Brown et al v Boon et al, 2018 MBCA 14

Citation: Brown et al v Boon et al, 2018 MBCA 14 Date: 20180205 Docket: AI17-30-08837 IN THE COURT OF APPEAL OF MANITOBA Coram: Madam Justice Holly C. Beard Mr. Justice Christopher J. Mainella Madam Justice Jennifer A. Pfuetzner BETWEEN : SHAWN ALTON BROWN and ROXANNE ) G. M. Wood MARIE THERESE BROWN ) for the Appellants ) (Plaintiffs) Respondents ) ) R. H.

Kravetsky - and - ) for the Respondents ) RICHARD BOON, ARTHUR BOON, ) DAYLIGHT CAPITAL CORPORATION and ) Appeal heard and 4638817 MANITOBA LTD. ) Decision pronounced: ) February 5, 2018 (Defendants) Appellants ) On appeal from 2015 MBQB 63 MAINELLA JA (for the Court): [ 1 ] Daylight Capital Corporation (Daylight) and its directing mind, Richard Boon, engage in the business of seeking out residential homeowners in distress and offering financial assistance through a transaction consisting of a conveyance of land, leaseback and option to repurchase.

They and the other defendants appeal a judgment ordering Daylight to re-convey the residential property of the plaintiffs in exchange for the net amount owing to Daylight, plus interest at 2.5 per cent, for its assistance in stopping a bank’s foreclosure proceedings. After hearing the appeal, it was dismissed with reasons to follow. These are those reasons. [ 2 ] The plaintiffs purchased a home in Winnipeg in 1990 for $80,000, financed in part by a bank mortgage. In 2001, they fell into financial difficulties. The mortgage was in arrears with a balance of $36,290.20.

Two judgments totalling $34,550 had also been registered against the property.

On January 8, 2002, the day before the mortgage auction sale, the plaintiffs met with Richard Boon to discuss his alternative to the bank’s foreclosure. [ 3 ] Based on the evidence he accepted, the judge found that, after discussions, the parties entered into a “financing arrangement, resulting in a fiduciary relationship” (at para 177) by executing four documents: • an offer to purchase agreeing to sell the property to Daylight; • a transfer of land transferring title from the plaintiffs to Daylight; • a standard residential tenancy agreement for approximately one year where the plaintiffs were to pay rent of $1,000 per month; and • an option agreement giving the plaintiffs the option to reacquire title by payment of the outstanding loan, plus a $1,500 fee. [ 4 ] The parties agree that the $1,000 monthly payment referred to in the tenancy agreement and the option agreement was to be applied by Daylight against the existing bank mortgage payment of $988.67 per month, with the remainder to be credited

against Daylight’s advance to stop foreclosure proceedings. According to the option agreement, the plaintiffs forfeited their right to exercise the option to repurchase the property if they failed to make the monthly payment of $1,000 at the prescribed times. The judge summarized his findings as to the parties’ execution of these four documents as follows (at para 142): I am not persuaded on the evidence which I have accepted that the plaintiffs were the victims of fraudulent representations made by R. Boon.

I am satisfied they were aware, generally speaking, of the nature of the documentation which they executed. I am also satisfied that they were led to believe by both R. Boon’s representations and conduct that they would have an opportunity of repaying the loan and with the further payment of $1,500 would be able to reclaim ownership of their home.

They were neither informed nor made aware of the consequences of missing a payment and they certainly did not agree to forego their option as a result of a missed or late payment. [ 5 ] Mortgage foreclosure by the bank was stopped when it received $11,195 to cover the arrears and foreclosure costs ($2,500 coming from the plaintiffs and $8,695 from Daylight). [ 6 ] The judge found that the monies paid by the plaintiffs to Daylight from February 2002 until September 2002 did not conform to the

schedule agreed to; however, they were ultimately sufficient in aggregate to cover the bank’s mortgage for the period. In the fall of 2002, the plaintiff, Roxanne Brown, renegotiated the mortgage payment with the bank down to $585.24 per month as of October 2002. She advised Richard Boon of the change and asked for his permission for mortgage payments to be made directly to the bank instead of via Daylight; he agreed. [ 7 ] Thereafter, the plaintiffs stopped paying the monthly $1,000 payments to Daylight. Richard Boon raised no objection.

Almost a decade ago, the plaintiffs paid off the bank mortgage in full. [ 8 ] In February 2003, the plaintiffs met with Richard Boon. Roxanne Brown had previously asked for an accounting of what Daylight had been paid so that title could be reacquired by exercising the option to repurchase. Richard Boon told her that he would get her that information but never did. At the February 2003 meeting, Richard Boon told the plaintiffs that he would not accept any money from them because he wanted the house.

Nevertheless, on March 6, 2003, Daylight accepted a $1,500 payment from the plaintiffs, which the judge found to be the exercise of the plaintiffs’ option to repurchase. The balance owed to Daylight ($7,883.79) was never paid because of subsequent events, but the plaintiffs had the means to do so. [ 9 ] After receiving the $1,500 payment, Richard Boon provided the plaintiffs with a backdated notice that the home was being listed for sale. In the summer of 2003, Daylight was offered $102,000 for the home by a third party, but the deal did not close because the plaintiffs refused to allow a home inspection.

Daylight’s efforts to evict the plaintiffs for non-payment of rent under The Residential Tenancies Act , CCSM c R119, were unsuccessful. [ 10 ] The judge rejected the defendants’ argument that, because the $1,000 payments from the plaintiffs were late prior to Roxanne Brown renegotiating with the bank in the fall of 2002 and ceased entirely thereafter, the plaintiffs forfeited their option to repurchase the property. He stated (at paras 158-60): It is clear that the plaintiffs did not make all of the payments as stipulated in the option. It is equally clear that R.

Boon, by his conduct, chose not to exercise the right of forfeiture. He accepted late payments from the plaintiffs, he permitted the plaintiffs to renegotiate the CIBC mortgage and to make payments directly to the mortgagee, and he accepted the service fee of $1,500 in March 2003. By the time Daylight claimed forfeiture, the plaintiffs had already paid the $1,500 service fee and were ready, willing and able to pay the outstanding loan balance.

In these circumstances, I conclude that Daylight is not entitled to rely on the forfeiture provision contained in the option. [ 11 ] Alternatively, the judge found that, had the plaintiffs forfeited their option to repurchase the property, he would have exercised his discretion pursuant to

section 35 of The Court of Queen’s Bench Act , CCSM c C280, to relieve them from forfeiture given the equities of the situation. [ 12 ] The parties agree that, given there was a factual matrix specific to the agreement, the standard of review of the judge’s

interpretation of the contract is one of deference. Absent an extricable question of law, disputes as to contractual

interpretation are questions of mixed fact and law which cannot be interfered with by this Court unless a palpable and overriding error has occurred (see Sattva Capital Corp v Creston Moly Corp , 2014 SCC 53 at paras 50-55 ; and Ledcor Construction Ltd v Northbridge Indemnity Insurance Co , 2016 SCC 37 at para 24 ).

The same degree of deference is owed to the judge’s findings of fact and credibility assessments ( see FH v McDougall , 2008 SCC 53 at paras 55 , 72-73). [ 13 ] We have not been persuaded that the judge made a palpable and overriding error in determining that the plaintiffs’ option to repurchase was “continuing and subsisting” (at para 179) despite their failure to honour the payment

schedule agreed to because of the acquiescence of Richard Boon on behalf of Daylight.

[14] In reaching his decision, the judge, in essence, relied on the doctrine of waiver.

Once Richard Boon waived, by hiswords and conduct, the obligation of the plaintiffs to strictly comply with the terms of the option agreement, he could not retract thatwaiver and insist on strict compliance of its terms without providing reasonable notice (if that could be done without causing aninjustice) (see Saskatchewan River Bungalows Ltd v Maritime Life Assurance Co, (SCC), [1994] 2 SCR 490 at 499-502; and SM Waddams, The Law of Contracts, 7th ed (Toronto: Thomson Reuters, 2017) at paras 207-8, 616-18). [15] The test for the doctrine of waiver was discussed by Major J in Saskatchewan River Bungalows (at p 500): Waiver will be found only where the evidence demonstrates that the party waiving had (1) a full knowledge of rights; and (2) anunequivocal and conscious intention to abandon them.

The creation of such a stringent test is justified since no consideration movesfrom the party in whose favour a waiver operates. An overly broad

interpretation of waiver would undermine the requirement ofcontractual consideration. [16] In our view, the record reasonably supports a finding of waiver. There is no doubt that Richard Boon had fullknowledge of the right to invoke the forfeiture provision in the option agreement based on the plaintiffs’ default of their obligations wellbefore February 2003; he is a shrewd businessman.

Also, we have not been convinced by the defendants’ argument that there is noevidence that Richard Boon made a clear and conscious decision to abandon Daylight’s right of forfeiture of the option agreement whenthe plaintiffs were in default. [17] From the record, it appears that the real intention of the parties was for the plaintiffs to stave off the bank’s foreclosurethrough the assistance of Daylight. Richard Boon was clear in his testimony that he did not intend to buy the plaintiffs’ home or, worse,desire to unscrupulously inveigle them to part with it.

Rather, the arrangement Daylight offered, as he put it, gave people “a secondchance to be able to keep their house.” According to the documents, for that service, Daylight was to receive a healthy return of17.25 per cent on its one-year loan of $8,695 (in the form of the $1,500 fee). [18] The actions of Richard Boon before the February 2003 meeting are consistent with him actually wanting the plaintiffsto have that second chance to keep their house: he accepted late payments without objection; when the plaintiffs missed a payment,Daylight used its funds to temporarily service the bank’s mortgage without complaint; he agreed to the new arrangement with the bankthat Roxanne Brown negotiated in the fall of 2002; he made no demand thereafter for payment of the difference between the lowermortgage payment and the $1,000 monthly payment; he did not give notice of default or demand that the plaintiffs vacate the property asthe option agreement required them to do 30 days after default; and, prior to the February 2003 meeting, he had told Roxanne Brown thathe would provide her with an accounting of the amount owed so that the plaintiffs could exercise their option to repurchase. [19] Taken cumulatively, in our view, Richard Boon’s words and conduct prior to the February 2003 meeting reasonablysupport the requirement of waiver that he unequivocally and consciously intended to abandon Daylight’s right of forfeiture of the optionagreement when the plaintiffs were in default.

Although upholding the judge’s finding of waiver is sufficient to dispose of this appeal, afew additional comments are necessary. [20] At trial, the plaintiffs alleged that the practice of a conveyance of land, leaseback and option to repurchase is illegal byvirtue of the lending protections in The Mortgage Act, CCSM c M200; and The Real Property Act, CCSM c R30.

They also submittedthat the idea of homeowners losing title before they are in default of a relatively small loan is a harsh or unconscionable transaction thatshould not be enforced by the courts (see The Unconscionable Transactions Relief Act, CCSM c U20). The judge declined to answerthese arguments as he was satisfied he could decide the claim on the assumption that the contract was valid. Our decision should not beseen as an endorsement of the legality or fairness of the type of transaction the plaintiffs and Daylight entered into.

We leave that foranother day. [21] However, given the unusual nature of the transaction entered into here by the parties, and its potential for mischief tounsophisticated or desperate individuals, some guidance about such ventures is appropriate. [22] As is pointed out in Walter M Traub, ed, Falconbridge on Mortgages, 5th ed (Toronto: Thomson Reuters, 2016) (loose-leaf updated 2016, release 20), ch 3 at paras 3:10-3:50, clever conveyancers cannot fetter or clog a mortgagor’s equitable right to redeemby disguising a mortgage as some other form of transaction because of the doctrine “Once a mortgage always a mortgage” (Samuel vJarrah Timber and Wood Paving Corporation, [1904] 14 AC 323 at 329 (HL (Eng))). [23] To determine whether a mortgage has been created, one must consider the substance, not the form.

Where there isconcern of an attempt to defeat or evade a mortgagor’s equitable right to redeem, the Court must determine the factual question of “Whatwas the true character of the transaction?” (Kreglinger v New Patagonia Meat and Cold Storage Company, [1914] AC 25 at 38-39 (HL(Eng))). Because such an inquiry relates to a right in equity, it must go beyond the form of the transaction that the documents purportand take into consideration not just the surrounding circumstances, but also any relevant extrinsic evidence as to the parties’ realintentions.

Where there is clear and conclusive evidence that the objective and purpose of the transaction is a mortgage, contractualstipulations interfering with the mortgagor’s equitable right of redemption are void based on repugnancy (see Samuel at pp 328-29;Kreglinger at pp 35-37, 47-50; McKean and Company v Black (1921), (SCC), 62 SCR 290 at 303-4; Wilson v Ward, (SCC), [1930] SCR 212 at 215-22; Pierce v Empey, (SCC), [1939] SCR 247 at 251; Fleming et al vWatts et al, (SCC), [1944] SCR 360 at 364-65, 369-70; Ottawa Const v Barnhart-Cochrane Const, (ONCA), [1953] 4 DLR 571 at 574-75 (Ont CA); Kreick v Wansbrough, (SCC), [1973] SCR 588 at 594; and DicalInvestments Ltd v Morrison (1990), (ON CA), 75 DLR (4th) 497 at 501-2 (Ont CA), leave to appeal to SCC refused,1991WL1129116). [24] In the result, the appeal was dismissed with costs.

JA JA JA