General Litigation Case Study
Braut v. Stec
Between
John Braut, plaintiff, and
Adam Stec, defendant
[2002] B.C.J. No. 2527
2002 BCSC 1554
Vancouver Registry No. C900016
British Columbia Supreme Court
Vancouver, British Columbia
Kirkpatrick J.
Heard: October 7 - 11, 15 - 18 and 21, 2002.
Judgment: November 7, 2002.
(84 paras.)
Contracts — Unconscionable transactions relief — Requirement of inequality in bargaining position plus improvident transaction — Conditions for relief — What constitutes an improvident or unfair agreement.
Action by Braut for a declaration that his agreement with the defendant Stec was valid. Braut alleged that the parties had agreed to an equity sharing agreement pursuant to which Stec would purchase three properties from Braut and Braut would be Stec's partner to share net cash flow and capital generated by the properties. None of the purchase contracts referred to an equity sharing agreement. Stec claimed that the first time he saw the equity sharing agreement was after the properties had been transferred to him. Stec asserted that after he told Braut he did not want to sign, Braut literally put a gun to his head and forced him to sign the agreement. Stec eventually sold the properties for net proceeds of $250,000.
HELD: Action dismissed. Both parties were evasive witnesses. The evidence did not support Stec's allegation that Braut pointed a gun at him. However, Braut had threatened Stec. Braut knew and understood the depths of Stec's ignorance, and employed threats and intimidation to force him to sign the agreement. There was an inequality of bargaining power between the parties. Braut's threats generated genuine distress for Stec. A presumption of fraud had been raised against Braut. He had failed to demonstrate that the equity sharing agreement was fair and reasonable. The equity sharing agreement was unconscionable and was therefore set aside.
Statutes, Regulations and Rules Cited:
Mortgage Brokers Act, R.S.B.C. 1979, c. 283.
Real Estate Act, R.S.B.C. 1979, c. 356.
Counsel:
P. Ritchie and C. Flerlage, for the plaintiff.
W. Kosteckyj and S. Parhar, for the defendant.
1. KIRKPATRICK J.:— By this action, the plaintiff John Braut ("Braut") seeks, among other things, a declaration that an agreement between Braut and the defendant, Adam Stec ("Stec") is valid. Stec defends the action on several grounds, one of which is duress based on the assertion that Braut, literally, put a gun to Stec's head to force him to sign the agreement.
2. The action is, by any definition, stale. The events in question took place in 1986, more than 16 years ago. The action was commenced in 1990. The passage of time has taken its expected toll on the memories of witnesses.
3. Credibility is a central issue in this case. Both Braut and Stec were evasive witnesses. Certain of their evidence was implausible. Some was downright unbelievable. Neither man impressed me as having an appreciation of the oath each had sworn to tell the truth. This most regrettable state of affairs makes the determination of the case more than usually difficult.
BACKGROUND
4. Braut was born in 1947 in Yugoslavia. He graduated from high school and immigrated to Canada when he was 19 years of age, in about 1966.
5. Braut had no connections with Canada and did not know the English language. However, he was fluent in German and in his native Croatian language. When he first came to Canada he settled in Winnipeg and worked in a machine shop. A few months later, he moved to Vancouver and had various jobs as a painter's assistant, a bus boy, and a fisherman. Although his fluency in English was limited, he persuaded the University of British Columbia to accept him as a student in the Faculty of Science. During the summers he supported himself by working on fish boats. After his second year of university, he purchased a gill-netter that was in poor condition. In the next few years, he managed to purchase three fishing licences and five gill-netters.
6. Braut graduated from the University of British Columbia in 1973 with a Bachelor of Science in mathematics and computer science. After graduation, he continued to work in the fishing industry. The following spring, he obtained a position at the University. When that position ended when the project funds were exhausted, he continued to look for positions in his field of training and continued to fish. He spent a short period of time in Kitimat working for Alcan. He then returned to Vancouver and got a job as a computer programmer and systems analyst.
7. Braut's first foray into real estate investment was in 1974 or 1975 when he purchased a property in Pender Harbour by selling all but one of his fishing boats and licences.
8. In 1980, Braut purchased one of the three properties in issue in this case, located at 4130 Prince Edward Street, in the City of Vancouver. Braut lived in that property and, according to him, spent a lot of hard work cleaning and fixing up the property which included two suites. He later purchased two other properties, one located at 1648 East 10th Avenue, in Vancouver and another at 861 East 14th Avenue, in Vancouver, both of which also contained suites for rent (the "properties").
9. At some point, Braut transferred the 14th Avenue property into the name of his sister, Maria Karibiach, who, according to Braut, lived in Yugoslavia but who, along with her family, wanted to immigrate to Canada. Braut continued to look after the 14th Avenue property after it was transferred to his sister. His sister in fact never immigrated to Canada.
10. As part of his interest in real estate investment, Braut attended courses on weekends relating to matters such as financing and managing properties and improving property values. It was at that time that he learned of the concept of "equity sharing." He also joined a local real estate club, which met about once a month. It was at one such meeting that Braut met the defendant Stec.
11. Stec was born in Poland in 1956. His education consisted of eight years of elementary school and six years of trade and technical school, after which he was qualified as a mechanic.
12. Stec immigrated to Canada in November, 1981, with his wife and infant son. They spent some time in Montreal and then in Belleville, Ontario, where he took a 12 week English language course. He did not speak English before that time. The family then moved to Regina where Stec worked as a mechanic at a car dealership.
13. The Stec family moved to British Columbia in 1985, by which time the family included three children. They eventually settled in an apartment in New Westminster. Stec's wife managed the apartment building, for which they received a discounted rent. Stec did repairs around the building, and was paid about ten dollars per hour for his services. Stec also worked at least part-time as a mechanic at a garage in East Vancouver.
14. The Stecs purchased a home in Surrey in the summer of 1986 for about $85,000. Stec's mother-in-law gave the couple $5,000 to help with the down payment. The balance of the down payment came from the sale of a used car. The balance of the purchase price was financed by a mortgage which, Stec testified, was arranged by their real estate agent.
15. There is no issue that when he met Braut in 1986, Stec was interested in learning how to invest in property even though he had little money. Braut thought that Stec had the experience and enthusiasm he was looking for in someone to manage his properties. Braut said that he was looking for a property manager and someone with whom to pursue an equity sharing arrangement. Braut wished to return to Yugoslavia to see his parents and, in particular, his father who was having health problems. He needed someone to manage his properties.
16. According to Braut, some time in the summer of 1986, he and Stec started to discuss an equity sharing arrangement. Braut claimed that Stec was aware of the concept of equity sharing from the courses they both had taken. Braut testified that he and Stec worked quite slowly in formulating the terms of the equity sharing agreement which forms the subject matter of this action.
17. Stec testified that there was no discussion of an equity sharing agreement until after the properties were transferred to him on March 31, 1987. Stec said that the discussions prior to that time concerned the sale of the properties to him and his reluctance to purchase all three properties because of his limited financial circumstances.
18. At his examination for discovery, Stec agreed that there was, in his words, "talk" of Braut sharing in profits in exchange for Braut arranging the financing for the properties. However, at trial, Stec did not adopt that evidence, saying that although Braut may have mentioned the idea on a couple of occasions, he never showed him a document and he did not understand or pay attention to what Braut was saying.
19. Braut testified that in September or October of 1986, he and Stec entered into a verbal agreement whereby they agreed that they would determine the value of Braut's three properties and that Stec would purchase the properties for the appraised values. Braut said it was agreed that he would arrange financing to enable Stec to purchase the three properties; Braut would transfer the properties to Stec; Stec would maintain the properties and manage them; Braut would be Stec's partner and would advise him on securing tenants and managing the properties; and the two would share control over matters such as expenditures.
20. In addition, Braut said that he and Stec agreed that the cost of renovations and maintenance to the properties were to come from the rents. Braut said that renovations were expected to be low because Stec was a handyman and could do many of the repairs himself.
21. Braut testified that the verbal discussions included an agreement to share net cash flow and capital generated by the properties. According to Braut, the agreement was that if Stec wanted to get out of the agreement, he was first required to offer the properties to Braut. If Braut did not want any or all of the properties, then each would obtain an appraisal of the property and the property would then be sold for the average of the two appraisals. Braut testified that they agreed that upon sale the equity would be shared equally between them.
22. Although Braut originally wanted Stec to invest some of his own money in the properties, Stec was never able to produce the funds necessary for a down payment.
23. Braut testified that he and Stec eventually settled on the fair market value of the properties through the appraisals obtained by Braut. Stec said that he acquiesced in the property purchase prices which, he testified, were determined solely by Braut.
24. The appraisals were completed on December 12, 1986. The property at East 14th Avenue was valued at $209,000. The property at East 10th Avenue was valued at $110,000. The property at Prince Edward Street was valued at $118,000.
25. Braut said that, in accordance with his agreement to assist Stec in obtaining the financing necessary for Stec to purchase the properties, Braut obtained first mortgage financing from Settlers Savings and Mortgage Corporation with the assistance of a mortgage broker. One of the properties was a high ratio mortgage which required that Stec live in the property. That mortgage was insured by the Canada Mortgage & Housing Corporation. The other two properties were eligible for 75 percent financing. That left the remainder to be financed by second mortgages. Braut discussed the financing with his then girlfriend (later his wife), Lorraine Roadberg, who apparently had some independent wealth. He persuaded her to finance the second mortgages over the properties. Braut said that, to put her at ease, he agreed that the second mortgage would be a demand mortgage for a fixed term of one year with the demand on principal capable of being made at any time. Braut testified that he advised Stec of the demand nature of the second mortgages.
26. Braut and Stec executed contracts of purchase and sale prepared by Braut in respect of each of the three properties on December 15, 1986. Significantly, none of those contracts refers to the equity sharing agreement. Indeed, the contracts of purchase and sale specifically provide that there are "no ... agreements other than those contained herein ...."
27. The purchase price for the East 14th Avenue property was $212,000. The purchase price for the East 10th Avenue property was $112,000. The purchase price for the Prince Edward Street property was $122,000. The purchase prices collectively exceeded the appraised value of the properties by $9,000.
28. The conveyancing lawyer retained to transfer the properties was Kelvin Stephens. Braut agreed that it was possible that he arranged for the services of Mr. Stephens for Stec. Braut remembered one meeting in Mr. Stephens' office when Stec and his wife went to Mr. Stephens' office for the purpose of signing the mortgages. Mr. Stephens did not allow Braut to be in the boardroom when he interviewed Stec. At some point during Stec's meeting with Mr. Stephens, Stec emerged from the boardroom and said words to the effect of, "Lorraine Roadberg has a lot of power; she can call the mortgages at any time." Braut said that he was surprised by this remark because, for him, it was nothing new. He said he had told Stec of the demand nature of the mortgages before. Braut testified that Stec questioned him as to whether Lorraine Roadberg would call the mortgages. Braut said that he assured Stec that second mortgagees and banks have similar attitudes: if you pay your bills, they leave you alone. Braut said that he advised Stec that if he cared for the properties and paid his bills, no one would bother him. If he did not, then not only Lorraine Roadberg, but he himself, would make arrangements to foreclose the mortgages. Braut testified that he assured Stec that he would have influence over Lorraine Roadberg so that she would not call the mortgages.
29. Braut claims that integral part of the transfer of the properties to Stec included the equity sharing agreement, which he said reflected the verbal terms that he alleges he and Stec agreed to in the months before the transfer of the properties.
30. Braut testified that he contacted a lawyer, whose name he could not remember, who failed to finalize the equity sharing agreement. Braut then moved the file to a lawyer named Joe McBride who promised to have the revisions to the equity sharing agreement completed by March 30, 1987. Braut testified that Mr. McBride contacted him before the end of March to advise that the revisions were not completed, but would be ready any day. Braut said that he discussed the matter with Stec. Braut said he felt the pressure of closing the conveyance because all of the documents in respect of that transaction had been prepared. Braut said that he was hesitant to go ahead without the equity sharing agreement having been executed and in place. However, he said that he was assured by Stec that he, Stec, would sign the equity sharing agreement when it was available. Braut testified that he said to himself, "if Stec reneges on the promise, I could call Lorraine Roadberg and have her call the demand loans. She could foreclose the property and then would transfer it to me." Braut testified that he told Stec of his thoughts.
31. The transfer of the properties was registered in the Land Title Office on April 3, 1987. According to Braut, the equity sharing agreement was prepared by that date. He said he delivered a copy of the final version to Stec at the garage where Stec was working or at a nearby coffee shop. He testified that Stec seemed keen to sign but that he, Braut, advised him that he should obtain independent legal advice. He did this because he had been told that partnerships can sometimes go sour. He knew that Stec's English was not as good as his and testified that he did not want Stec to later say he did not understand the agreement.
32. Stec, not surprisingly, testified to a different version of events. As previously noted, Stec said that the first time he saw the equity sharing agreement was three or four days after the properties had been transferred to him. He and Braut had met for coffee. Braut produced the document and began to review it with Stec and to explain its contents. Stec testified that Braut expected him to sign the agreement in the restaurant. However, Stec did not understand the document and told Braut that he needed some legal advice. Braut was surprised by Stec's reluctance, telling him, "I explained everything to you."
33. Braut testified that Stec chose a lawyer by the name of Harry Crosby. Stec said that Braut found Mr. Crosby's name in the Yellow Pages and made the appointment. Both Braut and Stec attended at Mr. Crosby's office, although Braut did not meet with Mr. Crosby or take part in the discussions.
34. Mr. Crosby testified in the defendant's case. From a diary note and a receipt for legal services rendered, Mr. Crosby concluded that he and Stec met on April 3, 1987. He believes that an appointment had also been made for April 2 but it was cancelled. Mr. Crosby recalled that a document was presented to him by Stec. He did not keep a copy of that document.
35. Mr. Crosby had a number of concerns with the document. It was not clear to him whether there was consideration for the agreement. It appeared to Mr. Crosby that Braut was entitled to a commission for introducing Stec to the properties, possibly contravening the Real Estate Act, R.S.B.C. 1979, c. 356. Mr. Crosby could not understand why anyone would give up 50 percent of excess revenue or share in the equity of the properties for $7.00 consideration. He was uncomfortable with the option to purchase clause, which provided that the purchaser (Braut) would have the sole right to choose the appraiser upon whose opinion the option price would be calculated. Mr. Crosby believed that the terms of payment were unclear and that, generally, the agreement was ambiguous and would inevitably lead to problems in interpretation.
36. Mr. Crosby testified that he asked Stec what he understood about the agreement. Stec was silent. Mr. Crosby concluded that Stec had no grasp whatsoever as to the meaning of the document.
37. Mr. Crosby testified that he was adamant that Stec not sign the agreement in his office. To his mind, Stec did not know what the agreement was about or why he was being asked to sign it. Mr. Crosby's advice to Stec was given in the strongest possible terms. It was that there was no advantage to Stec in signing the agreement. Mr. Crosby could see that there was considerable risk for Stec and none for Braut. He simply could not understand why anyone would accept all the risk and yet share any benefit. He felt that something unusual was happening and that he did not have the total picture.
38. Mr. Crosby agreed under cross-examination that he had no understanding of Stec's net worth or the circumstances in which Stec had acquired the properties.
39. Mr. Crosby testified that when Stec left his office, he could not tell whether he had convinced him of the inadvisability of entering into the agreement, notwithstanding that he said he could not have expressed his views in stronger terms.
40. The versions as to what occurred after the meeting with Mr. Crosby are also divergent. Braut testified that after the meeting with Mr. Crosby, Stec and Braut went to have coffee, at which time Stec told Braut that Mr. Crosby was not overly enthusiastic about the agreement and had suggested some changes. Braut said that he was not interested in any changes. Stec advised Braut that Mr. Crosby had told him that the agreement was not favourable to him. Braut replied to the effect that, "This is business, not a legal decision." Braut said that he did not see this conversation as a major problem. He seemed to think it a repetition of his experience with Mr. Stephens and Stec, in which Stec did not appear to understand that which Braut had already explained to him about the nature of the demand loans.
41. Braut said he had no hard feelings about this meeting. He said he told Stec that if he did not sign the equity sharing agreement, he could transfer the properties back to Braut for a dollar; or Braut could ask Lorraine Roadberg to foreclose the second mortgages; or Braut could find another partner.
42. Stec testified that, after he and Braut left Mr. Crosby's office and were walking to Braut's car, he told Braut that he was not going to sign the agreement because he had been strongly advised by Mr. Crosby not to do so. Stec got into Braut's car in the expectation of getting a ride to the coffee shop where he had left his own car. Stec testified that Braut told him that a lot of effort had gone into the agreement and that it was very important to Braut that he sign it. He told Stec that if he did not sign the agreement, Stec would be in lots of trouble: he would have a bad credit rating; Lorraine Roadberg would foreclose the mortgages; and Braut would report to Settlers Savings and Mortgage Corporation that Stec had lied on the applications for the first mortgages. Stec testified that Braut was yelling and shouting at him, repeating that if he did not sign the agreement he would be, in Stec's words, "in big trouble."
43. Stec testified that it was at that point that Braut, who was in the driver's seat, pointed a small hand gun at him and told him that if he did not sign the agreement Braut would, in Stec's words, "blow out my head." After more yelling and shouting by Braut, Stec said that, out of fear, he agreed to sign the agreement. Braut then drove to the office of a notary public, Michael Carr. Stec testified that Braut did all the talking at the five minute meeting at Mr. Carr's office, simply stating to Mr. Carr that they needed him to witness their signatures to the agreement.
44. It is of some significance that there is no date on the signature page of the equity sharing agreement. However, the first page of the agreement states that it is "made as of the 13th day of April, 1987." Mr. Carr was not called to give evidence as to his recollection of the date or the signing of the agreement.
45 . Braut testified that he and Stec signed the equity sharing agreement on April 13, 1987. Braut also testified that he gave Stec time to consider the agreement, and understood that Stec wanted to talk to other lawyers. In the period of time between April 3 and April 13, 1987, Braut said that not much occurred. He introduced Stec to the various tenants of the properties and allowed him to collect rents. When, according to Braut, Stec was "ready", they signed the agreement before Mr. Carr on April 13, 1987.
46. After the equity sharing agreement was signed, Braut said nothing unusual occurred. He said things went according to plan except that it slowly emerged to him that Stec was not as industrious as he thought he would be. For example, Braut said that Stec failed to repair a gutter hanging from one of the properties.
47. Braut claimed that Stec was responsible for the collection of rents and depositing them into two joint bank accounts. One was a current account requiring one signature. The second was a savings account which required the signatures of both Stec and Braut. The residual profit was to be transferred to the savings account.
48. Stec testified that only one joint account was opened in late April, 1987, for the purpose of depositing tenants' security deposits which had not been transferred at the time the properties were transferred. Stec testified that Braut told him that he would only pay the security deposits by transferring the money into an account in their joint names. The money in the account was eventually released to Stec as he performed repairs on the properties. Stec could not explain why he agreed to this arrangement other than to say, "I don't know; it wasn't my idea."
49. Braut testified that in the early summer of 1987, within a few months of the properties having been transferred, Stec met Braut and advised him that he wanted to transfer all of the properties to Braut for one dollar. Braut told Stec that was not feasible because he was going to Europe to see his ill father. Braut testified that he advised Stec to be patient. He told Stec that he would consider his proposal to transfer the properties back to him later in the winter.
50. When Braut returned from Europe, he found that certain repairs had not been done to the properties. On one occasion, Braut said that he pressured Stec to repair a fence on the 14th Avenue property. He said Stec required money for materials for the repairs. Stec estimated the cost to be $300. Stec presented a cheque to Braut for $300 payable from the joint savings account which required both signatures. Braut said that he signed that cheque but that, when he later stopped by the bank to check the account, he saw a withdrawal of $1,300. He said that he discussed the matter with the bank. He testified that he saw the cheque and that it was obvious to him that it was the cheque he had signed but that someone had inserted in front of the words "three hundred" the additional words "one thousand." Braut testified that he knew that the cheque was forged and asked the bank to freeze the account. He then spoke about the matter with Stec who said that he promised he would never do it again. Braut said that they patched up matters after that and continued on fairly good terms. This evidence was apparently tendered to demonstrate that Stec was a willing participant in the equity sharing agreement by his obtaining Braut's consent for repairs.
51. Among the many remarkable things about this trial is that this evidence was never put to Stec in cross-examination and was never challenged in the cross-examination of Braut. I give the evidence no weight whatsoever.
52. Braut testified that in the spring of 1988, Stec approached Braut again. He was complaining that he was not making money and wanted out of the arrangement. Braut said that he was not too keen on that proposal because it would require him to find another property manager. Braut said that they agreed that they would both look for a buyer. Braut said that they signed a settlement agreement to give Braut the ability to contact possible purchasers. That alleged settlement agreement is not in evidence. According to Braut, neither he nor Stec were successful in obtaining purchasers. Braut testified that, later in 1989, Stec told him not to bother finding a new property manager. Braut assumed that Stec said this because improvement in the real estate market had caused Stec change his mind.
53. Braut described the relationship with Stec in 1988 as becoming "a bit strained", although they were still getting along.
54. Braut testified that in 1989 Stec became more argumentative and openly displayed his unwillingness to abide by the terms of the equity sharing agreement. Braut said it became very difficult to get along with him. For example, Braut alleged that in one conversation in the spring of 1989, Stec threatened to fabricate charges against Braut which would result in him going to jail on a charge which Stec termed as "telephone assault." Braut claimed that Stec was frequently unpleasant and repeatedly said words to the effect of "I'm warning you" and threatening that if Braut attended at the properties he would throw him off.
55. At about this same time, Stec ceased to pay the second mortgages. Braut drafted letters for Lorraine Roadberg's signature but said that the mortgages were never in fact demanded. Braut claimed that he was hopeful or na've that Stec would pay the mortgages and believed that eventually Stec would, in Braut's words, "have to pay the piper."
56. In fact, there is a series of letters in evidence in which demand for payment of the Roadberg mortgages was made, ostensibly by Ms. Roadberg, on several occasions between January and April, 1989.
57. Braut alleges that in September or October of 1989, when he happened to drive by the West 14th Avenue property, he noticed a for sale sign. He testified that he telephoned Stec the following day and challenged him with the words, "What do you think you are doing?", meaning that Stec was violating the equity sharing agreement by failing to first offer Braut the option to purchase the property.
58 . Braut alleges that Stec told him that the equity sharing agreement was full of errors and he wanted out of it. Braut also alleges that Stec told him that there was no equity to share, but if there were, he, Stec, would not share it.
59. Braut contends that he telephoned the real estate agent acting on the sale but was advised that because Braut was not registered on title, he was unable to do much. Braut arranged for a caveat to be registered against the property so that, in his words, "it wouldn't be sold out from under me." The caveat was valid for three months. Accordingly, when the caveat was due to expire, Braut commenced this action on January 3, 1990 and claimed, among other things, a lis pendens, which was registered against each of the properties.
60 . The properties were ultimately sold. The East 14th Avenue property sold in 1993 for $334,000. The East 10th Avenue property sold in 1994 for $244,000. The Prince Edward Street property sold in 1994 for $247,000. The net proceeds of sale cumulatively total approximately $250,000. The lawsuit principally concerns the sharing of those proceeds pursuant to the equity sharing agreement.
FINDINGS OF FACT
61. As can be seen, the versions of events to which Braut and Stec testified are disparate. As I have noted, the credibility of both Braut and Stec is in issue. Neither were trustworthy witnesses.
62. At trial, Braut displayed the manipulation that he no doubt exercised over Stec. He "suddenly" remembered names of witnesses (such as the lawyers who allegedly prepared the equity sharing agreement) whom the defendant had, for literally years, demanded to be disclosed. Braut testified that he "just located" notes of a telephone conversation he had with Stec in about 1989. He produced, days into the defendant's case, tape recordings of conversations with Stec which he had made more than a decade ago, notwithstanding demands to produce all documents relevant to the litigation (which the tapes most assuredly were) and having testified in cross-examination that the only new evidence he had "just located" was the note of the 1989 telephone conversation.
63. Braut was also evasive in cross-examination. His memory conveniently dimmed on important points. For example, he was evasive as to the existence of the alleged earlier drafts of the equity sharing agreement, and the whereabouts of an alleged power of attorney which, he said, authorized him to sell the property registered in his sister's name to Stec. However, when evidence there was favourable to his case, his memory was crystal clear and remarkably detailed.
64. Stec was no better a witness. He seemed incapable of answering a question directly. His answers were full of excuses and unresponsive to the questions posed. Stec was subjected to four days of exhaustive cross-examination. That exercise revealed numerous misstatements, half-truths, and inconsistencies in testimony. However, Stec, unlike Braut, did admit to lies he had made, albeit when confronted with evidence that would not permit him to continue the lie. Braut rendered himself relatively immune from similar attack by not fully disclosing all material evidence in advance of the trial.
65. Based on the evidence which I do accept, I make the following findings of fact.
66 . The plaintiff's case was conducted on the premise that the central fact in issue was whether or not Braut forced Stec to sign the equity sharing agreement by pointing a gun at him and threatening to blow his head out. This allegation is, of course, most serious. In my opinion, it requires proof which approaches the criminal standard of proof. The evidence does not support the allegation.
67. First, although Stec testified that he was terrified for himself and his family by Braut's threat, he did not tell his wife of the incident until after this litigation was launched in 1990. Second, he did not think to report the matter to the police. Third, former friends of Stec, John and Christine Streuger, testified in the plaintiff's case that Stec once said that he was unsure if Braut had brandished a gun. At his examination for discovery, he was unsure if he and Braut went to the notary on the same day that Braut allegedly pointed the gun at him. He contended that his memory has improved over time and testified that he was very sure that the equity sharing agreement was signed on the same day that he met with Mr. Crosby.
68. On balance, I am not persuaded that Braut pointed a gun at Stec and demanded that he sign the equity sharing agreement, failing which he would blow his head out.
69. However, I am left in no doubt that Braut threatened to expose the fact that Stec had lied on the applications for the mortgages from Settlers Savings and Mortgage Corporation, and also threatened to call the second mortgages held by Lorraine Roadberg. Indeed, as to the latter threat, Braut testified that precisely that thought was in his mind when the equity sharing agreement was not signed before the properties were transferred to Stec. It makes perfect sense that Braut would express that threat to Stec.
70. As to the threat to expose Stec for his lies in his mortgage applications, that is consistent with Braut's business practice, as evidenced by his manipulation of Lorraine Roadberg and using the mortgages in her name to his own ends. I have no doubt that Braut obtained the mortgage applications for Stec; that he assisted the completion of the applications with information supplied by Stec; and that he influenced what information would be disclosed or altered.
71. Of course, Stec is ultimately responsible for his lies. He presumably signed the applications which, due to the passage of time, are evidently no longer in existence and could not be put in evidence. However, Stec's ultimate responsibility does not diminish Braut's involvement nor his apparent willingness to use Stec's folly for his own devious purposes.
72. It is abundantly clear from the evidence that Stec was mesmerized by the prospect of owning properties in Vancouver. Braut, an experienced and far more sophisticated investor, portrayed himself as a generous friend who simply wanted to help another immigrant achieve success in Canada. To that end, he arranged for Stec to purchase his properties at above fair market value prices through mortgages that exceeded the then fair market value of the properties. He then took a $20,000 commission for himself (or in the name of Lorraine Roadberg) for his trouble. The reality, of course, is that Braut saw Stec as a dupe over whom he thought he could exercise his Svengalian control. As Mr. Crosby testified, Stec had no idea what the equity sharing agreement meant. I have no doubt that Braut knew and understood the depths of Stec's ignorance and employed threats and intimidation to force him to sign the agreement.
ISSUE
73. The plaintiff's theory of the case appeared to be that, if Stec lied about the gun, then he was lying about everything else and consequently duress would be disproved and the equity sharing agreement would be found to be valid. The defendant's theory proceeded on a number of fronts, including duress; unconscionability of the contract; failure of consideration; and unenforceability due to contravention of the Real Estate Act or the Mortgage Brokers Act, R.S.B.C. 1979, c. 283.
74. I conclude that the decision in this case is decisively determined by the principle stated in Harry v. Kreutziger (1978), 95 D.L.R. (3d) 231 (B.C.C.A.) at 237:
From these authorities this rule emerges. Where a claim is made that a bargain is unconscionable, it must be shown for success that there was inequality in the position of the parties due to the ignorance, need or distress of the weaker, which would leave him in the power of the stronger, coupled with proof of substantial unfairness in the bargain. When this has been shown a presumption of fraud is raised and the stronger must show, in order to preserve his bargain, that it was fair and reasonable.
75. There can be no doubt that there was an inequality in bargaining power between Braut and Stec. It is abundantly clear that Stec was clueless as to the meaning and effect of the equity sharing agreement. That is made amply clear by the evidence of Mr. Crosby as well as the evidence of Mr. Streuger who testified in the plaintiff's case that Stec did not understand formal language, including correspondence from his lawyer. Not only was Stec ignorant about the meaning of the agreement, I also conclude that Braut's threats to expose Stec if he refused to sign the agreement generated genuine distress for Stec.
76 . In addition, as Mr. Crosby testified and which is amply demonstrated by the terms of the equity sharing agreement itself, there was substantial unfairness to Stec in the bargain. All of the risk was upon Stec. Braut, who risked nothing, stood to gain one half of all of the net income and capital profits from the properties.
77. In my view, a presumption of fraud has been raised against Braut. According to the authorities, the burden is upon Braut to demonstrate that the equity sharing agreement was fair and reasonable. I find that he has failed to do so.
78. Counsel for Braut contended in argument that Stec, having lied to the court about the existence of the gun, is precluded from obtaining equitable relief based on unconscionability of the bargain. In essence, the plaintiff claims that Stec is disentitled to equitable relief because he comes to the action with unclean hands.
79 . However, as the court in City of Toronto v. Polai, [1970] 1 O.R. 483 (C.A.) at 493 observed:
...The maxim "he who comes into equity must come with clean hands" which has been invoked mostly in cases between private litigants, requires a plaintiff seeking equitable relief to show that his past record in the transaction is clean: Overton v. Banister (1844), 3 Hare 503, 67 E.R. 479; Nail v. Punter (1832), 5 Sim. 555, 58 E.R. 447; Re Lush's Trust (1869), L.R. 4 Ch. App. 591. These cases present instances of the Court's refusal to grant relief to the plaintiff because of his wrongful conduct in the very matter which was the subject of the suit in equity. The maxim must not be interpreted and applied too broadly as, e.g., against a plaintiff who had not led a blameless life. ...
80. Stec has most certainly not led a blameless life. Braut knew that and used it against him. I cannot say, however, that there was wrongful conduct on the part of Stec in respect of the equity sharing agreement. On that subject, all the wrongful conduct was Braut's.
81. In the result, I find that the equity sharing agreement was unconscionable and must be set aside. The plaintiff's claims are dismissed, including his claim for damages for personal property he alleged was misappropriated by Stec, which damages I find were not proved by the evidence. Braut's assertions as to the existence of the personal property and its alleged value were unpersuasive and implausible.
82. At the conclusion of the evidence, Braut applied to amend his pleading to include a claim for punitive and exemplary damages. In light of my findings as to the unconscionability of the equity sharing agreement, such an amendment would be futile. No such award is warranted on the facts as I have found them.
83. In my view, the conduct of both Braut and Stec in the litigation was sufficiently egregious to support the denial to either of them for any costs of the action.
84 . The plaintiff's claims are dismissed. There will be no order of costs.
KIRKPATRICK J.
QL Update: 20021113
cp/i/qldrk/qlsng