COURT FILE NO.: CV-18-045
DATE: 20201001
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH MALONEY and HEATHER MALONEY
Applicants
– and –
RICK GOODMAN personally, and in his capacity as executor of the ESTATE OF LEO GOODMAN, deceased
Respondent
Zach Flemming-Giannotti, for the Applicants
Nadia Condotta, for the Respondent
HEARD at Napanee: 26 June 2020, by videoconference
MEW J.
REASONS FOR DECISION
[1] The applicants are farmers who own two properties in the County of Lennox & Addington which are subject to mortgages registered in favour of Leo Goodman.
[2] On 5 July 2010, Leo Goodman purported to assign the mortgages on the Maloney properties to his son, Richard Goodman (also known as “Rick”).
[3] There is no record of the transfer of the mortgages to Richard Goodman having been registered pursuant to section 101 of the Land Titles Act, R.S.O. 1990, c. L.5.
[4] Leo Goodman died in July 2017 at the age of 102. Counsel for the respondent confirmed that the Estate Trustee of Leo Goodman’s estate is his daughter, Elaine Palmer. Rick Goodman is not an Estate Trustee, the title of proceedings of this application notwithstanding.
[5] As a result of the transfer not having been registered, the transferor (Leo Goodman and, since his death, his estate) is deemed by law to remain the owner of the charge: Land Titles Act, s. 101(5). Notwithstanding this provision, the parties accept that the mortgages were validly assigned to Rick Goodman and that he is entitled to any contractual remedies that arise from that assignment, even though unless his interest is registered, he cannot enforce the security represented by the mortgages. The parties further agree that the Estate is not a necessary party and that the Court should not, accordingly, be concerned that the action against the Estate is not properly constituted.
Background
[6] On various dates beginning in 1998 and continuing through to 2007, the applicants entered into the subject mortgages as mortgagors, with Leo Goodman (or in some cases, other members of his family) as mortgagee. The mortgages were registered on title of three properties located at 2123 County Road 22 in Bath, 2172 County Road 8 in Napanee, and 81 Donald Street in Napanee.
[7] Until around July 2006, the applicants’ main source of income was rent income derived from the Donald Street property.
[8] However, an electrical fire occurred at 81 Donald Street which caused damages to the furnace room and one of the apartments in the building. The applicants’ insurer assumed control of 81 Donald Street for remediation purposes. For the next eleven months, the applicants received sporadic payments from their insurer - which they remitted to Leo Goodman - but did not receive regular rental income.
[9] Without this income, the applicants became insolvent in the latter half of 2007, and power of sale proceedings were initiated by Leo Goodman in relation to some of the mortgages which he held. The Donald Street property was sold under power of sale in April 2008. The mortgages on remaining properties (referred to by the applicants as the “Farm Properties”) are the subject of this proceeding.
[10] After the sale of Donald Street, power of sale proceedings in relation to the Farm Properties continued. However, in an effort to resolve issues arising from the remaining mortgages, the applicants applied for a mediation pursuant to the Farm Debt Mediation Act, S.C. 1997, c. 21. This occurred on 15 September 2008 and resulted in an arrangement (the “FDMA Agreement”) being entered into pursuant to s. 19 of that Act.
[11] Under the FDMA Agreement, the parties agreed and recorded that the mortgages held by Leo Goodman bore the following balances on the dates stated:
| Debt | Amount | Interest | Date |
|---|---|---|---|
| 1st Mortgage (LA225018) | $93,135 | 10% | 1 April 2006 |
| 2nd Mortgage (LA244497) | $120,500 | 10% | 1 November 2006 |
| 3rd Mortgage (LA259096) | $87,800 | 12% | 1 December 2006 |
| 4th Mortgage (Bradshaw) (LA244496) | $76,330 | 6% | 1 July 2006 |
| 5th Mortgage (LA227284) | $15,100 | 12% | 1 July 2006 |
| TOTAL: | $392,865 |
[12] These totals were subject to the application of payments made by the applicants subsequent to the respective dates listed, as well as the application of payments of certain tax arrears by Leo Goodman on their behalf after the dates, but prior to the mediation.
[13] On the date of the mediation, both parties had insufficient documentation in relation to the insurance proceeds, the sale of 81 Donald Street, and other payments made to or by Leo Goodman. All of the deponents of affidavits filed in this proceeding agree that such amounts were to be applied to adjust the balance owed. However, over eleven years later, there has been no agreement on what adjustments should be applied and, thus, what the actual indebtedness of the applicants was as the time of the FDMA Agreement.
[14] The applicants assert that by 21 December 2008, the balance outstanding on the mortgages was $209,845.18. Although the FDMA contemplated that the applicants could arrange alternative financing, and that they were to be given until 15 December 2008 to do so, they say that Leo Goodman refused or failed to agree the balances owing and the applicants could not, accordingly, obtain discharges from him. Joseph Maloney deposes that because of Leo Goodman’s apparent refusal to honour the FDMA Agreement and with the refinancing deadline looming, on 10 December 2008 the applicants instead entered into an Interim Agreement Extending Mortgages (the "Interim Agreement") with Leo Goodman “reluctantly and under financial duress”.
[15] The pertinent provisions of the Interim Agreement include the following:
The term of each of these Mortgages shall run for five years from the date this Agreement is signed by all parties hereto …
The annual interest rate on all these Mortgages is ten (10%) per cent per annum, calculated half-yearly, not in advance, and has been ongoing since these mortgages were signed. Payment for interest only shall be paid on January 1, 2009 in the amounts of $1,167.18 and $1,535.87, the prior one pertaining to the Palmer/Goodman mortgage;
The Parties hereto agree to re-do this Agreement once they arrive at a final figure as to the exact amount owing by Maloney to Goodman, after reviewing the figures to be provided by Goodman's lawyer, Mrs. G. R. Tepper;
The final Agreement is to contain a provision for Maloney to prepay any amount owing for principal at any time or times, without notice or bonus, provided that this Agreement is in good standing; and Maloney agrees that this Agreement and any final Agreement hereto is not assignable by them …
[16] On 30 August 2013, the applicants signed a statement written on the Interim Agreement (or a copy of it) “All parties agree to extend this agreement an additional 5 years”. No copy of this document bearing Leo Goodman’s signature has been produced.
[17] The applicants say that monthly payments of $2,703.05 were made commencing 1 January 2009 and continuing until April 2019, when the parties agreed that payments could cease pending the resolution of this litigation. That would result in a total paid of $335,178.20 (assuming a payment was made for April 2019). If the applicants are correct in their assertion that the balance outstanding in December 2008 was, in fact, $209,845.18, they claim that the mortgages have all but been paid in full and that, subject to payment of any small amounts that arise by way of adjustments, the court should make an order under section 12(8) of the Mortgages Act, R.S.O. 1990, c. M.40, discharging the mortgages.
[18] The respondent says that the principal amount owing on the mortgages was $324,336. This is the amount that would generate monthly payments of $2,703.05 at an annual interest rate of 10%.
[19] Furthermore, the respondent claims that a further $15,144.44 for legal fees incurred by Leo Goodman in the course of his efforts to collect arrears of payments and enforcement of his security should, by the terms of the mortgages, be added to the balance owing. The legal account in question is dated 31 December 2008. This would increase the applicants’ total indebtedness to $339,510.44.
[20] However, the respondent does concede that at the time of the Interim Agreement, the final amount owing between the parties had yet to be reconciled and the actual amount could have been “higher or lesser” than $324,336. The respondent also concedes that if the amount owing as at the date of the Interim Agreement is determined to be less than $324,366, then the monthly payments of $2,703.05 made by the applicants would not be “interest only” and would have to be applied to reduce the principal balance owing.
Issues
[21] The parties agree that the ultimate issue, which they ask the court to determine, is whether the mortgages have been paid in full.
[22] Although there are extensive submissions about various credits and debits that should be applied to arrive at the actual balance owing in December 2008, there appears to be common ground that the determination of that amount would be informed by answering four further questions, namely:
(a) Are the Interim Agreements enforceable and, if so, to what effect;
(b) What is the effect of a promissory note dated 28 March 2008 in the amount of $60,0000 in favour of Leo Goodman;
(c) What is the outstanding balance on a pair of construction mortgages, which the respondent says should be added to the balance owed by the applicants;
(d) Should the indebtedness of the applicants include the legal account dated 31 December 2008?
Approach
[23] There are a number of unusual features in this case.
[24] The evidentiary record is, to say the least, confusing. The late Mr. Goodman did not keep conventional records. There are handwritten notes, annotated documents and schedules and correspondence from both sides that often went unanswered. The respondent candidly acknowledges that the best evidence is no longer available:
Prior to the Assignment, I was not involved, other than to provide correspondence on Leo's behalf and direction, with the Mortgages at all. Leo continued to correspond with the Applicants, sometimes with my assistance, when necessary until his death in July 2017.
[25] Leo Goodman’s former lawyer, Geraldine Tepper, provided evidence by way of an affidavit, that she was cross-examined on, explaining her understanding of various transactions. But she, too, was dependent on Leo Goodman for instructions and did not always know why she was being asked to do what Leo Goodman asked her to.
[26] The applicants’ record-keeping was equally haphazard and, they say, they were never able to get straightforward information about the mortgages or their outstanding obligations.
[27] Years went by without any meaningful progress. The applicants thought it was better to keep their monthly payments up than risk further enforcement proceedings.
[28] After Leo Goodman died, the parties attempted to put together the pieces, without success. They now bring their incomplete records, the unanswered letters, their assumptions and best guesses and, having failed to make sense of it themselves, invite the court to do so.
[29] Even if the court could make sense of the evidentiary hotchpotch presented, it is not, at this juncture, going to attempt do so. Rather, the court will determine the questions enumerated above and invite the parties to revaluate their respective positions with the benefit of such guidance.
The Interim Agreements
[30] The respondent asserts that the Interim Agreement and its subsequent extension are enforceable contracts in their own right, which clearly state that the monthly payments are “interest only”. He complains that the applicants never responded to a letter sent by the respondent on behalf of his father stating that “[t]he total amount of the Mortgages outstanding on the 2 properties is $324,366, with interest at the rate of 10%. Leo tells me that you are paying him interest only monthly….”
[31] However, both the respondent and Ms. Tepper acknowledge that the agreement was never re-done, as contemplated. And although the respondent argues that the interest-only payments were not contingent on agreeing to the balance owing, he does acknowledge that the Interim Agreement was an alternative to Leo Goodman taking further enforcement proceedings.
[32] In my view, the Interim Agreement was no more than an agreement to agree. Its wording is consistent with the evidence of the applicants that Leo Goodman refused or failed to honour the FDMA Agreement and that the parties remained in a dispute as to the amount that was properly owing as of 10 December 2008.
[33] The respondent argues that in commercial dealings between parties who have acted in the belief that they had a binding contract, the court can imply terms to enable the contract to be carried out, even when the contract uses expressions such as “to be agreed”: Mamidoil-Jetoil Greek Petroleum Company SA v. Okta Crude Oil Refinery AD, 2001 EWCA(Civ) 406, at para. 69.
[34] I accept that, depending on the context, where there is an otherwise valid and existing contract between parties, the expression “to be agreed” in relation to future executory obligations is not necessarily fatal to the continued existence of the parties’ agreement. That was the case in Mamidoil-Jetoil, where the context was purely commercial, and the parties had long familiarity both with each other and the commercial arrangements made between themselves for the handling by a refinery of the other party’s crude oil.
[35] By contrast, an agreement which leaves one of the essential terms to be determined by the parties mutually at a future time is unenforceable: Murphy v. McSorley, 1929 CanLII 29 (SCC), [1929] S.C.R. 542 at para 9; Ko v. Hillview Homes Ltd., 2012 ABCA 245. The Interim Agreement at clause 5 contemplates a further understanding or meeting of the minds that did not take place. In my view, the principal amount owing under a loan secured by a mortgage of the Farm Properties would be an essential element of an Interim Agreement that purports to require interest-only payments on a principal amount owing. This is particularly so as the only monthly payment stipulated by the Interim Agreement was the payment due on 1 January 2009.
[36] It is clear that there was no consensus ad idem on the principal balance owing. Accordingly, the Interim Agreement contemplated a future time where this would be reconciled. Such an agreement to agree is not enforceable: Vincorp Financial Ltd. v. Hope’s Holdings Inc., 2010 ONSC 6819, at para. 41.
[37] Furthermore, if, as seems likely to have been the case (as discussed below), the principal amount was less than $324,336 and, hence, at least a portion of the monthly payments of $2,703.05 should have been applied to the principal, the Interim Agreement would run afoul of the Interest Act, R.S.C. 1985, c. 1-15, section 6 of which provides:
- Whenever any principal money or interest secured by mortgage on real property or hypothec on immovables is, by the mortgage or hypothec, made payable on a sinking fund plan, on any plan under which the payments of principal money and interest are blended or on any plan that involves an allowance of interest on stipulated repayments, no interest whatever shall be chargeable, payable or recoverable on any part of the principal money advanced, unless the mortgage or hypothec contains a statement showing the amount of the principal money and the rate of interest chargeable on that money, calculated yearly or half-yearly, not in advance.
[38] I conclude that the Interim Agreement and its extension are no more than evidence of how the parties agreed to conduct themselves pending a determination of what was owing. Neither constitute enforceable contracts.
The Promissory Note
[39] On 28 March 2008, the applicants executed a promissory note in the amount of $60,000 (the “Note”) in favour of Leo Goodman, on the understanding that Mr. Goodman would be able to use the Note as security to attract additional investors to assist the applicants with financing. The Note was due and payable on 1 March 2010.
[40] The applicants take the position that there was never any money lent on the Note, meaning there was nothing to owe, and that even if the Note had remained outstanding, the limitation period for bringing an action based on the Note has long since expired. The respondents take the position that the Note was owing, but that it was been paid off through the application of the proceeds of sale of the 81 Donald Street property. They acknowledge that the Note would no longer be enforceable because the applicable limitation period has expired, but suggest that the applicant is attempting to reverse engineer the allocation of funds from the sale of 81 Donald Street over a decade after the event, thereby avoiding payment of the $60,000 they borrowed by way of the Note.
[41] There are two major difficulties with the respondent’s position. First, it is uncontested that no money was provided to the applicants in relation to the Note. Ms. Tepper deposed that "[n]o new money was received on the day that the [Note] was signed and most of the loans were paid off'. Furthermore, a note written and signed by Leo Goodman on 17 September 2008 - just two days after the FDMA Agreement – corroborates the evidence of that no funds were advanced to the applicants pursuant to the Note:
The $60,000 note that was signed by Joe and Heather Maloney on March 1, 2008 was made up of a combination of old loans. No new money was received on signing day. The old loans were mostly paid off.
[42] The second difficulty is that even if the Note had represented a genuine obligation, the application of the proceeds of sale of 81 Donald Street to pay off the Note in priority to applying the $60,000 first to the outstanding principal owing on the 81 Donald Street mortgage would have violated section 27 of the Mortgages Act.
[43] Even if, as Leo Goodman said, the Note represented a “combination of old loans” that “were mostly paid off”, to the extent that it could be said that any outstanding obligations remain, they cannot be enforced through an action on the Note – which all are agreed would be statute-barred.
[44] Accordingly, the Note should not feature in the determination of what was owed by the applicants at the time of the FDMA Agreement.
The Construction Mortgages
[45] On 3 August 2007, a pair of mortgages were registered against properties owned by the applicants in relation to what was intended to be a $120,000 loan from Leo Goodman to the applicants to be used to remediate damages at 81 Donald Street resulting from the fire that had occurred there.
[46] The parties agree that the applicants never received the $120,000 pursuant to the Construction Mortgages, however, the applicants do acknowledge receiving some funds (or that funds were applied to their benefit), and credit Leo Goodman with $53,940.66 from the Construction Mortgages in their accounting as follows:
| Payment | Payment Amount |
|---|---|
| Donald Street Property Taxes | $ 13,241.94 |
| Fredericks Farm Taxes | $ 9,452.58 |
| Loyalist Farm Taxes | $ 11,246.14 |
| Advance | $ 20,000.00 |
| TOTAL: | $ 53,940.66. |
[47] In contrast, the respondent asserts that he should be credited with $85,059.22 on the basis that additional funds were spent for the benefit of the applicants, which appear as the following line terms in their accounting:
(a) $20,000 paid back to Leo Goodman;
(b) $3,600 paid to a company called Active Investments run by Rick Goodman;
(c) $20,000 paid to Elaine Palmer, being Leo Goodman’s daughter; and
(d) $1,216.46 in relation to an unspecified interest adjustment
[48] The parties seem to be in agreement about the advance of $20,000. However, absent better evidence, the fact of and reason for the other payments alleged by the respondent to have been made to the applicants, has not been established.
Legal Account
[49] The subject mortgages were subject to terms which provided that the applicants, as chargors, were responsible for legal fees incurred by Leo Goodman as chargee in relation to mortgage enforcement proceedings.
[50] Ms. Tepper delivered an account for professional services rendered, dated 31 December 2008, to Mr. Goodman. The total of fees, taxes and disbursements on the account is $15,144.44. There is an asterisk by that number with a corresponding annotation “This is the amount that should be added to the Maloneys’ mortgage”.
[51] Ms. Tepper has deposed that the fees were for 53.33 hours of work performed some time prior to 31 December 2008 relating to the foreclosure proceedings taken against the Maloneys. On her cross-examination, Ms. Tepper confirmed that the work was done before the FDMA Agreement (although billed afterwards) and related to Power of Sale proceedings and default judgment proceedings. Furthermore, portions of these costs were included in the default judgments obtained.
[52] The applicants take the position that the services represented by the Tepper account were performed before the FDMA Agreement (this cannot be verified with certainty because the account is not well particularised and Ms. Tepper’s dockets have not been produced). The FDMA Agreement makes no reference to adjustments to account for legal expenses incurred.
[53] I would add that the default judgments obtained do not form part of the record of this application. That, combined with the lack of detail in the account, makes it impossible to determine the extent to which the Maloneys may already have contributed to the account.
[54] The first reference to the Tepper account in communications to the Maloneys appears to be a letter dated 28 May 2015 from the respondent on behalf of his father, when he wrote that “legal fees were paid on account of the Review by the Farm Review Board. This fees invoice was rendered in December 2008 from the Tepper law firm, after you and the Farm Review Board reached your agreement, in the amount of $14,677.94”.
[55] In my view, the applicants were entitled to infer that any claim for reimbursement of legal expenses was extinguished by the FDMA Agreement. Even if it could be argued that the legal expenses might have fallen within the scope of the “the figures to be provided by Goodman's lawyer, Mrs. G. R. Tepper” as part of the Interim Agreement, those figures were not, in the case of the legal fees, provided until over six years later.
[56] Accordingly, there is no longer any basis upon which the applicants could be liable to reimburse any or part of the 31 December 2008 account.
Next Steps
[57] The claims and calculations of the parties should be re-evaluated in light of the court’s findings.
[58] By way of further guidance, where there is an evidentiary contest between the applicants and the respondent and Ms. Tepper, the personal knowledge of the party or witness concerned, or a contemporaneous document untainted by the possibility that it was created for a self-serving purpose, is likely to be considered the best evidence.
[59] If, despite the findings that have been made, the parties are unable to resolve their differences, they may want to consider either enlisting the assistance of an appropriate neutral to help them do so, either by way of mediation or agreeing to an order directing a reference. Should further assistance from the court be required, either party is at liberty to request a case conference at which such directions and orders as may be appropriate can be sought or provided.
[60] I can be contacted via the Trial Coordinator at Kingston to fix the costs of this application in the event that the parties are unable to agree them.
Graeme Mew J.
Released: 1 October 2020
COURT FILE NO.: CV-18-045
DATE: 20201001
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
JOSEPH MALONEY and HEATHER MALONEY
Applicants
– and –
RICK GOODMAN personally, and in his capacity as executor of the ESTATE OF LEO GOODMAN, deceased
Respondent
REASONS FOR DECISION
Mew J.
Released: 1 October 2020