CANADIAN BANKRUPTCY REPORTS Fifth Series/Cinqui`Eme S´Erie Recueil De Jurisprudence Canadienne En Droit De La Faillite VOLUME 98 (Cited 98 C.B.R
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CANADIAN BANKRUPTCY REPORTS Fifth Series/Cinqui`eme s´erie Recueil de jurisprudence canadienne en droit de la faillite VOLUME 98 (Cited 98 C.B.R. (5th)) EDITORS/REDACTEURS´ (Atlantic and Ontario) The Honourable Mr. Justice Geoffrey B. Morawetz of the Superior Court of Justice (Ontario) (Western) (Quebec) Marcel J. Peerson Philippe H. B´elanger, LL.B., B.C.L. Fasken Martineau McCarthy T´etrault Vancouver, British Columbia Montr´eal, Qu´ebec CARSWELL EDITORIAL STAFF/REDACTION´ DE CARSWELL Cheryl L. McPherson, B.A.(HONS.) Director, Primary Content Operations / Directrice des activit´es li´ees au contenu principal Ken Murphy, B.A.(HONS.), LL.B. Product Development Manager Nicole Ross, B.A., LL.B. Sharon Yale, M.A., LL.B. (Acting) Supervisor, Legal Writing Supervisor, Legal Writing Mike MacInnes, B.A.(HONS.), LL.B. Jocelyn Cleary, B.A.(HONS.), LL.B. Lead Legal Writer Senior Legal Writer Stephanie Hanna, B.A., M.A., LL.B. Lisa Rao, B.SC., LL.B. Senior Legal Writer Senior Legal Writer Amanda Stewart, B.A.(HONS.), LL.B. Andrea Toews, B.A., LL.B., LL.M. Senior Legal Writer Legal Writer Martin-Fran¸cois Parent, LL.B., Melissa Dubien LL.M., DEA (PARIS II) Content Editor Bilingual Legal Writer Terrapin Mortgage Investment Corp. v. Triple S. Farms Ltd. 165 [Indexed as: Terrapin Mortgage Investment Corp. v. Triple S. Farms Ltd.] Terrapin Mortgage Investment Corp., Petitioner and Triple S. Farms Ltd., Patricia Anne Spetifore, Quentin George Spetifore, Vernon Spetifore, Estate of George Leonard Spetifore, Deceased Ruby Holdings Ltd., Ruby Lake Country Developments Ltd., Respondents British Columbia Supreme Court Docket: Vancouver H120693, H120694 2012 BCSC 1805 N. Smith J. Heard: August 1, 2012 Judgment: December 3, 2012* Contracts –––– Formation of contract — Undue influence — Factors to be considered — Nature of relationship — Husband and wife –––– Mortgage se- cured loan made to company run by deceased and his two sons — Deceased’s wife signed promissory note and mortgage which was registered against family home — Documents were signed in office of company’s lawyer who reviewed them with everyone present — Wife was not actively involved in company — Wife applied to discharge mortgage — Application dismissed — Presumption of undue influence arose from relationship between deceased and wife as she gen- erally relied on him in financial matters — Presumption was rebutted by facts of transaction — Agreements were not unduly disadvantageous to wife at time they were made — Wife previously participated in similar transactions and benefitted from household income generated by business — Wife had no direct dealings with mortgagee and it was entitled to assume she received appropriate legal advice. Cases considered by N. Smith J.: Bank of Montreal v. Courtney (2005), 2005 CarswellNS 506, 2005 NSCA 153, 261 D.L.R. (4th) 665, 239 N.S.R. (2d) 80, 760 A.P.R. 80 (N.S. C.A.) — distinguished Gold v. Rosenberg (1997), (sub nom. Gold v. Primary Developments Ltd.) 19 E.T.R. (2d) 1, 35 O.R. (3d) 736, 1997 CarswellOnt 3273, 1997 CarswellOnt 3274, 152 D.L.R. (4th) 385, 219 N.R. 93, [1997] 3 S.C.R. 767, 104 O.A.C. 1, 35 B.L.R. (2d) 212, [1997] S.C.J. No. 93 (S.C.C.) — considered *A corrigendum issued by the court on December 5, 2012 has been incorporated herein. 166 CANADIAN BANKRUPTCY REPORTS 98 C.B.R. (5th) Goodman Estate v. Geffen (1991), 1991 CarswellAlta 557, 1991 CarswellAlta 91, [1991] 5 W.W.R. 389, 42 E.T.R. 97, (sub nom. Geffen v. Goodman Es- tate) [1991] 2 S.C.R. 353, 125 A.R. 81, 14 W.A.C. 81, 80 Alta. L.R. (2d) 293, (sub nom. Geffen v. Goodman Estate) 81 D.L.R. (4th) 211, 127 N.R. 241, [1991] S.C.J. No. 53, EYB 1991-85679 (S.C.C.) — considered APPLICATION by mortgagor for discharge of mortgage. M.R. Davies, for Petitioners K.M. Wellburn, for Respondent, Patricia Spetifore J.I. McLean, Q.C., for Receiver, LTA Consultants Inc. N. Smith J.: 1 The respondent Patricia Anne Spetifore is the 83 year old widow of a real estate developer. Before her husband’s death, she allowed two mort- gages to be registered against the family home as security for the financ- ing of one of his projects. She now applies for discharge of those mort- gages, saying that she simply signed whatever documents her husband told her to sign without any real understanding and without independent legal advice. 2 George Spetifore, who died in 2008, ran a development business with two of his five sons, Vernon and Quentin Spetifore. One of their projects was a condominium development known as the Ruby Lake Country Pro- ject, for which the petitioner Terrapin Mortgage Investment Corp. pro- vided financing. Quentin, Vernon and George Spetifore were all direc- tors of Ruby Lake Country Developments Ltd. (“RLCD”) and Ruby Holdings Ltd. (“Ruby”). The Ruby Lake Country Project encountered fi- nancial difficulties and a receiver was appointed in 2009. 3 The mortgages at issue were signed on the same day in February, 2007. One is for $2.3 million and secured a promissory note that the re- spondent signed as a coborrower, along with her husband and sons. The other is for $5 million and secures a loan agreement that the respondent signed only as a guarantor. In addition to the family home, both mort- gages cover certain other properties owned by other family members. 4 The petitioner acknowledges that no funds were advanced under the $5 million mortgage and says it has already provided the respondent with a discharge document. However, counsel for the respondent says the $5 million mortgage remains in issue because the discharge cannot be regis- tered due to a Certificate of Pending Litigation registered against the pro- Terrapin Mortgage Investment Corp. v. Triple S. Farms Ltd. N. Smith J. 167 perty in relation to the other mortgage. Even if the $2.3 million mortgage is the only one at issue, the amount owing far exceeds the value of the family home. 5 In addition to the mortgages, the respondent signed as a guarantor of a subsequent loan of $16 million to RLCD. That loan was secured by a mortgage on the development property, not the family home, but the re- spondent says that any payments made on it were to be applied first to the $2.3 million mortgage. No relief is claimed on this application in re- gard to the $16 million mortgage. If the respondent is not successful on this application and the $2.3 million mortgage is not discharged, the question of whether any funds should have been applied to it may be- come relevant in any continued foreclosure proceedings. 6 The respondent has not worked outside the home since 1954. Before that she worked in a bank for six years following high school graduation and one year of secretarial training. She was not actively involved in the family development business, but became a 1/6th shareholder of Ruby in 2002. The family home in Kelowna was purchased in 1998 with funds obtained from the sale of a house in Tsawwassen that had been in the respondent’s name and of another property that she inherited. 7 The respondent says in her affidavit that she did not want to put up the family home as security but her husband assured her that it was only a temporary arrangement. She says: “I did not want to sign the papers but I knew that my life would be hell if I didn’t do what George asked.” She does not say what she believes her husband would have done to make her life hell. 8 The mortgages and related documents were signed in the office of the lawyer who acted for RLCD (presumably on the instructions of George Spetifore). The respondent says she attended along with her husband and sons and was present when the lawyer explained the documents to the group. She says she didn’t understand much of what was said, but didn’t want to “sound stupid or waste time by asking questions” and didn’t want to “cause a scene” by refusing to sign. 9 The petitioner had done business with George Spetifore and his com- panies in relation to various projects beginning in the 1990s and says the respondent had signed loan documents, either as borrower or guarantor, on previous occasions. 10 The respondent says she received no consideration for the $5 million mortgage. It is not necessary to deal with that issue because the petitioner 168 CANADIAN BANKRUPTCY REPORTS 98 C.B.R. (5th) agrees that no funds were advanced and has provided a discharge document. 11 In regard to both mortgages the respondent relies on the doctrine of undue influence and the absence of independent legal advice. 12 Undue influence may be actual, arising from unfair or improper con- duct, or it may be presumed to arise from the relationship between the parties: Goodman Estate v. Geffen, [1991] 2 S.C.R. 353 (S.C.C.). 13 There is no evidence in this case of actual undue influence. Although the respondent says she thought her “life would be hell” if she did not sign the mortgages, she gives no evidence of any threats or other conduct by her husband that put pressure her on her to sign the documents. She gives no evidence that she ever told him or anyone else that she did not want to sign. 14 In the absence of actual undue influence, a presumption of undue in- fluence may arise when a security transaction is clearly detrimental to the person offering security and the relationship between that person and the debtor is particularly close, as in the case of husband and wife: Gold v.