ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: CV-22-00080134 DATE: 20230808

B E T W E E N:

PENCOR CONSTRUCTION INC. Plaintiff

J. Butson, for the Plaintiff

• and -

1322295 ONTARIO LTD. and MARINO RAKOVAC Defendants

D. Richter, for the Defendants

HEARD: August 02, 2023

REASONS FOR SUMMARY JUDGMENT

The Honourable Justice J. Krawchenko

BACKGROUND

1This is a motion brought by the Plaintiff seeking summary judgment as against both Defendants on a Charge/Mortgage of Land (“the Charge”), and if successful, for a writ of possession.

2The moving party alleges that the amount due as of the date the claim was issued was $1,263,857.97 [1] together with interest at 6% from 16 November 2022 to date of judgment.

3There is no other motion before this court.

FACTS

4The original Charge between Hamilton Teachers’ Credit Union Limited (“Hamilton Teachers”), as Chargee, and the Defendant, 1322295 Ontario Ltd. (the “Company”), as Chargor, and Marino Rakovac (“Mr. Rakovac”), as Guarantor, was registered on 30 October 2009, as Instrument No.: VM280020. The property charged was 12 Walnut Street South, Hamilton, Ontario, L8N 2K7 (the “Charged Property”). The original term of the charge was for five (5) years, with a balance due date of 30 October 2014, securing the sum of $1,235,000.00 with an interest rate of 6.00% per annum calculated half-yearly not in advance.

5The original Charge was extended from time to time.

6On 10 May 2021, Hamilton Teachers assigned the Charge to Brands Canada [2] Corp by Transfer of Charge registered as Instrument No.: WE1510742.

7On 11 May 2021, the Charge was further assigned by Brands Canada Corp to the Plaintiff, Pencor Construction Inc., by Transfer of Charge registered as Instrument No.: WE1511156.

8Pursuant to the Transfer of Charge, Pencor Construction Inc. became vested with all rights, title and interest in the aforesaid Charge, together with the benefit to enforce all rights and remedies contained therein.

9The terms and conditions relating to the assignment of the Charge from Brands to the Plaintiff, (which were set out in a Financing Commitment letter dated 01 March 2021 at Exhibit I to the affidavit of John Giancola, sworn 10 February 2023) will be reviewed below.

The Financing Commitment

10In a Financing Commitment letter of 01 March 2021, addressed to Brands Canada Corp, care of Mina Howarth, a mortgage broker, the Plaintiff offered the following terms for a mortgage secured against the Charged Property:

a. to lend the sum of $1,235,000.00; b. at an interest rate of 6%; c. for a term of one (1) year; d. with a prepayment penalty of 3 months; e. to the borrower 1322295 Ontario Ltd. and Guarantor Marino Rakovac; f. with interest only monthly payments of $6,175.00.

11In addition to the above noted terms of the advance, the following provisions were also set out in the commitment letter and formed part of the mortgage agreement:

a. The Plaintiff acknowledged that the Defendants herein were then negotiating the sale parts of the lands that were subject to the charge and agreed to allow for a severance and release of those lands as long at it did not adversely affect the valuation of the balance of the lands used as security for the loan and that funds from any sale of the severed lands be directed towards repayment of encumbrances on the lands. b. The Defendants would prepay one year of interest from the mortgage advance. c. From the mortgage advance all lender/broker/consulting and legal fees were to be paid as well as a payment to Tandia Credit Union (successor to Teachers Credit Union) for the assignment and reassignment of the charge and a holdback of $283.000.00 for realty taxes was also directed. Realty tax arrears were to be paid in full not more than thirty (30) business days from the date of the advance. d. The Plaintiff also included a provision relating to a possible renewal of the Charge, at the end of the term of the mortgage. [3]

12The Defendants accepted these terms on 17 March 2021 and signed a direction regarding funds on that same day fulfilling the terms of the financing commitment. This date of acceptance appears to represent the start of the one-year term.

Trust Ledger Statement 9 April 2021- Movement of Funds

13Attached to the Affidavit of Mr. Rakovac, sworn 18 June 2023, we find the Trust Ledger Statement [4] from Burns Associates to their client 1322295 Ontario Ltd. and Marino Rakovac, director, with respect to funds flowing from the Charge.

14The Trust Ledger Statement clearly documents the treatment of the mortgage advance from the Plaintiff including a series of deductions from the gross advance, including the prepayment of interest for one year and the holdback by Burns and Associates of $300,000.00 on account of taxes.

15The Trust Ledger Statement is evidence of the fulfilled of the terms and conditions of the financing commitment, noted above.

The Alleged Default

16The Plaintiff contends that on or about 19 July 2022, the Defendant defaulted under the terms and conditions of the Charge. This assertion is challenged by the Defendants for two reasons, the first being based upon a proposition that Brands Canada, who was neither a party to these proceedings nor a mortgagor nor guarantor, had a “credit” balance equivalent to the realty tax holdback on the initial advance of funds from the Plaintiff to the Defendants. By Brands Canada having this alleged credit balance and by virtue its “connection” to the Defendants, the Defendants too would have a credit and could not be in default on the Charge and the second being that the actions of the Plaintiff at the time of renewal were unconscionable.

17The Defendants’ argument regarding the existence of a $300,000.00 tax holdback “credit” from the Plaintiff to Brands Canada was without merit. While the Defendants did ultimately redirect surplus funds from their Charge to be paid to Brands after closing (as shown on the Trust Ledger Statement), that was an arrangement made between the Defendants and Brands Canada and did not involve nor concern the Plaintiff. What is important to highlight is that the Defendants accepted, as a term of the loan of funds from the Plaintiff, that they were required to and did pay the realty tax debt from the gross proceeds of the advance.

18I will address the second argument of unconscionability at time of renewal next.

Renewal, Extension or Default

19The schedule to the original charge did not contain renewal terms. The renewal “term” was found in the accepted Financing Commitment noted above, which made it discretionary for the lender to agree or to accept a renewal of the Charge “ if circumstances permit”.

20Three documents titled “mortgage renewal” were put into evidence by the Defendants. They were drafted in 2022 by mortgage broker Mina Howarth and were not in a form typical of an agreement, wherein, the lender, borrower and guarantor would have been signatories. None of these were signed.

21In addition to the unsigned “mortgage renewal” documents noted above, the Defendants’ filed evidence of email communications between the mortgage broker Mina Howarth and Mr. Rakovac founds at Exhibits 6-10 of the Affidavit of Marino Rakovac, sworn 18 June 2023.

22The first email was dated 07 December 2021 from Ms. Howarth to Mr. Rakovac wherein she wrote… “The Lender, John for your mortgage on Walnut has reached out asking if you were planning on renewing the mortgage or paying him out. Can you please advise so I can let him know.” Ms. Howarth received a response from Mr. Rakovac within minutes stating, “Hello Mina, what is the renewal date?”

23On 08 March 2022, Ms. Howarth wrote to Mr. Rakovac and provided him with a renewal agreement for review and execution. In its form, it would have been better characterized and an offer to renew.

24On 15 March 2022, Ms. Howarth again wrote to Mr. Rakovac. In this email, it is clear that the Defendants had not signed the renewal sent to them on 08 March 2022. Also, the email stated that the payment due date was 19 March 2022 and a lender fee of $39,310.00 was to be paid to the Defendant Corporation upon renewal. Ms. Howarth made reference to the Defendants paying out the charge in June and to a three (3) month penalty.

25On 21 March 2022, Ms. Howarth again emailed Mr. Rakovac and provided him with a revised mortgage renewal for review. At this point in time, the one-year term of the Charge, had expired.

26On 12 April 2022, Ms. Howarth emailed the Defendants and advised them that the Plaintiff was not willing to renew the mortgage for a further year and was offering a three-month extension, the terms of which she provided. She asked that Defendants to call her in order to discuss.

27The Defendants believed that the terms for this three-month extension were unfair and ignored them and simply made three further monthly payments on account of interest only.

28With regards to these three payments, the Plaintiff’s evidence was that they accepted the three payments in April/May/June 2022 having received information that the Defendants were planning to sell the charged property within that time frame.

29To summarize, the term of the Charge had expired, the renewal was discretionary, the Plaintiff exercised its discretion not to renew but offered terms of a short extension. The terms of the extension were not accepted by the Defendants and they fashioned their own bargain and made three additional “interest only” payments, which the Plaintiff accepted. There is nothing unconscionable to be found on those facts.

30No further payments were made by the Defendants on account of the Charge after 19 June 2022, after which it went into default that continues to date.

31The Defendants did not file any affidavit from Ms. Howarth, to support their allegations that the Plaintiff had agreed to renew the Charge for an additional year but had made it constructively impossible for the Defendants to actually renew by repeatedly and unlawfully changing the conditions for renewal until those conditions became intolerable. This would have been important evidence to support the Defendants’ second argument of unconscionability. An adverse inference is drawn from the Defendants’ failure to provide this evidence from a person who had personal knowledge of this contested issue regarding a renewal.

SUMMARY JUDGMENT

32As set out by the Supreme Court of Canada in the Hryniak v Mauldin [5] case, summary judgment motions must be granted whenever there is no genuine issue requiring a trial.

33There will be no genuine issue requiring a trial when the judge is able to reach a fair and just determination on the merits on such a motion. 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.

34This Court was able to gain a full appreciation of the evidence and issues that were required to make dispositive findings.

35This court finds that the term of the Charge expired, without renewal and following a three-month extension, came to an end. The Court also finds that no further payments were made by the Defendants after June 2022 putting the Charge into default, which continues to this date.

CONCLUSION

36This Court grants the Plaintiff Judgment as against the Defendants, 1322295 ONTARIO LTD. and MARINO RAKOVAC, in accordance with the Statement of Claim.

37This Court further Orders that a Writ of Possession be issued forthwith.

38The parties may come to an agreement as to costs, failing which they may each file written submissions on no longer than five (5) double spaced pages each, excluding Bills of Costs and any Offers to Settle. If written submission are required, the Plaintiff shall serve and file its submission within fourteen (14) days after the release of this decision and the Defendant shall serve and file their submissions within twenty-one (21) days after the release of this decision.

Justice J. Krawchenko

Released: August 8, 2023

Footnotes

1Principal $1,235,000.00 + Interest $24,564.21 + Statement fee $350.00 + Sundry $3,943.76 = $1,263,857.97

2Brands Canada is affiliated to the Defendant Corporation. The Defendant Marino Rakovac is a directing mind of both corporations.

3The renewal provision set out that if the Defendants were not in default and …“if circumstances permit him to allow the Borrower to renew the mortgage the mortgage as described above for an additional one (1) year term for a 1% Lender Fee plus legal and 0.5% Broker Fee.”

4Trust Ledger Statement dated 09 April 2021.

5(2014) SCC 7