Axcess Mortgage Fund Ltd. v. Diwisch, 2012 ABQB 237

Court of Queen ’ s Bench of Alberta Citation: Axcess Mortgage Fund Ltd. v. Diwisch, 2012 ABQB 237 Date: 20120410 Docket: 1003 14027 Registry: Edmonton Between: Axcess Mortgage Fund Ltd. Plaintiff - and - Gerhard Diwisch and Shirley Diwisch Defendants And Between: Gerhard Diwisch and Shirley Diwisch Plaintiffs by Counterclaim - and - Axcess Mortgage Fund Ltd., Russ McCurdy, Russ McCurdy operating as Alberta Investment Mortgage, Alberta Investment Mortgage, 709033 Alberta Ltd. operating under the trade name Alberta Investment Mortgage and 1177620 Alberta Ltd.

Defendants by Counterclaim - and - Russ McCurdy and 1177620 Alberta Ltd. Third Party Defendants _______________________________________________________ Memorandum of Decision of

W. Breitkreuz, Master in Chambers _______________________________________________________ [ 1 ] The Diwischs, husband and wife, purchased three development lots near the Town of Redwater, for the purpose of constructing a three-storey, 12 unit residential condominium. The lots were acquired from the Town of Redwater, who required the Defendants to deposit $300,000 with the Town as part of the development process, refundable upon completion. The deposit was posted as required. The Defendants injected one million dollars of their own money to get the condominium project started.

By late 2008, the Defendants required financing to complete the project, but were unable to obtain the necessary financing from their usual financial institution. [ 2 ] The Defendants retained Mr. McCurdy, a third party in this action, a mortgage broker, to obtain financing for them.

His involvement resulted in the necessary financing in the amount of $1,200,000 secured by a mortgage against the condominium property, in December of 2008. [ 3 ] In August 2009, further financing in the amount of $400,000 was secured by the Plaintiff against the condominium property. [ 4 ] In December 2009, the third round of financing was obtained, in the amount of $320,000, but this mortgage was secured against both the condominium property and the Defendants ’ residence. [ 5 ] The primary issue in this matter is the circumstances surrounding the status of the project in December, 2009, which led to the granting of the $320,000 mortgage, previously identified as the subject mortgage, and the disbursement of the proceeds of that mortgage.

There seems little doubt that the involvement of Mr. McCurdy and his keenness and vigor in arranging for that mortgage may have amounted to conduct that exceeded that of mortgage broker and created a principal and agency relationship between himself and the Plaintiff. A number of workers on the site were unpaid and this concerned the Plaintiff. The Plaintiff put Mr. McCurdy in charge of disbursing the proceeds, including selecting which subcontractors, subtrades, and workers would be paid, and which would not be paid.

The Defendants had no input whatever into the disbursement of the proceeds of the subject mortgage. He also assured the Defendants that the Plaintiffs “ didn ’ t want the Defendant ’ s home ” ; it was only interested in the condominium property. Apparently the Defendants were not astute enough to realize this sort of verbal assurance is meaningless in the face of the mortgage. Nevertheless, the critical assessment and examination that this conduct, both of the Plaintiff and possibly its agent, if McCurdy is found to be that, goes far beyond the scope of a

summary judgment application. [ 6 ] There are further events subsequent to the granting of the subject mortgage which may be useful to determine whether a principal/agency relationship existed between the Plaintiff and Mr. McCurdy. [ 7 ] In February, 2010, the fourth round of financing, in the amount of $900,000, was secured, also against both the condominium property and the Defendants ’ residence.

Part of the proceeds of the fourth financing was used to replace, i.e., pay out, the second round of financing in the sum of $400,000. [ 8 ] Only a few months later, in April, 2010, the project was still unfinished, the financing was exhausted, and the Defendants were unable to secure further financing. [ 9 ] On April 12, 2010, a certain significant event occurred that gives some strength to the Defendants ’ argument that Mr. McCurdy was in fact the Plaintiff ’ s agent.

The Defendants turned the condominium property over to the numbered company third party, a company controlled by Russ McCurdy, the other third party, for the sum of one dollar and the assumption of certain financing, subsequently referred to as “ the Acquisition ” pursuant to a commercial real estate purchase contract, subsequently sometimes referred to as “ the Contract ” . The Contract includes, among other things, the following: (

a) a clause that the parties acknowledge that there are no other warranties, representations or collateral agreements;

(

b) a clause that provides that the Contract is intended to create binding legal obligations and that both parties should read the Contract carefully and are encouraged to obtain legal advice before signing the Contract; (

c) a clause to the effect that the parties acknowledge that the real estate brokerage and its representatives have recommended that they obtain advice from their legal counsel prior to signing the document; (

d) that the parties agree to submit the matter to arbitration in the event of a dispute. [ 10 ] The Acquisition agreement provided that the numbered company will assume all of the Defendants ’ obligations to the Plaintiff “ save and except for the subject mortgage ” .

It will be recalled that the subject mortgage is the $320,000 mortgage secured by both the condominium property and the Defendants ’ residence. [ 11 ] The Plaintiff agreed that the subject mortgage would be discharged as against the condominium property, and it remains registered against the Defendants ’ residence, and is the subject matter of this foreclosure proceeding.

In spite of the Plaintiff ’ s agreement, the subject mortgage is still registered against the condominium property. [ 12 ] The Defendants have counterclaimed, naming the Plaintiff, Russ McCurdy, his mortgage business (Alberta Investment Mortgage) and the corporation under which his mortgage business is operated (709033 Alberta Ltd.) as Defendants by Counterclaim. [ 13 ] The Defendants have also named Russ McCurdy and the buyer of the condominium property, 1177620 Alberta Ltd., as Third Party Defendants. [ 14 ] The questioning for discovery of Mr.

Diwisch on July 6, 2011, revealed that there was some conversation between himself and Mr. McCurdy that indicated that Mr. McCurdy had invested money with the Plaintiff. The circumstances of this conversation are quite vague. He doesn ’ t know how the conversation came up, “ nor am I clear as to when it occurred ” , but he indicates that he was pleased that [Mr.

McCurdy] was involved with them [obviously meaning the Plaintiff] financially “ because that way I would get the money easier. ” [ 15 ] Undertaking No. 1 was given at the questioning to advise if any specifics about any conversations that relate to Russ McCurdy ’ s investment in Axcess capital can be recalled. I have examined the ring-coiled binder entitled “ Answers to Undertakings of Gerhard Diwisch given during questioning on July 6, 2011", but cannot find a response to that undertaking. [ 16 ] Be that as it may, it is some evidence that the relationship between Mr.

McCurdy and the Plaintiff was more than simply that of mortgage broker and lender. [ 17 ] Accordingly, the application is dismissed with costs to the Defendants. Heard on the 24 th day of January, 2012. Dated at the City of Edmonton, Alberta this 10 th day of April, 2012.

W. Breitkreuz M.C.C.Q.B.A. Appearances: N. Fenna Ritchie Mill Law Office for the Plaintiff Dennis G. Groh, Q.C. Heil & Groh for the Defendants Brian Doherty Doherty Schuldhaus LLP for the Defendant by Counterclaim/Third Parties