COURT OF APPEAL FOR ONTARIO

DATE: 20220427 DOCKET: C69053

Simmons, Harvison Young and Zarnett JJ.A.

BETWEEN

Kelly Martin Applicant (Respondent)

and

11037315 Canada Inc. , 2670082 Ontario Corp. , and Autodome Ltd. Respondents (Appellants)

Counsel: Paul Robson and Samir Chhina, for the appellants Dennis Van Sickle, for the respondent Marc Whiteley and Monty Dhaliwal, for the non-party 1614358 Ontario Ltd. Karanpaul Randhawa, for the non-party Ranjit Singh Pandher

Heard: February 22, 2022 by video conference

On appeal from the order of Justice Michael R. Gibson of the Superior Court of Justice, dated December 23, 2020, with reasons reported at 2020 ONSC 8087.

By the Court:

[1] The appellants appeal from an order of Gibson J. dated December 23, 2020 setting aside a default judgment for foreclosure and possession of charged property dated November 20, 2019.

[2] The appellant, 11037315 Canada Inc. (“1103”), is the chargee who obtained the default judgment for foreclosure. The appellant, 2670082 Ontario Corp. (“267”), purchased the property from 1103 for $425,000 under an agreement of purchase and sale dated December 5, 2019.

[3] The respondent, Kelly Martin, was the owner/chargor of the subject property prior to the November 20, 2019 default judgment for foreclosure.

[4] The December 23, 2020 order setting aside the default judgment for foreclosure also contained terms requiring that the subject property be sold, that the net proceeds of sale in excess of $425,000 be paid to Ms. Martin, and that the appellant chargee, 1103, pay to Ms. Martin the difference between $425,000 and the amount 1103 claimed in its statement of claim as owing on its charge.

[5] For the reasons that follow, we reject the appellants' claim that the application judge erred in setting aside the default judgment for foreclosure. However, whether setting aside the default judgment for foreclosure affects 267’s title to the property turns on s. 78(4) of the Land Titles Act, R.S.O. 1990, c. L.5., an issue raised on appeal. That in turn depends on whether 267 was a bona fide purchaser for value without actual notice that Ms. Martin was occupying the property and may have had a claim to set aside the default judgment for foreclosure.

[6] For the reasons that follow, we allow the appeal in part, set aside the order for sale of the property, and order a trial of the issue whether 267 was a bona fide purchaser for value without actual notice that Ms. Martin was occupying the property and may have had a claim to set aside the default judgment for foreclosure.

Background

[7] The subject property is Ms. Martin's home, which she purchased in 2010 for $289,000 with financing in the form of a first charge to The Toronto-Dominion Bank (the “TD Bank” or the “bank”).

[8] In January 2019, Ms. Martin obtained a one-year interest only second charge from 2148468 Ontario Ltd. (“214”) for $65,000 plus interest at the rate of 12%. A monthly payment of $650 and post-dated cheques were required under the second charge.

[9] In June 2019, Ms. Martin’s bank account was defrauded and subsequently frozen by the TD Bank pending an investigation. As a result, the bank did not honour Ms. Martin's June 15, 2019 payment on the second charge and her post‑dated cheque was returned for insufficient funds.

[10] On July 22, 2019, 214 assigned its mortgage to 1103. 1103 commenced its foreclosure action on October 24, 2019. It obtained default judgment for foreclosure and possession on November 20, 2019 and registered the judgment on title to transfer the property into its name on November 26, 2019.

[11] On December 5, 2019, without first enforcing its judgment for possession, 1103 entered into an agreement to sell the subject property to 267 for $425,000. Under the terms of the agreement, 267 agreed that 1103 would not be providing vacant possession of the property on closing and also agreed to assume any existing tenancies in accordance with the terms of the tenancies. The transaction closed on January 8, 2020 at which time 267 registered a new first charge in favour of Autodome Ltd. (“Autodome”) in the amount of $460,000.

Ms. Martin's Application

[12] Ms. Martin first learned her property had been sold on January 31, 2020 when an employee of 267 attended her home. Soon after, she consulted with a lawyer and learned of the default judgment for foreclosure.

[13] On February 14, 2020, Ms. Martin issued an application to set aside the default judgment. In the application, she also requested an order that the property be sold and that the proceeds of sale be distributed in an equitable manner, or, in the alternative, requiring 1103 to disgorge any profits it made on its sale of the property beyond what was owing on its charge. Ms. Martin also claimed that she had never received notice of assignment of the second charge.

The Application Judge's Decision

[14] The application was heard on December 10, 2020. Ms. Martin and 267 were the only parties present. 1103 did not deliver a notice of appearance or participate in the proceeding. Autodome delivered a notice of appearance but, for reasons which will become clear, did not attend.

[15] Based on evidence filed by Ms. Martin, the application judge concluded that when it was sold, the property had an appraised value of $575,000, that there was about $160,000 owing on the first mortgage to the TD Bank, and about $65,000 owing on the second mortgage to 1103 – leaving equity of about $350,000.

[16] The application judge accepted Ms. Martin's evidence that she had never received notice of assignment of the second mortgage to 1103, that she mistakenly thought 1103's statement of claim was the equivalent of a power of sale, and therefore did not understand that the foreclosure action put her at risk of losing her equity in the property.

[17] Based on our review of the factums filed in the court below and the application judge’s reasons, we are not satisfied that 267 raised any issue concerning s. 78(4) of the Land Titles Act before the application judge. Section 78(4) is not mentioned in 267’s factum on the application.

[18] In oral submissions before this court, counsel for 267 who attended before the application judge asserted that submissions were made to the application judge concerning Stanbarr Services Limited v. Metropolis Properties Inc., 2018 ONCA 244, 141 O.R. (3d) 102; Thomas Farrell et al. v. John Kavanagh et al., 2020 ONSC 8154; 1168760 Ontario Inc. v. 6706037 Canada Inc., 2019 ONSC 4702 (Div. Ct.); and Babbie v. Petryczka (1975), 8 O.R. (2d) 718 (C.A.), all of which are cited in the appellants’ factum on appeal.

[19] Stanbarr Services Ltd., 1168760 Ontario Inc. and Thomas Farrell refer to 78(4) of the Land Titles Act; the Babbie decision does not. Of the four decisions, only Babbie is referred to in 267’s factum filed in the court below.

[20] Counsel for Ms. Martin disputes 267’s claim that it brought s. 78(4) of the Land Titles Act to the application judge’s attention. Had 267’s counsel raised s. 78(4) or the above noted decisions referencing it for the first time in oral submissions, we would have expected the application judge to allude or refer to the issue in his reasons. He did not. We conclude that 267 is mistaken in its assertion. [^1]

[21] Rather, based on its factum filed on the application, we conclude that 267 submitted that it was a bona fide purchaser for value without notice of any defect in the foreclosure proceeding, that Ms. Martin lacked clean hands and was the author of her own misfortune (failing to ensure her mortgage was in good standing and failing to consult a lawyer when served with the statement of claim), and that it and its mortgagee would be prejudiced if the court set aside the foreclosure order and acceded to Ms. Martin’s request that the property be sold. 267 asserted that, in these circumstances, the court should not invoke its equitable jurisdiction to grant relief to Ms. Martin. In addition, 267 submitted that Ms. Martin’s right of action, if any, was against 1103 for damages.

[22] The application judge concluded that the equities favoured exercising the court's jurisdiction to set aside a judgment for foreclosure even following a sale, as confirmed in Winters v. Hunking, 2017 ONCA 909, at paras. 12-16.

[23] In particular, Ms. Martin moved promptly to set aside the default judgment after learning of it, the underlying mortgage obligation to 1103 had been satisfied through the sale to 267, and Ms. Martin had accumulated significant equity in the property amounting to about $350,000.

[24] In addition to those factors, the application judge observed that Ms. Martin’s default consisted essentially of one missed mortgage payment. She had given post-dated cheques to the original second chargee. No one told her the second charge had been assigned, asked her for new post-dated cheques, or demanded that she cure her default. While the application judge acknowledged that the manner in which Ms. Martin dealt with the statement of claim after being served “was far from ideal”, he said:

What happened to [Ms. Martin] is completely disproportionate to her default.

[25] The application judge also found 267 would not be unduly prejudiced if the property was resold for fair market value, and it was repaid its purchase price. In addition, he concluded 267 was not a bona fide purchaser for value without notice because its principal had experience in flipping properties for a profit and ought to have known default judgments for foreclosure can be set aside. 267 was “not an innocent third-party purchaser.” Among other things, the application judge said:

The home was worth $575,000, but [1103] sold it to 267 for only $425,000. The two corporations had essentially split [Ms. Martin’s] equity in the home between themselves.

Only 38 days passed between the time [Ms. Martin] was served with the statement of claim … and when [1103] sold the home to 267 … 267 paid for the property with mortgage financing from the Respondent Autodome. Even though the purchase price was $425,000, the Autodome mortgage was for $465,000. This strongly suggests that the home was sold for less than its true market value.

267 bought the property to flip it for a profit. It will not suffer any undue prejudice if … the property is again sold, this time for fair market value. 267 will have its original purchase price of $425,000 repaid. It will not get to keep the windfall it received by having obtained the property for some $150,000 below market value.

The principal of 267, Mr. Mangal, knew that he was purchasing the property by way of a Default Judgment for foreclosure. As [Ms. Martin] submits, Default Judgments for foreclosure can be and do get set aside. I accept the submission that a person with Mr. Mangal’s experience in flipping distressed properties for profit ought to have known this.

I find that in this case, 267 was not a bona fide purchaser for value without notice. It is not an innocent third-party purchaser . [Emphasis added.]

[26] Finally, the application judge rejected 267’s argument that granting relief would “open the floodgates for every litigant to simply use the excuse” of not understanding the claims against them. The decision to reopen a foreclosure is fact specific. On the particular facts of this case, the application judge was satisfied the equities favoured reopening the foreclosure.

[27] In the result, the application judge directed that the property be sold and that 267 be repaid its purchase price from the proceeds of sale given that charges on title immediately prior to the sale to 267 had already been repaid from the proceeds of that sale. As we have said, the application judge also directed that the net proceeds of sale in excess of $425,000 be paid to Ms. Martin and that 1103 pay to her the proceeds it received from the sale to 267 in excess of the amount it had claimed was owing on its charge in its statement of claim.

[28] In addition, the application judge determined that the default judgment should be set aside in any event as having been irregularly obtained because Ms. Martin was not given written notice of the assignment of the second charge from 214 to 1103.

Subsequent Events

[29] Following the December 23, 2020 judgment, 267 moved to vary it under rule 59.06 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, claiming that it had discovered evidence that 1103 had, in fact, given notice of assignment of its charge. The application judge heard and dismissed that motion on January 29, 2021. That order has not been appealed.

[30] The appeal from the December 23, 2020 judgment was originally scheduled to be heard on February 7, 2022. On that day, evidence was adduced of two further charges registered against the property by 267:

1. A one-year charge registered October 14, 2020 in the amount of $480,000 in favour of 1614358 Ontario Limited (“161”) that replaced the Autodome first charge in the amount of $460,000; and
2. A one-year second mortgage registered December 14, 2020 in the amount of $100,000 in favour of Ranjit Singh Pandher.

[31] As is apparent from the dates of these charges, the charge to 161 was registered prior to the date on which Ms. Martin's application was heard. The charge to Mr. Pandher was registered while the decision on the application was under reserve.

[32] The appeal was adjourned to February 22, 2022 on terms that 161 and Mr. Pandher be given notice of the appeal hearing and an opportunity to attend. As a term of the adjournment, 267 was prohibited from further encumbering the property pending the appeal hearing.

[33] 161 and Mr. Pandher attended on February 22, 2022. Neither objected to the order for sale of the property provided their respective interests were recognized when the proceeds of any sale were distributed. Ms. Martin did not dispute the validity of 161’s charge but reserved the right to challenge the amounts claimed as owing. She also reserved the right to dispute the validity of Mr. Pandher’s charge and/or the amounts claimed as owing.

[34] Following the appeal hearing on February 22, 2022, we reserved our decision but imposed terms that, pending the release of our decision, 267 was prohibited from further encumbering the property and 161 and Mr. Pandher were prohibited from taking steps to enforce their charges.

[35] On March 8, 2022, we issued an endorsement requiring that the appellants file a supplementary compendium containing the factums filed in the court below and certain exhibits and transcripts of cross-examinations that were not included in the original appeal record. We also ordered that the parties file further submissions on certain issues including the proper test for finding a person is a bona fide purchaser for value without notice, in particular, the level and content of knowledge required to satisfy the notice component, and whether the application judge erred in finding 267 is not a bona fide purchaser for value without notice.

The Issues on Appeal

[36] Although it did not appear or participate in the application, 1103 has joined with 267 as an appellant on this appeal and is represented by the same counsel.

[37] The appellants raise several issues on appeal. We will begin with their arguments concerning setting aside the default judgment for foreclosure and then turn to the issues concerning s. 78 of the Land Titles Act and whether 267 is a bona fide purchaser for value without notice.

(1) Did the application judge err in setting aside the default judgment for foreclosure and possession of the property?

[38] Even if s. 78 of the Land Titles Act precludes interference with 267’s title because it is a bona fide purchaser for value without notice, we are satisfied that a court is entitled to set aside a default judgment for foreclosure and possession of the property solely against the chargee or mortgagee that obtained the judgment and order an accounting against the chargee or mortgagee: Ontario Housing Corp. v. Ong (1987), 58 O.R. (2d) 125 (H.C.). See also Corbor v. Oakshott (1913), 13 D.L.R. 528 (Alta. S.C.).

[39] The appellants submit that the application judge erred in several ways in setting aside the default judgment for foreclosure:

• by relying on Winters v. Hunking as authority for setting aside the default judgment when this case is distinguishable on the facts;
• by conflating principles applicable to power of sale proceedings with those applicable to foreclosure;
• by failing to find Ms. Martin was disentitled to relief because she did not come to court with clean hands; and
• by finding that the default judgment was irregularly obtained.

[40] The appellants argue that this case is distinguishable from Winters v. Hunking because in Winters the court found the mortgagor was vulnerable and in need of protection. Moreover, in Winters, the property had not been sold. Here, they say Ms. Martin is the author of her own misfortune: after receiving the statement of claim she assumed a foreclosure was the same as a power of sale and made a deliberate decision not to consult with a lawyer.

[41] Further, unlike the situation with a power of sale, once 1103 obtained judgment against Ms. Martin, it had no obligation to account to her for any equity in the property in excess of what was owing on its mortgage or to obtain a particular price on any sale. A court must take great care in setting aside a foreclosure judgment where a subsequent purchaser is involved.

[42] Moreover, Ms. Martin lacked clean hands because she defaulted in making her mortgage payments and continued to live in the property effectively rent free even after learning of 1103’s judgment.

[43] Finally, evidence has been filed confirming that Ms. Martin received notice of the assignment of the second charge to 1103. In any event, she received notice of the assignment via 1103’s statement of claim seeking foreclosure and possession of the property. The statement of claim recited the assignment.

[44] We reject these arguments.

[45] Winter v. Hunking is a recent example of the court exercising its equitable jurisdiction to reopen a foreclosure order based on the particular circumstances of the case. Contrary to the appellants’ submissions, those circumstances are not restricted to situations involving what the appellants describe as a vulnerable mortgagor in need of protection. Rather, as explained in Winter, caselaw has established a number of factors that can be considered in determining whether to exercise the court’s equitable jurisdiction and such jurisdiction may be exercised even after the property has been sold. [^2]

[46] Those factors include:

• whether the set aside motion was made with reasonable promptness;
• whether there is a reasonable prospect of payment of the mortgage at once or within a short time;
• whether the applicant for the set aside order has been active in endeavouring to raise the money necessary;
• whether the applicant has a substantial interest in the property, or the property has some special intrinsic value to him or her;
• where the property has been sold after foreclosure, whether the rights of the purchaser will be unduly prejudiced: Winter, at para. 13.

[47] Having regard to these factors, the overarching question is “whether the equities in favour of reopening the foreclosure order outweigh the equities against doing so … taking into account the relative prejudice to the respective parties”: Winter, at para. 14.

[48] Here, the application judge’s reasons demonstrate that he fully considered the factors set out in Winters v. Hunking and concluded that the equities in favour of setting aside the default judgment outweighed the equities against doing so. The application judge acknowledged that Ms. Martin made a mistake in failing to consult a lawyer promptly after being served with the statement of claim. Nonetheless, we agree with his conclusion that, overall, the evidence on the application overwhelmingly demonstrated that the equities favoured setting aside the default judgment.

[49] In particular, the evidence showed that 1103 proceeded with the foreclosure and sale with great haste in a manner that concealed that Ms. Martin was at risk of losing her significant equity in the property and further, that 1103 and 267 made a bargain that effectively split Ms. Martin’s significant equity in the property between the two companies.

[50] Prior to the foreclosure action being commenced, Ms. Martin was not provided with notice of assignment of the second charge or asked for replacement cheques or to cure her default. After default judgment was obtained, she received no response to telephone calls to 1103’s solicitor (who was also its principal) through which she hoped to arrange a cooperative sale of the property, not knowing that 1103 had obtained default judgment. The entire time from the default judgment for foreclosure to the sale to 267 was just over two weeks (November 20, 2019 to December 5, 2019). Prior to selling this residential property, 1103 did not attempt to enforce its writ of possession. Instead a clause was inserted in the agreement of purchase and sale under which 267 agreed 1103 would not be providing vacant possession of the property on closing and also agreed to assume any existing tenancies in accordance with their terms. Prior to purchasing the property, 267 did not conduct any inspection other than a drive-by inspection.

[51] Ms. Martin’s appraisal evidence ($575,000) filed on the application demonstrated that 1103 sold the property to 267 at a significant undervalue ($425,000). This evidence was supported by Autodome’s mortgage commitment that required appraisal evidence of value in the amount of $560,000 and the amount of Autodome’s mortgage ($460,000), which was $35,000 more than the sale price.

[52] Subject to what we will have to say about s. 78(4) of the Land Titles Act and the application judge’s finding that 267 was not a bona fide purchaser for value without notice (which would not affect the decision to set aside the default judgment as against 1103), we see no palpable and overriding error in the application judge’s findings of fact, no error in principle in his reasoning and no other basis on which to interfere with his discretionary decision to set aside the default judgment based on equitable principles.

[53] Further, we see no error in the application judge’s alternative conclusion that the default judgment for foreclosure and possession should be set aside because it was irregularly obtained.

[54] The application judge was entitled to accept Ms. Martin's evidence on the application that she did not receive notice of assignment of the second charge. The evidence that 267 filed on its motion to vary the application judge’s December 23, 2020 order and that did not form part of the original application record was not admissible on this appeal. The application judge dismissed the motion to vary in January 2021. Among other things, he was not satisfied that the evidence filed on the motion could not have been led on the original application through the exercise of reasonable diligence or that such evidence proved that Ms. Martin received notice of assignment of the second charge to 1103. The January 2021 order dismissing the motion to vary has not been appealed. Evidence filed on the motion to vary that was not adduced on the original application should not have been included in the record for this appeal.

[55] As for the appellants’ argument that Ms. Martin received notice of the assignment of the second charge via 1103’s statement of claim, an assignee of a mortgagee is required to give written notice of any assignment prior to taking steps to enforce the mortgage. Further, a statement of claim cannot serve as notice of assignment: Gowling Lafleur Henderson LLP, Recovery Services Group, Marriott and Dunn: Practice in Mortgage Remedies in Ontario, loose-leaf (2021-Rel. 7), 5th ed. (Toronto: Thomson Reuters Canada, 2020), at § 1:27, citing Canning v. Avigdor, [1961] O.W.N. 59 (Ont. C.A.); Blonski v. Jarmakowicz (1957), 9 D.L.R. (2d) 66 (Ont. H.C.); Diguillo v. Boland (1958), 13 D.L.R. (2d) 510 (Ont. C.A.).

[56] However, the order setting aside the default judgment as irregular does not, in and of itself, affect 267’s title. There is no evidence that 267 had any notice prior to purchasing the property from 1103 that Ms. Martin had not been given notice of assignment of the second charge.

(2) Does s. 78(4) of the Land Titles Act preclude the court from interfering with 267’s title?

[57] On appeal, 267 argues that, under s. 78(4) of the Land Titles Act, it acquired absolute, indefeasible title to the subject property when 1103 transferred the property to it on January 8, 2020. 267 claims it did not have actual notice of any defect in 1103’s title at the time of the transfer and therefore submits that its title cannot be defeated. Accordingly, even assuming the application judge was entitled to set aside 1103’s default judgment for foreclosure, 267 asserts that its title cannot be impeached, and that it was not open to the application judge to order the sale of the property.

[58] Section 78(4) of the Land Titles Act reads as follows:

78(4) When registered, an instrument shall be deemed to be embodied in the register and to be effective according to its nature and intent, and to create, transfer, charge or discharge, as the case requires, the land or estate or interest therein mentioned in the register.

[59] In Stanbarr Services Limited v. Metropolis Properties Inc., at paras. 13-26, this court explained that, subject to limited exceptions, s. 78(4) of the Land Titles Act establishes a deferred indefeasibility of title regime that guarantees that a transfer in favour of a subsequent purchaser such as 267 is effective once registered. In the result, contrary to Ms. Martin’s submissions, if none of the exceptions to the deferred indefeasibility of title regime apply, a court order setting aside the default judgment for foreclosure could not defeat 267’s title. Statements to the effect that a foreclosure judgment can be set aside at any time in various decisions relied on by Ms. Martin do not alter this conclusion. None addressed setting aside a foreclosure judgment where a transfer to a subsequent purchaser was registered under the Land Titles system.

[60] One exception to the deferred indefeasibility of title regime is the fraudulent instruments exception set out in s. 78(4.1) of the Land Titles Act. There is no suggestion that this exception applies to the facts of this case.

[61] The actual notice exception recognized by the Supreme Court of Canada in United Trust Co. v. Dominion Stores Ltd., [1977] 2 S.C.R. 915 may be another exception.

[62] In United Trust Co., the day after purchasing a property, United Trust Co. locked out a tenant that had given the former owner notice of intention to exercise an option to renew its lease and had agreed with the former owner on the terms of a longer extension. Although it had actual notice of the tenant’s unregistered lease and the extension agreement, United Trust Co. nevertheless purported to terminate the tenant’s tenancy and claimed that, apart from fraud, under the Land Titles Act, “actual notice of a non-registered instrument is ineffective to put the burden of the encumbrance resulting therefrom upon a purchaser for value”: United Trust Co., at p. 948.

[63] The majority of the Supreme Court rejected United Trust Co.’s submission and held that the doctrine of actual notice was well established and that “such a cardinal principle of property law cannot be considered to have been abrogated unless the legislative enactment is in the clearest and most unequivocal of terms”: United Trust Co., at p. 953.

[64] In Stanbarr, this court noted that there may be a question whether, following the addition of the fraudulent instruments exception in s. 78(4.1) to the Land Titles Act in 2006, the doctrine of actual notice of a non-fraudulent defect continues to operate to defeat the interest of a bona fide purchaser for value who has notice of such defect. However, this court assumed the doctrine continued to apply for the purposes of that decision but found it unnecessary to decide the issue.

[65] Other decisions of this court post-dating the 2006 amendment to the Land Titles Act have held that the actual notice doctrine continues to exist: Manias v. Norwich Financial Inc., 2008 ONCA 532 and MacIsaac v. Salo, 2013 ONCA 98, 114 O.R. (3d) 226. No issue has been raised on this appeal concerning whether the doctrine continues to exist.

[66] This court has held that only bona fide purchasers for value without notice of an interest or claim that differs from what is shown on the register obtain the protection of s. 78(4): MacIsaac v. Salo, citing Durrani v. Augier (2000), 50 O.R. (3d) 353 (S.C.J.); and 719083 Ontario Ltd. v. 2174112 Ontario Inc., 2013 ONCA 11, aff’g 2012 ONSC 3815.

[67] As noted at para. 25 above, in his reasons, the application judge made a finding that 267 is not a bona fide purchaser for value without notice. For ease of reference, we repeat his finding:

The principal of 267, Mr. Mangal, knew that he was purchasing the property by way of a Default Judgment for foreclosure. As [Ms. Martin] submits, Default Judgments for foreclosure can be and do get set aside. I accept the submission that a person with Mr. Mangal’s experience in flipping distressed properties for profit ought to have known this.

I find that in this case, 267 was not a bona fide purchaser for value without notice. It is not an innocent third-party purchaser . [Emphasis added.]

[68] 267 contends that the application judge erred in finding that it was not a bona fide purchaser for value without notice. Ms. Martin contends that the application judge was correct in making that finding and that, in any event, even if 267 was a bona fide purchaser for value without notice, it was not immunized from the court’s equitable jurisdiction to reopen the foreclosure. Concerning the latter submission, as we have said, at para. 59 above, if 267 was a bona fide purchaser for value without notice, a court order setting aside the default judgment for foreclosure could not defeat 267’s title.

[69] Concerning the application judge’s finding that Mr. Mangal/267 ought to have known that foreclosure judgments can be set aside, we observe, as a starting point, that this is a finding of constructive, not actual, knowledge. At para. 26 of Stanbarr, this court emphasized that because notice is one of the limited exceptions to the mirror principle [^3] underlying the Land Titles Act, it has been strictly construed to mean actual notice. The court said:

Our courts insist on actual notice of a defect. Actual knowledge means just that; the party must actually know about the defect. It is not sufficient that it has become aware of facts that may suggest it should make inquiries. [^4]

[70] However, because we have concluded that s. 78(4) of the Land Titles Act was not raised in the court below, we are not persuaded the application judge’s finding was necessarily an error in the context in which it was made. The “without notice” component of bona fide purchaser for value without notice can refer to actual and/or constructive notice depending on the context: see, for example, Gold v. Rosenberg, [1997] 3 S.C.R. 767 and Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805.

[71] In the court below, 267 claimed it was a bona fide purchaser for value without notice of any defect in the foreclosure proceeding to submit that the court should not invoke its equitable jurisdiction to set aside the default judgment for foreclosure. Had the lands not been registered under the Land Titles system, the application judge’s findings that Mr. Mangal ought to have known foreclosure proceedings can be set aside and that 267 was not an innocent third-party purchaser would have been relevant considerations on the question whether the court should invoke its equitable jurisdiction to set aside the default judgment for foreclosure and make an order interfering with 267’s title by ordering the property sold.

[72] However, because the application judge’s finding that 267 was not a bona fide purchaser for value without notice was premised on constructive rather than actual notice, it cannot disqualify 267 from relying on s. 78(4) of the Land Titles Act and maintaining that even if the default judgment for foreclosure is set aside its title cannot be impeached and the property cannot be ordered sold.

[73] That said, as s. 78(4) was not raised before him, the application judge was not required to determine whether any exception to its application existed. In particular, he was not required to consider the specific issue whether 267 had actual notice at the time of purchasing the property that Ms. Martin was occupying the property and may have had a claim to set aside the default judgment for foreclosure. In the circumstances, his finding that Mr. Mangal/267 had constructive knowledge that foreclosure judgments can be set aside does not preclude a finding of actual knowledge when the issue is considered in relation to s. 78(4) of the Land Titles Act.

[74] We have considered the record to assess whether we are in a position to determine whether 267 was a bona fide purchaser for value without notice such that it qualifies for the protection of s. 78(4) of the Land Titles Act. We conclude that we are not.

[75] 267 submits that, in purchasing the property, it relied on the default judgment for foreclosure and that its solicitor examined the judgment and underlying statement of claim to confirm that the foreclosure was carried out properly. It claims it had no notice of any defect or irregularity in the foreclosure proceeding and “discover[ed] that the owners prior to the Foreclosure were still occupying the property” on a visit to the property after the purchase was completed.

[76] However, to assess whether 267 had actual notice that Ms. Martin was occupying the property and may have had a claim to set aside the foreclosure judgment, it is necessary to consider the inferences arising from the circumstances in which the purchase was arranged, how it was handled, what 267 knew about the property and the terms and conditions of sale. In our view, there are issues arising from Mr. Mangal’s evidence about these matters.

[77] For example, on the one hand, Mr. Mangal, as principal of 267, states in his affidavit and on cross-examination that the original intention was to purchase the property, renovate it and “flip” it for a profit. As we have said, he asserts he discovered “the owners” were occupying the property after the transaction closed. On the other hand, 267 entered into an agreement of purchase and sale in which it agreed vacant possession would not be delivered on closing and also agreed to assume any existing tenancies. Inexplicably, no particulars of any such tenancies were included in the agreement of purchase and sale.

[78] 267 also knew the vendor had very recently obtained the property by way of foreclosure, knew it (267) had obtained mortgage financing requiring appraisal evidence of value ($560,000) well in excess of the purchase price it was paying ($425,000) and knew its mortgage financing ($460,000) exceeded the price it was paying.

[79] Mr. Mangal acknowledged on cross-examination that he had purchased properties that were subject to foreclosure orders on at least 10 occasions.

[80] The totality of this evidence raises questions about what 267/Mr. Mangal knew about the true value of the property, who was occupying it and whether the occupant may have had a claim to set aside the default judgment for foreclosure.

[81] In all the circumstances, we conclude there should be a trial of the issue whether 267 was a bona fide purchaser for value without notice that Ms. Martin was occupying the property and may have had a claim to set aside the default judgment for foreclosure. Once this issue has been decided, the presiding judge can determine whether 267 is entitled to the protection of s. 78(4) of the Land Titles Act.

[82] In response to our March 8, 2022 endorsement, the parties made submissions concerning the proper test for finding a person is a bona fide purchaser for value without notice. Copies of those submissions are attached to these reasons as Appendix ‘A’ and ‘B’ respectively.

[83] Suffice it to say that, apart from Stanbarr, which addresses the notice component of the test, neither party has provided authority directed specifically at the other components of the test as it applies in the context of s. 78(4) of the Land Titles Act. Further, we are not satisfied that the authorities on which Ms. Martin relies support her formulation of the test.

[84] Ms. Martin relies, in part, on decisions of this court addressing the bona fides of a sale to a third party in the context of a power of sale proceeding where there were allegations of fraud and conspiracy. [^5] A mortgagee/chargee proceeding with a sale under power of sale has specific duties with respect to the conduct of the sale. That context is far different from the situation of a chargee selling after obtaining a judgment for foreclosure.

[85] As another example, Ms. Martin relies on Tang v. Xpert Credit Control Solutions Inc., 2022 ONSC 1493, for the proposition that “purchaser for value” requires a payment not far less than fair market value, but no authority is cited in that case to support that proposition.

[86] Similarly, the appellants have cited a secondary source [^6] to assert there are two components of “ bona fide purchaser for value without notice”, when the author they cite says there are three components.

[87] Based on our review of various commentaries and the decisions they cite [^7], we are inclined to the view that the “ bona fide ” component of the test is largely, although perhaps not exclusively, related to the question of notice [^8] and that “purchaser for value” likely connotes something more than nominal consideration but does not otherwise address the adequacy of consideration. [^9] However, these are issues that can be more fully developed on the trial of the issue we are directing.

Disposition

[88] Based on the foregoing reasons, the appeal is allowed in part, paras. 2 to 4 of the December 23, 2020 order are set aside and the following orders are substituted:

1. This court orders that this application be joined with the foreclosure proceeding, court file no. CV-19-00004377-0000, and that the non-parties to this appeal be joined as parties to the consolidated proceeding;
2. This court orders that the noting of Ms. Martin in default shall be set aside, that Ms. Martin shall be deemed to have filed a notice desiring sale, and that there shall be an accounting by 1103 to Ms. Martin with respect to 1103’s sale of the property to 267 by way of reference;
3. This court orders that there shall be a trial of the issue whether 267 was a bona fide purchaser for value without notice that Ms. Martin was occupying the property and may have had a claim to set aside the default judgment for foreclosure which shall determine whether 267 is entitled to the protection of s. 78(4) of the Land Titles Act or whether the property should be sold under Ms. Martin’s request for sale, subject to any steps taken by 161, Mr. Pandher, or any successor in the interim;
4. This court orders that pending the outcome of the trial of the issue, but subject to further order, 267 shall be restrained from encumbering the property;
5. This court orders that the orders restraining 161 and Mr. Pandher from enforcing their charges are lifted but that pending the outcome of the trial of the issue, the surplus net proceeds of any sale by either 161, Mr. Pandher, or any successor, shall be paid into court to the credit of this proceeding and either or both Ms. Martin and 267 shall have standing as an owner to institute whatever proceedings they deem appropriate to challenge steps taken in any such enforcement proceeding;
6. This court orders that in the event the surplus net proceeds of any sale by either 161 or Mr. Pandher are paid into court to the credit of this proceeding pending the outcome of the trial of an issue, the judge hearing the trial of the issue shall make an order for payment out of any such proceeds to 267 if the judge determines 267 is a bona fide purchaser for value without notice and shall order payment out to Ms. Martin if the judge determines 267 is not a bona fide purchaser for value without notice or shall make any such other order to which the parties consent, with all such orders being on terms regarding appeal periods as the judge considers appropriate;
7. This court orders that in the event it is determined that the property shall be sold under Ms. Martin’s notice of sale, the property shall be sold by judicial sale and that reference(s) be conducted to determine who shall have the conduct of the sale, to set terms and conditions of sale, to determine for how long and on what terms Ms. Martin may occupy the property, to make provision for the payment of taxes and other expenses to maintain the property until sale, to make orders for possession and for a writ of possession to issue so that vacant possession can be delivered to a purchaser, to make a vesting order in favour of the purchaser free and clear of the interests of 161, Pandher, 267, 1130 and Martin and, subject to paragraph 9 below, to determine how the proceeds of sale should be distributed;
8. This court orders that any references directed under this order be conducted by way of motions returnable in Milton or before a judge designated by the Regional Senior Judge for Central West Region;
9. This court orders that in determining how the proceeds of any judicial sale shall be distributed, the judge(s) conducting the reference shall have regard to the priorities for payment of the proceeds set out below: a. First, to pay the proper expenses of the sale including legal fees directly attributable to the sale and real estate commission; b. Second, to pay 161 or any successor the amount properly owing under its charge to the date of sale, with any dispute as to that amount being resolved by the judge conducting the reference; c. Third, to pay Mr. Pandher or any successor the amount properly owing under his charge to the date of sale, with any dispute as to the validity of that charge or the amount properly owing under it being determined by the judge conducting the reference; d. If and only if the amounts payable under subparagraphs (ii) and (iii) above are in total less than $425,000 to pay 267, from the balance of the sale proceeds, an amount equal to the difference between the total paid under subparagraphs (ii) and (iii) and $425,000; and e. Fifth, to pay the remaining balance, if any, of the sale proceeds to Ms. Martin.

[89] In making these orders, we acknowledge that the appellants submitted that, in bringing an application to set aside a default judgment, Ms. Martin adopted an incorrect procedure and that the court lacked jurisdiction to order a sale on that application. In our view, none of those procedural flaws are a bar to this court correcting the procedures that were adopted. With the exception of 161 and Pandher, who do not object to an order for sale, all necessary parties had the opportunity to appear before the application judge and make submissions on the relevant issues.

[90] The parties may make brief written submissions of no more than seven pages concerning the costs of the appeal within seven days of the release of these reasons and may reply by written submissions of no more than three pages within seven days of receipt of the other party’s submissions.

Released: April 27, 2022 “J.S.”

“Janet Simmons J.A.”

“A. Harvison Young J.A.”

“B. Zarnett J.A.”

Appendix ‘A’

Court of Appeal File No.: C69053

COURT OF APPEAL FOR ONTARIO

BETWEEN:

KELLY MARTIN Respondent (Applicant)

-and-

11037315 CANADA INC., 2670082 ONTARIO CORP. , and AUTODOME LTD. Appellants (Respondents)

SUPPLEMENTARY FACTUM OF THE APPELLANTS, 11037315 CANADA INC. and 2670082 ONTARIO CORP.

March 18, 2022

PAUL ALEXANDER ROBSON 338 Oakwood Avenue Toronto, ON M6E 2V9 Tel No: 416.578.2986 Email: paulrobsonlaw@aol.com Counsel for the Appellants

TO: PRUDENT LAW 33 City Centre Drive, Suite 600 Mississauga, ON L5B 2N5 Dennis Van Sickle (LSO #: 58780F) dennis@prudentlaw.ca Tel: 905-361-9789 Lawyer for Kelly Martin

1. These submissions are submitted in accordance with the Endorsement of this Honourable Court dated March 8, 2022. These submissions provide an analysis on the doctrine of bona fide purchasers for value without notice.

Part A: Proper Test for a bona fide purchaser for value without notice

2. Under common law, a bona fide purchaser for value without notice is a purchaser or acquirer for value in good faith. An individual may be a bona fide purchaser for value without notice, if a purchase or an acquisition of an interest in an asset for a consideration having legal value is made, without knowledge of any fact which: (a) would cast doubt on the right of the seller to sell it in good faith; or (b) would prompt a reasonable person in comparable circumstances to make further inquiries as to the rights of the seller or the provenance of the property concerned, before proceeding with the purchase.

3. At least with respect to equitable title and interests, a bona fide purchase is a full defence against a claim by the ‘original’ or ‘wronged’ owner of the property. The defence is highlighted in Federal Court of Appeal in Toronto-Dominion Bank v. Canada (Fed CA, 2020) [^10], citing i Trade Finance Inc. v. Bank of Montreal (herein “i Trade” ) [^11]:

   “The full name of the equitable defence is ‘ bona fide purchase of a legal interest for value without notice of a pre-existing equitable interest’. The effect of the defence is to allow the defendant to hold its legal proprietary rights unencumbered by the pre-existing equitable proprietary rights. In other terms, where the defence operates, the pre-existing equitable proprietary rights are stripped away and lost in the transaction by which the defendant acquires its legal proprietary rights” [^12]

4. As such, relying on this defence successfully overturns any pre-existing equitable proprietary rights in favour of the individual rightly invoking the defence.

5. The doctrine can be classified in two components, being: (i) “for value” or price component; and (ii) the “ bona fide ” or no knowledge component alongside “without notice” or innocence component [^13]. Arguably (i) is evident based on the facts of a case, without the need for much legal deliberation. The Personal Property Security Act (herein “ PPSA ” ) is referenced in i Trade in fulfilling (i) [^14]. In particular, PPSA defines “purchase” and “purchaser” as:

   “Purchase: includes taking by sale, lease, negotiation, mortgage, pledge, lien, gift or any other consensual transaction creating an interest in personal property;

   Purchaser: means a person who takes by purchase.”

6. Therefore, the above can be used as a reference, otherwise applying general understanding of what amounts as a valid transaction, and normal definitions of ‘purchase’ and ‘purchaser’, one can fulfil component (i). Component (ii) is perhaps less clear.

7. The Supreme Court merely addressed the “purchaser” issue and provided that “there is no dispute that if [the party] is a “purchaser”, its purchase was bona fide and was made for value and… without notice. It remains to be determined whether [the party] is in fact a purchaser ” [^15]. Guidance will therefore be taken from the Ontario Court of Appeal decision in i Trade on component (ii) of the doctrine, which serves as a good starting point. [^16]

8. The Ontario Court of Appeal in i Trade referenced Nathanson J.’s approval in Bank of Nova Scotia v. Simpson of an old American text [^17]:

   “The principle that fraud is only prejudicial to him who participates in it is also recognized by the statute. The proviso protects all interests and estates lawfully conveyed or assured upon good consideration and bona fide to a person who, at the time of such conveyance or assurance, has no manner of notice or knowledge of the covin, fraud or collusion. These terms are broad and extensive. They apply to any conveyance, whether from the fraudulent grantor or fraudulent grantee. They are meant to protect a bona fide purchaser for a valuable consideration without notice of the fraud from the operation of the statute. This is manifest as well from the internal evidence of the proviso as from the plainest maxims of equity and justice. The proviso is general. It exempts any conveyance upon good consideration and bona fide to any person not having notice of the fraud or collusion from the effect of the statute. Its benefits therefore extend to any bona fide purchaser for valuable consideration, whether he purchases from the fraudulent grantor or the fraudulent grantee. The great object of the law is to afford certainty and repose to titles honestly acquired. It is of no public utility to destroy titles so acquired on account of the taint of a prior secret fraud, which may be unsuspected and unknown, and which, probably, no diligence could detect. A purchaser who pays a fair price for an ostensibly fair title without notice of any latent fraud in any previous link of the title has a higher equity than the creditors. They may lose their debts; if they can recover the property from him he may lose the money which he paid for it. The equities between them are equal, and he has the legal title, and consequently the prior right, for the law never divests one of a legal title in order to invest another with it where there are no equitable reasons for so doing. He will therefore hold the estate purged of the anterior fraud that infected the title.” [Emphasis Added].

9. This passage provides insight into component (ii). One may use the term ‘latent fraud’ interchangeably with ‘obvious fraud’ or less conservatively, ‘possible fraud’. However, this is limited to obvious or possible knowledge of the fraud and does not relate as to knowledge of whether the counterparty itself was the perpetrator of fraud, or possibly engaging in fraud. The Court of Appeal in i Trade clarified this by stating that buying directly from a fraudster rather than a corporate vehicle used by the fraudster to perpetrate the fraud as immaterial [^18].

10. The Ontario Court of Appeal in i Trade also overruled the motion judge’s ruling and implied that the following is sufficient to establish the notice element of the doctrine: “motion judge concluded that although [the party] was a “purchaser”, it was not established that the purchaser was a bona fide purchaser for value without notice… this, in spite of the fact that she found in her reasons as follows… at no time did [the party] have any notice or knowledge”. For the legal connotation of ‘notice or knowledge’, the Supreme Court’s decision in Gold v. Rosenberg, [1997] 3 S.C.R. 767 (herein “ Gold ” ) and Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805 (herein “Citadel” ) will be referenced.

11. In both Gold and Citadel, the Court notes that case law supports two lines of authority on the issue of notice. The first being, a narrow knowledge test, based on ‘actual knowledge’ or wilful or reckless blindness, and the other being a more expansive knowledge test, ‘constructive knowledge’ or knowledge of such facts as would cause a reasonable person to inquire. [^19] Honourable Lacobucci J in Gold opted with the latter test, and provided a holistic analysis of the doctrine:

    “(1) that the property [in question] was subject to a trust [or pre-existing equitable rights] in favour of the plaintiff; (2) that the property, which the defendant received, was taken from the plaintiff in breach of trust [or against their pre-existing equitable rights]; and (3) that the defendant did not take the property as a bona fide purchaser for value without notice. The defendant will be taken to have notice if the circumstances were such as to put a reasonable person on inquiry, and the defendant made none, or if the defendant was put off by an answer which would not have satisfied a reasonable person .” [^20] [Emphasis Added].

12. Similarly, in Citadel, the Court states that “relief will be granted where a stranger to the trust [or property in question], having received trust property [or property in question] for his or her own benefit and having knowledge of facts which would put a reasonable person on inquiry, actually fails to inquire as to the possible misapplication of trust property. It is this lack of inquiry that renders the recipient’s enrichment unjust” [^21].

13. In Stanbarr [^22] the Court made a similar finding on the concept of notice. The Court divides the notice component into a ‘Notice of Fraudulent Defect’ and ‘Notice of Non-Fraudulent Defect’.

14. For the ‘Notice of Fraudulent Defect’ the test is the same as in Gold and Citadel, namely there must be actual notice and not constructive notice. The Court in Stanbarr states that “[o]ur courts insist on actual notice of a defect. Actual knowledge means just that; the party must actually know about the defect.” [^23]

15. The second component, ‘Notice of Non-Fraudulent Defect’ is not clearly defined in Stanbarr. A commonsense interpretation seems to point to the purchaser’s knowledge of procedural deficiencies in the transaction. In either case of knowledge or notice of ‘Non-Fraudulent Defect’ or ‘Fraudulent Defect’, the law is clear. Actual knowledge is required. If not actual knowledge, then at least knowledge that would put a reasonable person on inquiry.

16. In exploring what would put a reasonable person on inquiry, it is appropriate to explore the Canadian jurisprudence on the concept of fraud, or more particularly the ‘badges of fraud’ that would indicate to a reasonable person to inquire.

17. In Bank of Montreal v. Bibi, 2020 ONSC 2948 [^24] the court set out the badges of fraud, which have been in existence for four hundred years, derived from Twyne’s Case (1601) 76 E.R. 809 [^25]. The following are “badges of fraud” for the purpose of determining the intention of a [party]: (i) the transferor has few remaining assets after the transfer; (ii) the transfer was made to a non-arm’s length person; (iii) there were actual or potential liabilities facing the transferor, he was insolvent, or he was about to enter upon a risky undertaking; (iv) the consideration for the transaction was grossly inadequate; (v) the transferor remained in possession or occupation of the property for his own use after the transfer; (vi) the deed of transfer contained a self-serving and unusual provision; (vii) the transfer was effected with unusual haste; or, (viii) the transaction was made in the face of an outstanding judgment against the debtor: DBDC Spadina Ltd. v. Walton, 2014 ONSC 3052 at para 67 [^26]; Montor Business Corp. (Trustee of) v. Goldfinger, 2016 ONCA 406 at para 73 [^27], leave to appeal denied [2016] SCCA No 361. These badges of fraud are non-exhaustive and may or may not apply to a given fact situation: Urbancorp at para 55. Although badges of fraud are indicia of fraudulent intent, their presence does not require an inference of fraud to be drawn. Badges of fraud are considered against the entire record: Urbancorp at para 53.

Part B: Did the application judge err?

18. The application Judge said, in part:

    [26] The principal of 267, Mr. Mangal, knew that he was purchasing the property by way of a Default Judgment for foreclosure. As the Applicant submits, Default Judgments for foreclosure can be and do get set aside. I accept the submission that a person with Mr. Mangal’s experience in flipping distressed properties for profit ought to have known this.

    [27] I find that in this case, 267 was not a bona fide purchaser for value without notice. It is not an innocent third-party purchaser. [^28]

19. To summarize, the application judge concluded that the principal of 267, Mangal, knew that he was purchasing by way of a Default Judgement for foreclosure, finding that a person with Mangal’s experience in flipping distressed properties for profit ought to have known the risks associated with this. On that evidentiary foundation alone, the application Judge concluded that Mangal was not a bona fide purchaser for value without notice. The application judge’s reasoning is analogous to saying that because an individual has knowledge that bridges can sometimes fall, they must never walk over a bridge.

20. 267 had no notice of a ‘Fraudulent Defect’ or a ‘Non-Fraudulent Defect’.

21. Although not explicitly pled to be fraud, Martin indicated that 267’s purchase was marred by inadequate consideration and unusual haste.

22. The purchase price was determined by Mangal examining comparable properties, removing 15 % from the purchase price because of renovations required at the subject property no commission payable (because it was a private deal).

23. Further, there is no unusual haste in selling the Property. The mortgagee, 110 served its statement of claim on Martin on October 20, 2019, and the sale to 267 took place on January 8, 2020. A total of eighty (80) days passed before the Property was sold. There is no unusual haste in this case.

24. Therefore component (i) of the defence is established. 267 is a purchaser of property in question for valid legal consideration. Mangal, on behalf of 267, gave evidence that the purchase price was calculated. Therefore, the question shifts to whether 267 can fulfil component (ii) of the bona fide purchaser for value without notice defence.

25. The narrow, ‘actual knowledge’ test of component (ii) of the defence is also sufficed based on the facts and evidence accepted by the application judge. To reiterate, no evidence was produced by Martin, nor was there any finding that 267 and/or Mangal had actual knowledge of defects, either Fraudulent or Non-Fraudulent, in the Foreclosure or Assignment of Mortgage or had knowledge of fraud or bad faith.

26. 267 investigated title to the Property, found that 110 had a valid registered Foreclosure Order issued by the Superior Court of Justice. 267 relied upon such registration and bought the Property. 267’s lawyer received further declarations/representations from 110 that it had carried out the Foreclosure properly.

27. In Stanbarr [^29], the question of actual notice came up in the form of an email sent by the borrower’s lawyer which stated that the owner has not received any notice. The trial judge made a finding that this email constitutes ‘actual notice’. The Court of Appeal in Stanbarr overturned this ruling. If a party sends a Notice using the prescribed manner, then it is not a defect if the notice was not received by the intended recipient. [^30]

28. In the case at bar, there was no email, or any evidence whatsoever, that Martin made attempts to notify either 110 or 267. The phone calls from Martin are self-serving and are not supported by any other evidence.

29. The parties therefore are twice insulated because 110 sent the notices in the prescribed manner so there is no defect and furthermore neither 110 or 267 received any notice whatsoever from Martin indicating there was a defect.

30. Even if the expansive or ‘constructive knowledge’ test is applied, it is submitted that 267 and/or Mangal made an inquiry expected of a reasonable person in such circumstances, and that 267 and/or Mangal were not put off by an answer which would not have satisfied a reasonable person. It is not sufficient for the application Judge to assert that someone with Mangal’s experience in dealing with distressed properties ought to be considered to have notice. That is not the test the Supreme Court applies. The test applied in established precedents is whether inquiry expected of a reasonable person were made. As such, it is respectfully submitted that application erred in law and in fact, in mis-applying the bona fide purchaser for value without notice defence in this given case.

PART C: Finding this Court should make concerning that issue and why.

31. 267 should retain title because it is a bona fide purchaser for value without notice. In turn, the default judgment should not be set-aside because the parties cannot return to the status quo ante.

32. The application judge erred by determining that 267 was not a bona fide purchaser because he misapplied the rule of bona fide purchaser for value without notice.

33. The application judge erred by misinterpreting the evidence before him that indicated absolutely no fraud or even badges of fraud.

34. Without fraud or notice, 267 is bona fide purchaser for value without notice.

ALL OF WHICH IS RESPECTFULLY SUBMITTED this 18 th day of March, 2022.

PAUL ALEXANDER ROBSON

SCHEDULE “A”

LIST OF AUTHORITIES

1. Martin v 11037315 Canada Inc. 2020 ONSC 8087;
2. Twyne’s Case (1601) 76 E.R. 809
3. Bank of Montreal v. i Trade Finance Inc. 2009 ONCA 615, [2009] 96 O.R. (3d) 561
4. Bank of Montreal v. Bibi 2020 ONSC 2948
5. Gold v Rosenberg, [1997] 3 S.C.R. 767
6. Toronto-Dominion Bank v. Canada (Fed CA, 2020)
7. Citadel General Assurance Co. v. Lloyds Bank Canada, [1997] 3 S.C.R. 805
8. David Stevens, “Knowing Assistance” and “Knowing Receipt” in The Supreme Court of Canada, 14 B.F.L.R. 407
9. Stanbarr Services Limited et al. v. Metropolis Properties Inc. et al. 2018 ONCA 244

SCHEDULE “B”

LIST OF STATUTORY AUTHORITIES

N/A

Appendix ‘B’

Court of Appeal File No: C69053

COURT OF APPEAL FOR ONTARIO

B E T W E E N:

KELLY MARTIN Applicant (Respondent)

-and-

11037315 CANADA INC., 2670082 ONTARIO CORP., and AUTODOME LTD.

Respondents (Appellants)

WRITTEN SUBMISSIONS OF THE RESPONDENT/APPLICANT, KELLY MARTIN

March 25, 2022

PRUDENT LAW Barristers & Solicitors Dennis Van Sickle (58780F) 4 Robert Speck Pkwy, Suite 360 Mississauga, ON L4Z 1S1 Tel. (905)361-9789 Fax. (289) 801-2248 Email. dennis@prudentlaw.ca Lawyers for the Respondent Kelly Martin

TO:

PAUL ALEXANDER ROBSON 338 Oakwood Avenue Toronto, ON M6E 2V9 Tel No: 416.578.2986 Email: paulrobsonlaw@aol.com Lawyer for the Appellants

WRITTEN SUBMISSIONS OF WRITTEN SUBMISSIONS OF THE RESPONDENT/APPLICANT, KELLY MARTIN

1. Further to the Endorsement of the panel dated March 8, 2022 and the letter dated March 11, 2022 from the Shannon Chace, Executive Legal Office (Acting) for the Court of Appeal for Ontario, below are the Kelly Martin’s written submissions.

Question 1: What is the proper test for finding a person is a bona fide purchaser for value without notice and, in particular, the level and content of knowledge required to satisfy the notice component?

2. The general nature of the defence of bona fide purchaser for value without notice “is well-known, but its precise content and nature remain unsettled.” [^31]

3. Black’s Law Dictionary defines bona fide to mean:

1. Made in good faith; without fraud or deceit. 2. Sincere, genuine. [^32]

4. Black’s Law Dictionary’s definition for good faith reads in full as follows:

A state of mind consisting in (1) honesty in belief or purpose, (2) faithfulness to one's duty or obligation, (3) observance of reasonable commercial standards of fair dealing in a given trade or business, or (4) absence of intent to defraud or to seek unconscionable advantage. — Also termed bona fides.

“The phrase ‘good faith’ is used in a variety of contexts, and its meaning varies somewhat with the context. Good faith performance or enforcement of a contract emphasizes faithfulness to an agreed common purpose and consistency with the justified expectations of the other party; it excludes a variety of types of conduct characterized as involving ‘bad faith’ because they violate community standards of decency, fairness or reasonableness. The appropriate remedy for a breach of the duty of good faith also varies with the circumstances.” Restatement (Second) of Contracts § 205 cmt. a (1979).

“[G]ood faith is an elusive idea, taking on different meanings and emphases as we move from one context to another — whether the particular context is supplied by the type of legal system (e.g., common law, civilian, or hybrid), the type of contract (e.g., commercial or consumer), or the nature of the subject matter of the contract (e.g., insurance, employment, sale of goods, financial services, and so on).” Roger Brownsword et al., “Good Faith in Contract,” in Good Faith in Contract: Concept and Context 1, 3 (Roger Brownsword ed., 1999).

• utmost good faith. The state of mind of a party to a contract who will freely and candidly disclose any information that might influence the other party's decision to enter into the contract. — Also termed uberrima fides ; uberrimae fidei [^33].

5. The concept of a “purchaser for value” requires the provision of valuable consideration, whereas the concept of a “ bona fide” purchaser necessarily entails an exchange of equal value” [^34] or payment or not “far less than fair market value”. [^35]

6. To count as a bona fide the purchaser “ requires more than the provision of valuable consideration. The recipient also must act, broadly speaking, in good faith.” [^36]

7. There are at least two ongoing proceedings commenced by aggrieved mortgagors against 267’s principal, Shan Mangal. [^37] In one of those cases Mr. Mangal was the operating mind of the impugned purchaser, and in the other it would appear he was the defacto operating mind. There is similar ongoing litigation involving the principal of 110, Roy D’Mello, as well. The facts as revealed by the published decisions to date the three cases bear a striking similarity to those in the within proceeding. [^38] Not only do these cases reveal a pattern of conduct by the Appellants, the decisions that have been published in those matters are instructive as to how the bona fides of a sale by a mortgagee to a third party in the context of a mortgage enforcement ought to be assessed. From these decisions, one of which was delivered by Justice Simmons of this Honourable Court of Appeal delivered a decision on January 28, 2022, we see that in determining assessing the bona fides of a purchaser in this particular context inferences may be drawn from aspects of the parties conduct in completing the sale that are indicia of the absence of good faith, including:

• whether or not the property was listed for sale on MLS;
• whether or not the mortgagee and purchaser had a prior business relationship;
• whether or not the sale of the property was rushed;
• whether or not the mortgagor was advised of the impending sale;
• after the sale whether the mortgagee/ purchaser only advised the mortgagor of the same for a considerable period of time;
• whether or not the purchaser inspected the property;
• whether or not the purchaser obtained an independent or proper appraisal of the property;
• whether or not the purchaser intended to flip the property for a profit;
• whether or not he purchaser financed the purchase of the property with a short term mortgage;
• whether or not there is evidence that the property was transferred well below market value, and if so, whether or not there is evidence that this was known to the purchaser; and/or
• whether or not the property was subsequently mortgaged for more than the purchase price.

8. As to the notice component of the concept/defence of bona fide purchaser for value without notice, this Honourable Court in Stanbarr has confirmed that in the context of a defect in a power of sale, a bona fide purchaser for value will satisfy the defence if it cannot further be established that the purchaser had actual knowledge of the defect in the power of sale process.

9. Base the foregoing Ms. Martin submits that the test for a bona fide purchaser for value without notice in this particular context (a sale by a mortgagee to a third party pursuant to Default Judgment for foreclosure that was irregularly obtained) is as follows:

   a) did the purchaser intend to seek an unconscionable advantage, violate the community standards of decency, fairness or reasonableness, or fail to observe the reasonable commercial standards of fair dealing; b) fail to exchange equal or fair value with 110; or c) have actual notice that the Default Judgment was irregularly obtained?

If the answer to any one of the factors set out above at paragraphs a to c is yes then 267 was not a bona fide purchaser for value without notice.

In determining the answers to questions a and b inferences may be drawn from aspects of the parties conduct in completing the sale that which are indicia of an absence of good faith, including those set out above a paragraph 7.

10. The issue of actual notice and the application of the Land Titles Act that the Appellants have now only raised on Appeal, is only relevant if both questions a and b are answered in the negative, and even then only goes to the issue of whether or not the foreclosure should be reopened because the Default Judgment was irregularly obtained. In exercising his discretion, Justice Gibson made the decision to reopen the foreclosure because the equities favoured doing so, which is independent of his additional basis for having done so because 110’s Default Judgment had been irregularly obtained.

11. The Appellants test for a bona fide purchaser for value without knowledge starts and stops with the knowledge component. This is not the test. Stanbarr does not say that a purchaser without actual notice of a defect is immune or “insulated” from equitable claim by a dispossessed mortgagor. Indeed, the Court of Appeal specifically said that “it is clear” that a final order for foreclosure may be reopened “at any time, even after the property is closed.” [^39]

Question B: Did the application judge err on the facts of this case in finding 267 is not a bona fide purchaser for value without notice?

12. No. The findings of fact germane to the application of the test for a bona fide purchaser for value without notice were supported by the evidence (most of which admitted or uncontested). All of the indicia of an absence of good faith set out above at paragraph 7 were found to have existed by Justice Gibson. These findings of fact are entitled to significant defence and should be immune from appellate review.

13. As to paragraph 21 of the Appellants’ Supplemental Factum, not only was 267’s purchase of the property marred by inadequate consideration and unusual haste, it was marred by secrecy. No one, including Mr. Mangal, did anything that would have alerted Ms. Martin to the fact that Default Judgement had been obtained or that 110 had transferred title to itself pursuant to its judgment for foreclosure. Furthermore, Mr. Mangal bought the property, on an unconditional basis with knowledge that the seller was not undertaking to deliver vacant possession of the property at closing, without making any attempt to inspect the property beyond driving by the property to make sure it was still standing. Despite the fact that he had a firm deal as of December 6, 2019, Mr. Mangle chose not to notify Mr. Martin until late January, 2020, several weeks after the sale had closed.

14. As to paragraph 21 of the Appellants’ Supplemental Factum, Mr. Mangal’s allegations as to how he formulated the purchase price are not credible. First, he claims to have conducted a review of comparable properties prior to purchasing the property. The MLS listings he produced by way of an exhibit to his affidavit were on their face printed on July 22, 2020, which was well after the application had already been commenced. Moreover, the expert report produced by Ms. Martin reveals that if Mr. Mangal did in fact carry out a search of the MLS data he said he did he would have found two further recent sales of comparable properties in November, 2019 for $585,000.00 and $600,000.00 respectively, both of which were conspicuously absent from Mr. Mangal’s evidence.

15. His evidence on this issue is internally inconsistent, and on cross-examination it was revealed that his claims as to how he purportedly came up with his purchase price were disingenuous. Both of the MLS listings he produced were for properties that sold for $550,000 and $520,000.00 for an average price of $535,300.00, however, Mr. Mangal says that if the property where to have been purchased in the “ordinary fashion” he would have likely offered only $500,000.00. His basis for this is that the other properties “were in much better condition than the subject property”, yet he never inspected the subject property nor is there any evidence he inspected the other properties. He then goes on to deduct a further 10% due to the fact that renovations were likely to be required, but again, he never inspected the property. We know how he actually came up with his purchase price. He drove by the property, and that’s it:

“The only step that I remember taking, I did a drive-by of the property to make sure that the property was still standing. And that is how I came up with my value.”

Question C: If the answer to b), is yes, what, if any, finding should this court make concerning that issue and why?

16. The decision to set aside a default judgment for foreclosure is discretionary. As such, it is entitled to deference in the absence of an error in law or principle, a palpable and overriding error of fact, or unless the decision is so clearly wrong as to amount to an injustice. In the end the judge “must ultimately determine whether the interests of justice favour granting the order”. [^40]

17. When the court is asked to reopen a foreclosure where the mortgaged property has already been sold the court is tasked with to determining whether the equities in favour of reopening the foreclosure outweigh the equities against it while taking into account the five factors from Winters including whether the rights of the purchaser would be unduly prejudiced. Looking into the bona fides of the purchase is a natural place to start in assessing the question of undue prejudice. It is not necessarily the end of the analysis, however. The fact that a purchaser is a bona fide purchaser for value without notice does necessarily carry so much weight so as always tip the scales in favour of keeping the foreclosure closed. The innocence of the buyer is only one of many factors to be considered in determining whether the interests of justice favour granting the order”. A truly innocent, bona fide purchaser for value without notice will move in the direction of not reopening the foreclosure, but the degree to which the scale is moved depends on the existence any counterbalancing facts. In the within case there are such facts, namely:

    a) Ms. Martin’s only asset of material value was her home, she has no one she can depend upon for financial support, she is unemployed and suffers from significant health problems (the existence of which were corroborated by her health records produced as Exhibit F to her original affidavit), and as a result if foreclosure is not reopened then she will be destitute and homeless; b) The flip side of this coin is that the Appellants divide Ms. Martin’s equity as windfall. In Mr. D’Mello’s case his mortgage of about $70,000.00 yielded a net gain of about 200% from the foreclosure proceeds alone, whereas Mr. Mangal acquired a property for $150,000.00 below its market value; c) Ms. Martin made an honest mistake. She telephoned Mr. D’Mello in an attempt to address the issue when she should have sent him a simple request to sell the property. Contrary to what the Appellants claim at paragraph 28 of their Supplemental Factum, Ms. Martin produced phone records corroborating her assertions, that not only prove she telephone Mr. D’Mello three times, but that the duration of the calls were 2, 3, and 4 minutes respectively. Mr. D’Mello chose not to participate in the proceeding and chose not to contest any of Ms. Martin’s extensive allegations. To now call her phone calls self serving is improper.

18. If Justice Gibson erred in his application of the facts by finding 267 is not a bona fide purchaser for value without notice, then His Honour’s discretion to reopen the foreclosure should still be given deference.

ALL OF WHICH IS RESPECTFULLY SUBMITTED THIS 25 th DAY OF March, 2022.

Dennis Van Sickle PRUDENT LAW Barristers & Solicitors Dennis Van Sickle (58780F) 4 Robert Speck Pkwy, Suite 360 Mississauga, ON L4Z 1S1 Tel. (905)361-9789 Fax. (289) 801-2248 Email. dennis@prudentlaw.ca Lawyers for the Respondent Kelly Martin

Footnotes

[^1]: Appellants’ counsel are mistaken in their submissions concerning other matters relating to the application. They say the application judge accepted that the property was worth $575,000 without appraisal evidence; however, Ms. Martin filed an affidavit on the application from an appraiser to which an appraisal was attached. They say the application judge made no reference to the floodgates argument 267 made to him; he did. In oral submissions on the appeal, counsel claimed there was no evidence before the application judge to support Ms. Martin’s counsel’s submission that Mr. Mangal broke into her home while she was being cross-examined. Ms. Martin filed an affidavit on the application making that allegation. [^2]: As we will explain in the next section, the court’s ability to set aside a judgment for foreclosure and impeach the title of a bona fide purchaser for value without notice is constrained by s. 78 of the Land Titles Act where the property is registered under the Land Titles system. Nonetheless, as we have observed, where property is registered under the Land Titles system, the court may set aside a foreclosure judgment solely against the chargee that obtained the judgment. [^3]: At para. 13 of Stanbarr, this court quoted a description of the principles underlying the Land Titles Act set out in Durrani v. Augier, at para. 42, ref erencing Marcia Neave's article"Indefeasibility of Title in the Canadian Context" (1976) 26 U.T.L.J. 173 at p. 174:

The philosophy of a land titles system embodies three principles, namely, the mirror principle, where the register is a perfect mirror of the state of title; the curtain principle, which holds that a purchaser need not investigate the history of past dealings with the land, or search behind the title as depicted on the register; and the insurance principle, where the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. These principles form the doctrine of indefeasibility of title and [are] the essence of the land titles system[.]

[^4]: At footnote 2 of Stanbarr, this court left open whether wilful blindness can suffice to meet the threshold for notice because the issue was not argued. [^5]: Sheth v. Randhawa, 2022 ONCA 89. [^6]: David Stevens, “’Knowing Assistance’ and ‘Knowing Receipt’ in the Supreme Court of Canada” (1999) 14 B.F.L.R. 407. See p. 428. [^7]: See: Robert Chambers, The Law of Property (Toronto: Irwin Law, 2021) at ch. 9; Victor Di Castri, Law of Vendor and Purchaser, 3rd ed. (Toronto: Thomson Reuters Canada Limited, 2022) at § 13:51; John McGhee et al., Snell’s Equity, 34th ed. (London: Sweet & Maxwell, 2020) at pp. 66-76; Midland Bank Trust Co. Ltd. v Green, [1981] AC 513 (UK HL); I.M.P. Group Ltd. v. Dob, 2008 CarswellOnt 5381 (Ont. Sup. Ct.). [^8]: For example, we note that in The Law of Property (Toronto: Irwin Law, 2021), ch. 9, the author states “ bona fide means good faith, which seems to be satisfied if the purchaser did not have notice of the prior equitable interest”. [^9]: For example, in The Law of Property, at ch. 9, the author explains:

Purchase for value may seem redundant, but the word purchase once had a special meaning. Land could be either inherited or purchased. … Anyone who received a direct grant of land took it by purchase even if it was a gift.

The consideration needed to make a binding contract might not be enough to support the defence of bona fide purchaser for value. … the defence requires more than nominal consideration. Value does not have to be full market value. Someone can be a bona fide purchaser for value even if they get an amazing bargain.

[^10]: Toronto-Dominion Bank v. Canada (Fed CA, 2020) [^11]: i Trade Finance Inc. v. Bank of Montreal, 2011 SCC 26 [2011] 2 S.C.R. 360 [^12]: i Trade Finance Inc. v. Bank of Montreal, 2011 SCC 26 [2011] 2 S.C.R. 360, (“ i Trade” ) at para 60 [^13]: David Stevens, “Knowing Assistance” and “Knowing Receipt” in The Supreme Court of Canada, 14 B.F.L.R. 407 [^14]: i Trade – at para 63. [^15]: Ibid – at para 62. [^16]: Bank of Montreal v. i Trade Finance Inc. 2009 ONCA 615, [2009] 96 O.R. (3d) 561 (“ Bank of Montreal”) [^17]: Ibid – at para 21. [^18]: i Trade – at para 15. [^19]: David Stevens, “Knowing Assistance” and “Knowing Receipt” in The Supreme Court of Canada, 14 B.F.L.R. 407 – page 14-15. [^20]: Gold – at para 790. [^21]: Citadel – at para 49. [^22]: Stanbarr Services Limited et al. v. Metropolis Properties Inc. et al. 2018 ONCA 244 (“ Stanbarr ”) [^23]: Stanbarr at para 26. [^24]: 2020 ONSC 2948 – at para 23. [^25]: (1601) 76 E.R. 809 [^26]: 2014 ONSC 3052 at para 67 [^27]: 2016 ONCA 406 at para 73 [^28]: Martin v 11037315 Canada Inc. 2020 ONSC 8087 at paras 26-27. [^29]: Stanbarr at para 30. [^30]: Stanbarr at para 32. [^31]: Brief of Authorities to the Written Submissions of the Respondent/Applicant, Kelly Martin (“Martin Brief”), Tab 1, Mitchell McInnes, The Canadian Law of Unjust Enrichment and Restitution, Chapter 38. [^32]: Martin Brief, Tab 2 [^33]: Martin Brief, Tab 3. [^34]: Martin Brief, Tab 1. [^35]: Tang v. Xpert Credit Control Solutions Inc., 2022 ONSC 1493 at para. 26. [^36]: Martin Brief, Tab 1. [^37]: Sheth v. Randhawa, 2022 ONCA 89 and Tang v. Xpert Credit Control Solutions Inc., 2022 ONSC 1493. [^38]: Di Trapani v. 9706151 Canada Ltd., 2019 ONSC 7311. [^39]: Winters v. Hunking, 2017 ONCA 909 at para. 15. [^40]: Winters v. Hunking, 2017 ONCA 909 at para. 16.