Sayward Investments Inc. v. Vilson Marciana Da Silva et al.

COURT FILE NO.: CV-20-00001448

DATE: 2022-11-02

ONTARIO SUPERIOR COURT OF JUSTICE

BETWEEN:

Sayward Investments Inc.

Plaintiff

– and –

Vilson Marciana Da Silva, Daenn Monteiro Loureiro and Leblon Carpentry Inc.

Defendants

COUNSEL:

Stephen Schwartz, for the Plaintiff

Matthew Kersten, for the Defendants

HEARD: August 5, 2022

REASONS FOR DECISION

J. Di Luca J.:

A. Overview of Issues

[1] These reasons address two motions. First, the personal defendants seek an order discharging a mortgage that is registered on title to property they own. Second, the plaintiff seeks summary judgment on the action.

[2] By way of brief background, the litigation in this case arises from two construction financing loans advanced by the plaintiff to the corporate defendant, Leblon Carpentry Inc. ("Leblon").

[3] The plaintiff's position is that it advanced an initial loan, evidenced by a promissory note and secured by a collateral mortgage. While the principal on the first loan has been repaid, interest and fees remain outstanding. The plaintiff further alleges that it advanced a second loan which was also secured by the initial collateral mortgage. While the plaintiff acknowledges that neither the initial collateral mortgage nor the promissory note was ever amended in writing, it asserts that the parties reached an oral agreement to extend the collateral mortgage to cover the second loan.

[4] The plaintiff also alleges that in order to obtain the second loan, the defendants agreed to not only pay interest on the loan but also pay a portion of profits from two construction projects ("Briarwood" and "Fifth Avenue"). The plaintiff alleges that the defendants not only defaulted on the loan repayment, but also on the agreement to share profits. The plaintiff submits that the amount owing under the terms of the mortgage, including the profit-sharing agreement, is approximately $512,000.

[5] The plaintiff argues that a trial is not required in order to fairly determine the issues raised in this action and, as such, seeks summary judgment.

[6] The defendants argue that the two loans are separate and distinct. They submit that the first loan was a construction loan secured by a collateral mortgage that was registered on title on the personal defendants' residence. The principal on the first loan has been paid off, and the defendants seek a discharge of the mortgage upon payment into court of the balance of the interest and fees owing on the loan, which they submit is approximately $40,000.

[7] The defendants argue that the second loan was actually an investment in a joint business venture which was subject to a verbal profit-sharing agreement. The defendants argue that this second loan was never secured by the initial collateral mortgage. In addition, they allege that the agreed upon profit-sharing arrangement related only to the Briarwood project and not the Fifth Avenue project. Moreover, the defendants dispute the agreed upon percentage for the profit sharing agreement.

[8] While the defendants argue that the court should discharge the mortgage at this stage, they maintain that a trial is required in order to fairly determine the issues involved in the action.

[9] For the reasons that follow, the plaintiff's summary judgment motion is dismissed. In my view, there are a number of key credibility issues that must be determined in this case. It would be unfair to make those determinations using the summary judgment process.

[10] I also dismiss the defendants' motion seeking a discharge of the mortgage upon payment into court of $40,000. To do otherwise in the circumstances of this case, would be tantamount to granting partial summary judgment to the defendants on the issue of whether the initial mortgage secured the second loan. While the defendants' assertion that the second loan is not secured by the initial mortgage has significant legal merit, there are key factual findings which must be made in order to determine the matter. Those factual findings are credibility based and can only fairly be made at trial.

[11] That said, if the defendants so desire, I would be prepared to grant a discharge of the mortgage upon payment into court of the full amount sought by the plaintiff plus an additional amount for reasonably anticipated costs.

B. Summary of Relevant Facts

a. The Parties

[12] Raymond Nicolini is the principal of the plaintiff, Sayward Investments Inc. ("Sayward"). Vilson Marciana Da Silva is the principal of Leblon. The other defendant, Daenn Monteiro Loureiro, is Mr. Da Silva's wife.

b. The Initial Loan

[13] In April 2019, Mr. Da Silva approached Mr. Nicolini to request a short-term loan in the amount of $300,000 to fund Leblon's ongoing construction operations. On April 12, 2019, the parties reach an agreement on the loan and executed a promissory note.

[14] The terms of the promissory note provided, inter alia, that:

a. The loan would mature in three months;

b. The loan would be interest free for three months;

c. If the principal was not repaid within three months, interest would accrue at a rate of 18% per annum commencing on July 12, 2019;

d. If the loan was not repaid within three months the defendants would be responsible for certain fees, including a $6,700 facility fee; and,

e. Failure to provide a signed Authorization and Direction in order to be able to register a Charge on 27 Scott Crescent, Township of King as additional security to this promissory note, could be deemed a default on the loan.

[15] The promissory note, which was drafted by counsel for the plaintiff, includes an "agreement in writing" clause which stipulates that the promissory note can only be changed, modified, amended, discharged or cancelled by an express agreement in writing signed by the parties.

[16] The loan was guaranteed by a mortgage that was given by Mr. Da Silva and Ms. Loureiro. The mortgage was signed on April 12, 2019. On that same date, the parties also executed a document entitled "Acknowledgement", wherein Mr. Nicolini agreed that he would not register the mortgage on title to the defendants' residence unless there was a default with respect to the promissory note. In return, the defendants agreed that they would not further encumber the residence on which the mortgage was given.

[17] The terms of the mortgage specifically refer to the promissory note dated April 12, 2019, and state that the mortgage is "additional security." The terms provide that payments made on the promissory note shall be deemed to be payments made on the mortgage and vice versa.

[18] The defendants did not repay the loan within three months and on July 20, 2019, interest began accruing at a rate of 18% per annum. On October 15, 2019, the mortgage was registered on title on the defendants' residence.

[19] On October 31, 2019, the defendants repaid $170,000 of the loan. On December 3, 2019, the defendants paid the remaining $130,000. Pursuant to the terms of the mortgage, these payments were applied first to accrued interest and the balance was applied towards principal.

[20] Despite the fact that the principal on the first loan was nominally paid back by December 3, 2019, the mortgage was not discharged. Indeed, the defendants made no request to discharge the mortgage until September 2020, when issues regarding the second loan crystallized.

c. The Second Loan

[21] In 2019, Leblon secured contacts for work at two construction projects, Briarwood and Fifth Avenue. It appears that Mr. Nicolini recommended Leblon for the Briarwood project. It also appears that Leblon obtained the contract for Fifth Avenue independent of Mr. Nicolini's involvement.

[22] Leblon needed money to finance business expenses in relation to these contracts and he had discussions with Mr. Nicolini to this end. In or around January and February 2020, Sayward advanced $300,000 to Leblon, in six separate tranches. The parties disagree on the circumstances surrounding this advance.

[23] According to Mr. Nicolini, this money was a second loan aimed at funding Leblon's labour costs for the Briarwood and Fifth Avenue projects. Mr. Nicolini further asserts that in order to incentivize the granting of this second loan, Mr. Da Silva offered to pay Mr. Nicolini 50% of the estimated profits on both projects in addition to 18% interest. Mr. Nicolini asserts that estimated profits were calculated by Mr. Da Silva and were $104,712.14 for the Briarwood project and $186,650.10 for the Fifth Avenue project.

[24] Mr. Nicolini claims that he and Mr. Da Silva reached an oral agreement to maintain the initial collateral mortgage, which had been used to secure the first loan, as security on this second loan.

[25] Importantly, this purported oral agreement was never reduced to writing. Neither the promissory note nor the initial collateral mortgage were ever amended in writing.

[26] Mr. Da Silva advances a very different version of events. According to him, the second advance was not a loan but rather an investment in a joint venture which involved a profit-sharing agreement in relation to the Briarwood project, but not Fifth Avenue. Mr. Da Silva asserts that the agreement was that Sayward would receive 1/3 of the actual profit on the Briarwood project in addition to repayment of the investment. Mr. Da Silva denies that he would ever have guaranteed a specific amount of profit on any project. Moreover, he asserts that the actual profit made on the two projects was significantly lower than the estimated profit.

[27] Mr. Da Silva denies that there was ever an oral agreement to use the original collateral mortgage as security for this second advance. Mr. Da Silva asserts that he would never have agreed to include any additional amounts on the mortgage on his residence. In any event, Ms. Loureiro's consent, which would have been required in order to further encumber the residence, was never obtained.

[28] Between May and June 2020, Sayward received payments on the second loan totalling $150,000. No further payments were made despite repeated efforts by Mr. Nicolini to secure repayment.

[29] On August 28, 2020, Sayward sent a "Notice of Intention to Enforce Security" claiming a total of $520,288.80 as owing. Included in this amount is $214,46.64 for principal, a facility fee of $6,700, legal fees and disbursements of $6,500 plus HST and the alleged profit share amounts for both the Briarwood and Fifth Avenue projects.

[30] Counsel for the defendants responded by letter dated September 12, 2020, and indicated that they were prepared to pay the amounts properly owed in relation to the promissory note and mortgage. Counsel also indicated the defendants' position that the amounts advanced in relation to the joint venture were not secured by the promissory note and mortgage and would be dealt with separately.

[31] On September 14, 2020, Sayward sent a "Notice of Sale Under Charge/Mortgage of Land" claiming that $521,750.48 was now the outstanding balance owed. In a letter dated September 23, 2020, defendants' counsel reiterated his earlier position and indicated that the attempt to claim "estimated profit" on the Briarwood project by way of a Notice of Sale was improper.

C. Brief Procedural History

[32] On October 23, 2020, Sayward commenced an action seeking, inter alia, payment of $511,732.88 as the amount due under the mortgage dated October 31, 2019.

[33] In the statement of defence dated November 27, 2020, the defendants admit the first loan, though they claim the principal has been paid off. The defendants deny that the second loan, which they consider a joint venture investment, was ever secured by the initial collateral mortgage.

[34] The defendants also advance a counterclaim seeking a declaration that upon payment into court of an amount they plead is the "Maximum Mortgage Liability" or some other amount to be determined by the court, the mortgage shall be discharged.

[35] On April 21, 2021, the defendants brought a motion to discharge the collateral mortgage upon payment into court of approximately $38,672.00, relying on Rule 14.05(3)(e) of The Rules of Civil Procedure and s. 12(3) and 12(6) of the Mortgages Act.

[36] On May 7, 2021, Sayward brought a cross-motion for summary judgment.

[37] Between February 2022 and July 2022, counsel conducted cross-examinations on affidavits, engaged in further procedural motions, addressed outstanding undertakings and refusals and conducted further cross-examinations.

D. The Test for Discharge of a Mortgage

[38] Sections 12(3) and 12(6) of the Mortgages Act grant the court discretion to discharge a mortgage upon payment into court of funds owing under the terms of a mortgage. The payment of funds into court acts as a form of surrogate security for the mortgagee.

[39] In Mishev v. Shah, 2011 ONSC 1672, Perell J. sets out the following helpful summary of the principles to be applied in considering an exercise of discretion under these sections:

[34] Under s. 12(3), where a proper discharge cannot be obtained or cannot be obtained without undue delay, the court may permit payment into court of the amount due upon the mortgage and may make an order discharging the mortgage. Under s. 12(3), the money paid into court may be paid out as the court may direct. [page 395]

[35] Subsections 12(3) and (4) are designed to empower the court to grant discharges where the amount of the mortgage debt is not being contested, but these sections can also be employed along with s. 12(6), (7) and (8) to empower the court to order a mortgage discharged when the amount to repay the mortgage is disputed.

[36] The court is empowered to order that the admitted sum due under the mortgage plus an additional sum equal to the amount disputed plus a sum for subsequent interest and costs be paid into court and the mortgage discharged. Justice Rosenberg described the operation of these provisions in Schrittwieser v. Morris (1987), 1987 CanLII 4174 (ON SC), 62 O.R. (2d) 177, [1987] O.J. No. 1046 (H.C.J.), where he stated [at para. 10]:

The legislature cannot intend that the mortgagee demand any amount that he wishes and that the only way a mortgagor can obtain a discharge is to pay that amount and to later sue for the overpayment. The section is, in my view, for the purpose of allowing a mortgagor who disputes the amount claimed to pay the amount claimed plus some reasonable amount to cover costs into court and obtain a discharge pending an adjudication as to the proper amount due.

[37] Section 12 is remedial legislation and should be given a liberal interpretation: Metroview Investment Corp. v. Araujo, [2000] O.J. No. 2403, [2000] O.T.C. 454 (S.C.J.), at para. 13; Schrittwieser v. Morris, supra, at p. 178 O.R. In Ollmann (Re) (1925), 1925 CanLII 368 (ON SC), 57 O.L.R. 340, [1925] O.J. No. 60 (H.C.J.), Justice Riddell stated, in para. 14: "The statute was intended to be in relief of mortgagors who were in difficulty as to paying their mortgage-money and receiving a discharge, and I think it should be given a liberal construction."

[38] An order under s. 12 is discretionary, and the court must consider the relative equities of the mortgagor and of the mortgagee. The court's discretion must be exercised judicially in the circumstances of each case: Fernicola (In Trust) v. Creview Development Inc., [2008] O.J. No. 4112, 75 R.P.R. (4th) 226 (S.C.J.), at para. 7, leave to appeal refused [2009] O.J. No. 93, 80 R.P.R. (4th) 178 (Div. Ct.); Metroview Investment Corp. v. Araujo, supra, at para. 18.

[40] Rule 14.05(3)(e) of the Rules of Civil Procedure permits an application to be commenced for a "declaration of an interest in or charge on land", including "the nature and extent of the interest or charge." Where there is a dispute as to the amounts owing, a judge can make a determination of the amounts owing and may make an interim order for the payment of monies into court, see Sub-Prime Mortgage Corporation v. 1219076 Ontario Limited, 2019 ONCA 581 at paras. 16 and 18.

E. The Test on Summary Judgment

[41] Rule 20.04(2)(a) of the Rules of Civil Procedure provides that a court shall grant summary judgment where there is no genuine issue requiring a trial. In Hryniak v. Maudlin, 2014 SCC 7 at para. 49, the Supreme Court of Canada discussed the scope of the summary judgment power in Rule 20.04(2)(a) of the Rules of Civil Procedure:

There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on a motion for summary judgment. This will be the case when the process (1) allows the judge to make the necessary findings of fact, (2) allows the judge to apply the law to the facts, and (3) is a proportionate, more expeditious and less expensive means to achieve a just result.

[42] The Court further directed judges considering summary judgment motions as follows at para. 66:

On a motion for summary judgment under Rule 20.04, the judge should first determine if there is a genuine issue requiring trial based only on the evidence before her, without using the new fact-finding powers. There will be no genuine issue requiring a trial if the summary judgment process provides her with the evidence required to fairly and justly adjudicate the dispute and is a timely, affordable and proportionate procedure, under Rule 20.04(2)(a). If there appears to be a genuine issue requiring a trial, she should then determine if the need for a trial can be avoided by using the new powers under Rules 20.04(2.1) and (2.2). She may, at her discretion, use those powers, provided that their use is not against the interests of justice. Their use will not be against the interests of justice if they will lead to a fair and just result and will serve the goals of timeliness, affordability and proportionality in light of the litigation as a whole. [Emphasis in original]

[43] Summary judgment is only appropriate if, based on the evidence presented on the motion, the judge can confidently make the required factual findings and apply the relevant legal principles so as to fairly resolve the dispute. Resort to the enhanced forensic tools of Rule 20.04 (2.1) and (2.2) is only appropriate where it leads to a fair process and a just determination of the matter; see Mason v. Perras Mongenais, 2018 ONCA 978, at para. 44.

F. Analysis and Findings

a. Motion for Summary Judgment

[44] The plaintiff argues that this is an appropriate case for full summary judgment or, in the alternative, partial summary judgment. The plaintiff notes that several important issues have been admitted by the defendants. These include:

a. The defendants agree that they owe interest and the facility fee on the first loan;

b. The first loan is properly secured by the promissory note and collateral mortgage;

c. The parties reached an oral agreement pursuant to which the second advance of $300,000 was made;

d. Only $150,000 of this second advance has been repaid;

e. Sayward is entitled to a portion of the profits on the Briarwood project and that portion has not been paid.

[45] The plaintiff argues that the remaining issues can be determined on the record before the court on this motion or if necessary, using the enhanced fact-finding powers of Rule 20.04(2.1) in order to fairly determine the issues.

[46] The plaintiff argues that it would not have provided the second advance in the absence of security and suggests that the parties simply agreed to leave the initial mortgage in place to avoid the added legal expense of amending it to reflect the new agreement. The plaintiff cites James v. Chedli, 2021 ONCA 593 at para. 55, as support for the proposition that the promissory note in this case could be amended by way of oral agreement. Further, the plaintiff argues that the doctrine of part performance operates to grant relief from the application of the Statute of Frauds on the facts of this case.

[47] The defendants argue that this case is not well-suited for determination by way of a summary judgment motion in view of the serious credibility issues that arise and the conflicting evidence on key issues. While noting that the amounts owing on the initial loan and the balance of the principal owing on the second advance are not disputed, the defendants argue that the case is not appropriate for partial or "staged" summary judgment as the issues to be determined are inextricably intertwined and will require detailed evidence and credibility findings.

[48] The defendants suggest that they would never have agreed to extend the security of the initial mortgage, while also paying 18% interest and half of the estimated profits on two projects, one of which was entirely unrelated to Sayward. In their view, such an agreement would be a commercial absurdity. Moreover, they argue that the Statute of Frauds requires any amendment to the mortgage agreement to be in writing, and they note that the doctrine of part performance only applies where the part performance consists of acts that unequivocally support the existence of the alleged contract, which is not the case here. Lastly, they note that the promissory note, which was drafted by the plaintiff's counsel has an "in writing" clause that precludes oral amendment of the agreement.

[49] In my view, this is clearly not a case for summary judgment. There are very significant issues that must be determined in order to resolve the dispute between the parties. These issues include:

a. Whether the second advance was a loan or an investment in a joint venture;

b. Who the parties to the second advance are;

c. The terms of the second advance, including whether 18% interest was agreed upon;

d. The terms of the profit-sharing agreement, including whether the amount agreed upon was 33% or 50% of profit;

e. Whether the amount owing on the profit-sharing agreement was to be based on estimated or actual profit;

f. Whether the profit-sharing agreement related only to Briarwood or also included Fifth Avenue; and,

g. Whether the parties, including Ms. Loureiro, verbally agreed to extend the initial collateral mortgage and promissory note to act as security for the second advance.

[50] Taken together, the issues form the core of the dispute between the parties. Moreover, the evidence currently before me on these issues is deeply divided and cannot be fairly determined on the basis of a paper record. In particular, there exists a significant credibility issue regarding the nature of the second advance and whether it was a loan or a joint venture investment. There are also significant credibility issues relating to the various spreadsheets used to calculate profits on the projects. The provenance of the spreadsheets is the subject of unclear, contradictory and conflicting evidence. The purpose for which the spreadsheets were provided, particularly the spreadsheets relating to the Fifth Avenue project, is also an issue that raises significant credibility issues.

[51] The credibility findings that will be made in relation to these issues will be inextricably intertwined with the other issues in the action, including issues relating to the nature of the business relationship between the parties, the context in which the second advance occurred, the identity of the parties to that advance and agreed upon terms of repayment and security. In short, given the extensive and pervasive credibility issues, a trial is required to determine this action.

[52] In view of the scope of the credibility issues presented, I also find that this is not an appropriate case in which to grant partial summary judgment. The risks of granting partial summary judgment on this factual matrix far outweigh any possible gains that may be had by way of trial efficiency.

[53] The plaintiff's motion for summary judgment is dismissed.

b. Motion to Discharge Mortgage

[54] I turn next to the motion to discharge the mortgage. I start my analysis of this motion with the following observation about the framing of the action and the respective motions.

[55] The statement of claim seeks $511,732.88 plus interest at a rate of 18% due under covenants contained in the charge on land dated October 31, 2019. The plaintiff frames this action as the collection of a debt that is secured by a mortgage. The defendants admit that the first loan was secured by a charge on land as alleged. However, they deny that the charge was ever orally amended to provide security to the second advance. The personal defendants counterclaim and seek a declaration that upon payment of funds into court, the mortgage shall be discharged.

[56] One of the key issues to be determined in this action is whether the initial collateral mortgage was amended by verbal agreement so as to provide security for the second advance. If it was verbally amended, the second advance would be secured by the charge on title. If it was not, the second advance would simply be an unsecured debt owed to the plaintiff, perhaps only by the corporate defendant.

[57] The defendants seek an order discharging the collateral mortgage upon payment into court of approximately $40,000, which they submit is an amount in excess of that actually owed under the terms of the mortgage.

[58] The difficulty with the defendants' motion seeking a discharge of the mortgage is that the amount they propose to pay into court is essentially the amount they would be required to pay to discharge the mortgage if they were entirely successful on this issue in the action. In other words, by granting the motion to discharge the mortgage upon payment into court of $40,000, the court would be essentially granting summary judgment in favour of the defendants on the key issue of whether the original promissory note and collateral mortgage were amended by a subsequent oral agreement.

[59] In responding to the plaintiff's summary judgment motion, the defendants highlight the extent to which the key credibility issues that arise in this case can only be determined by an actual trial on the merits instead of summary judgment. Despite their position on the summary judgment motion, the defendants argue that the court can find, in the absence of a trial, that the second advance was simply not guaranteed by the initial collateral mortgage.

[60] In support of this argument, the defendants point to the Statute of Frauds, the "in writing" clause on the promissory note, the inapplicability of the doctrine of part performance and the absence of any evidence supporting a finding that Ms. Loureiro agreed to extend the initial collateral mortgage to act as security for the second advance.

[61] While I agree with the defendants that these arguments may ultimately support their position that the second advance was simply not secured by the collateral mortgage, I am nonetheless satisfied that a trial will be required to determine the issue. The application of the various statutes and legal doctrines are fact dependent. The crucial facts in this action are far from clear. There are obvious and deep credibility issues that will need to be determined.

[62] Turning to the specific motion before me, I am not satisfied that I should exercise my discretion under the Mortgages Act to order a discharge of the mortgage upon payment into court of $40,000. In the circumstances of this case, the amount proffered is simply insufficient to provide surrogate security. This is not an instance where the parties are disputing the final amount owed under the terms of a mortgage and the defendant is prepared to pay the full amount, plus a reasonable amount for costs, into court in order to secure a discharge of the mortgage.

[63] Similarly, I am also not satisfied that it would be appropriate on an interim basis under Rule 14.05(3)(e) to determine the issue of whether the second advance is secured by the mortgage. For the reasons articulated in relation to the summary judgment motion, a trial is required on this issue.

[64] While I am not prepared to order a discharge of the mortgage upon payment into court of $40,000, I would be prepared to so order upon payment of the amount claimed by the plaintiff plus a reasonable amount for costs. Should this be an option that the defendants wish to pursue, the parties can arrange a further Zoom appearance before me through the trial coordinator in order to address the issue.

G. Costs

[65] Success on the motions was divided. The trial judge will be in the best position to determine costs having made findings on a full evidentiary record. As such, I order costs in the cause as determined by the trial judge.

J. Di Luca J.

Released: November 2, 2022