Court File and Parties

Court File No.: CV-21-658085 Date: 2021-06-28 Superior Court of Justice - Ontario

Re: Tea Pavlovski and Filip Pavlovski, Applicants And: Branko Skrak, Respondent

Before: Paul B. Schabas J.

Counsel: James S. Quigley, for the Applicants Eric J. Bundgard, for the Respondent

Heard: June 24, 2021

Reasons for Judgment

[1] This is an application to discharge a mortgage on a property and to declare that no funds are owing by the applicants to the respondent on the ground that any funds advanced by the respondent were a gift and not a loan. The notice of application also seeks an order invalidating a Notice of Sale served by the respondent, and punitive damages.

[2] There is no dispute that an application of this type can be brought pursuant to Rule 14.05(c) of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 (the "Rules"), which provides that a proceeding may be brought by application when a party seeks a declaration of an interest in or charge on land, including the nature and extent of the interest or charge. Nor does the respondent take issue with proceeding by way of application, which can be done even when there are disputed facts, as here: Rokhsefat v. 8758603 Canada Corp., 2019 ONCA 273 at para. 12; Sub-Prime Mortgage Corporation v. 1219076 Ontario Limited, 2019 ONCA 581, at para. 16.

Background

[3] The applicant Tea Pavlovski (“Tea”) is the stepdaughter of the respondent Branko Skrak (“Branko”). Branko is married to Tea’s mother, Mirelica Skrak (“Mirelica”), but they have been estranged from one another since October 2019. The applicant Filip Pavlovski is Tea’s husband. They married in 2016. Together, Tea and Filip own a house at 15 Aldersgate Drive in Brampton. In February 2021, Tea and Filip decided that they wished to sell the property and sought a discharge of a second mortgage on the property in the amount of $160,000 in which Branko is the mortgagee (the “mortgage”). Branko refused, demanded payment of the full amount of the mortgage, and served a Notice of Sale.

[4] Branko takes the position that he provided Tea with an interest-free loan of $160,000.00 during the years 2010 and 2011 when she was single and purchased a townhouse at 32 Beachville Circle in Brampton (the “townhouse”). That loan, he says, was secured by a charge on the townhouse in October 2011. The charge on the townhouse was discharged by Branko in 2017 when Tea sold the townhouse, but a virtually identical charge was placed on the house at 15 Aldersgate Drive which Tea and Filip purchased together in 2017.

[5] Tea acknowledges that Branko and Mirelica provided her money, though not $160,000.00 during 2010 and 2011 to assist her with buying the townhouse, but that the funds were a gift. At Branko’s suggestion, in order to protect the gift in case Tea married and her marriage broke down, a mortgage was issued in favour of Branko. As Mirelica went on title with Tea to assist in Tea qualifying for a mortgage from the bank, Mirelica was not a mortgagee. The mortgage was payable “on demand” and there was no interest. No agreements were signed, nor any other document prepared which would suggest the advance was a loan, or a gift.

[6] In 2017, when the townhouse was sold, a mortgage in the same amount was placed on 15 Aldershot Drive, in favour of Branko. Tea’s evidence is that she did this to protect the gift made to her in 2010 and 2011, and to protect the appreciation in value of the townhouse that she had realized since 2011. Branko urged Tea to do this, although he claims it was to protect his “investment.” The evidence is also clear that Tea brought more assets to her marriage than Filip, and that Filip was unaware of the second mortgage until closing, but he accepted it.

[7] On both transactions, Tea and Branko were represented by the same lawyer, suggested by Branko and, according to Tea, instructed by him. Further, as is common in such transactions, the lawyer also acted for the first mortgagee, the bank. In that capacity, the lawyer obtained Statutory Declarations from Tea and Filip that there was no secondary financing registered on closing.

[8] At no time between 2011 and February 2021 did Branko seek repayment of any money advanced to Tea.

[9] In October 2019, Branko and Mirelica separated. In March 2020, in the process of resolving property and support issues between them, with the assistance of his lawyer, Branko provided a sworn financial statement in which he said he was not owed money by anyone. No mention was made of the mortgage, or a loan of any kind. In February 2021 Branko demanded payment on the mortgage, and later revised his sworn financial statement.

Analysis

[10] The parties agree that there is a presumptive resulting trust when a parent makes a gratuitous transfer to an adult child. The adult child is presumed to hold the property in trust and the parent holds an interest in the asset whether it is real property, money, or some other item. However, this presumption is rebuttable. As Fitzpatrick J. stated in Barber v. Magee, 2015 ONSC 8054, at para. 40:

The presumption of resulting trust applies when a parent makes a gratuitous transfer to an adult child…. The presumption is that the adult child is holding the property in trust for the aging parent. In other words, the parent holds an interest in the subject asset whether it is real property, money loaned or some other item. The parent is presumed not to have intended a gift. However, this presumption can be rebutted by the evidence. [citation omitted]

[11] The parties also agree that the factors to consider are those set out in Barber at para. 42, as follows:

• Whether there were any contemporaneous documents evidencing a loan;
• Whether the manner for repayment is specified;
• Whether there is security held for the loan;
• Whether there has been any demand for payment before the separation of the parties;
• Whether there has been any partial repayment; and,
• Whether there was an expectation or likelihood of repayment.

[12] In this case, there are no contemporaneous documents evidencing a loan. The manner of repayment is simply “on demand,” but no demand was made for a decade. When demand was made, it was some two years after Branko and Mirelica had separated. It was also after Branko had sworn there was no money owing to him, which suggests it was not a loan at all, and that Branko had no expectation of repayment.

[13] The consistent evidence of Tea and Mirelica is that the money provided to Tea by Branko and Mirelica in 2010 and 2011 was a gift.

[14] Branko’s evidence, that he loaned $160,000.00, is not supported by any documentation. He could give no details of how money was provided to Tea or produce any supporting documents, but just asserted that this amount was loaned to Tea. As a mortgagee seeking to enforce a mortgage, there is an onus on Branko to prove he made the advances to support the charge: S.A. v. A.A., 2017 ONCA 243 at para. 45-47.

[15] Tea, on the other hand, has produced records of money she received from Branko and Mirelica, as well as records showing her own contribution of funds to the purchase of the townhouse, which contradict Branko’s claims.

[16] These records establish that Branko and Mirelica provided Tea with a total of $84,388.97, of which approximately $48,000.00 came from Branko alone or through joint accounts of Branko and Mirelica. The balance came from Mirelica’s own bank account or from a VISA cash advance by Mirelica. This is well short of the $160,000.00 amount of the mortgage. Further, Tea did not require $160,000.00 in financing for closing, as the evidence is that she contributed $58,643.52 of her own funds towards the purchase price of the townhouse, which was $376,990.00. Tea obtained a first mortgage in the amount of $245,000.00 from The Toronto-Dominion Bank which, together with her own funds and those provided by Branko and Mirelica, was more than enough to buy the property.

[17] When confronted on cross-examination with the fact that Tea did not need $160,000.00 for closing, Branko claimed for the first time that he provided money for furniture but gave no details. In a supplementary affidavit, Tea has produced receipts that she paid for furniture, including financing documents from the retailer where she purchased furniture.

[18] Branko’s evidence that all the money provided to Tea came from him as, effectively, the person who brought assets into his relationship with Mirelica and as the major income earner, is disputed by Mirelica. However, the couple married in 1999. The money was provided to Tea in 2011. They separated in 2019 after 20 years together. Claims as to whose money was advanced to Tea many years ago in the midst of a lengthy marriage are best left to matrimonial proceedings, if at all. Consequently, while in argument Tea and Filip were prepared to accept that Branko could be given credit for advancing $29,797.73 of his own money (being half of the contributions from joint accounts and money that came from Branko himself), I see no basis to engage in such parsing of amounts.

[19] In my view, the evidence strongly supports the conclusion that money advanced to Tea in 2010 and 2011 by her mother and stepfather was a gift, and I am satisfied that the presumption of a resulting trust is rebutted.

[20] The irony of this case is that the charge was put in place to protect Tea from a potential breakdown of her marriage, but what happened instead was that the parents were the ones who broke up. Branko may now be regretting the generosity he and Mirelica showed Tea at the time, but that was many years ago. If Branko had intended any of those funds to be a loan, one would expect to see some documentary evidence to support his claim, in 2010 or 2011, or in 2017, or in 2019 or 2020 when Branko and Mirelica separated. Instead, the documentation that does exist supports the opposite, such as the Statutory Declarations of Tea and Filip, and Branko’s own financial statement of March 2020.

[21] Further, Branko has not established that funds in an amount anywhere close to $160,000.00 were advanced by him to support the charge.

[22] Accordingly, I have no difficulty concluding that all the funds advanced by Branko and Mirelica in 2010 and 2011 were a gift to Tea and that the mortgage should be discharged.

[23] It also follows that the Notice of Sale is of no force and effect. In addition to the funds being a gift, the amount advanced by Branko, or even by Branko and Mirelica, is far less than the amount sought, making the Notice unreasonable in the circumstances: 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018 ONCA 669 at paras. 66-74.

[24] The applicant seeks punitive damages. In my view, the conduct of Branko, while without merit and troubling, does not warrant an award of punitive damages.

[25] Accordingly, a declaration shall issue that no monies are due and owing under the mortgage, the mortgage shall be discharged from title, and the notice of sale is declared invalid.

[26] The parties have provided me with costs outlines. The applicants are entitled to costs on a partial indemnity basis. In my view the amount sought, of $25,047.39 is reasonable, well-supported, and is an amount that the respondent should reasonably have expected to pay in the event he was unsuccessful. Accordingly, the applicants shall be awarded costs in that amount.

Paul B. Schabas J.

Date: June 28, 2021