Taylor et al. v. Kemkaran et al., 2012 MBCA 92

Citation: Taylor et al. v. Kemkaran et al., 2012 MBCA 92 Date: 20121002 Docket: AI 11-30-07588 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Freda M. Steel Madam Justice Holly C. Beard Mr. Justice Alan D. MacInnes B E T W E E N : LEIGH C. TAYLOR and L.C. TAYLOR ) & CO. LTD., TRUSTEE OF THE ESTATE ) ) (Respondents) Appellants ) J. I. Jardine ) for the Appellant - and - ) ) DR. KENNETH KEMKARAN and ) 5244161 MANITOBA LTD. ) C. E. Howden ) for the Respondent (Applicants) Respondents ) 5244161 Manitoba Ltd. ) A N D B E T W E E N : ) ) Appeal heard: L.C. TAYLOR & CO.

LTD., TRUSTEE OF ) December 6, 2011 THE ESTATE ) ) (Applicant) Appellant ) ) Judgment delivered: - and - ) October 2, 2012 ) 5244161 MANITOBA LTD. ) ) (Respondent) Respondent ) MacINNES J.A. 1 This is an appeal from a motion judge’s bankruptcy order which determined entitlement to real property as between the trustee of a bankrupt and two persons claiming entitlement to such property. 2 There were two motions heard by the motion judge. Central to the determination of the motions was, and to this appeal is, a consideration of certain sections of the Bankruptcy and Insolvency Act (the BIA ).

The relevant portions of those sections are:

Definitions 2. In this Act, . . . . . “settlement” includes a contract … to the extent that the contract … is gratuitous or made merely for a nominal consideration. . . . . . Persons claiming property in possession of bankrupt 81.

(1) Where a person claims any property, or interest therein, in the possession of a bankrupt at the time of the bankruptcy, he shall file with the trustee a proof of claim verified by affidavit giving the grounds on which the claim is based and sufficient particulars to enable the property be identified. How claim disposed of

(2) The trustee with whom a proof of claim is filed under ss. (1) shall within 15 days after the filing of the claim … either admit the claim and deliver possession of the property to the claimant or send a notice…that the claim is disputed, with the trustee’s reasons for disputing it, and, unless the claimant appeals the trustee’s decision to the court within 15 days after the sending of the notice of dispute, the claimant is deemed to have abandoned or relinquished all his … right to or interest in the property to the trustee …. Onus on claimant

(3) The onus of establishing a claim to or in property under this

section is on the claimant. . . . . . If bankrupt within five years 91.

(2) Any settlement of property made within … five years before the date of the initial bankruptcy event … is void against the trustee if the trustee can prove that the settlor was, at the time of making the settlement, unable to pay all the settlor’s debts without the aid of the property comprised in the settlement or that the interest of the settlor in the property did not pass on the execution thereof. Non-application of section (3) This

section does not extend to any settlement made in favour of a purchaser or incumbrancer in good faith and for valuable consideration.

BACKGROUND 3 In January 2006, approximately three years before becoming a bankrupt, Maxer Limited (Maxer) was the registered owner of certain real property commonly known as 395 Stafford Street, in Winnipeg (the Property). 4 The Property consisted of four lots contained in two separate certificates of title; one being lot 17 (certificate of title no. 1275378), and the other being lots 18 to 20 respectively (certificate of title no. 1275379). 5 The sole shareholder, director and officer of Maxer was Stanley Newman (Newman). 6 The Property was managed by Rosedale Property Management (Rosedale) whose principal was Newman. 7 Glen Harvey (Harvey) was a real estate agent.

He and Newman were both engaged with the same real estate company and worked out of the same office. 8 Kenneth Kemkaran (Kemkaran) was a medical doctor who, through Harvey, had previously purchased some residential properties for investment purposes. 9 In January 2006, Harvey approached Kemkaran to discuss the Property as a possible investment. Harvey and Newman showed Kemkaran the Property. 10 Kemkaran met shortly thereafter with his lawyer to discuss whether the Property was a good investment opportunity for him.

The lawyer had been referred to Kemkaran by Harvey and had his office in the same complex as Harvey/Newman’s real estate office. 11 The information provided Kemkaran as to the Property and its purchase were as follows: • The purchase price was $600,000 and was not negotiable. • Kemkaran would incorporate a company, and on February 1, 2006, he did incorporate 5244161 Manitoba Ltd. (524), which would buy the Property. Kemkaran was its sole shareholder, director and officer. • 524 would not be required to pay any money to Maxer at the time of the purchase.

Rather, the full purchase price would be paid by way of a mortgage back to Maxer, the vendor take-back mortgage (VTB mortgage), with interest at 4.5 per cent per annum to mature March 1, 2011. The VTB mortgage would be repayable by 524 in equal monthly installments of $3,320.84 and would be a blanket third mortgage on the Property. • There were two tenants occupying the Property.

Their monthly rental payments were to be collected by Rosedale and then paid to 524. 524 would then forward Maxer the monthly payment owing under the VTB mortgage. • 524 would own the Property, but would not take title to it until the earlier of either the maturity date of the VTB mortgage, or the refinancing of the Property by 524, which could occur at any time after December 7, 2006, the maturity date of the first mortgage on the Property. Until then, Maxer would hold the Property in trust for 524. 12 The Property had an appraised value of $750,000 as at January 22, 2005.

Harvey provided notes to Kemkaran respecting the rental income, mortgage financing and financial projections for the Property. Harvey projected that in five years’ time there would be $247,500 worth of equity in the Property, based on the 2005 appraisal. 13 Kemkaran asked Harvey why the Property was such a “good deal” and why it was being sold for less than the 2005

appraised value. Harvey told Kemkaran that Newman was unable to meet his financial obligations with respect to a property on Portage Avenue, in Winnipeg, and was having difficulty securing financing on the Property. Harvey also advised that one of Newman’s creditors had gone bankrupt. Harvey told Kemkaran that there had been previous offers on the Property, including one at $1.1 million, but they had fallen through because the price was not right or because of financing issues. 14 Kemkaran, acting upon legal advice, made an offer to Maxer and to Maxer 2006 Ltd. to purchase the Property.

The offer, dated January 13, 2006, was accepted on or about January 16, 2006 (the Sale Agreement). 15 Kemkaran understood that all four lots were included in the Property. They were included in the 2005 appraisal. The zoning memorandum, the surveyor’s building location certificate and the 2005 statement and demand for municipal and school taxes all evidenced that the Property was made up of all four lots contained in two certificates of title. 16 On February 22, 2006, Maxer as vendor, 524 as purchaser, and Kemkaran as convenantor signed an agreement regarding the Property (the Trust Agreement). The

preamble of the Trust Agreement included the following: • that Maxer had caused the registration of two mortgages against the Property; • that Maxer agreed to convey the Property to 524 by way of the Sale Agreement; • that 524 would execute the VTB mortgage as a blanket third mortgage for $600,000 requiring the payment of equal consecutive monthly installments of $3,320.84 commencing March 1, 2006; • that Maxer would likely incur prepayment penalties under the first mortgage and a second mortgage, if it disposed of the Property before the maturity dates stated on the first mortgage and the second mortgage; • that Maxer would hold the Property in trust for 524 until the earlier of either (

a) the maturity date of the VTB mortgage; or (

b) the refinancing of the Property by 524 at any time after the maturity date of the first mortgage and that Maxer would make all payments due under the first mortgage and the second mortgage; and • that Maxer and 524 were aware that the terms of the first mortgage and second mortgage required that any disposition of the Property would render the first mortgage and second mortgage due and payable, on demand, and that if such demand were made, 524 was aware that it must arrange and obtain financing on its own to pay off the VTB mortgage, which financing would result in Maxer paying off the first mortgage and second mortgage. 17 Certain of the terms within the body of the Trust Agreement were as follows: (1) that Maxer would hold the Property in trust for 524 (para. 1); (2) that the first mortgage and the second mortgage on the Property had outstanding balances as of February 1, 2006, in the amount of $307,783.53 and $104,000 respectively (para. 2); (3) that 524 would pay Maxer all payments due and payable under the VTB mortgage on their due date (para. 3); (4) that subject to compliance with (3), Maxer would make all payments on a regular basis due under the existing first and second mortgages (para. 4); (5) that Maxer had the right to refinance, in whole or in part, either or both of the first mortgage and the second mortgage at any time and under any terms as Maxer may determine in its sole discretion, provided that the total amount of all mortgages and any unsecured debt placed by Maxer on the Property or relating to the Property would not exceed the principal amount of $500,000 excluding the VTB mortgage (para. 5); (6) that Maxer would provide a registerable transfer of land in favour of 524 and 524 would not register it in the Winnipeg Land Titles Office until the earlier of either (

a) the maturity date of the VTB mortgage; or (

b) the refinancing of the Property by 524 at any time after the maturity date of the first mortgage (para. 7); (7) 524 would provide a series of 12 post-dated cheques each in the amount of $3,320.84 payable on the sixth day of each month to Maxer commencing March 6, 2006. Maxer agreed to apply same to the first mortgage and the second mortgage registered on the Property (para. 10); (8) that if 524 breached the terms of the Trust Agreement, Maxer could terminate it by giving 524 30 days’ written notice to remedy default.

If the breach was not remedied, the Trust Agreement was voidable at Maxer’s option and the beneficial interest in the Property would revert back to Maxer and 524 would not be entitled to register the transfer of land (para. 11); (9) that all rental payments payable by the tenants would continue to be collected by Rosedale who would continue to manage the Property on behalf of Maxer and 524.

Maxer would provide said rents payable to 524 on or about the first day of each month and in any event no later than the sixth day of each month (para. 15); (10) that the transaction contemplated by the Sale Agreement and by the Trust Agreement would be effective on February 22, 2006 (para. 16); (11) that Maxer and 524 confirmed the purchase price for the Property pursuant to the Sale Agreement would be $600,000 (para. 17); and

(12) that Kemkaran, as covenantor under the Trust Agreement, agreed that 524 would perform and carry out the terms of the VTB mortgage and the Trust Agreement and that if any money payable pursuant to the VTB mortgage or the Trust Agreement was in default, he would pay the same to Maxer forthwith (para. 18). 18 The Trust Agreement did not include any reference to lot 17.

Rather, only lots 18-20 were specifically referred to under it. 19 524 and Kemkaran registered a caveat on April 13, 2006, which designated an interest in lots 18-20 by virtue of “a Trust Agreement dated February 22, 2006 … whereby all of the interest in the property is held by Maxer Limited in trust for the Caveators.” 20 524 received the sum of $3,279.37 on a monthly basis from the tenants occupying the Property.

This sum was paid to 524 through Rosedale. 524 then paid Maxer the sum of $3,320.84 monthly, being the required payment on the VTB mortgage. 21 524 paid this amount to Maxer each month from March 6, 2006, to February 6, 2007. Thereafter, 524 was directed to pay the monthly amount to Maxer

(2006) Limited and did so. 22 On March 17, 2009, Maxer, through Newman, filed an assignment in bankruptcy under the BIA . On March 20, 2009, L.C. Taylor & Co. Ltd. was appointed trustee (the Trustee) on behalf of the estate of Maxer. 23 The Trustee generated a notice of bankruptcy and first meeting of creditors based upon the names of creditors provided by Newman.

An inspector was appointed at the first meeting of creditors on April 7, 2009. 24 Shortly thereafter, it was determined by the inspector that Maxer was the registered owner of the Property despite the fact that Newman, in the filed statement of affairs, had failed to disclose to the Trustee Maxer’s “ownership interest” in the Property. 25 A title search by the Trustee then determined that lot 17 was in Maxer’s name. The only active charges registered against that title were a mortgage, a City of Winnipeg caveat regarding a zoning agreement, and a postponement of rights by the mortgagor as regards the caveat.

The Trustee, shortly thereafter, determined that the mortgage had been satisfied, albeit the discharge had not yet been registered. 26 On April 8, 2009, a caveat was registered by the Trustee against lot 17 pursuant to ss. 67(1) and 71 of the BIA . 27 On August 14, 2009, the Trustee registered a transmission of title transmitting lot 17 into its name as trustee. A new title number was created as a result. 28 Further investigation by the Trustee uncovered a second certificate of title relating to the Property with respect to lots 18 to 20. This title was also registered in Maxer’s name.

On September 11, 2009, the T rustee registered a transmission of title transmitting lots 18 to 20 into its name as trustee. A new title number was created as a result. 29 The Trustee then determined the Property was managed by Rosedale and was occupied by two tenants. On August 27, 2009, the Trustee, by letter, advised Rosedale that it had been appointed as the trustee of Maxer. The letter also stated that Maxer had signed over to the Trustee all right, title and interest in the Property by virtue of the assignment in bankruptcy.

The Trustee asked Rosedale to provide all rents collected and a detailed accounting of receipts and disbursements relating to the Property since the date of bankruptcy, as well as a copy of the management agreement between Rosedale and Maxer. 30 Despite the request submitted to Rosedale, the Trustee was never provided with the rental payments collected or the management agreement albeit certain other documentation was later supplied by Rosedale’s legal counsel. 31 The tenants were also notified of the bankruptcy and directed to forward their rental payments to the Trustee, which they did commencing September 1, 2009. 32 On October 30, 2009, the Trustee received a reclamation of property filed on behalf of Kemkaran and 524 relating to lots 18 to 20. 33 On December 22, 2009, 524 registered a caveat with respect to lot 17 claiming that all interest in lot 17 was held in trust for 524 by virtue of the Trust Agreement. 34 On December 28, 2009, Kemkaran and 524 provided to the Trustee an amended reclamation of property which included lot 17. 35 On January 6, 2010, the Trustee provided a notice of dispute pursuant to s. 81(2) of the BIA relating to the reclamation of property and amended reclamation of property filed by Kemkaran and 524. 36 On February 4, 2010, Kemkaran and 524 filed a notice of motion for an order setting aside the notice of dispute of the Trustee dated January 6, 2010, and confirming their claim with respect to the Property. 37 On August 25, 2010, the Trustee filed a notice of motion seeking: (

a) a declaration that lot 17 is and was at all material times property of Maxer available for distribution to its creditors; (

b) a declaration that the Trust Agreement was void as against the Trustee; alternatively, if it were not void as against the Trustee, a declaration that 524 was in default pursuant to the terms and provisions of the Trust Agreement and that, as a result, any beneficial interest conveyed by it had reverted to the Trustee; and

(

c) an order vacating caveat no. 3872907 from certificate of title no. 2392914 and caveat no. 3275545 from certificate of title no. 2398378. 38 The motion judge ordered that s. 91 of the BIA did not apply to the Trust Agreement between Maxer and 524, that the transaction was not void as against the Trustee, that the Trust Agreement included lot 17, that 524 was the beneficial owner of the Property and entitled to the transfer of title to the Property upon compliance with the conditions contained in the Trust Agreement, that 524 was not in default nor did it breach the Trust Agreement, or in the alternative, was entitled to a set-off or relief from forfeiture, and that 524 was entitled to its costs from the Trustee. 39 It is from that order that the Trustee now appeals.

THE APPEAL 40 As its grounds of appeal, the Trustee asserts that the motion judge erred: (1) in failing to address the motion brought by 524 and Kemkaran pursuant to s. 81 of the BIA ; (2) in finding that the transaction between Maxer as vendor and 524 as purchaser was not a settlement under the BIA ; (3) in finding that Maxer was, at the time of the transaction, able to pay its debts without the aid of the Property; (4) in failing to consider a required element of s. 91(2) of the BIA , namely, whether or not Maxer’s interest in the Property had passed on the execution of the settlement; (5) in finding that what the Trustee asserted was a settlement was made in good faith and for valuable consideration; (6) in rectifying the Trust Agreement to include lot 17; (7) in finding that 524 and Kemkaran had not breached the Trust Agreement by not making the VTB mortgage payments; and (8) in finding, in the alternative, that 524 and Kemkaran were entitled to a set off or relief from forfeiture as against the Trustee. 41 In addressing the grounds of appeal, I will address the standard of review in respect of each.

Before so doing, I note that, generally, the Trustee asserts that the motion judge committed errors of law for which the standard of review on appeal is that of correctness.

In addition, it asserts that she erred on questions of mixed fact and law for which the standard of review is that of palpable and overriding error. 42 While agreeing with the Trustee’s assertion as to standards of review, Kemkaran and 524 submit that no error of law was made by the motion judge nor did she commit palpable and overriding error with respect to the questions of mixed fact and law which she was required to address or with respect to any inferences which she drew. 43 Indeed, Kemkaran and 524 assert that, notwithstanding that the Trustee’s appeal is couched in language of “error of law,” “error of mixed fact and law” and “palpable and overriding error,” the appeal is largely an attempt by the Trustee to relitigate the motions argued before the motion judge. 44 In that regard, Kemkaran and 524 rely on the comments of Monnin J.A., writing for the majority, in Macatula v.

Tessier , 2003 MBCA 31 , 173 Man.R. (2d) 55 (at paras. 71-72 ): The issue on this appeal is not whether I agree with the conclusion arrived at by the trial judge but whether, on the evidence, the trial judge was entitled to arrive at the findings that he did or whether, in arriving at those findings, he committed palpable and overriding error. My view of the evidence as a whole is that it was open for the trial judge to come to the conclusion that he did.

There was some evidence on which to support the findings made by the trial judge and as my brother Huband points out in his reasons, “an appeal cannot be allowed on the basis that the appeal court believes that it would have come to a different conclusion” (at para. 9). …. 45 I turn then to address the grounds of appeal of the Trustee.

(1) Did the motion judge err in failing to address the motion brought by 524 and Kemkaran pursuant to s. 81 of the BIA ? Standard of Review 46 The Trustee asserts this issue raises a question of law, the standard of review for which is that of correctness. Kemkaran and 524 agree, as do I.

Argument 47 The Trustee argues that there were two motions before the motion judge as is evident from the materials filed and acknowledged by the motion judge in para. 1 of her judgment. 48 The motion brought by Kemkaran and 524 was for an order setting aside the notice of dispute issued by the Trustee on January 6, 2010, which rejected the bankruptcy claim of Kemkaran and 524, and for an order confirming their bankruptcy claim. 49 The Trustee asserts that s. 81 of the BIA sets out the process by which a person claiming property of a bankrupt is to proceed, including the placement of an onus of proof upon the claimant.

50 The Trustee submits that in failing to address s. 81 of the BIA the motion judge erred, particularly as regards the onus on Kemkaran and 524 to prove their claim to or in the property which they were seeking. 51 Instead, says the Trustee, the motion judge placed the initial onus on the Trustee to disprove the validity of the Sale Agreement under s. 91 of the BIA without first having made any finding that Kemkaran and 524 had met their onus under s. 81(3) to prove that they had a claim to or in the Property. 52 The Trustee says it is clear from its affidavit filed in the proceedings before the motion judge that it took the position that the Sale Agreement was not a bona fide agreement and was entered into for the purposes of attempting to hide an asset from the creditors of Maxer, i.e., that it was a sham. 53 It argues that in similar circumstances and in considering the onus on the claimants under s. 81(3) of the BIA , courts have held that the claimant ought not to rely simply on its own evidence to meet that onus, but also ought to produce evidence from the bankrupt and/or the solicitor who drafted the purported declaration of trust regarding the intentions of the parties.

The Trustee asserts that no such evidence was tendered by Kemkaran or 524. 54 Kemkaran and 524 argue that the reasons for judgment of the motion judge, as a whole, amply demonstrate that she was satisfied that Kemkaran and 524 had proved their claim to the Property. 55 They argue that this is hardly surprising, given that the Sale Agreement and the Trust Agreement were duly executed by Maxer and thus provided evidence of Maxer before the motion judge to establish 524’s entitlement to the Property. There was never any dispute by the Trustee that the agreements had been duly executed by Maxer.

Indeed, in its factum, the Trustee stated that, “[t]here is no dispute that the transaction in question is a contract.” 56 524 refers to the motion judge’s finding that the giving of the VTB mortgage amounted to valuable consideration, and asserts that the combination of these facts provided sufficient evidence to shift the onus to the Trustee to disprove the legal validity of the Trust Agreement. Analysis 57 It is clear from her reasons for judgment that the motion judge did not consider this motion in a discrete manner.

While it would have been preferable had she done so, the law is such that one must consider a judge’s decision in its entirety, including the evidence before the judge and the submissions of the parties. 58 Here, her judgment clearly states that there were two motions before her which were heard concurrently, the first being that of Kemkaran and 524 as indicated. Thus, there can be no doubt that she was aware of Kemkaran and 524’s motions. 59 The motion judge had evidence before her independent of Kemkaran and 524, namely, that of Maxer’s execution of the Sale Agreement and of the Trust Agreement.

As well, she had the admission of the Trustee that the transaction in question was a contract between Maxer and 524. 60 In addition, she had evidence which she could and did accept in finding that the agreements were supported by valuable consideration, namely, the VTB mortgage, and that, from the perspective of Kemkaran and 524, said agreements were made in good faith. 61 Thus, when one considers the material which was before her and her reasons for judgment as a whole, there can be no doubt that the motion judge dealt with the motion of 524 and Kemkaran and was satisfied on the evidence before her that they had proved their claim to the Property. 62 The motion judge committed no error here.

(2) Did the motion judge err in finding that the transaction was not a settlement? Standard of Review 63 The Trustee asserts that the motion judge erred in her application of the definition of “settlement.” She thus erred in law for which the standard of review is that of correctness.

In addition, the Trustee asserts that, in applying the legal tests to the evidence before her, she made an extricable error in principle amounting to an error in law, and also reviewable on the correctness standard. 64 Kemkaran and 524 acknowledge that this ground of appeal raises a question of law for which the standard of review is that of correctness, but assert that the motion judge made no error in deciding the question. 65 “Settlement” is a defined term under the BIA . In my opinion, the determination of its meaning is a question of law for which the standard of review is one of correctness.

Provided that there is no error in law by the motion judge in respect of the meaning of the term, then the application of the facts to that term raises a question of mixed fact and law and is reviewable on a standard of palpable and overriding error. Argument 66 The Trustee refers to “settlement” as defined in s. 2 of the BIA . While admitting that the transaction in question is a contract, the Trustee asserts that it was gratuitous and/or made for merely nominal consideration. 67 The Trustee takes issue with the motion judge’s decision wherein she found that the $600,000 VTB mortgage could not be

regarded as a “nominal consideration” and that it “was not a gratuitous amount nor, in all of the circumstances, could it be considered to be trifling, insignificantly small or a token” (at para. 25). 68 The Trustee argues that, while the foregoing may be one definition for the word “nominal,” the phrase “nominal consideration” has been defined in Black’s Law Dictionary , 9th ed., as: One bearing no relation to the real value of the contract or article, as where a parcel of land is described in a deed as being sold for “one dollar,” no actual consideration passing, or the real consideration being concealed.

This term is also sometimes used as descriptive of an inflated or exaggerated value placed upon property for the purpose of an exchange. 69 The Trustee relied for support upon the case of British Columbia Transit v. The Queen , 2006 TCC 437 (QL) , wherein the Tax Court of Canada made reference to the foregoing definition from Black’s and, as well, to the case of Midland Bank Trust Co. Ltd. v. Green , [1981] A.C. 513 (H.L.(E.)).

In Midland Bank , the House of Lords wrote that “nominal consideration” was a phrase that “has not been judicially defined, but ‘nominal’ is not synonymous with ‘minimal.’ A minimal consideration must be nominal; but the converse is not true” (at p. 524). The House of Lords referred to the definition of “nominal” in The Oxford English Dictionary , vol. 7 ((1933) at 184): “4. Existing in name only, in distinction to real or actual” and went on to write (at p. 525): “There is no absolute limitation.

It is a matter of common sense in relation to the particular transaction. ….” 70 The Trustee asserts that the evidence before the motion judge was more than sufficient to establish that the transaction was gratuitous and/or made for merely nominal consideration. It argues that she erred in looking strictly at the existence of the VTB mortgage as being valid consideration and failed to consider that, pursuant to the transaction, Maxer did not receive an injection of any money from 524 and Kemkaran that it was not already receiving prior to the transaction.

It says that there was no deposit or cash to the mortgage paid and that the payments being made under the VTB mortgage were nothing more than a flow through of the same money that Maxer was receiving prior to the transaction. 71 As well, it asserts that Maxer did not obtain any reduction in liability as it related to the amounts owed on the Property as Maxer continued to be responsible to pay the first and second mortgages on the Property. 72 The Trustee asserts Maxer continued, without objection from 524, to retain in Rosedale any excess profits over expenses in relation to the Property and further, that the only money 524 and Kemkaran paid to Maxer, which Maxer was not receiving before this transaction, was the sum of $41.47, being the difference between the money 524 received from Rosedale monthly by way of tenant rents and the amount of the monthly VTB mortgage payment which 524 paid to Maxer.

It asserts that under any definition this small sum was no more than nominal consideration for a property appraised at $750,000 less than one year prior to the transaction. 73 The Trustee also argues that the motion judge erred in finding that the $600,000 VTB mortgage amounted to valuable consideration. It asserts that, in doing so, she relied upon Kemkaran’s contention that he remained obligated to make the VTB mortgage payments, even if he did not receive the rents.

It says that this finding was completely contradictory to her later finding that the non- payment of the VTB mortgage payments by Kemkaran was justified by reason of his non-receipt of the rents and, thus, the failure of 524 and Kemkaran to make the monthly mortgage payment did not result in the loss of their beneficial interest in the Property to the Trustee as trustee of Maxer. 74 Kemkaran and 524 argue that it is clear from the motion judge’s reasons that she applied the applicable law in respect of this issue. 75 They assert that it is apparent from her reasons that the motion judge considered the evidence before her and the various arguments advanced by the Trustee, and ultimately held that the giving of the $600,000 VTB mortgage was valuable consideration that was not in any way nominal. 76 In addition, Kemkaran and 524 assert that, contrary to the Trustee’s argument, there is no contradiction or inconsistency between the motion judge’s finding that they remained obligated to make the VTB mortgage payment, even if they did not receive the rents, and her finding that non-payment of the VTB mortgage payments by them was justified by reason of their non-receipt of the rents. 77 In making that argument, Kemkaran and 524 maintain that they were obligated to make the VTB mortgage payments if the tenants did not pay the rents.

However, when the rents were actually paid by the tenants as they were, but the Trustee did not pay those rents to them as Maxer (and hence, the Trustee) was obligated to do under the Trust Agreement, Kemkaran and 524 were then entitled to relief from forfeiture or to a set-off of those amounts as against the Trustee. 78 They assert that the Trustee’s attempt to equate circumstances where tenants have not paid rent with circumstances where the tenants have paid rent, but the recipient of the rent (here, the Trustee) has kept it and refused to pay it to Kemkaran and 524 as obligated under the Trust Agreement, is untenable.

Analysis 79 In my opinion, the motion judge made no error in her understanding of the meaning of the term “settlement” as defined under the BIA . I conclude from her reasons that she clearly understood that a settlement under the BIA included a contract to the extent that it was gratuitous or made for merely nominal consideration. 80 It is also clear that she then considered the evidence before her.

She acknowledged the existence of some concerns, but concluded on the evidence, as she was entitled to do, that the VTB mortgage for $600,000 amounted to valuable consideration, not nominal consideration, and that, on the facts, the contract was not a gratuitous contract. 81 Not only was the motion judge entitled to make the findings she made and to draw the inferences she did but, in my view, she

was correct in so doing. 82 The law requires that a contract be supported by consideration. It does not require a payment of actual money by the purchaser to the vendor upon the execution of a contract. 83 In this case, the purchase price was $600,000. The facts that that price was lower than the appraised value of the Property one year prior and was a lesser sum than some amounts which formed the subject-matter of prior offers is of no moment.

Absent fraud or similar duplicitous conduct directly or indirectly between the parties, fair market value is determined by the price which a willing purchaser is prepared to pay and a willing vendor is prepared to accept in respect of an asset at a given point in time. 84 The evidence clearly demonstrates that Kemkaran and 524 were looking upon this transaction as an investment opportunity and that Kemkaran made inquiries of Harvey as to why the price was $600,000 as compared to the appraised value, and why the earlier offers were never consummated.

He received reasonable answers to those questions. 85 Kemkaran then acted upon legal advice in entering into the Sale Agreement and the Trust Agreement, to the latter of which he was a covenantor. 86 In my opinion, there was an obvious commercial benefit to Maxer in entering into this transaction, namely, it provided Maxer with a source of funds with which to make the first and second mortgage payments on the Property, even if the tenants defaulted.

In addition, it created a real commercial risk for Kemkaran and 524 in that event, as they were required to pay the VTB mortgage payment, even if the tenants defaulted. 87 To advert, as the Trustee did, to an alleged inconsistency in the motion judge’s reasons as regards the non-payment of rent by Kemkaran and 524 in support of its position that the contract was gratuitous or for nominal consideration, is not, in my view, a sound argument. 88 Paragraph 15 of the Trust Agreement required that all rental payments from the tenants would continue to be collected by Rosedale and that Maxer would provide said rents to 524 on or about the first day of each month and in any event no later than the sixth day of each month.

Paragraph 10 provided that 524 would make the VTB mortgage payment to Maxer on the sixth day of each month. 89 Rosedale was the manager of the Property for Maxer and, after the transaction, continued to manage the Property on behalf of Maxer and 524. 90 The clear contemplation was that the tenants’ rents would be paid to Rosedale and that Maxer and/or Rosedale, on behalf of Maxer, would pay those rents to 524 no later than the sixth day of each month, with 524 obligated to make the VTB mortgage payment to Maxer on the sixth day of each month. 91 The Trustee, as Trustee for Maxer, stood in the shoes of Maxer and was thus required to fulfill the contractual obligations of Maxer.

It failed to do so by directing that the tenants pay the rent directly to it. That is a very different circumstance than the tenants failing to pay rent at all and Kemkaran and 524 failing to make the VTB payment.

It does not support an argument that the contract was gratuitous or for merely nominal consideration. 92 There was no error by the motion judge in concluding that the Sale Agreement and Trust Agreement were not a settlement under the terms of the BIA . 93 By reason of my conclusion with respect to ground 2, there is no need to deal with grounds 3, 4 and 5 as they are only relevant had the motion judge erred in her finding that the contract was not a settlement.

Had I been required to do so, I would have concluded that there was no error on the part of the motion judge in respect to any of her conclusions which have given rise to grounds 3, 4 and 5.

(8) Did the motion judge err in rectifying the Trust Agreement to include lot 17? Standard of Review 94 The Trustee asserts that the motion judge erred in failing to apply the correct legal test and/or onus, thus committing an error on a question of law for which the standard of review is correctness.

It also argues that, to the extent she erred in applying the evidence or in drawing inferences that are not warranted by the evidence, she erred on a question of fact, the standard of review for which is palpable and overriding error. 95 While Kemkaran and 524 do not dispute the existence of the standards of review described by the Trustee with respect to this issue, they assert that no such errors were committed by the motion judge. 96 Where there is an error with respect to the determination of the correct legal standard, or in the correct application of the requisite legal standard, or similar error in principle, such error can be considered an error of law and is subject to review on the correctness standard.

Where, however, the question is whether or not the legal standard was met on the facts of a particular case, the question is one of mixed fact and law and is reviewable on the standard of palpable and overriding error. In my opinion, this ground of appeal raises a question of mixed fact and law. Argument 97 The Trustee asserts that none of the documents evidencing the concluded Trust Agreement including the leases attached as schedules to it, the transfer of land, the VTB mortgage or the caveat subsequently registered, included lot 17, nor did the original

reclamation of property filed by Kemkaran and 524 with the Trustee on October 30, 2009. 98 The Trustee argues, as well, that, while Kemkaran contends that all three of the lawyers involved in preparing thosedocuments made mistakes by not including lot 17, he is not taking legal action against any of them, and he signed all of the documentswithout questioning the absence of lot 17. 99 The Trustee argues that, in deciding that the Trust Agreement should be rectified, the motion judge erred in applyingincorrect legal tests and onus and in her application of the evidence to them. 100 The Trustee says that the motion judge relied upon the case of Ship M.

F. Whalen v. Pointe Anne Quarries Limited, (SCC), [1921] 63 S.C.R. 109, as setting forth the principles applicable to rectification based on a mutual mistake, which wasthe situation found by the motion judge to exist here. It argues, however, that the evidence before the motion judge when applied to theprinciples enunciated in Ship M. F. Whalen cannot support a finding of rectification. 101 It submits that there was no evidence before the motion judge from Maxer or any of the legal counsel involved in thetransaction as to whether lot 17 was intended to be transferred to 524.

It asserts that the onus was on Kemkaran and 524 to put forwardevidence to prove beyond a reasonable doubt that this was the mutual intention of the parties and that the intention continued in theminds of both parties until the Trust Agreement went into operation. It says that without such evidence it is impossible to conclude thatrectification ought to be granted. 102 The Trustee argues, as well, that the only party giving evidence on this point was Kemkaran.

Thus, it argues that Kemkaran’scredibility is crucial and it points to serious concerns about his credibility. 103 Kemkaran and 524 assert that the motion judge analyzed the applicable law and the relevant evidence before her. 104 They argue that the evidence before the motion judge was clear that the Sale Agreement included lot 17 as part of thetransaction and that the Trust Agreement was intended to insure that title to that property was to be held in trust for Kemkaran and 524with respect to all ownership rights to that property, including lot 17.

They argue that the motion judge outlined the evidence, theparties’ arguments and the law and correctly analyzed the issue of rectification in considerable detail in her reasons. 105 Kemkaran and 524 assert that it was not only parol evidence from them which established that lot 17 was included in thetransaction. They say that the Sale Agreement was absolutely clear that lot 17 was to be transferred and that Maxer’s execution of itconstituted evidence from Maxer of its intention that lot 17 be included in the transaction.

Neither Maxer nor the Trustee ever filed anaffidavit from Maxer saying that lot 17 was not intended to be included. 106 They argue that there was no error by the motion judge when she stated in her reasons (at para. 47): The fact that no evidence was provided from Newman or others as to whether lot 17 was intended to be transferred to 524 as described inthe sale agreement, lends credence to the fact that it was intended to be included. …. Analysis 107 As was argued by the Trustee, it is clear that the motion judge did rely upon Ship M. F.

Whalen and, in particular, passages ofthat judgment which stated (at pp. 126-27): First, it must be shown not only that the agreement as stated in the writing … was not the whole of the agreement between the parties andit must further be shown that the parties did agree upon something which did not appear in the writing … and that the agreement, that isto say the intention to contract in this sense, continued concurrently in the minds of both parties down to the time the document went intooperation. The other condition relates to the character and probative force of the evidence required.

When one of the parties denied thealleged variation the parol evidence of the other party is not sufficient to entitle the court to act. Such parol evidence must be adequatelysupported by documentary evidence and by considerations arising from the conduct of the parties satisfying the court beyond reasonabledoubt that the party resisting rectification did in truth enter into the agreement alleged.

It is not sufficient that there should be a merepreponderance of probability; the case must be proved to a demonstration in the only sense in which in a court of law an issue of fact canbe established to a demonstration, that is to say, the evidence must be so satisfactory as to leave no room for such doubt. .… 108 In my opinion, Ship M. F. Whalen remains good law, but for its reference to the requirement that the evidence satisfy thecourt beyond reasonable doubt. That statement as to the proof requirement is not the law in Canada. As Rothstein J. wrote recently inF.H. v.

McDougall, 2008 SCC 53, [2008] 3 S.C.R. 41 (at para. 40): Like the House of Lords, I think it is time to say, once and for all in Canada, that there is only one civil standard of proof at common lawand that is proof on a balance of probabilities. Of course, context is all important and a judge should not be unmindful, whereappropriate, of inherent probabilities or improbabilities for the seriousness of the allegations or consequences. However, theseconsiderations do not change the standard of proof. …. 109 It is clear from the evidence that the Sale Agreement included lot 17 as part of the Property.

The Sale Agreement wasexecuted by Maxer and/or Maxer 2006 Ltd. on January 16, 2006. 110 While the Trust Agreement referred only to lots 18, 19 and 20 as comprising the property under the Trust Agreement, aparagraph in the

preamble of the Trust Agreement recited that the Vendor (Maxer) “has agreed to convey the Property to the Purchaser(524 and Kemkaran) by way of an Agreement of Purchase and Sale dated January 16, 2006 (the “Sale Agreement”)” and clause 16 of theTrust Agreement recited that “the transaction contemplated by the Sale Agreement and this Agreement shall be effective on February 22,2006.” It is absolutely clear from the Sale Agreement that lot 17 was included as part of the property being sold by Maxer to 524 andKemkaran.

111 In addition, there was evidence before the motion judge that the 2005 land appraisal of the Property included lot 17 and the zoning memorandum and surveyor’s building location certificate both reflected the inclusion of lot 17 as part of the Property.

Furthermore, the 2005 statement and demand for municipal and school taxes for the Property consisted of two separate tax bills, one with respect to lot 17 and the other with respect to lots 18 to 20. 112 Subsequent to closing, 524 has continued to pay said taxes with respect to the Property, that is, with respect to lot 17 and lots 18 to 20, clear non-parol evidence of 524 and Kemkaran that they had a continuing intention that lot 17 be included. 113 Further, as to the issue of the evidentiary onus, there was no evidence from Maxer denying that lot 17 was to be part of the Property sold in this transaction.

The Trustee, standing in the shoes of Maxer after its bankruptcy, now challenges the request for rectification. In doing so, it has not provided any evidence from Maxer or Maxer’s president, Newman, disputing the assertion of 524 and Kemkaran or the provisions of the Sale Agreement and other related documents that lot 17 was part of and was intended to be part of the transaction. 114 The Trustee, of course, has the power to compel the examination of Newman or Maxer’s counsel to obtain evidence of a contrary intention if such evidence exists.

This was not done and no contrary evidence was provided. 115 After noting that the Sale Agreement clearly included lot 17 as part of the Property in the transaction and served to demonstrate an intention of the contracting parties to transfer all of the Property including lot 17, the motion judge concluded that, notwithstanding lot 17 was omitted from the definition of the property under the Trust Agreement, she was satisfied that the parties’ intention was that it be included.

She thus concluded that there was a mutual mistake by the contracting parties as regards the failure to include lot 17. 116 The motion judge then decided that the principle of rectification should be utilized in the circumstances.

She referred to Anne Warner La Forest, Anger and Honsberger Law of Real Property , 3rd ed., looseleaf (Aurora: Thomson Reuters Canada Limited, 2010) vol. 2, where the following was stated (at para. 23.30.50): Where the parties to a contract have decided to record the terms of their agreement in a written instrument and, due to a mistake (either mutual or unilateral), that instrument does not accurately express the terms of their agreement, the court, in its equitable jurisdiction, may order rectification of the document to make it accord with the “real” agreement between them.

Through rectification, equity is not correcting a mistake in the agreement per se, but an error in the expression of that agreement in written form. 117 The motion judge went on to conclude that an error had occurred in the Trust Agreement by virtue of its failure to include lot 17 and that this error was perpetuated and compounded through all of the subsequent documentation which, in her view, relied upon the legal description as contained in the Trust Agreement.

She decided that to hold otherwise would provide a benefit to the Trustee that was not intended by the contracting parties to the agreement. 118 In my view, there was ample evidence upon which the motion judge could rely in reaching the decision which she did to order rectification of the Trust Agreement and the inclusion of lot 17 as part of the property sold by Maxer and purchased by 524. 119 I see no error in her appreciation of the law on the issue of rectification nor palpable and overriding error on her application of the facts to the correct legal principles.

(9) Did the motion judge err in finding that 524 and Kemkaran had not breached the Trust Agreement by not making the VTB mortgage payments? Standard of Review 120 The Trustee asserts that the motion judge failed to address the correct legal tests for contractual

interpretation thus committing an error in law, the standard of review for which is correctness. In addition, it asserts that the motion judge failed to apply the evidence before her correctly to the Trust Agreement, thus committing an error on a question of fact, the standard of review for which is palpable and overriding error. 121 In my view, the question raised in this issue is essentially a question of fact or, alternatively, a question of mixed fact and law for which the standard of review is palpable and overriding error.

Argument 122 The Trustee argues that, if the Trust Agreement is valid, 524 and Kemkaran are in breach of it by reason of their failure to make the VTB mortgage payments to the Trustee or to remedy that breach despite being given two 30-day notices to do so pursuant to para. 11 of the Trust Agreement. 123 The Trustee thus invokes para. 11 of the Trust Agreement and argues that by reason of this unremedied default the Trust Agreement is voidable at the vendor’s (the Trustee’

s) option and the beneficial interest in the Property reverts back to the vendor (the Trustee). 124 Kemkaran and 524 submit that the motion judge’s findings on this issue are consistent with the evidence before her and that her analysis of the issue is legally sound, logical and supported by the evidence. Analysis 125 As I have already explained, para. 15 of the Trust Agreement required that all rental payments from the tenants would

continue to be collected by Rosedale and that Maxer would provide said rents to 524 on or about the first day of each month and, in any event, no later than the sixth day of each month. Paragraph 10 provided that 524 would make the VTB mortgage payment to Maxer on the sixth day of each month. The clear intention of the parties to the Trust Agreement was that tenants’ rents would be paid to Rosedale, that said rents would then be paid over to 524 and that 524 would be obligated to make the VTB mortgage payment to Maxer.

The timing of both payments was coordinated such that the date of 524’s payment of the VTB mortgage was on the sixth day of each month and it was to receive from Maxer, or from Rosedale on behalf of Maxer, the rent payments no later than the sixth day of each month. 126 The Trustee stood in the shoes of Maxer and thus was required to fulfill the contractual obligations of Maxer. 127 It breached those obligations by directing that the tenants pay their rents directly to it.

As a result, the rents were no longer paid by Maxer to 524 as was required under the Trust Agreement. 128 The Trust Agreement clearly obligated 524 and/or Kemkaran to make the VTB mortgage payment whether or not it received the rent. But a fair

interpretation of the Trust Agreement in its entirety was that that obligation was intended to apply in the event there were no tenants or the tenants were failing to make the rental payments.

It was not intended that the rents would be paid directly to Maxer and retained by Maxer (or the Trustee in the place of Maxer) while at the same time obligating 524 and Kemkaran to make the VTB mortgage payment. 129 The evidence before the motion judge was that 524 and Kemkaran made the VTB mortgage payments until December 1, 2009, and that the Trustee, in breach of Maxer’s obligations under the Trust Agreement, directed that the tenants pay the rents directly to it which the tenants did on and after September 1, 2009, but which the Trustee kept rather than pass on to 524. 130 Furthermore, it was not until April 14, 2010, that the Trustee gave 524 and Kemkaran notice that their failure to make the VTB mortgage payment commencing May 1, 2010, and monthly thereafter would be

an act of default which, if not remedied within 30 days, would give the Trustee the option to take back the Property.

By this time, of course, the Trustee was receiving and had for several months been receiving the rents directly from the tenants such that 524 was not receiving them as contemplated by the Trust Agreement. 131 In her judgment, the motion judge clearly considered all of the foregoing evidence and concluded that, in all of the circumstances, 524 was not in breach of the Trust Agreement by reason of its or Kemkaran’s failure to provide the VTB mortgage payments to the Trustee as demanded. 132 In my view, the motion judge did not err in her conclusion that, on the factual circumstances as existed here applied to the provisions of the Trust Agreement, 524 and Kemkaran were not in breach of it. 133 In light of this conclusion, I need not address ground of appeal (8).

CONCLUSION 134 I would dismiss the Trustee’s appeal with costs in favour of 524 and Kemkaran. ______________________________ J.A. I agree: ______________________________ J.A. I agree: ______________________________ J.A.