Centurion Mortgage Capital Corp. et al. v. Brightstar Newcastle Corp. et al., 2022 ONSC 1059

March 16, 2022

Does the bank or a bona fide purchaser for value take priority over a unit in an insolvent condominium?

Brightstar developed a 78-unit condominium building in Newcastle, Ontario. Centurion loaned Brightstar $5.965 million to finance the project, secured by a mortgage on the project. When Brightstar failed to repay the loan on maturity, Centurion commenced proceedings. Guarantee Company of North America (“GCNA“) issued performance bonds on the project to cover deposit insurance and new home warranty claims. Its bond was also secured by a mortgage on the project. A dispute arose between Centurion and GCNA over which mortgage had priority. Pending resolution of that dispute, all parties agreed that Brightstar would continue to sell and to close sales of condominium units, with proceeds held under an escrow agreement

After Centurion challenged the entitlements of two purchasers of units in the project, the Court appointed a Receiver to deal with those two units. The other 76 units had all been sold without dispute. The Owner of Unit 417 prepaid the final balance of his purchase price ($270,320) to the developer, Brightstar, directly. This payment was not deposited into the deposit trust account established by Brightstar for that purpose. The condominium project was registered in November 2019, but the Owner was unable to close and receive clear title because of a dispute over how the final balance was paid.

The Receiver advised that the Owner appeared to be a bona fide purchaser for value of the unit, and should receive clear title to that unit. GCNA objected, holding that its mortgage security should prevail over the Owner’s interest. GCNA emphasized that Brightstar granted GCNA security in respect of all deposit monies received in the project, which were required to be held in the deposit trust account. Because this was not done, the Owner’s “loan” to Brightstar could not qualify as a final payment on Unit 417. Accordingly, the Receiver brought this motion for directions.

The issue before the Court was whether the Owner’s prepayment of the final balance of the purchase price for his unit satisfied all his obligations under the Agreement of Purchase and Sale such that he was entitled to clear title, free and clear of the GCNA mortgage. The Owner claimed that he was not a party to and had no knowledge of Brightstar’s contractual obligations to GCNA or to any other third party. Nor did he assist or conspire with Brightstar to breach its obligations to GCNA or anyone else. GCNA argued that the Owner was not entitled to the transfer of his unit free and clear of GCNA’s mortgage because, inter alia, the payment did not comply with the terms of the APS and, by his own admission, the Owner agreed to it against his better judgment.

There was no factual dispute that the Owner paid for his unit in full, thereby fulfilling his financial obligations under the APS. The Court found that the Owner was not under any contractual obligation to make his final payment of $270,320 to the deposit trust account. The APS provided that the balance of the purchase price was required to be paid to the vendor (or as the vendor might direct). Accordingly, the Owner was entitled to take Brightstar’s direction to pay the balance directly to Brightstar.

Brightstar ran out of money. It was scrambling to keep the project going and, to generate some cash, did an end run around its contractual obligations to GCNA by prevailing on the Owner to prepay his final payment. The Owner advanced the full amount in good faith. That these funds were misdirected to pay project expenses instead of going into the deposit trust account was on Brightstar, not the Owner. It was Brightstar and its principals, not the Owner, who breached their obligations to GCNA. The Owner had no contractual obligations to GCNA.

The Owner had a reasonable expectation that, if he paid the full purchase price for his unit, he would be able to close and get clear title. There was absolutely no basis for any inference that he had constructive knowledge that Brightstar would act in a manner that was offside its obligation to GCNA or that the prepayment was in any way improper or detrimental to third parties.

The pre-existence of GCNA’s collateral mortgage was not a basis for denying the Owner a vesting order giving him clear title to the unit he had paid for in full. GCNA had indemnity claims available against Brightstar, its affiliates and its principals. There was no evidence that any of these entities and individuals were unable to make good on any liabilities they may have had under their indemnities and guarantees.

The Court concluded that the Owner was a bona fide purchaser for value, and directed the Receiver to close the purchase of Unit 417, subject only to standard closing adjustments.

Judge: Justice Penny

Counsel: Gerald Rasmussen on his own behalf; Adrian Visheau and Adrienne Ho of Thornton Grout Finnigan LLP as Amicus Curiae on behalf of Gerald Rasmussen; Mani Kakkar of Borden Ladner Gervais LLP for the Guarantee Company of North America; George Benchetrit of Chaitons LLP for BDO Canada Limited in its capacity as Court-Appointed Receiver; Richard Mazar of Richard J. Mazar Professional Corporation for Brightstar Newcastle Corporation, Brightstar Senior Living Corporation, The Estate of Alan Chapple, John Blackburn, James Buckler, Lawson Gay and 2153491 Ontario Inc.

By Matilda Lici