Court of Appeal for Ontario
Citation: Hume v. 11534599 Canada Corp., 2022 ONCA 575
Date: 2022-08-05
Docket: C69657 & M53390
Judges: Strathy C.J.O., Sossin and Favreau JJ.A.
Docket: C69657
Between:
Ivylin Ricketts Hume and Weston Rodney Hume Applicants (Respondents)
and
11534599 Canada Corp. Respondent (Appellant)
Docket: M53390
And Between:
Ivylin Ricketts Hume and Weston Rodney Hume Applicants (Moving Parties)
and
11534599 Canada Corp. Respondent (Responding Party)
Counsel:
Arnold H. Zweig, for the appellant (C69657) / responding party (M53390)
Elaine Peritz, for the respondents (C69657) / moving parties (M53390)
Heard: May 18, 2022
On appeal from the order of Justice Kendra D. Coats of the Superior Court of Justice, dated June 28, 2021, with reasons at 2021 ONSC 4565.
Favreau J.A.:
[1] The appellant holds a second mortgage on a residential property owned by the respondents. The respondents defaulted on the mortgage. Soon after the default, there was a fire at the property which became uninhabitable. The appellant then took possession of the property.
[2] The respondents brought an application to regain possession of the property. They also sought orders allowing them to pay out the outstanding mortgage amount and directing the appellant to assign the mortgage to another lender.
[3] The application judge found that the respondents were in arrears on the mortgage, but that the appellant was not entitled to take possession because it had not done so "peaceably". The application judge determined the outstanding amounts owing under the mortgage and made an order requiring the respondents to pay those outstanding amounts, after which the appellant was to assign the mortgage to another lender.
[4] The appellant appeals primarily on the issue of whether the application judge erred in finding that it was not entitled to take possession of the property. In particular, the appellant asserts that it did take "peaceable" possession of the property.
[5] Since the appeal was commenced, this court has denied the appellant's motion to stay the application judge's order. Despite being denied a stay, the appellant has failed to assign the mortgage pursuant to the application judge's order. On that basis, the respondents bring a motion to quash the appeal as an abuse of process.
[6] For the reasons set out below, the motion to quash is dismissed and the appeal is allowed in part. I conclude that the application judge erred in finding that the appellant did not take peaceable possession of the property and the appellant is therefore entitled to some additional amounts for its expenses in enforcing the mortgage. However, the appellant is nevertheless to comply with the term of the application judge's order requiring an assignment of the mortgage. The appellant should have complied with this term of the order before the appeal was heard and it should not be rewarded for its failure to comply with a court order.
A. background
(1) The appellant takes possession of the property
[7] The respondents own a house in Mississauga, Ontario.
[8] On February 21, 2020, the respondents obtained a second mortgage on the property from the appellant for $215,000. The rate of interest on the mortgage was 13%.
[9] The mortgage was due on September 1, 2020. Given that the respondents did not pay out the amount owed on the mortgage on that date, the mortgage renewed automatically on September 2, 2020. Based on the terms of the mortgage agreement, the rate of interest on the mortgage upon renewal increased to 16%.
[10] On October 2, 2020, the appellant's solicitor sent the respondents a mortgage discharge statement indicating that they owed $4,044.50 as of October 1, 2020.
[11] On October 13, 2020, there was a fire at the respondents' house that caused significant damage. The respondents were forced to move out. However, they left personal possessions at the property and locked the doors. They also notified their insurer. There is nothing in the record to indicate that they notified the appellant of the fire.
[12] In late October 2020, the appellant's representative went by the property and noticed that it was damaged by a fire and appeared uninhabitable. On October 28, 2020, the appellant took possession of the property, including by changing the locks. The appellant did not give any advance notice to the respondents. In taking possession of the property without notice, the appellant relied on paragraph 10 in the Standard Charge Terms of the mortgage agreement between the parties, which provided as follows:
- Upon default in payment of principal and interest under the Charge or in performance of any of the terms or conditions hereof, the Chargee may enter into and take possession of the land hereby charged and where the Chargee so enters on and takes possession or enters on and takes possession of the land on default as described in paragraph 9 herein the Chargee shall enter into, have, hold, use, occupy, possess and enjoy the land without the let, suit, hindrance, interruption or denial of the Chargor or any other person or persons whatsoever.
[13] On November 4, 2020, the respondents' counsel wrote to the appellant, contesting the appellant's right to take possession of the property.
[14] On December 8, 2020, the appellant's solicitor sent the respondents an updated mortgage discharge statement, indicating that the respondents now owed $27,419.43 in arrears.
[15] On December 30, 2020, the appellant sent the respondents a notice of sale.
[16] By March 12, 2021, the appellant's mortgage discharge statement claimed that the respondents owed $313,032.75.
(2) Application for possession of the property and other relief
[17] The respondents brought an application in the Superior Court of Justice seeking various relief, including:
a. A declaration that the appellant did not have lawful possession of the property and an order returning possession of the property to the respondents;
b. A stay of the notice of sale;
c. An order assigning the mortgage to another lender, namely Madeero Lending Management Inc. ("Madeero"); and
d. An order quantifying the amount the respondents were required to pay the appellant in order to discharge the mortgage.
[18] The application judge granted the application.
[19] On the issue of the appellant's possession of the property, the application judge found that paragraph 10 of the Standard Charge Terms did not require the appellant to give notice prior to taking possession. However, the application judge referred to the common law requirement that the appellant could only take possession of the property in a manner that was "peaceable", which she defined as possession that was "not seriously challenged by others". She ultimately concluded that the appellant did not take peaceable possession of the property. The application judge's reasons for making this finding are discussed in more detail in the analysis below.
[20] As a result of the application judge's finding that the appellant was not in lawful possession of the property, she held that it was not entitled to rely on s. 2(3) of the Mortgages Act, R.S.O. 1990, c. M.40, which provides that a mortgagor is not entitled to require a mortgagee to assign a mortgage to a third party "if the mortgagee is or has been in possession" of the property. Accordingly, the application judge found that the respondents were entitled to have the mortgage assigned to another lender pursuant to s. 2(1) of the Mortgages Act.
[21] In addition, the application judge found that the notice of sale was invalid because the appellant did not serve it personally on the respondents as required by s. 33(1) of the Mortgages Act.
[22] The application judge considered the amounts the appellant claimed were owed to discharge the mortgage and found that the appellant was not entitled to many of those amounts:
a. She disallowed any claims for "non-sufficient funds" fees or administrative fees on cheques provided by the respondents because the appellant failed to provide any evidence in support of those amounts;
b. She disallowed the claim for a prepayment penalty or an additional three months' interest on the basis that these amounts were not permitted under the Mortgages Act;
c. She found that the claim for $56,240.10 in legal fees for corporate counsel was excessive and reduced that amount to $10,000 as a reasonable amount;
d. She found that the amounts claimed for litigation counsel were more properly dealt with as costs of the litigation;
e. She found that the appellant was not entitled to property management fees on the basis that it did not have lawful possession of the property;
f. She held that the appellant should not be entitled to fees claimed for preparing mortgage discharge statements because the amounts set out in those statements were in excess of the amounts the appellant was legally entitled to claim;
g. She found that there was duplication in the claim for the preparation of mortgage discharge statements and reduced that amount to $600; and
h. She disallowed a claim for indemnity and security for costs of $135,000 on the basis that this amount was an unlawful penalty under s. 8(1) of the Interest Act, R.S.C. 1985, c. I-15.
[23] The application judge also held that the automatic renewal clause of the mortgage agreement was unenforceable because it too was contrary to s. 8(1) of the Interest Act. On that basis, she held that the respondents were not required to pay the renewal fee of $10,700 and that the interest rate did not increase from 13% to 16%, both of which had been contemplated in the mortgage agreement. She concluded that the consequence of this determination was that "the mortgage was not renewed at a higher interest rate, or at all. The mortgage was due and payable at maturity and thereafter interest continued and will continue to accrue at the original contract rate until paid in full".
[24] Based on these determinations, the application judge ultimately found that the respondents owed the appellant $241,528.72, broken down as follows:
Principal owing as of September 2, 2020: $215,000.00
Accrued interest until March 26, 2021: $15,851.10
Legal fees and disbursements: $10,000.00
Discharge preparation and execution fee: $600.00
Registration of discharge: $77.62
[25] Ultimately, the application judge made an order declaring that the appellant had taken unlawful possession of the property and directing the appellant to return possession of the property to the respondents. The application judge also made the following directions with respect to the outstanding amounts owing under the mortgage and the assignment of the mortgage:
THIS COURT ORDERS AND DIRECTS the Applicants to redeem the Respondent's mortgage, registered on February 21, 2020 as PR 3617616 (the "Mortgage") on payment of $241,528.72 plus per diem interest of $76.58 from March 27, 2021 to the date of payment (the "Redemption Amount") by direct deposit into the Respondent's bank account, after the Respondent provides particulars of its bank account information for direct deposit.
THIS COURT ORDERS AND DIRECTS the Respondent to forthwith assign the Mortgage to Madeero Lending Management Inc. upon receipt of the Redemption Amount.
(3) Appeal and post-application motions
[26] The appellant commenced its appeal of the application judge's order soon after the order was made.
[27] The appellant then brought a motion to this court for a stay of the application judge's order. By endorsement dated July 27, 2021, the motion judge denied the motion: see Hume v. 11534599 Canada Corp., 2021 ONCA 549. The motion judge found that, while the appeal raises a serious issue with respect to the meaning of "peaceable possession", the appellant would suffer no irreparable harm if a stay was denied and, in contrast, the respondents would suffer irreparable harm if a stay was granted. The appellant commenced a motion to review this decision on August 2, 2021, but abandoned it on January 19, 2022.
[28] The appellant did not perfect the appeal within the requisite timeline. Approximately six weeks after the deadline to perfect the appeal, the appellant brought a motion for an extension of time. By endorsement dated October 1, 2021, the motion judge granted a brief extension but found that there was prejudice to the respondents because the appellant had not yet assigned the mortgage to Madeero: see 11534599 Canada Corp. v. Hume (1 October 2021), M52791 (C69657) (Ont. C.A.). In order to mitigate the prejudice to the respondents, the motion judge imposed a condition that no further per diem interest was to be owed for the period caused by the delay in perfecting the appeal, at para. 9:
Given the limited reach of the motion before me I cannot entirely address [the appellant's] conduct in not complying with an order that has not been stayed, and then purporting to earn per diem interest on the delay they have created by imposing unauthorized conditions on the assignment of the mortgage. What I can do, however, is impose a condition that no per diem payments will be owing for the period caused by the delay in perfecting this appeal. The interests of justice require no less, and I would not otherwise have granted the extension.
[29] The appellant brought a motion before a three-judge panel of this court to review the term of the motion judge's order suspending the accrual of interest. In a decision dated March 18, 2022, the panel dismissed the motion: see 11534599 Canada Corp. v. Hume, 2022 ONCA 224. In doing so, the court clarified that the motion judge did not "permanently" terminate the appellant's entitlement to the interest accrued during the relevant period. Rather, the court held that the order "does not purport to alter the substance of the Coats J. Order; it simply suspends the payment of the per diem interest pending the hearing of the appeal and does not affect [the appellant's] right to pursue this issue in the hearing of the appeal on its merits": at para. 9.
[30] Given that the appellant had not yet complied with the order allowing the respondents to pay out the mortgage and requiring the appellant to assign the mortgage to another lender, the respondents brought a motion in the Superior Court of Justice in March 2022 to compel the appellant to comply with the order. By endorsement dated April 13, 2022, Lemon J. granted the motion. In doing so, he dismissed an argument made by the appellant that the application judge's order was stayed by operation of r. 63.03 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194, given that this position was inconsistent with the endorsement made by this court refusing to stay the order. The appellant has appealed Lemon J.'s order.
B. Issues and discussion
[31] At the hearing of the appeal, the appellant's counsel advised that the appellant returned possession of the property to the respondents soon after the application judge made her order and that it is not seeking to regain possession of the property. Rather, the primary issue for the appellant is whether it was entitled to take possession of the property in the manner that it did. If it was, this means that it would not be required to assign the mortgage, that it may be entitled to some of the amounts disallowed by the application judge and that it may be able to avoid any claims for consequential damages arising from the finding that it did not take peaceable possession of the property.
[32] Based on these circumstances, the issues before the court are as follows:
a. Should the appeal be quashed due to the appellant's failure to comply with court orders?
b. Did the application judge err in finding that the appellant did not take peaceable possession of the property?
c. Did the application judge err in determining the outstanding amounts owed under the mortgage?
d. Should the appellant be required to assign the mortgage to another mortgagee?
(1) This is not an appropriate case for quashing the appeal
[33] The respondents urge this court to quash the appeal on the basis that the appellant failed to comply with the application judge's order by refusing to assign the mortgage to another lender. In making this argument, the respondents point to this court's decision refusing a stay, this court's decision recognizing that the respondents have been prejudiced by the appellant's failure to comply with the application judge's order and Lemon J.'s order directing the respondents to comply with the application judge's order. The respondents have also put forward evidence of their efforts to seek compliance with the order and the appellant's refusal to facilitate compliance. The respondents' evidence shows that they have sought banking information from the appellant for the purpose of paying the outstanding amount owed on the mortgage and that the appellant has not provided that information. The respondents have also put forward evidence that shows that the appellant has sought to impose conditions on the assignment of the mortgage that go beyond the scope of the application judge's order. Specifically, the appellant sought to impose a term that would require that the mortgage be reassigned to the appellant in the event it succeeds on this appeal. As pointed out by the respondents, no lender would agree to such a term.
[34] The appellant responded to the motion with an affidavit stating that the respondents could have paid out the mortgage using banking information it had previously provided to them. However, during the argument of the appeal, the appellant's lawyer candidly conceded that, even if the respondents had made the payment, the appellant had not agreed to assign the mortgage without the proposed condition.
[35] In bringing the motion to quash the appeal, the respondents rely on the decision of this court in Abu-Saud v. Abu-Saud, 2020 ONCA 824, where an appeal was quashed in the context of a family law proceeding because the appellant had deliberately and persistently failed to pay spousal support. In that decision, at para. 4, the court stated that "[i]t is common ground that the court has jurisdiction to quash or dismiss an appeal in the face of non-compliance with a support order" (emphasis added).
[36] The respondents have not put forward any cases where an appeal was quashed for non-compliance with orders in contexts other than those involving family law proceedings.
[37] I do not discount the possibility that a similar order could be made in the context of a failure to comply with court orders outside the family law context. However, in my view, it is not appropriate to make such an order in this case. While it is evident that the appellant has failed to comply with the application judge's order requiring the assignment of the mortgage to a third party, this appeal raises a serious issue regarding the meaning of "peaceable possession". In addition, the motion and the appeal were scheduled to be heard on the same day, thereby reducing the utility of the motion to quash. Finally, as addressed below, the appellant's failure to comply with court orders can be addressed by requiring the appellant to assign the mortgage despite its success on this appeal.
(2) The application judge erred in finding that the appellant did not take peaceable possession of the property
[38] The application judge found that, given the respondents' default, the appellant was entitled to take possession of the property without notice. However, she noted the common law requirement that the appellant could only do so "peaceably". The application judge reviewed some of the jurisprudence in which there was a question about whether possession was "peaceable", and also considered how that term has been used in the criminal law context. As referred to above, she found that the appellant did not take peaceable possession because the possession was "not seriously challenged by others". Specifically, she found that the respondents did not acquiesce to the appellant taking possession nor had they vacated the property.
[39] In my view, the application judge erred in relying on the meaning of "peaceable possession" in the criminal law context, which led to her erroneous finding that the appellant did not take peaceable possession of the property.
[40] As held by the application judge, the terms of the mortgage agreement, specifically paragraph 10, did not require the appellant to give the respondents notice that it intended to take possession of the property. The respondents do not take issue with this finding, which is consistent with the Mortgages Act and with the case law in this area. Where a mortgagor has defaulted on a mortgage, absent a provision in the mortgage agreement requiring notice, a mortgagee is not required to give notice to the mortgagor before taking possession of the property: see Royal Trust Corp. of Canada v. 880185 Ontario Ltd. (2005), 198 O.A.C. 235, at para. 33.
[41] However, the manner in which the mortgagee can take possession of the property upon default is circumscribed by the mortgage agreement, the Mortgages Act and the common law. As noted above, paragraph 10 of the mortgage agreement entitles the appellant to take "quiet" possession of the property upon default. This term is consistent with s. 7(a)(iv) of the Mortgages Act, which provides that mortgage agreements are to include an implied covenant, unless the parties agree otherwise, "that, on default, the mortgagee shall have quiet possession of the land, free from all encumbrances". Neither paragraph 10 of the mortgage agreement nor s. 7(a)(iv) of the Mortgages Act sets out the manner in which the appellant was entitled to take quiet possession of the property. Accordingly, it is necessary to turn to the common law on this issue, where the case law establishes that a mortgagee entitled to take possession of a property must do so "peaceably". In 880185, at para. 33, this court held:
When a mortgage contains the usual provision to the effect that the mortgagee is entitled to quiet possession upon default in payment – as this one does – a mortgagee is entitled to take possession of the mortgaged premises immediately upon default, provided that it does so peaceably, and it may exercise that right when it chooses. [Emphasis added.]
[42] Therefore, the issue for the application judge was whether the appellant took possession of the property in a peaceable manner. In concluding that the appellant did not do so, she relied on this court's interpretation of "peaceable possession" in the criminal law context. Specifically, she relied on the court's interpretation of what was once s. 41(1) of the Criminal Code, R.S.C. 1985, c. C-46, as discussed in R. v. George (2000), 49 O.R. (3d) 144 (C.A.), leave to appeal dismissed, [2000] S.C.C.A. No. 343. Section 41(1) of the Criminal Code is no longer in force,[^1] but it provided that a person in "peaceable possession" of a dwelling could use reasonable force to prevent anyone from trespassing on their property. In George, at paras. 41-42, the court adopted an interpretation of "peaceable possession" from the Court of Appeal of Alberta in R. v. Born with a Tooth, 1992 ABCA 244, 131 A.R. 193, at paras. 29-30, to the effect that "peaceable possession" means possession that is "not seriously challenged by others" and that is "unlikely to lead to violence".
[43] Based on the definition of "peaceable possession" in George, the application judge in this case held that, in order to decide whether the appellant took peaceable possession of the property, she had to determine whether "the [respondents] acquiesced to the [appellant] taking possession and did not by adverse suit seek to recover the possession of the Property". On the basis of this approach, the application judge found that the appellant did not take peaceable possession of the property because the respondents had not acquiesced to the appellant taking possession of the property nor had they vacated the property. In making this finding, the application judge relied on the fact that the respondents' lawyer took immediate steps to challenge the taking of possession, that the respondents had left belongings at the property and locked the doors and that the respondents had insurance proceeds available to repair the property. She also found that the appellant changing the locks showed that it expected that the respondents would resist the taking of possession.
[44] In my view, it was a legal error for the application judge to rely on the interpretation of "peaceable possession" in s. 41(1) of the Criminal Code to determine the meaning of "peaceable possession" in the mortgage enforcement context. Words must be interpreted in their proper context. The requirement for "peaceable possession" under s. 41(1) of the Criminal Code as a precondition to the use of reasonable force is a very different inquiry than the issue of whether a mortgagee has taken "peaceable possession" of the property of a defaulting mortgagor. In George, the inquiry focused on whether the accused's possession of the property was accepted by others, which would thereby justify the accused protecting the property with reasonable force. In the mortgage enforcement context, "peaceable possession" does not refer to a mortgagee's entitlement to possession, but rather to the manner in which a mortgagee who has a legal entitlement to possession of a property actually takes possession of that property. There may be some overlap in the meaning of "peaceable possession" in both contexts, but the interpretation of "peaceable possession" in the criminal law context cannot properly inform what "peaceable possession" means in the context of mortgage enforcement.
[45] In fairness to the application judge, there is little case law interpreting the meaning of "peaceable possession" in the mortgage enforcement context, and some of the authorities on point do not appear to have been brought to her attention. One can speculate that the reason for the limited case law in this area is, while not necessarily required to do so in all cases, prudent mortgagees generally apply to the court for a writ of possession before taking possession of a property after an event of default: see Royal Trust Corp. of Canada v. Gupta, [1997] O.J. No. 347 (Gen. Div.), at para. 37. Obtaining a writ of possession confirms the mortgagee's legal entitlement to take possession and ensures that the sheriff's office is available to assist with the taking of possession: see Sunrise North Senior Living Ltd. v. The Sheriff (Regional Municipality of York), 2020 ONSC 469, 443 D.L.R. (4th) 458, at para. 71, citing Central Guaranty Trust Co. v. McRae (1993), 13 O.R. (3d) 295 (Gen. Div.), at p. 298.
[46] In any event, in order to determine the meaning of peaceable possession for the purpose of mortgage enforcement, it is necessary to turn to the limited case law on the issue and to consider the underlying purpose of requiring that, where a mortgagee is legally entitled to possession of a property, the mortgagee can only enforce that right in a peaceable manner.
[47] It appears that there are only two decisions from this court dealing with this issue.
[48] In 880185, which is referred to above, after the mortgagor defaulted on a mortgage, the mortgagee took possession of an apartment building by serving notices of attornment on the tenants, changing the locks on the laundry machine moneyboxes, taking over management of the building and undertaking building maintenance. In that context, this court confirmed that the mortgagee was entitled to take possession. However, the issue before the court was not whether the taking of possession was peaceable, but whether there had in fact been a default and whether the mortgagee had sent the proper notice of default. Therefore, while the decision confirms that a mortgagee can take peaceable possession upon default, it does not assist in defining what "peaceable possession" means in the context of mortgage enforcement.
[49] In Lee v. Guettler (1975), 10 O.R. (2d) 257 (C.A.), after default on a mortgage, the mortgagee served the mortgagor with a notice of sale and then, before the notice period expired, commenced an action for possession and obtained a default judgment. It is unclear whether the mortgagee actually took possession of the property. The narrow question on appeal was whether the mortgagee had served the notice of sale pursuant to statute or contract, and whether the statutory prohibition on taking possession of the property before the expiration of that notice period applied in either case. When describing the mortgagee's contractual right to quiet possession of the property upon default, the court explained, at p. 261:
Under the second provision the mortgagee could take possession on default. If the mortgagor does not surrender possession voluntarily, then an action for possession is necessary. Without contravening [the statutory prohibition], this action could be brought … either before the notice of sale has been given, or after the time has elapsed under the Notice for payment or for exercise of the power of sale. [Emphasis added.]
[50] The court in Lee concluded that, irrespective of whether the manner of possession was or would have been proper, possession could not have been lawful until after the notice period expired: at p. 261. As a result, the disposition of the appeal did not turn on the meaning of peaceable possession.
[51] It appears that there are no other appellate decisions in Ontario dealing with this issue. Taken together, these two decisions do not shed much light on the meaning of "peaceable possession". Although the court in 880185 discussed the need for possession to be taken "peaceably" and the court in Lee identified voluntary surrender by the mortgagor as one situation in which possession would be peaceable, these comments are properly characterized as obiter dicta in light of the issues that were decided by the court. Consequently, neither case is of direct assistance.
[52] There are a few lower court decisions dealing with this issue.[^2] In combination, they suggest that whether a mortgagee has taken peaceable possession of a property is a fact-driven inquiry that depends on the circumstances.
[53] In Lusk v. Perrin (1920), 19 O.W.N. 58 (H.C.), which may be the earliest Ontario jurisprudence on point, the mortgagor defaulted on the mortgage and left the premises. When he returned a month later, the mortgagee had taken possession of the premises. The court held that the mortgagee was permitted to enter peaceably into the home without needing a writ of possession because the lands were vacant: Lusk, at p. 60.
[54] More recently, in Gupta, referenced above, a decision that was not provided to the application judge, the mortgagee took possession of a rooming house without applying to the court for a writ of possession. As in 880185, the mortgagee did not take over the rental rooms, but only the common areas relevant to the management of the rooming house. In that context, the court considered whether the mortgagee was entitled to take possession without first applying to the court for a writ of possession. The court held that, as long as the mortgage terms provide for possession upon default without notice and the mortgagee exercises its right of possession in a peaceable manner, no court order is required.
[55] In its discussion of peaceable possession, the court stated that a distinction should be drawn between residential and non-residential properties, suggesting that a mortgagee could only take possession of a property occupied as a residence by applying to the court for a writ of possession: see Gupta, at paras. 37-40. In support of this distinction, the court pointed to the Ontario Law Reform Commission's 1987 Report on the Law of Mortgages, which the court said resulted in the Mortgages Act being "amended to protect mortgagors of a 'single-family unit' from being dispossessed of their home by the lender": at para. 37. However, while the Mortgages Act was amended after the 1987 report to provide increased protections, the targets of those protections are residential tenants living in mortgaged properties, not the mortgagors themselves: see Part IV of the Mortgages Act, particularly s. 48(1). Consequently, the court's reliance in Gupta on the 1987 report to suggest that the Mortgages Act precludes a mortgagee from taking possession of a single-family unit without a writ of possession in all cases is misplaced. In any event, in distinguishing residential properties from non-residential properties, the court stated that, where a mortgagor occupies a property "in the sense of actually occupying the property or part of the property as a residence", changing the locks and dispossessing the occupants would not constitute peaceable possession: at para. 39.
[56] In Gupta, despite the discussion of the distinction between properties occupied as a residence and other properties, the court ultimately found that the mortgagee took peaceable possession of the property in that case. As in 880185, given that the mortgagee only changed the locks in the common areas of the rooming house and did not dispossess the individual lodgers, the taking of possession was found to be peaceable.
[57] In Toronto Dominion Bank v. Clarry, 2019 ONSC 5076, the mortgagee took possession of a residential property and changed the locks. The court ultimately held that the possession was peaceable. The property was found unoccupied; had been disconnected from heating, electricity and water; and had been deconstructed to the wood studs of the home: at paras. 8-10. The property was uninhabited and uninhabitable, and had been in that state for seven months: at paras. 10-11. In light of the "clear evidence of vacant possession", the court held that the mortgagee's possession had been peaceable: at paras. 53-54.
[58] Besides the case law referred to above, Walter Traub in Falconbridge on Mortgages, loose-leaf, 5th ed. (Toronto: Thomson Reuters Canada Ltd., 2022), at § 22:6, without citing any cases, describes peaceable possession in the context of mortgage enforcement in the following terms:
Where the property is occupied by the borrower, the mortgagee cannot oust the borrower from the property or use physical force to obtain possession of the property. Where, however, the mortgagor has abandoned the property, the mortgagee may merely move in and change the locks. The mortgagee is permitted by law to use a moderate amount of force to take possession, such as breaking locks or breaking doors or windows where the property is vacant.
[59] A review of the limited authorities on the issue suggests that what "peaceable" means depends on the circumstances of the case. At a minimum, taking peaceable possession means taking possession of a property without violence or the threat of violence; in other words, without engaging in behaviour that is contrary to the Criminal Code. Such conduct is self-evidently not peaceable. The meaning of peaceable possession may also depend on whether the property is occupied for residential purposes. In the case of residential properties that are occupied, the requirement that possession be taken peaceably may require something more than possession being taken without violence or the threat of violence. Otherwise, mortgagees could change the locks on a residence while the occupants are temporarily away which, while not involving the actual use or threat of violence, dispossesses the owners or occupants of their habitation and personal possessions without giving them an opportunity to make arrangements to move to another location. While such actions may not be violent, they are likely not peaceable.
[60] However, the issue of what it means to take peaceable possession where a residence is occupied does not need to be resolved in this case given the factual circumstances. Here, as found by the application judge, the residence was left uninhabitable after the fire, and therefore the respondents were not living in the residence at the time the appellant took possession. When the appellant inspected the property following the default, there was no sign that it was occupied and there is no evidence that the respondents had notified the appellant of the fire or provided any contact information. The appellant was therefore faced with the prospect that its investment was at risk. In these circumstances, changing the locks and taking possession of the property was peaceable. There was no physical or verbal resistance to the taking of possession at the time the appellant took possession. There was also no indication that the appellant was dispossessing the respondents of their home or that anyone else was occupying the property at the time.
[61] While it may have been preferable for the appellant to try to communicate with the respondents before taking possession, it was not required to do so. There is also no doubt that it is generally preferable for a mortgagor to obtain a writ of possession before taking possession of a property, especially in the case of residential properties. However, in the unique circumstances of this case, where the property was uninhabited and uninhabitable, the application judge made an error in her interpretation of what it means for possession to be "peaceable", and in applying that meaning to the facts of this case. She erred in focusing on whether the respondents acquiesced to the appellant taking possession or whether the respondents intended to vacate the property. Instead, she should have focused on the circumstances of the property and the manner in which the appellant took possession.
[62] Accordingly, contrary to the application judge's finding, in my view, the appellant took peaceable possession of the property in this case. What flows from this finding is addressed below.
(3) The application judge did not err in calculating the amounts owed under the mortgage, except for the property management fees
[63] In its notice of appeal and factum, the appellant challenges the application judge's findings in relation to the amounts owed under the mortgage.
[64] At the hearing of the appeal, the appellant did not pursue these arguments other than to suggest that, if the appeal is allowed on the issue of whether the appellant took peaceable possession, the matter of the amounts owed under the mortgage should be sent back to the application judge for reconsideration.
[65] In my view, it is in the interests of justice to put an end to this matter. While the appellant may have been entitled to take possession of the property, the respondents should nevertheless have been able to pay out the amounts owed under the mortgage a long time ago and put this matter behind them. For the most part, the amounts the appellant claimed that the application judge disallowed are not related to the issue of whether the appellant took peaceable possession. For example, the prepayment penalty, the corporate lawyer's fees and the amounts charged for preparing the statements are all amounts that the application judge found were not supported by evidence or were contrary to the law. I see no errors in these determinations.
[66] The only exception is the charge for property management fees. The application judge disallowed these fees because she found the appellant did not have lawful possession of the property. Given that the appellant incurred these fees as a result of the default and of taking lawful possession of the property, the respondents should be required to pay these fees.
[67] The appellant's mortgage discharge statements show that the amount claimed for property management fees is $14,002.56.[^3] At the hearing of the appeal, counsel for the appellant submitted that, if the court finds that his client's possession of the property was lawful, and if the court is not inclined to remit the issue of the consequential amounts owing under the mortgage to the application judge, then, at the very least, the appellant should be entitled to property management fees of $12,000. The respondents' counsel did not contest this amount. This amount seems reasonable. Accordingly, $12,000 for property management fees is to be added to the amounts owing by the respondents to discharge the mortgage.
(4) The respondents are entitled to an assignment of the mortgage to a lender of their choice
[68] As indicated above, the appellant has already returned the property to the respondents and the appellant does not seek to retake possession of the property. Based on the submissions of counsel for the appellant, it appears that the primary purpose of this appeal was to avoid the obligation to assign the mortgage to another mortgagee and to avoid the possibility of a claim for consequential damages flowing from the finding that the appellant did not take peaceable possession of the property.
[69] Section 2(1) of the Mortgages Act provides that, when a mortgage comes to term, rather than paying the mortgage out, a mortgagor is entitled to require that the mortgagee assign the mortgage to a third party. Section 2(3) provides that this "does not apply if the mortgagee is or has been in possession" of the property.
[70] Therefore, in the normal course, given my finding that the appellant was in lawful possession of the property, it should not be required to assign the mortgage to another mortgagee selected by the respondents. Rather, it should be entitled to a payout of the amounts owing under the mortgage without having to assign the mortgage.
[71] However, in this case, the application judge's order required the appellant to make the assignment and this court refused to grant a stay. In addition, because the appellant continued to refuse to comply with the order, the respondents obtained a further order from Lemon J. compelling assignment of the mortgage.
[72] In the circumstances, despite the appellant's success on the issue of its entitlement to take possession of the property, the appellant should not be rewarded for its failure to comply with court orders. Had the appellant complied with the court orders requiring the assignment of the mortgage, as it was required to do in a timely manner, the mortgage would have been assigned by the time this appeal was heard. There would have been no utility in reversing this aspect of the application judge's order given that no one takes the position that the appellant is entitled to continue to hold the mortgage on the property. Quite frankly, it is surprising and incomprehensible that the appellant has refused to comply with the application judge's order. Even during the hearing of the appeal, the appellant's counsel was unable to articulate a rationale for his client's failure to comply.
[73] Accordingly, while the finding that the appellant took lawful possession of the property would typically discharge its obligation to assign the mortgage, given the unique circumstances of this case, I am not inclined to remove that term from the application judge's order. Section 134(1)(c) of the Courts of Justice Act, R.S.O. 1990, c. C.43, gives this court on appeal the power to make any order that "is considered just". In this case, it is just to maintain the term of the application judge's order that the mortgage be assigned to another lender. This term of the order will simply be varied to allow the respondents to assign the mortgage to a third party of their choice, as it appears that Madeero is no longer willing to act as the new mortgagee.
C. disposition
[74] I would dismiss the respondents' motion to quash, allow the appeal in part and make the following order varying the terms of the application judge's order:
a. Paragraph 1 is varied as follows:
THIS COURT ORDERS AND DECLARES that the Respondent took lawful possession of the property located at 7047 Dalewood Drive, Mississauga, Ontario, legally described as PCL 25-1 SEC 43M717; LT 25 PL 43M717; S/T DP2708; City of Mississauga, PIN 13258-0034 (LT) (the "Property");
b. Paragraph 4 of the order is varied as follows:
THIS COURT ORDERS AND DIRECTS the Applicants to redeem the Respondent's mortgage, registered on February 21, 2020 as PR 3617616 (the "Mortgage") on payment of $253,528.72 plus per diem interest of $76.58 from March 27, 2021 to September 6, 2021, and from October 7, 2021 to the date of payment (the "Redemption Amount") by direct deposit into the Respondent's bank account, after the Respondent provides particulars of its bank account information for direct deposit;
c. Paragraph 5 of the order is varied as follows:
THIS COURT ORDERS AND DIRECTS the Respondent to forthwith assign the Mortgage to a third party identified by the Applicants upon receipt of the Redemption Amount;
[75] If the parties are unable to agree on the costs below and of the appeal, they may make written submissions, addressed to the panel in care of the Registrar. The appellant shall file and serve its submissions within 15 days of the release of these reasons. The respondents shall have 15 days to respond. The submissions shall not exceed five double-spaced pages, excluding costs outlines and other appendices.
Released: August 5, 2022 "G.R.S."
"L. Favreau J.A."
"I agree. G.R. Strathy C.J.O."
"I agree. Sossin J.A."
[^1]: Section 41(1) of the Criminal Code was repealed, effective March 11, 2013, pursuant to the Citizen's Arrest and Self-defence Act, S.C. 2012, c. 9, s. 2.
[^2]: There is an additional recent decision on this issue that is not discussed in these reasons, although the parties forwarded it to the court after the argument of the appeal: Zapfe Holdings Inc. and Michael Sourlis. v. 1923159 Ontario Inc, 2022 ONSC 3062, appeal filed, C70682. The analysis in Zapfe relies significantly on the decision being challenged in this appeal and is therefore not helpful to the analysis of prior case law on this issue.
[^3]: In her decision, the application judge stated that the amount claimed was $10,928.92, based on a mortgage discharge statement dated March 12, 2021. However, a later statement dated May 21, 2021 states that the amount sought for property management fees is $14,002.56.