



COURT OF APPEAL FOR ONTARIO

CITATION: Stoney Creek Centre Inc. v. 2459437 Ontario Inc.,
    2020 ONCA 119

DATE: 20200213

DOCKET: C66961

Feldman, Brown and Zarnett JJ.A.

BETWEEN

Stoney Creek Centre Inc.

Applicant (Appellant)

and

2459437 Ontario Inc.

Respondent (Respondent)

Brian N. Radnoff and Mordy Mednick, for the appellant

Chris Reed, for the respondent

Heard: January 21, 2020

On appeal from the
    judgment of Justice Janet Leiper of the Superior Court of Justice, dated April
    18, 2019, with reasons reported at 2019 ONSC 2450.

BROWN J.A.:

OVERVIEW

[1]

This appeal concerns the amount the chargor, the appellant Stoney Creek
    Centre Inc. (Stoney Creek), must pay to the chargee, 2459437 Ontario Inc.
    (245), to discharge a mortgage on a commercial property known as the Lewis
    Property. Stoney Creek submits that the application judge erred in holding that
    it was required to pay the chargee,
245,
the $3
    million face amount of the mortgage, together with interest, instead of the
    lesser amount of approximately $2.7 million that had been advanced, plus
    interest.

BACKGROUND FACTS

[2]

Tony Perruzza is the principal of Stoney Creek. Dr. Gillian Stanley is
    the principal of 245. In 2015 and 2016, they and their related companies were
    involved in two overlapping transactions.

[3]

In the first transaction, Perruzza-related companies agreed to purchase
    two properties (the Lakefront Properties) from
245
.
    Under those agreements, the purchasers had two conditional periods totaling 210
    days in which they could end the transactions. Closing was scheduled for mid-2016.

[4]

The second transaction stemmed from efforts by Perruzza in late 2015 and
    early 2016 to obtain financing to purchase the shares of the company that owned
    the Lewis Property. Stanley learned that Perruzza was encountering difficulties
    in securing financing. She expressed an interest in assisting Perruzza to
    finance the share purchase if he would waive the conditions on his acquisition
    of the Lakefront Properties.

[5]

Initially, Stanley planned to source the
    funds to loan to Perruzza from an institutional bank. That source of funding
    did not materialize.

[6]

At that point, the closing date for
    Perruzzas share purchase was approaching. Perruzza introduced Stanley to
    another source of funds, Toronto Capital Corp. Stanley was prepared to borrow
    money from Toronto Capital to provide a bridge loan to Perruzza that would
    enable him to close the share purchase.

[7]

Stanley and 245 accepted a loan
    commitment from Toronto Capital for $3 million, secured in part by mortgages on
    their Lakefront Properties. Under the terms of the Toronto Capital mortgage
    commitment, the net amount advanced, after various deductions, would be close
    to $2.7 million.

[8]

Perruzza received a copy of the Toronto
    Capital commitment letter and was aware of its terms before his company, 218,
    entered into an agreement to borrow money from Stanleys company, 245, to fund
    the share purchase. In the section entitled Use of Proceeds, the Toronto
    Capital commitment letter stated, in part: The proceeds will be used as
    follows: Complete share purchase: 2,703,000.

[9]

After accepting the Toronto Capital
    commitment letter, 245 then entered into a private mortgage financing agreement
    as lender with Perruzzas 218, as borrower (the Mortgage Financing
    Agreement), in respect of the Lewis Property. In a section entitled PURPOSE,
    the Mortgage Financing Agreement stated: 
The purpose of this Loan is to
    provide financing for the completion of the Share Purchase Agreement. This Loan
    is conditional upon amongst other things, the waiving of all conditions of the
    Purchase and Sale Agreements of [the Lakefront Properties].

[10]

The other key terms of the Mortgage
    Financing Agreement relevant to the issues on this appeal are:

TYPE OF LOAN: Third Mortgage. Principal and interest.

TERM: 16 Month Term following the date of initial advance.

LOAN AMOUNT: $3,000,000 (Face value of the mortgage charge) is
    based on appraisal provided.

ADVANCE AMOUNT: $3,000,000 less the Lenders financing charges.
    Due on Closing



LENDER FEE: A lender fee of 3% shall be deducted on advanced
    amount.



LEGAL: The borrower/project will pay the Lenders legal fees for
    closing, registration and discharge

[11]

As part of the security for the loan
    transaction, Stoney Creek provided 245 with a mortgage on the Lewis Property
    (the Mortgage). The principal amount of the Mortgage was shown as $3 million.

[12]

As additional security, 218 provided 245
    with a promissory note for $3 million, guaranteed by Stoney Creek.

[13]

The parties agree that $2,711,691.48 was
    advanced by Toronto Capital to 245 on its $3 million loan, net of various
    deductions Toronto Capital was entitled to make pursuant to the terms of its
    commitment letter to 245. The Statement of Advance for the closing of the
    Mortgage Financing Agreement showed the receipt of the $2,711,691.48, from
    which 245 deducted its lender fee, legal costs and title insurance cost,
    leaving a balance disbursed to 218 of $2,604,691.48.

[14]

In 2017, Perruzza sought to discharge the
    Mortgage on the Lewis Property. 245 took the position that the amount required
    to discharge the Mortgage was the face amount of $3 million, together with
    interest. Perruzza took the position that the principal amount due on the
    Mortgage was the $2,711,691.48, plus interest.

[15]

In order to discharge the Mortgage, 218/Stoney
    Creek paid into escrow the difference between the $3 million face amount of the
    Mortgage and the $2,711,691.48, plus interest (the Disputed Amount). The
    Disputed Amount is being held in a lawyers trust account pending determination
    of the dispute.

[16]

The application judge held that the chargee,
    245, was entitled to the Disputed Amount, based on Stoney Creeks obligation to
    pay $3 million, plus interest, to discharge the Mortgage.

ANALYSIS

[17]

The law recognizes that a person may give
    a mortgage for a larger sum in consideration of the loan of a smaller sum where
    there is an actual agreement to that effect:
Edmonds v. The Hamilton
    Provident and Loan Society
(1891), 18
    O.A.R. 347, at pp. 362-63. Stoney Creek submits that in the present case the
    parties did not enter into such an agreement. As a result, Stoney Creek
    contends that in order to discharge the Mortgage it is only required to pay the
    actual amount advanced, plus interest, not the Mortgages face amount of $3
    million.

[18]

Stoney Creek advances three main
    arguments in support of its position.

First Argument

[19]

Stoney Creek submits that the application
    judge erred in her interpretation of the term in the Mortgage Financing
    Agreement that stated: ADVANCE AMOUNT: $3,000,000
less the Lenders financing charges
. Due on Closing (emphasis added) (hereafter the
    Disputed Term). According to Stoney Creek, the application judge erred by:
    (i) interpreting the Disputed Term as evidencing an agreement that Stoney Creek
    would pay all the fees and costs 245 incurred in borrowing the money from
    Toronto Capital that it used to consummate its loan to Perruzzas company, 218;
    and (ii) by rejecting Stoney Creeks argument that the reference to the
    lenders financing charges was the same as the lenders fee on the second
    page of the Mortgage Financing Agreement.

[20]

I am not persuaded by these submissions.
    Stoney Creek has not demonstrated that the application judges interpretation
    of the Disputed Term in the Mortgage Financing Agreement was tainted by
    palpable and overriding error. As she was required to do, the application judge
    interpreted the Disputed Term in light of the factual matrix concerning the two
    related transactions, the provisions of the Mortgage Financing Agreement, and
    the terms of the related documents.

[21]

The material evidence about the factual
    matrix included:

(i)

Stanley and 245 assumed financial risk for the benefit of Perruzza and
    Stoney Creek by mortgaging the Lakefront Properties as security for the funds
    borrowed from Toronto Capital, which they lent to Perruzza as a bridge loan to enable
    him to acquire the shares of the company that owned the Lewis Property;

(ii)

Very
    shortly after 245 and Stanley accepted Toronto Capitals commitment letter,
    they entered into the Mortgage Financing Agreement with Perruzzas company,
    218; and

(iii)

Before his
    company, 218, entered into the Mortgage Financing Agreement, Perruzza knew the
    terms of the Toronto Capital commitment letter which included: (a) a clear
    statement on the face of the commitment letter that $2.703 million of the $3
    million loaned by Toronto Capital would be used to complete the share purchase
    Perruzza wished to consummate; and (b) a description of the deductions from the
    $3 million to arrive at the $2.703 million. In his examination for discovery, Perruzza
    admitted that he knew the advance from 245 would be $2.7 million instead of the
    $3 million.

[22]

As the application judge noted, [t]he
    face value of the mortgage is for $3 million and default on the mortgage makes
    that principal amount due and payable: at para. 35. The Mortgage Financing
    Agreement expressly contemplated that the loan amount, secured by the $3
    million Mortgage, would be greater than the advance amount. Further, the
    related transaction documents executed by and on behalf of Perruzza-related
    companies  the Mortgage, the promissory note, and the guarantee  clearly
    specify that the repayment obligation is for a principal amount of $3 million.
    No transaction document stipulates the repayment of only $2.711 million.

[23]

The application judge rejected Stoney
    Creeks argument that the reference to the lenders financing charges in the
    Disputed Term was the same as the lenders fee described in the Mortgage
    Financing Agreement. The language of the document supports her interpretation.
    The Mortgage Financing Agreement states that the lenders fee shall be
    deducted on advanced amount, that is to say on the amount of $3 million less
    the Lenders financing charges.

[24]

The application judge found that the
    Mortgage Financing Agreement is clear: at para. 35. She was reinforced in
    that conclusion by the surrounding circumstances, stating, at para. 36:

This is a case where the
Edmonds
principle is
    displaced by the express agreement of the parties in the Mortgage Financing
    Agreement. There is no evidence of fraud or oppression in the negotiation of
    the agreement. Both parties were aware of the respondents financing costs.
    Both were represented by counsel on the deal. There were no allegations or
    evidence of any misrepresentations leading to a risk of loss. To the contrary,
    all of the documents contemplated that the respondent would seek financing of
    $3 million and that the agreement with the applicant would be to pay all the
    fees and costs of the respondents financing to consummate the loan to Mr.
    Perruzzas company.

[25]

I see no palpable and overriding error in
    the application judges finding that the parties agreed Stoney Creek would pay
    245 the amounts that 245, in turn, was required to pay Toronto Capital in order
    to obtain the funds used to make the bridge loan to Stoney Creek. That
    agreement was reflected in the language of the Loan Amount term and Disputed
    Term of the Mortgage Financing Agreement. When assessed in light of the
    language of the Mortgage Financing Agreement, the terms of the additional
    security documents, and the factual matrix, the application judges
    interpretation of the phrase the Lenders financing charges was a commercially
    reasonable one. Neither the language used nor the factual matrix support an
    agreement where Stanley would pay Toronto Capital $374,505.38 as well as
    mortgage her Lakeview Properties in order to provide a loan that Perruzza
    needed but could not obtain elsewhere.

[26]

As a result, I agree with the application
    judges conclusion that Stoney Creek was required to pay 245 the amount of $3
    million, plus interest, to discharge the Mortgage.

Second Argument

[27]

Second, I do not accept Stoney Creeks
    submission that the application judge took into account irrelevant evidence
    when considering the factual matrix. The application judges consideration of the
    evidence concerning Perruzzas knowledge of the terms of the loan from Toronto
    Capital to 245 and Stanley did not constitute an impermissible use of one partys
    subjective intention. Instead, by taking that evidence into account, the
    application judge considered the surrounding circumstances known to the
    parties at the time of formation of the contract, as she was required to do by
Sattva Capital Corp. v. Creston Moly Corp
., 2014 SCC 53, [2014] 2 S.C.R. 633, at para. 47.

Third Argument

[28]

Finally, Stoney Creek contends that the
    application judges order is inconsistent with her decision because she ordered
    Stoney Creek to repay only some, but not all, of 245s borrowing costs. I do
    not accept this argument. The parties completed the discharge of the Mortgage
    on the basis that Stoney Creek would pay into an escrow account the agreed
    Disputed Amount of $374,693.00. The Disputed Amount represents the difference
    between the discharge balance (i) calculated using the Mortgages stated
    principal amount of $3 million and (ii) that arrived at by using the amount of
    $2,711,691, which was the amount loaned by Toronto Capital to 245 and Stanley
    net of its financing charges. In granting judgment in favour of 245, the
    application judge simply ordered that the agreed Disputed Amount, together with
    interest, be released and paid to 245. In those circumstances, I see no merit
    to this submission by the appellant.

DISPOSITION

[29]

For the reasons set out above, I would
    dismiss the appeal.

[30]

245 is entitled to its costs of the
    appeal from Stoney Creek, fixed in the amount of $25,000, inclusive of
    disbursements and applicable taxes.

Released: KF FEB 13 2020

David Brown J.A.

I agree. K. Feldman
    J.A.

I agree. B. Zarnett
    J.A.


