to be drawn from the delay in the production of the discharge statement, that being, to coerce Mr. Perruzza into paying a higher amount than contemplated by the Mortgage Finance Agreement. In my view, there are other possible inferences that could have explained the delay. There was no direct evidence on this point. The fact of the delay exists. It may have affected relations between two parties who originally had mutually compatible objectives. I decline to draw a negative inference from the fact of the time it took to produce the discharge statement to counsel for the applicant.
[28] On receipt of the discharge statement, counsel for Mr. Perruzza disputed the amount. Counsel wrote, "It is clear the principal sum advanced under you[r] client's loan is $2,711,691.48. My client received the net advance of $2,604,691.48." Counsel agreed to pay the sum of $2,711,691.48, with interest after applying a credit for payment of $60,000. Following this exchange, counsel for the parties agreed the disputed sum would be held in trust. The undisputed amount was paid out to the respondent.
Issue 1: What Did the Mortgage Financing Agreement Require the Applicant to Repay as Principal: Was it $3 Million or was it $2.711 Million?
[29] The applicant argued that the respondent is not entitled to repayment of funds that is more that the principal amount advanced. It relies upon a line of cases that originate in Edmonds v. Hamilton Provident & Loan Society,[^1] for the general rule that a mortgage can only claim interest from the time the money is advanced, and if a mortgagee advances less than the face value of the mortgage, it can only recover the amount advanced.[^2]
[30] The respondent agreed with the general rule and submitted that where a smaller sum is advanced, a mortgage commitment may be given and enforced for a larger amount if the parties agree. The respondent further argued that the Mortgage Financing Agreement and other documents necessary to complete the transaction are clear and consistent with an obligation on the part of the applicant to repay $3 million and interest. The respondent submitted that the applicant, as borrower, was liable on the terms of the Mortgage Financing Agreement to pay the lender's costs of the front end financing including the lender's financing charges from Toronto Capital.
[31] The parties submitted that the terms of the Mortgage Financing Agreement did not require extrinsic evidence considered on the question of the terms of the letter of intent. The parties agreed that the subjective intention of the parties at the time the contract was drawn is not relevant. As cited by the respondent, the Supreme Court of Canada in Sattva Capital Corp. v. Creston Moly Corp.,[^3] noted that the surrounding circumstances will be considered to deepen the understanding of the objective intentions of the parties, but not to "overwhelm" the words of the agreement. Interpretation of contracts must flow from the entire contract, with any surrounding circumstances being relied upon but not such that the court effectively creates a new agreement.[^4] The parties agreed that this principle applies to this dispute.
[32] Mr. Perruzza swore an affidavit in which he said that when he received the discharge statement on May 1, 2017, he was "utterly galled." He said that it was "never the deal" that he would repay a loan amount that would include the financing costs charged by Toronto Capital to the respondent. He relies on the "cardinal principle" that the amount of a mortgage loan advanced represents the amount that is to be repaid, as a matter of the doctrine of equity.
[33] The respondent argued that the parties contracted, and funds were advanced, on the understanding that the full principal amount contracted for would be repaid. The other documents required to give effect to the transaction, including a promissory note and guarantee for $3.0 million had been executed by a related company at the direction of Mr. Perruzza. The respondent argued that the parties were aware that there would be deductions from the face amount of the fund advanced by Toronto Capital and subsequently by the respondent. The respondent argued the documents are clear that this was a contract "for a mortgage...for a larger sum in consideration for the loan of a smaller sum."
[34] Counsel for the applicant provided case law refuting any argument that there was an implied term that the applicant was to pay the respondent's financing costs.[^5] The respondent did not argue that there was an implied term and neither suggested any implied terms were necessary to give business efficacy to the agreement; the point of dispute related to the existing words in the contract. I agree.
[35] The Mortgage Financing Agreement is clear. The face value of the mortgage is for $3 million and default on the mortgage makes that principal amount due and payable. The Amount to be advanced is defined as $3 million less the lender's financing charges. The Lender's fee of 3% is stated "to be deducted on Advanced Amount" suggesting it is but one deduction from the face amount. The applicant has accepted the fact that deductions for some of the borrowing costs were legitimate; although it received funds in the amount of $2,604,691.48 it asserts its repayment amount of principal is a higher figure, $2,711,691.48 representing the funds the respondent received from Toronto Capital. Counsel for the applicant submitted that the reference to the "lender's financing charges" is the same as the lender's fee on the second page of the Mortgage Financing Agreement. I disagree with that interpretation and base this conclusion on a plain reading of the relevant provisions in the Mortgage Financing Agreement.
[36] This is a case where the Edmonds principle is displaced by the express agreement of the parties in the Mortgage Financing Agreement. There is no evidence of "fraud or oppression" in the negotiation of the agreement. Both parties were aware of the respondent's financing costs. Both were represented by counsel on the deal. There were no allegations or evidence of any misrepresentations leading to a risk of loss. To the contrary, all of the documents contemplated that the respondent would seek financing of $3 million and that the agreement with the applicant would be to pay all the fees and costs of the respondent's financing to consummate the loan to Mr. Perruzza's company.
Issue 2: The Bridge Financing Payment Issue
[37] The parties raised an issue concerning a provision in the promissory note that required the applicant to make monthly $30,000 payments to the respondent during the four month period of the Stanley-Toronto Capital loan. At the time of payout, counsel for the parties had apparently agreed a credit was due to Mr. Perruzza of $40,000. At the time of argument, counsel for the respondent had suggested that evidence of the payments would be required to confirm this credit.
[38] This issue was not part of the relief requested. The submissions revealed a potential credibility dispute on this issue. I decline to make any findings on the issue, without prejudice to the parties' rights to seek other relief on the matter of those payments.
Conclusion
[39] I conclude that the agreement was that the applicant would be required to repay the respondent the face value of the mortgage loan, that is, $3 million with interest at 23%. I order as follows:
The funds held in trust by Dickinson Wright LLP, together with all interest that has accrued on the funds are the property of the respondent.
Dickinson Wright LLP is directed to release the funds and accrued interest to the respondent.
In accordance with the parties' agreement, there shall be prejudgment and post judgment interest paid by the applicant to the respondent on the funds from May 2, 2017, at the rate of 23% per annum, subject to credit being given for the accrued interest.
Costs
[40] If the parties are unable to agree as to costs, brief written submissions as to costs are to be provided as follows: The applicant shall deliver its submissions by May 15, 2019, and the respondent shall deliver responding submissions by May 22, 2019.
Leiper J.
Released: April 18, 2019
COURT FILE NO.: CV-17-581573
DATE: 20190418
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
STONEY CREEK CENTRE INC.
Applicant
– and –
2459437 ONTARIO INC.
Respondent
REASONS FOR DECISION
Leiper J.
Released: April 18, 2019
[^1]: (1891), 18 O.A.R. 347 (C.A.).
[^2]: Ibid at pp. 362-363.
[^3]: 2014 SCC 53, [2014] 2 S.C.R. 633.
[^4]: Ibid at para. 57.
[^5]: Energy Fundamentals Group Inc. v. Veresen Inc., 2015 ONCA 514, 388 D.L.R. (4th) 672; and JEL Investments v. Boxer Capital Corp., 2011 BCSC 1526.