) ) JOHN PATRICK ORMSTON Applicant – v. –, 2010 ONSC 6529

CITATION : Ormston v. Manchester, 2010 ONSC 6529 COURT FILE NO.: 7564/08 DATE: 2010-11-29 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: ) ) JOHN PATRICK ORMSTON Applicant – and – LESLEY MANCHESTER Respondent ) ) ) ) ) ) ) ) ) Stuart M. Law, for the Applicant James Herbert, for the Respondent ) ) ) HEARD: November 18, 2010 REASONS FOR JUDGMENT MURRAY J. [ 1 ] At the outset of the hearing of this application, Ms. Manchester sought an adjournment. I denied her request for reasons set out in my written endorsement made on November 18, 2010. [ 2 ] Mr.

Ormston originally brought this application seeking an order for the sale of jointly held property known municipally has 1061 Manchester Crescent, Oakville, Ontario, and the payment of damages to the applicant with respect to such sale. After many court appearances and court orders, the property was sold on January 22, 2009 and $87,898.16 remains in the trust account of the real estate lawyer who processed the transaction. [ 3 ] The applicant seeks aggregate damages in the amount of $109,033.62 and an order that the monies remaining in trust be paid to him on account of such damages.

The Facts [ 4 ] The facts in this matter are not complicated and, on essential matters, not significantly in dispute. [ 5 ] Ms. Manchester wished to purchase a residential property exclusively for her use but was unable to secure financing on her own. As a result, her friend Mr. Ormston agreed to act as guarantor of her mortgage to facilitate her purchase of the property. Mr. Ormston was prepared to act as guarantor of the mortgage. Ms. Manchester was a friend of Mr. Ormston and after a period of setbacks, she was making positive advances in her life and he wished to help her out.

The Bank of Nova Scotia, the mortgagee, was unprepared to advance the funds unless Mr. Ormston was an owner/mortgagor. As a result, Mr. Ormston and Ms. Manchester purchased the residential property in Oakville, Ontario, known municipally as 1061 Manchester Crescent, as joint tenants. It should be noted that there was and is no family law relationship between the parties. [ 6 ] The agreement between Mr. Ormston and Ms. Manchester was that she would take care of all mortgage and property tax payments together with other carrying costs of the property. At no time did Mr.

Ormston live in the house at 1061 Manchester Crescent. The purchase of the house was fully financed by a mortgage in the amount of $420,000. The purchase closed on December 1, 2005. Thereafter, Ms. Manchester lived in the residential property. [ 7 ] Ms. Manchester failed to make mortgage payments required by the mortgage. Between May 8, 2006 and April 25, 2008, Mr. Ormston paid $51,013.10 in mortgage payments to the mortgagee, the Bank of Nova Scotia. In the spring of 2008, Ms. Manchester and Mr.

Ormston agreed that the property should be sold and that certain improvements should be done to make the property marketable. The property was listed for sale on April 22, 2008. Between April 25, 2008 and June 12, 2008, with the agreement of Ms. Manchester who remained in exclusive possession, Mr. Ormston paid $16,115 for improvements to the house in order to make it more marketable and to maximize resale value of the property. Ms. Manchester and Mr. Ormston agreed that Mr. Ormston would be reimbursed the amount expended by him for improvements from the proceeds of the sale of the property.

The property did not sell during the currency of the initial listing agreement.

[8] The respondent continued to default in mortgage and property tax payments and interfered with efforts to sell theproperty. I am not going to outline the details of Ms. Manchester's interference with efforts to sell the property. Suffice to say thatmortgage payments were not made by Ms. Manchester after October 1, 2008 and the Bank threatened to pursue its legal remedies asmortgagee. Mr. Ormston paid additional mortgage payments. Ultimately, after proceedings under the Partition Act, the property waslisted for sale with the selling price set at $549,000, and was sold on January 22, 2010 for $520,000.

I note that the offering price of$549,000 was in accordance with the order of Mr. Justice Thompson made on the 6th day of March, 2009. The total mortgage and realtytax payments made by Mr. Ormston prior to the sale of the property in January, 2010 amount to $92,898.62. Sale proceeds in theamount of $87,898.16 are held in trust. Ms. Manchester asserts an ownership interest in the sale proceeds currently held in trust. [9] It is not disputed that the aggregate amount paid by the Mr. Ormston in mortgage, and realty tax payments and onimprovements to the property prior to sale in January of 2010, is $109,033.62.

As noted above, this sum is made up of $92,898.62 inmortgage and realty tax payments and $16,115 for improvements. This amount is the amount claimed as damages by Mr. Ormston inthis application. Analysis [10] Prior to the purchase of 1061 Manchester Crescent in Oakville, MS. Manchester agreed with Mr. Ormston that after thepurchase of the property, she would have exclusive possession of the property and that she would be responsible for paying all carryingcharges related to the property. The respondent, Ms.

Manchester, put it this way in her factum: “the Respondent was solely responsiblefor all upkeep, bills and costs of maintaining her primary residence….” Ms. Manchester disputes that Mr. Ormston had any ownershipinterest in the property. She asserts that she was not aware that he was a joint tenant. This issue was resolved against Ms. Manchester bythe courts in proceedings under the Partition Act which took place prior to the hearing of this claim for damages before me. Ms.Manchester denies that Mr. Ormston had any interest in the property as joint owner. Ms. Manchester asserts that Mr.

Ormston wasguarantor on the Bank of Nova Scotia mortgage obtained to finance the purchase of 1061 Manchester Crescent in Oakville, Ontario. [11] There is no dispute that the original plan between Ms. Manchester and Mr. Ormston was that she would be the owner ofthe property and that Mr. Ormston would assist her in financing the purchase of the property by acting as guarantor of her mortgageobligations. The mortgagee Bank insisted on other arrangements as described above which required Mr. Ormston to be amortgagor/owner as a condition of obtaining the financing for the purchase of the property. [12] Ms.

Manchester, in her factum, submits that: “there was no agreement with the applicant with respect to my home otherthan he was acting as a guarantor at the time of purchase.” If the respondent, Ms. Manchester, were correct in her factual assertions andMr. Ormston was a guarantor under the mortgage (and not a joint tenant), the outcome of this case is the same. [13] Mr. Ormston as guarantor would be entitled to be reimbursed by Ms. Manchester for the realty tax payments and mortgagepayments made by him. See Double Diamond Bowling Supply Ltd. v.

Eglinton Bowling Ltd., (ON SC), [1963] 2 O.R.222-231, in which Justice Parker said as follows beginning at paragraph 4: Dealing with the second prayer covering the monies paid by the plaintiff, counsel submitted that having paid under a guarantee he has animmediate right of action against the debtor for the amount paid, and that this right does not depend on any specific agreement. Whileadmitting that the plaintiff is a guarantor, the defendant submits that the plaintiff is an accommodation endorser and not a holder in duecourse.

If the plaintiff is a guarantor, I do not see how it is any answer to say the guarantor was not a holder in due course. The lawrelating to the right of a surety to recover payments made by him is set out in 18 Hals., 3rd ed., p. 478, para. 881, as follows: "The surety,as often as he pays anything under his guarantee in relief of the principal debtor, has an immediate right of action against the latter." Itwould appear that this right exists independent of any contract. [14] Justice Parker continued as follows at para. 5 and following: The same principles were considered by the Supreme Court of Canada in Drager v.

Allison et al., (SCC), 19 D.L.R. (2d)431 at p. 435, [1959] S.C.R. 661 at p. 666, where Mr. Justice Cartwright said: The gist of the judgment of the learned trial Judge on this branch of the matter is contained in the following passage in his reasons: "Asurety so often as he pays anything under his guarantee in relief of the principal debtor, has an immediate right of action against the latter.That, however, is subject to the exception that he cannot accelerate his remedy by paying the guaranteed debt before it becomes legallydue: 18 Hals., 3rd ed., p. 478, s. 881.

While he cannot accelerate his remedy, he may nevertheless ultimately assert his remedy at thetime when the guaranteed debt should ordinarily have been paid." It is with the final sentence, which I have italicized, in the passagequoted that the majority in the Court of Appeal are in disagreement; but with the greatest respect, I am of opinion that the learned trialJudge has correctly stated the law. On the basis of the law merchant, a maker knows when he signs a note that he will be liable to any endorsers and no agreement to thateffect is necessary.

The plaintiff states that he is entitled to recover on another ground, namely, that if he is liable for the debt of another and forced to pay it,then he is entitled to recover from the debtor. This principle is set out in 18 Hals., 3rd ed., p. 529, para. 974, as follows: Rights of indemnity may arise either from contract express of implied or from an obligation resulting from the relation of the parties orby statute. The existence of any right of indemnity by virtue of express contract or statute depends upon the terms of the contract orstatute in question.

A right to indemnity based on an implied contract or obligation imposed by law may arise in various ways; for example such a right mayarise where money is paid at the request of another. Where one person has been compelled by law to pay, or, being compellable by lawhas paid money to another which a third party was ultimately liable to pay so that the third party obtains the benefit of the payment by

the discharge of his liability, the person who made the payment can recover the amount of the payment from the third party. In Pownal v. Ferrand (1827), 6 B. & C. 439 at pp. 443-4, 108 E.R. 513, Mr. Justice Bayley said: It is the duty of the acceptor of a bill to pay it when due. If any injury result to him by reason of his non-payment of the bill, he has noground of complaint, for it arises from his own breach of duty. If he pays the bill when it becomes due, no party can call upon him.

Theholder of a bill, however, has a right to claim payment from all the parties to it; but the acceptor is the only person who ought to expect tobe called upon to pay it. Each party may pay something, and in that case the acceptor will be responsible to the several parties to theextent of the sums which they have paid. Here the holder called upon the plaintiff, one of the indorsers, to pay the bill. If the defendanthad done his duty as acceptor, the plaintiff would not have been so called upon.

The plaintiff did pay 40l, to the holder on account of thebill; and the question is, whether he is to lose that sum, or has any remedy against the defendant, in consequence of whose fault he wascompelled to pay it.

The law is, that a party, by voluntarily paying the debt of another, does not acquire any right of action against thatother; but if I pay your debt because I am forced to do so, then I may recover the same; for the law raises a promise on the part of theperson whose debt I pay to reimburse me. (emphasis added) [15] Based on the well-established principles set out by Parker J. in Double Diamond Bowling Supply Ltd. v. Eglinton BowlingLtd., there is no doubt that Mr. Ormston has a right to be indemnified by Ms.

Manchester for the monies spent by him in payment of themortgage and realty tax obligations. [16] It was also agreed, in an agreement made in the spring of 2008 between Mr. Ormston and Ms. Manchester, that theamount spent by him for improvements in preparation for sale and designed to enhance marketability of the property would be paid outof the sale proceeds. Mr. Ormston also has a right to be indemnified by Ms. Manchester for the amount spent on improvements to theproperty based on their agreement that he would recover such funds from the proceeds of sale.

This money was spent in order toimprove the value of the property in which she resided. Ms. Manchester concurred in the expenditure of such monies. She resided in thehouse when such improvements were made. There is no suggestion that the monies spent were spent improperly or in any manner notconsistent with the agreement of the parties and with their mutual objective of enhancing the property value for sale. I thereforeconclude that the outlay was a reasonable one increasing the selling value of the property or necessary for the purpose of keeping theproperty in a proper state of repair.

Such improvements benefitted Ms. Manchester. In these circumstances it is reasonable to assume -and it is not suggested otherwise - that the sale price achieved in January 2010 was enhanced by at least $16,115, the amount spent onimprovements. Mr. Ormston is entitled to recover the amount spent on improvements from Ms. Manchester. [17] Regrettably, because of her continued failure to pay mortgage payments, mortgage obligations assumed by Mr. Ormstonare greater than the amount of the proceeds from the sale. If the total amount of the indemnification ($109,033.62) required to be paid byMs. Manchester to Mr.

Ormston had been less than the so-called “excess” of the sale proceeds, then Ms. Manchester would have a claimagainst any residual monies held in trust after satisfaction of her obligations to Mr. Ormston. If such circumstances had occurred, anyresidual monies after payment in full to Mr. Ormston would have represented the equity in the property. However, existing obligationsto Mr. Ormston must be satisfied first. To put the matter another way, because the total payments made by Mr. Ormston on behalf ofMs.

Manchester amount to $109,033.62, and because this amount is greater than the “excess” of the sale proceeds currently held in trust,there was no equity in the Oakville property at the time of sale in January of 2010. If the sale proceeds currently held in trust are appliedto reduce the overall obligation of Ms. Manchester to Mr. Ormston, Mr. Ormston will still be owed the difference between the amount ofthe debt of $109,033.62 and $87,898.16. [18] I agree with Mr. Law, counsel for Mr. Ormston, that there was an agreement between Ms. Manchester and Mr.

Ormstonthat in return for his helping her purchase the property, she would be responsible for all mortgage and tax payments and carrying costsrelated to the property. This contract was breached. She did not make mortgage payments and other payments as required. Theapplicant is entitled to be placed in the same position as he would have been if the respondent had performed her part of the bargain. Mr.Ormston is entitled to be indemnified with respect to mortgage payments based on contract. As I stated above, Mr. Ormston is alsoentitled to be indemnified by Ms.

Manchester for all mortgage payments made by him as guarantor under the mortgage. [19] I also agree with counsel for Mr. Ormston that the respondent, Ms. Manchester, would be unjustly enriched if she weresuccessful in her assertion that she is entitled to some or all of the proceeds of the sale of the property. As I have explained, to refer tothe $87,898.16 as “surplus” or “excess” funds is a misnomer. In this case, Ms. Manchester has outstanding obligations to Mr. Ormstonin the amount of $109,033.62. If any of the $87,898.16 were to be paid to Ms. Manchester, Mr.

Ormston would be deprived to the extentof such payment. There is no juristic justification for Ms. Manchester to receive any portion of the monies held in trust. I have nohesitation in concluding that if Ms. Manchester were awarded any portion of the $87,898.16 currently held in trust, she would be unjustlyenriched. See Garland v. Consumers Gas Co., 2004 SCC 25 , [2004] 1 S.C.R. 629. Judgment [20] Mr. Ormston is entitled to judgment against Ms. Manchester in the amount of $109,033.62. [21] Mr.

Ormston is entitled to apply sale proceeds in the amount of $87,898.16 currently held in trust to reduce this outstandingobligation. [22] The unpaid balance of the judgment in the amount of $21,135.46 shall attract post-judgment interest in accordance with theCourts of Justice Act, from the date of judgment until payment. Costs [23] Mr. Ormston is entitled to costs. If costs are not agreed between the parties, in order to accommodate counsel, I have

suggested that costs may be spoken to by way of telephone conference at a mutually convenient time. Mr. Law should provide me and Mr. Herbert with a written bill of costs in advance. Mr. Law should also provide brief written submissions regarding both scale and quantum accompanied by his bill of costs. If Mr. Herbert wishes to make written submissions in response he may do so or he may elect to respond orally during the telephone conference without filing any written materials in advance. MURRAY J. Released: November 29, 2010 CITATION : Ormston v.

Manchester, 2010 ONSC 6529 COURT FILE NO.: 7564/08 DATE: 2010-11-29 ONTARIO SUPERIOR COURT OF JUSTICE BETWEEN: JOHN PATRICK ORMSTON Applicant – and – LESLEY MANCHESTER Respondent REASONS FOR JUDGMENT MURRAY J. Released: November 29, 2010