Hornstein v. Gardena Properties Inc., 2006 CanLII 23142 (ON CA)

Court of Appeal for Ontario

Date: 2006-07-10 Docket: C43996

Before: Feldman, Gillese and MacFarland JJ.A.

Between:

Jack Hornstein and Adriana Hornstein Appellants

• and -

Gardena Properties Inc. Respondent

Counsel: A. Patrick Wymes for the appellants James Klein and Eve Halpern for the respondent David P. Preger for the receiver 2060580 Ontario Inc.

Heard: June 12, 2006

On appeal from a judgment of Justice Geoffrey B. Morawetz of the Superior Court of Justice dated July 29, 2005, in reasons reported at (2005), 34 R.P.R. (4th) 301.

Feldman J.A.:

Introduction

1The appellants were the mortgagors of a commercial property located at 40 Wellesley Street East in Toronto. The respondent was the first mortgagee. When the appellants defaulted on the mortgage, the respondent put in a receiver and eventually issued a Notice of Sale Under Mortgage. After the respondent accepted an offer to purchase the property, the appellants obtained a higher offer and sought to enjoin the respondent’s sale. The higher offer would have paid out the subsequent encumbrances and relieved the appellants of further obligations.

2The application judge declined to enjoin the sale. Although the appellants took some steps to obtain a stay pending this appeal, in the end they did not proceed with any motion to attempt to obtain a stay, and the sale ultimately closed almost ten months ago. The appellants now seek to set aside the judgment of the application judge.

Analysis

3In oral argument, counsel for the appellants stated that although the appellants did not agree with the application judge that the receiver was their agent and not the agent of the mortgagee, they did concede that the issue had no legal consequence for the purpose of the appeal.

4Counsel’s second submission was that the Notice of Sale was defective because it did not particularize the details of the receiver’s costs and expenses including its fees. Instead, the Notice showed a credit of the amount the receiver held on hand at the date of the Notice. The evidence was that the amount on hand was always changing as moneys were collected and expenses paid. The application judge concluded that the Notice of Sale was not defective because although the mortgagors could question some expenses such as the leasehold improvements or the amount of the receiver’s fees, these were matters that could be raised on a subsequent accounting, but did not affect the reasonableness of the amount claimed in the Notice of Sale. I see no error in this conclusion.

5The appellants also challenge the continued validity of the Notice of Sale on the basis that while payments were made by the mortgagors and other amounts were received that reduced the amount owing, no new Notice was issued. They submit that as a result of the changes in the amount outstanding, at some point the Notice of Sale expired. Counsel (who was not counsel on the application), advised that this aspect of the challenge to the Notice of Sale was not raised before the application judge. In my view, there is no merit to the submission in this case. The application judge made it clear that the appellants raised none of their objections to the Notice of Sale until they came forward with their new purchaser, nor did they ever attempt to redeem the mortgage. Although there may well be circumstances when a Notice of Sale becomes inaccurate and misleading, in this case the application judge concluded that the Notice was reasonable. I would not interfere with that finding.

6The appellants also continued to take the position that the receiver’s sale was improvident. The appellants point to the offer they obtained, which was approximately $440,000 or 11.4% higher than the one accepted by the receiver. They also object to the fact that the accepted offer contained a vendor take-back mortgage, while the offer that the appellants obtained was all cash.

7The difficulty with the appellants’ position is that they did not obtain their offer until after the mortgagee had entered into a binding agreement of purchase and sale. The fact that the agreement allowed the mortgagee to extricate itself on payment of $3,000 if the mortgagor wished to redeem did not change the legal effect of accepting an offer and entering into a binding agreement. The law is stated accurately in Toronto Dominion Bank v. Pallett Developments Ltd. (1984), 47 O.R. (2d) 251, where the Divisional Court referred to several sources for the proposition that, under the relief before sale provisions of the Mortgages Act (now R.S.O. 1990 c. M. 40, s. 22(1)), a mortgagor who has defaulted can retain the mortgaged property by payment of the amount in default, but only before an agreement for sale has been entered into by the mortgagee “even where the agreement is said to be subject to the right of the mortgagor to redeem or put the mortgage into good standing” (at pp. 255-56).

8On the issue of improvidence, the offer accepted by the mortgagee was the best offer it had received after several months of exposing the property to the market. The purchase price exceeded the appraised value by a considerable amount, although the appraisal was admittedly dated, as all involved recognized that the value of the property had increased. Also, the mortgagee had engaged the services of a real estate agent requested by the mortgagors. As the application judge stated, the fact that a better offer was received after the mortgagee accepted an offer does not mean that the mortgagee acted in bad faith.

9The application judge concluded with the following statement:

It is my conclusion that that the appellant has failed to establish the basis for an injunction restraining the respondent from exercising its rights under the Power of Sale. The test is articulated in Arnold v. Bronstein, [1971] 1 O.R. 467 (H.C.J.) which provides that a mortgagee, acting in good faith and without fraud, will not be restrained from a proper exercise of his Power of Sale except upon tender by the mortgagor of the principal moneys due, interest and costs.

Since Arnold v. Bronstein was decided in 1971, the case law has made it clear that the mortgagor has no right to redeem by payment after the agreement has been entered into: Logozzo v. Toronto-Dominion Bank (1999), 45 O.R. (3d) 737 (C.A.); Toronto Dominion Bank v. Pallett Developments Ltd., (1984) supra; Theodore Daniels Ltd. v. Income Trust Co. (1982), 37 O.R. (2d) 316 (C.A.); Mission Construction Ltd. v. Seel Investments Ltd., [1973] 2 O.R. 190 (H.C.J.). Therefore, where the mortgagee acts in good faith, it will not be restrained from exercising the power once it has entered into a binding agreement of purchase and sale. After that time, the mortgagor no longer has the right to tender payment.

10Finally, as the sale under Notice of Sale closed pursuant to the judgment of the application judge and, based on the fresh evidence filed by both parties, the appellants did not take the appropriate steps to obtain a stay of that judgment before the closing although the matter of a stay was raised between the parties, this appeal is effectively moot. For a similar analysis involving the failure of an appellant to seek a stay pending appeal of a vesting order before it was registered under the Land Titles Act. See Regal Constellation Hotel Ltd., (Re) (2004), 71 O.R. (3d) 355 at paras. 28-50 (C.A.).

Conclusion

11I would dismiss the appeal with costs on a substantial indemnity basis in accordance with the mortgage terms. As the amount claimed is $62,000, we will not fix the costs. If the parties cannot agree, the respondent may have them assessed.

Signed: "K. Feldman J.A."