1013012 Ontario Incorporated v. Vercillo

COURT FILE NO.: CV-20-00001778

DATE: 2021-05-12

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

1013012 Ontario Incorporated, Frank Zoebelein, Camilia Zoebelein, and Tamaka International Inc.

Plaintiffs/Respondents

– and –

Michael Vercillo, 1980168 Ontario Inc., Michele Vercillo, and 2743234 Ontario Inc.

Defendants/Moving Parties

COUNSEL:

Jürgen E. J. Hebel, for the Plaintiffs/Respondents

Eliezer Karp, for the Defendants/Moving Parties

HEARD: April 19, 2021

REASONS FOR DECISION

DE SA J.:

Overview

[1] The Defendants, Moving Parties, seek to register a Certificate of Pending Litigation (“CPL”) on a property located at 1065 Davis Drive in Newmarket, Ontario (the “Davis Drive Property”). The Defendants signed a purchase agreement in relation to the Davis Drive Property in 2019 (the “Davis Drive property APS”). They are seeking specific performance of the agreement.

[2] According to the Plaintiffs, the “agreement” with the Defendants always contemplated the sale of the 5 properties as a group. Accordingly, there was no binding agreement between the parties in relation to the Davis Drive Property on its own. The Plaintiffs are seeking a declaration permitting them to sell the group of properties to an interested third party.

[3] The record suggests the Defendants have invested a substantial amount of money into developing a plan for the Davis Drive Property. I am also satisfied that the Davis Drive Property is unique from a development perspective.

[4] Having regard to all the circumstances, I am satisfied that a CPL is warranted.

[5] The detailed reasons for my decision are outlined below.

Summary of Facts

[6] On or about January 23, 2019, the Plaintiff, 1013012 Ontario Incorporated as Seller (“101” or the Plaintiff) and the Defendant, 1980168 Ontario Inc., (“198” or the Defendant) as Purchaser entered into an Agreement of Purchase and Sale (the “January APS”), whereunder 101 agreed to sell, and 198 agreed to purchase, three properties which included the property located at 1065 Davis Drive in Newmarket, Ontario (the “Davis Drive Property”).

[7] The salient terms of the January APS were:

a. 198 to provide a deposit of $300,000 within 24 hours of signing;

b. The Properties to be purchased under the January APS were 1) 1065 Davis Drive, 2) 1041 Davis Drive 3) 1051 Davis Drive 4) 23 Hamilton Drive 5) 15 Hamilton Drive (2, 3, 4 and 5 are referred to as the “Collateral Properties”);

c. The Sale Price was $10,000,000 for all 5 properties;

d. The Vendor would provide seller financing for $5MM which was to be registered against the Davis Drive Property and the Collateral Properties;

e. 198 had a due diligence period until April 23, 2019; and

f. If 198 did not waive the due diligence condition prior to expiration of the due diligence period, the APS would expire and the deposit would be returned.

[8] Prior to April 2019, the Parties amended the January APS to extend the due diligence period until August 31, 2019.

[9] In August 2019, the principal of 198, Mike Vercillo (a.k.a. Michele Vercillo a.k.a. Michael Vercillo), arranged a meeting with Frank Zoebelein, the president of 101, and Tamaka International Inc., to discuss entering into a new set of agreements.

[10] Vercillo proposed to Zoebelein that they split the purchase of the 5 properties into 3 APSs: the Davis Drive Property would have its own APS, and conditions, and the balance of the Collateral Properties would be sold under 2 separate APSs.

[11] Vercillo further proposed that:

a. The purchase price for the all the Properties remain a total of $10MM;

b. The purchase price for the Davis Drive Properties be set at $5MM

c. The purchase of 15 Hamilton Drive, 1041 & 1051 Davis Drive be set at $3.5MM;

d. The purchase of 23 Hamilton Drive be set at $1.5MM; and

e. The Seller provide Seller financing of $5MM.

[12] Mike Vercillo maintains that during this meeting he made it clear to Mr. Zoebelein that he wanted to have the ability to deal with the Davis Drive Property without the Collateral Properties. The Plaintiff disputes this claim. According to the Plaintiffs, Mike Vercillo told Frank Zoebelein that the purpose of revising the January APS was simply to facilitate administration for accounting and tax purposes.

[13] On or about August 8, 2019, Zoebelein called Vercillo and said that his lawyer was prepared to review the offers to purchase, which were to be prepared in accordance with Vercillo’s and Zoebelein’s discussion.

[14] On or about August 9, 2019, Vercillo executed and sent the three APSs to Janet Kiraly, the lawyer for 101.

[15] On or about August 12, 2019, 101 executed the three agreements and Kiraly, the lawyer, returned fully executed versions of the same to Vercillo for 198.

[16] Pursuant to the requirement set out in each of the respective APSs, that the buyer provide the seller’s lawyer, Janet Kiraly, a deposit of $100,000 to hold in trust, on or about January 29, 2019, Vercillo sent $300,000 to 101’s lawyer, Janet Kiraly, to hold in trust in relation to the three APSs.

[17] By August 15, 2019, 101 had a binding APS to purchase the Davis Drive Property and the Collateral Properties on the terms set out in their respective agreements. The closing date for the three APSs was set for February 28, 2020.

[18] Among the terms in each APS, each of the APSs provided that the buyer, 198, had until the expiration of the due diligence period to waive its due diligence condition, and that in the event the buyer did not waive its due diligence condition by the waiver date, the Agreements would terminate and the deposits being held by Janet Kiraly would be returned without reduction.

[19] On January 30, 2020, in accordance with the condition set out in the Davis Drive APS, 198 waived the due diligence condition on the Davis Drive APS and the APS became firm.[^1] 198 did not waive the due diligence conditions on the Collateral Properties.

[20] On January 31, 2020, the lawyer for 101 left Vercillo a voicemail acknowledging receipt of the waiver for the Davis Drive Property and enquired whether 198 intended on waiving conditions on the other properties.

[21] 198 did not waive conditions on the Collateral Properties prior to the deadline for doing so.

[22] On February 14, 2019, Mr. Russo, solicitor for Vercillo, sent Ms. Kiraly a requisition letter with respect to the closing of the Davis Drive Property.

[23] On February 18, 2019, Ms. Kiraly responded advising that her client would not close the Davis Drive Property on its own and that “all three properties” had to close together.

[24] On February 19, 2019, Mr. Russo responded by letter rejecting the assertions that the three APSs had to close together and requested a statement of Adjustments and a draft deed.

[25] On February 27, 2019, Ms. Kiraly delivered a cheque for $300,000 to Mr. Russo along with a letter attaching statements of adjustment for three properties.

[26] On February 28, 2019, Mr. Russo replied by letter rejecting Ms. Kiraly’s assertions relative to the closing of the three properties and advised “since we have already delivered our closing package for the purchase of 1065 Davis Drive there is no need to tender on you today”.

Analysis

[27] The factors to consider on a motion for leave to issue a certificate of pending litigation (CPL) are well established. In Perruzza v. Spatone, 2010 ONSC 841, Master Glustein, as he then was, helpfully summarized the general principles to be considered in deciding whether to issue a CPL (para. 20):

(i) The test on a motion for leave to issue a CPL made on notice to the defendants is the same as the test on a motion to discharge a CPL;

(ii) The threshold in respect of the “interest in land” issue in a motion respecting a CPL is whether there is a triable issue as to such interest, not whether the plaintiff will likely succeed;

(iii) The onus is on the party opposing the CPL to demonstrate that there is no triable issue in respect to whether the party seeking the CPL has “a reasonable claim to the interest in the land claimed”;

(iv) Factors the court can consider on a motion to discharge a CPL include (i) whether the plaintiff is a shell corporation, (ii) whether the land is unique, (iii) the intent of the parties in acquiring the land, (iv) whether there is an alternative claim for damages, (v) the ease or difficulty in calculating damages, (vi) whether damages would be a satisfactory remedy, (vii) the presence or absence of a willing purchaser, and (viii) the harm to each party if the CPL is or is not removed with or without security (the “Dhunna” factors); and

(v) The governing test is that the court must exercise its discretion in equity and look at all relevant matters between the parties in determining whether a CPL should be granted or vacated. (Citations omitted.)

See also: Bains v. Khatri, 2019 ONSC 1401, at para 36.

[28] As evident from above, even if the moving party has a reasonable claim to an interest in land, the court must still review and balance the equities between the parties, based on the Dhunna factors. See: Tribecca Development Corp. v. Danieli, 2015 ONSC 7638; Redfox Land Co. Inc. v. 770 Brookfield Properties Limited, 2015 ONSC 4153.

Application to the Facts of this Case

[29] In this case, the Davis Drive Property APS clearly establishes that the Defendants have a claim to an interest in land.

[30] The Plaintiffs maintain that while the Defendants have a potential claim, it is not a “reasonable” one. According to the Plaintiffs, the evidence demonstrates that the Defendants tricked the Plaintiffs into signing the revised Davis Drive Property APS. The expectation was always that all 5 properties would be sold together. The conduct of the Defendants in drafting the 3 APSs together, sending the deposit of $300,000 on the 5 properties, and re-structuring the transaction to have the a VTB mortgage of 4.9 million on the Davis Drive Property alone makes clear that the Defendants intentionally misled the Plaintiffs.

[31] As soon as the Plaintiffs understood the Defendants’ intention to back out on the purchase of the Collateral Properties, the Plaintiffs sought to cancel the Davis Drive Property APS and refund the deposit.

[32] According to the Plaintiffs, the terms of the Davis Drive Property APS standing alone are clearly unconscionable. The monthly rental income currently received on the Davis Drive Property offsets the “interest only” payments to be made and can actually generate income for the Defendants for three years. According to the Plaintiffs, this “interest only” payment on the VTB is prima facie proof of “unconscionability”. With the Davis Drive Property APS, the Plaintiff is essentially giving away the Davis Drive Property for free. Notably, Frank Zoebelein was 79 years of age at the time of execution. In the circumstances, the Plaintiffs maintain that a non est factum defence is also available.

[33] I agree with the Plaintiffs that the evidentiary record here raises clear concerns with the Defendants’ conduct. The three APSs were drafted and executed by the parties indicating that the deal going forward was for all 5 properties. To revise the Davis Drive Property APS and place the entire VTB on that property alone would not be a concern if all 3 APSs closed. The 3 APSs taken together were in substance the same as the January APS. But for the Defendant to back out of the Collateral Properties materially changed the substance of the agreement and placed the Plaintiffs in a difficult position. The subsequent actions of the Plaintiffs after the Defendants’ withdrawal from the Collateral Properties supports their claim that they were misled.

[34] In Bhasin v. Hrynew, 2014 SCC 71, [2014] 3 S.C.R. 494, at paras. 60 and 63, the Supreme Court explained:

Commercial parties reasonably expect a basic level of honesty and good faith in contractual dealings. While they remain at arm’s length and are not subject to the duties of a fiduciary, a basic level of honest conduct is necessary to the proper functioning of commerce. The growth of longer term, relational contracts that depend on an element of trust and cooperation clearly call for a basic element of honesty in performance, but, even in transactional exchanges, misleading or deceitful conduct will fly in the face of the expectations of the parties: see Swan and Adamski, at §1.24.

The first step is to recognize that there is an organizing principle of good faith that underlies and manifests itself in various more specific doctrines governing contractual performance. That organizing principle is simply that parties generally must perform their contractual duties honestly and reasonably and not capriciously or arbitrarily.

[35] That said, while the Plaintiffs may have a strong case, I cannot say that the Defendants’ claim to the land is not a triable one. It may be that the unconscionable terms (like the VTB condition) of the Davis Drive Property APS can be struck without setting aside the Davis Drive Property APS altogether.

[36] The evidentiary record also suggests that the Defendants have invested a substantial amount into developing a plan for the Davis Drive Property. The Plaintiffs maintain they have invested over 12 months of effort, and thousands of dollars in consulting in understanding the various options available to it for the development of the Property. This would be lost if the Plaintiffs were to sell the Davis Drive Property to a third party.

[37] According to the Defendants, the plaza is also uniquely suited for renovation in a manner that units can be added without demolishing the existing structure. The Davis Drive Property also has a portion of the property which can be severed and sold or developed separately.

[38] Moreover, while there is an interested third party, the offer made is less than the pending offer by the Defendants. The Davis Drive Property and indeed the entire real estate market has appreciated in value since the APS was signed.

[39] The Defendants point out that no evidence has been provided by the Plaintiffs that listing the Collateral Properties on their own would result in a sales price of less than $5MM (such that a sale of the Collateral Properties alone-when coupled with a sale of the Davis Drive Property for $5MM would result in cumulative sales proceeds of less than $10MM which was the offer price).

[40] Finally, counsel for the Defendants has indicated that Mike Vercillo is willing undertake to personally indemnify the Plaintiffs for any damages resulting from the CPL.

[41] In the circumstances of this case, I am satisfied that a CPL is warranted.

[42] The Defendants, Moving Parties, will be entitled to register a Certificate of Pending Litigation on the property located at 1065 Davis Drive in Newmarket, Ontario provided that Mike Vercillo signs an undertaking to be personally liable for any damages resulting from the CPL.

[43] I recognize that the main prejudice to the Plaintiffs is the delay in realizing the profits from the sale of the Davis Drive Property given the age of Mr. Zoebelein and his wife. Again, the Plaintiffs are not precluded from selling the Collateral Properties. If the parties require an expedited timetable, I will entertain submissions in this regard.

Transfer of the Toronto Action

[44] The Plaintiffs seek an Order transferring the Toronto Superior Court of Justice action bearing Court File No. CV-20-00643125-0000 (“Toronto action”) to the Newmarket Superior Court of Justice in Newmarket; and an Order consolidating this Action with the Toronto Action, and/or in the alternative, an Order that the two actions be heard together in Newmarket.

[45] The Toronto action pertains to the deposits paid by 198 to 101 in relation to the Collateral Properties. Given that the 198 did not waive the due diligence condition, 198 maintains that they are entitled to return of the deposits ($200,000). 101 takes the position that the deposits have been forfeit given 198’s breach of the agreement.

[46] The Defendants are not opposed to consolidating both actions. For expediency, it would make sense to have the matters transferred.

[47] While I agree that the transfer should occur, I will leave it to the parties to make the necessary arrangements through the Regional Senior Justice.

Costs

[48] Costs are ordered in the cause.

Justice C.F. de Sa

Released: May 12, 2021

[^1]: Shortly thereafter, 198 assigned its interest in the Davis Drive APS to 274.