Kerr v. Quigley et al. [Indexed as: Kerr v. Quigley]

46 O.R. (3d) 708

[2000] O.J. No. 36

Court of Appeal for Ontario

Finlayson, Weiler and Moldaver, JJ.A.

January 12, 2000

Mortgages -- Power of sale -- Mortgagee issuing power of sale notice before giving notice of intent to realize upon security pursuant to s. 22 of Farm Debt Review Act -- Mortgagee giving second notice of power of sale during period of stay of proceedings under Act -- Mortgagee completing power of sale relying on second notice -- Initial notice of sale not nullity despite failure to comply with Act -- Mortgagee entitled to rely on initial notice of sale even though registered documents referring to second notice -- Farm Debt Review Act, R.S.C. 1985, c. 25 (2nd Supp.), s. 22.

K carried on business as a livestock farmer. He mortgaged his farm property, and the mortgage was assigned to NT as trustee. In 1996, the mortgage went into default and K was served with a notice of sale, and then on September 19, 1996 with an amended notice, which revised the amount said to be owing under the mortgage. On November 29, 1996, NT's solicitors purported to serve K with a document pursuant to the Farm Debt Review Act ("the Act"). The notice was deficient because it was not in the form prescribed by the Act and it should have been served at least 15 days before NT took any action to realize on its security. Despite these deficiencies, K obtained a series of stays of the proceedings from the Farm Debt Review Board pursuant to s. 23 of the Act. On December 12, 1996, during the currency of the initial 30-day stay, NT served another notice of sale claiming the same amount as in the September 19 notice and on December 18, 1996, K was served with a notice that complied with the requirements of the Act. Thereafter, NT took no steps to realize upon its security until after March 4, 1997 when the stay of proceedings expired. On June 13, 1997, NT sold the mortgaged property to S. The documents registered to complete the sale under power of sale referred to and purported to rely on the December 12, 1996 notice of sale.

Several months after the sale was completed, K commenced an action seeking a declaration that the transfer documents were void for contravening the Act. Following the exchange of pleadings, both sides moved for summary judgment. K's motion was dismissed and the defendants' motion succeeded. Relying on the recent decision of the Supreme Court of Canada in M & D Farm Ltd. v. Manitoba Agricultural Credit Corp., K appealed.

Held, the appeal should be dismissed with costs.

It was not necessary to consider the decision in M & D Farm Ltd. v. Manitoba Agricultural Credit Corp. because, for the purposes of the appeal, it could be assumed that the December 12 notice was a nullity for being served during the period of the initial stay. However, the September 19 amended notice was not a nullity and could be relied upon to validate the sale. The argument to the contrary was rejected in Calvert v. Salmon. The fact that K did not receive the requisite notice under the Act before being served with the September 19 amended notice of sale did not render the amended notice a nullity. By whatever means, K became aware of his rights under the Act and took full advantage of them. K suffered no prejudice from the failure to receive the requisite notice under the Act.

The remaining question was whether the amended notice could be relied upon to validate the sale even though the registered conveyancing documents referred to a notice that was a nullity. This point was decided by the Supreme Court of Canada in Kelly v. Imperial Loan and Investment Co., where the court held that where the vendor had a power to sell, that power could be relied upon to validate a sale even though the recitals in the conveyancing documents referred to a different basis for the sale. The recital of a power is not essential to the due execution of it; it is sufficient for the valid exercise of the power of sale if the estate over which the power extends is dealt with in a manner that can be effectual only by reference to the power.

APPEAL from an order of Doyle J. (1999), 23 R.P.R. (3d) 95 (Ont. Gen. Div.) dismissing a motion for summary judgment and allowing a cross-motion for summary judgment.

Cases referred to Calvert v. Salmon (1994), 1994 161 (ON CA), 17 O.R. (3d) 455, 113 D.L.R. (4th) 156, 24 C.B.R. (3d) 161, 38 R.P.R. (2d) 12 (C.A.); Kelly v. Imperial Loan and Investment Co. (1885), 1885 9 (SCC), 11 S.C.R. 516; M & D Farm Ltd. v. Manitoba Agricultural Credit Corp., 1999 648 (SCC), [1999] 2 S.C.R. 961, 176 D.L.R. (4th) 585, 245 N.R. 165, [1999] 9 W.W.R. 356, 35 C.P.C. (4th) 1, [1999] S.C.J. No. 4 Statutes referred to Farm Debt Review Act, R.S.C. 1985, c. 25 (5th Supp.) (rep. 1997, c. 21), ss. 20-23, 29

G. Edward Oldfield, for appellant. Roxanne Cooligan, for respondent, Quigley, Ross & Cliffen. Stephen March, for respondent, Glen Vernon Sweeney. Elisa Scali, for respondent, Beament, Green, Dust.

The judgment of the court was delivered by

[1] MOLDAVER J.A.: -- The appellant, Robert Kerr, appeals from the order of the Honourable Mr. Justice Doyle, dated March 5, 1999 [reported 23 R.P.R. (3d) 95], dismissing his motion for summary judgment and allowing a cross-motion for summary judgment brought by the respondents Michael Quigley, the law firm of Quigley, Ross & Cliffen and National Trust Company ("National").

[2] In his motion for summary judgment, Kerr sought a declaration that the sale of his farm property, by way of power of sale under mortgage, from National to the respondent Glen Sweeney, was void due to contraventions of the Farm Debt Review Act, R.S.C. 1985, c. 25 (2nd Supp.) ("the Act"). Kerr also sought a declaration that he retained ownership in the property. In their cross-motion, the several respondents sought a declaration that the sale was valid and that Kerr's ownership in the property was extinguished. The net effect of Doyle J.'s order was to validate the sale and extinguish Kerr's interest in the property.

[3] Kerr submits that Doyle J. erred in coming to this conclusion for two reasons:

1. The transfer of title from National to Sweeney was invalid because the notice of sale under which National purported to act was served on Kerr during the currency of a stay of proceedings under the Act and as such, it was a nullity; and

2. That an earlier notice of sale served on Kerr prior to the stay of proceedings could not be relied upon to validate the sale because it did not comply with the notice provisions under the Act and as such, it too was a nullity.

[4] In order to place the appellant's arguments in their proper context, I propose to reproduce the relevant provisions of the Act before summarizing the background facts.

Relevant Statutory Provisions

Farm Debt Review Act [See Note 1 at end of document]

20(1) Any insolvent farmer may apply, in the prescribed form containing the prescribed information, to the Board established for the province or region of Canada in which the farmer resides for a review of his financial affairs and for a stay of any proceedings against the farmer by his creditors.

(2) An application under subsection (1) shall include the names and addresses of the creditors of the farmer who makes the application.

21. On receipt of an application made by a farmer under section 20, a Board shall give notice thereof, in the prescribed form containing the prescribed information, to each person whose name is listed as a creditor in the application.

22(1) Every secured creditor who intends to realize on any security of a farmer shall give the farmer written notice, in the prescribed form containing the prescribed information, of his intention to do so and in the notice shall advise the farmer of the right of an insolvent farmer to make an application under section 20.

(2) The notice referred to in subsection (1) shall be given to the farmer in the prescribed manner at least fifteen business days before the taking of any action by the secured creditor to realize on the security.

23. Subject to sections 26, 29 and 32, and notwithstanding any other law, on receipt by a Board of an application made by a farmer under section 20, no creditor of the farmer shall, for a period of thirty days after the receipt of the application by the Board, have any remedy against the property of the farmer or shall commence or continue any proceedings or any action, execution or other proceedings, judicial or extra-judicial, for the recovery of a debt, the realization of any security or the taking of any property out of the possession of the farmer.

29(1) Where a Board considers an extension of the period referred to in section 23 to be essential to the formulation of an arrangement between a farmer and his creditors, the Board may extend that period for a period of thirty days.

(2) Where a Board considers an extension of the period referred to in section 23, as extended under subsection (1), to be essential to the formulation of an arrangement between the farmer and his creditors, the Board may extend that period for a maximum of two further periods of thirty days each.

Background Facts

[5] The pertinent facts are not in dispute. At all material times, Kerr carried on business as a livestock farmer. In 1973, he purchased the farm property in question. Twelve years later, in 1985, Kerr mortgaged the property to Kathryn Rycroft as trustee for Anne Quigley, the respondent Quigley's spouse.

[6] On April 20, 1994, Ms. Rycroft assigned the mortgage to National as trustee for RRSP #85424, the personal RRSP of Quigley. The mortgage came due on April 14, 1995 and at Kerr's request, National extended the term to January 21, 1996. The mortgage contained a standard power of sale clause which entitled National to sell the property on at least 35 days' notice to Kerr in the event of default of payment for at least 15 days.

[7] Kerr ran into financial difficulties in the summer of 1995 and he was unable to maintain the monthly mortgage payments. By September 1996, he was in arrears under the mortgage in excess of one year. Accordingly, on September 13, 1996, Quigley, Ross & Cliffen, the solicitors for National, prepared a notice of sale and served it on Kerr. The notice required Kerr to pay the sum of $50,582.05, then due and owing under the mortgage, by November 10, 1996, failing which, the property would be sold. On September 19, 1996, an amended notice of sale was prepared and served on Kerr. Apart from revising the amount said to be due and owing under the mortgage from $50,582.05 to $54,310.87, the amended notice was identical to the original notice.

[8] On November 29, 1996, National's solicitors served Kerr with a document entitled "NOTICE", which read as follows:

NOTICE

THIS SHALL BE your good and valid notice pursuant to the Farm Debt Review Act, R.S.C. 1985, c. 25 that a secured creditor namely National Trust Company as trustee for RRSP No. 85424, (being the assignee of mortgage inst. No. 136534) intends to realize upon its security in the above noted property.

[9] Reading between the lines, it would appear that sometime after the September 19 amended notice of sale had been served on Kerr, National's solicitors became aware of the notice requirements under s. 22(1) and (2) of the Act and in an effort to comply with those requirements, the notice referred to above was prepared and served on Kerr.

[10] It is common ground that the November 29 "NOTICE" was deficient in two respects. First, it was not in the form prescribed by the Act and, second, it should have been served on Kerr at least 15 days before National took any action to realize on its security.

[11] Despite these deficiencies, Kerr either knew of or became aware of his right to obtain a stay of proceedings under s. 23 of the Act and on December 4, 1996, he applied for and received an automatic 30-day stay of proceedings from the Farm Debt Review Board. Thereafter, Kerr applied for two further extensions of the stay and the Board, in the exercise of its discretion, extended the stay period to March 4, 1997.

[12] On December 12, 1996, during the currency of the initial 30-day stay, National served Kerr with another notice of sale. The amount said to be due and owing under the mortgage was $54,310.67, the same amount claimed in the September 19 amended notice of sale. Pursuant to the December 12 notice, Kerr was given until January 28, 1997 to pay the outstanding balance, failing which the property would be sold. Six days later, on December 18, 1996, National served Kerr with a document entitled "Notice of Intent to Realize on Security". It is conceded that this document complied with the form of notice prescribed by s. 22(1) of the Act.

[13] Thereafter, National took no steps to realize upon its security until after March 4, 1997, when the final stay of proceedings expired. Some three and a half months later, on June 13, 1997, National sold the property under power of sale to Sweeney for a purchase price of $40,000.

[14] For present purposes, it is unnecessary to itemize or detail the contents of the conveyancing documents which National registered on title. [See Note 2 at end of document] Suffice it to say that they recite the fact that the property was being sold by National under power of sale in accordance with its contractual rights under the Kerr mortgage. The only fly in the ointment is that throughout, the documents refer to and purport to rely on the December 12, 1996 notice of sale served on Kerr during the currency of the initial 30-day stay.

[15] Several months after the sale had been completed, Kerr commenced an action against the various respondents, seeking among other things, a declaration that the transfer documents registered on title "are void and of no force or effect as they contravene the provisions of the Farm Debt Review Act" and a further declaration that Kerr "is the owner of the farm". Following the exchange of pleadings, both sides moved before Doyle J. for summary judgment.

[16] On the motion, Kerr took the position that the transfer from National to Sweeney should be set aside because none of the notices of sale served on him complied with the provisions of the Act and accordingly, they were nullities. In particular, Kerr argued that the September 19, 1996 amended notice of sale was a nullity because National had failed to comply with the notice provisions under s. 22 of the Act and the December 12, 1996 notice of sale was a nullity because it was served during the currency of the initial 30-day stay.

[17] Doyle J. refused to give effect to either submission. In his view, there was no reason to distinguish the September 19 amended notice of sale from the December 12 notice and no need to engage in a separate analysis of each. Rather, as the following passage from his reasons illustrates, based on his interpretation of the relevant authorities, including this court's decision in Calvert v. Salmon (1994), 1994 161 (ON CA), 17 O.R. (3d) 455, 113 D.L.R. (4th) 156, neither notice was a nullity and since the final act in the power of sale proceedings (the sale of the property) did not occur during the currency of the extended stay period but only after Kerr had received the full protection of the Act, there was no basis for setting aside the sale:

Even though the notices had not contained any reference to sections 20 and 22(1) and (2) of the Farm Debt Review Act, they were not nullities . . . Nothing was acted on during the stays of proceedings with respect to a final act. The case law did not prevent steps being taken during the stays and the final step involved a foreclosure order but only after stays had terminated. Possession of a property after default in payment is also a final step as is a Power of Sale.

[18] Doyle J. then went on to find that Kerr had suffered no prejudice as a result of any deficiencies in the respective notices and he accordingly concluded that the sale to Sweeney was valid and that Kerr's interest in the property was extinguished.

Analysis

Issue 1 -- Was the December 12 notice of sale a nullity and if so, did this invalidate the sale?

[19] In support of his position that the December 12 notice of sale, served during the currency of the initial 30-day stay, was a nullity, Kerr relied heavily on the recent decision of the Supreme Court of Canada in M & D Farm Ltd. v. Manitoba Agricultural Credit Corp., 1999 648 (SCC), [1999] 2 S.C.R. 961, [1999] S.C.J. No. 4. [See Note 3 at end of document] For reasons which will become apparent when I address the second issue, I find it unnecessary to discuss that decision because in the final analysis, I am of the view that the validity or invalidity of the December 12 notice is inconsequential. Suffice it to say that for the purposes of this appeal, I am prepared to assume that it was a nullity.

[20] That said, I feel obliged to comment on the reasoning process which led the motions judge to conclude that the December 12 notice was not a nullity. In coming to that conclusion, it would appear that Doyle J. was of the view that even though the notice in question was served during the currency of the initial 30-day stay, it was not a nullity because service of the notice did not amount to a "final act" in the power of sale proceedings.

[21] The "final act" line of reasoning was specifically rejected by this court in Calvert v. Salmon, supra, at p. 458 and Doyle J. should not have applied it in deciding whether the December 12 notice was or was not a nullity. As indicated, however, this appeal does not turn on the validity or invalidity of the December 12 notice.

Issue 2 -- Was the September 19 amended notice of sale a nullity? If not, can it be relied upon to validate the sale?

[22] By virtue of s. 22(1) and (2) of the Act, National was required to notify Kerr of his rights under s. 20 of the Act at least 15 days before serving him with the September 19 amended notice of sale. Because this was not done, Kerr submits that the amended notice was a nullity.

[23] The same argument was raised and rejected in Calvert v. Salmon, supra, where this court held that failure to give notice under s. 22 of the Act before issuing a claim for foreclosure of a mortgage on farm property did not render the claim a nullity. [See Note 4 at end of document] Rather, as was pointed out at p. 458, the deficiency was to be treated as a "continuing breach of the obligation, and the penalty to be imposed, if any, [was to] be governed by the circumstances."

[24] Not unlike this case, in Calvert, even though the farmer had not received the requisite notice under s. 22 of the Act, he was fully aware of his right to apply for a stay of proceedings under s. 20 of the Act and he took advantage of that right. In the circumstances, the court found that Calvert had suffered no prejudice as a result of the lack of notice under s. 22 of the Act and, accordingly, there was no basis for invalidating the foreclosure proceedings.

[25] The same holds true in this case. The fact that Kerr did not receive the requisite notice under the Act before being served with the September 19 amended notice of sale did not render the amended notice a nullity. By whatever means, Kerr became aware of his rights under s. 20 of the Act and took full advantage of them. Moreover, as the record indicates, Kerr had more than an ample opportunity to redeem the property. Unfortunately, from his point of view, he was simply unable to arrange the necessary financing. In short, National's failure to provide Kerr with the requisite notice under s. 22 of the Act before serving him with the September 19 amended notice of sale caused no prejudice to Kerr.

[26] Having concluded that the September 19 amended notice of sale was not a nullity, and that Kerr suffered no prejudice, the only remaining issue is whether the amended notice can be relied upon to validate the sale. This issue arises from the fact that the conveyancing documents, registered on title, refer to and purport to rely on the December 12 notice of sale and not the September 19 amended notice.

[27] Kerr submits that the amended notice cannot be substituted for the December 12 notice to validate the sale. In his view, having relied on the December 12 notice, National must live with that and if that notice is a nullity, the transfer was invalid and title did not pass to Sweeney. The respondents on the other hand submit that on their face, the conveyancing documents express a clear intention on the part of National to enforce its contractual rights under the mortgage and convey title by way of power of sale and to the extent the December 12 notice is a nullity, title can be founded on the valid September 19 amended notice of sale.

[28] The issue in question does not appear to have been addressed in any recent authorities. It did, however, arise in the case of Kelly v. Imperial Loan and Investment Co. (1885), 1885 9 (SCC), 11 S.C.R. 516. The facts of Kelly, briefly stated, are as follows.

[29] Imperial held a mortgage from Kelly over certain leasehold premises owned by Kelly. The mortgage contained a covenant authorizing Imperial to sell the premises on default, with or without notice to the mortgagor.

[30] Shortly after giving the mortgage, Kelly conveyed the equity of redemption in the mortgaged premises to one O'Sullivan, in trust, for nominal consideration. Kelly then left the country for several years. In his absence, the mortgage came due and it was renewed by O'Sullivan.

[31] Interest payments on the mortgage went into default and Imperial advised O'Sullivan of its intention to foreclose on the mortgage. Faced with this threat, O'Sullivan, who had earlier informed Imperial that he had no interest in the property, purported to reconvey the equity of redemption back to Kelly. Thereafter, Imperial brought an action against O'Sullivan for foreclosure. O'Sullivan filed a defence, which he later withdrew at the behest of Imperial. In the end, he consented to a decree and a final order of foreclosure was made against him.

[32] On the basis of that order, Imperial eventually sold the property to one Damer for a sum less than the amount due under the mortgage. Notably, in the deed to Damer, Imperial recited the proceedings against O'Sullivan, including the fact that it had obtained title to the property under the final order of foreclosure.

[33] Upon his return to Canada, Kelly learned of the final order of foreclosure against O'Sullivan. At this point, the sale to Damer had not yet been completed. Kelly advised Damer of his interest in the property and he notified Imperial not to sell. His request fell on deaf ears and the sale to Damer was completed. Kelly then brought an action to have the final order of foreclosure re-opened and cancelled, the sale to Damer set aside and an account taken of what was due under the mortgage.

[34] At trial, Proudfoot V.C. found in favour of Kelly, holding that the decree of foreclosure was improperly obtained because Imperial knew that O'Sullivan had no interest in the property. On appeal, the Court of Appeal reversed this decision, holding that irrespective of the validity of the foreclosure order and notwithstanding the recital of this order in the deed to Damer, Imperial could rely on the power of sale provision in the mortgage to validate the sale.

[35] On further appeal to the Supreme Court of Canada, Sir William Ritchie C.J., for the majority, agreed with the Court of Appeal and affirmed the validity of the sale to Damer. One of the issues raised by Kerr was that the transfer of title to Damer was fatally flawed by reason of the recitals in the deed which indicated that Imperial had obtained title to the property from the final order of foreclosure against O'Sullivan.

[36] Sir William Ritchie C.J. refused to give effect to this argument. His reasons, which are, in my view, dispositive of the issue at hand, are reproduced in part below [at pp. 523-24]:

The recitals would seem to be inconsistent with the execution of the power, but the nature and effect of the instrument is entirely consistent therewith, and demonstrates, I think, a practical intent to execute the power, though, no doubt, the recital would show that the deed was executed on the assumption that the foreclosure was valid and that the property had thereby absolutely passed to the mortgagees.

The power authorized the defendants to convey the interest mortgaged absolutely; the deed executed purports to do, in express terms, that which the mortgagees had the right to do, if not under the decree of foreclosure then under the power.

Then why should the deed, notwithstanding the recital, not receive its legal effect, and be treated as a good execution of the power, the legal effect of the deed being precisely the same, whether under a valid decree, or, there being no valid decree, under the power, the intent being to do what the decree, if valid, would authorize, or what, if invalid, the power would authorize.

There can, I think, be no doubt that an instrument may be an exercise of a power, though on its face it does not so purport. In Blake v. Marnell [2 Ball & B. 35] the Lord Chancellor says:

It is perfectly clear and well established that the recital of a power is not essential to the due execution of it; it is sufficient if the estate over which the power extends is dealt with in a manner which can be effectual only by reference to the power. [See Note 5 at end of document]

[37] Applying this line of reasoning to the case at hand, even if the December 12 notice was a nullity, I am satisfied that the September 19 amended notice can properly be relied upon to fill the gap as it were and validate the sale. Accordingly, I would not give effect to this ground of appeal.

Conclusion

[38] The motions judge concluded that the sale from National to Sweeney was valid and that there was no basis for setting it aside. I agree with that conclusion, albeit it for reasons somewhat different than those given by the motions judge. Accordingly, I would dismiss the appeal with costs.

Appeal dismissed.

Notes

Note 1: This Act was repealed in 1998 and replaced by the Farm Debt Mediation Act, S.C. 1997, c. 21.

Note 2: The respondent law firm Beament, Green, Dust acted for National on the sale and prepared the necessary documentation. The Beament firm was named as one of the defendants in Kerr's action to set aside the sale. Kerr concedes that if the sale was valid, the motions judge was correct in dismissing his claim against the Beament firm.

Note 3: In M & D, relevant provincial legislation required that a mortgagee obtain leave from the court before commencing foreclosure proceedings against a farmer, failing which the proceedings would be a nullity. The respondent mortgagee sought and obtained the necessary leave order during the currency of the intial 30-day stay under s. 23 of the Farm Debt Review Act. The Supreme Court held that by virtue of s. 23, the order granting leave was invalid and that the failure to comply with the provincial leave requirement rendered the foreclosure proceedings a nullity.

Note 4: In M & D, supra, the Supreme Court referred to Calvert with approval but found that it had no application to the case at hand.

Note 5: The minority did not take issue with this line of reasoning. Rather, they viewed the reference to the final order of foreclosure in the deed as tantamount to a recital that Imperial had become the absolute owner of the estate and that the power of sale, being an incident to the equity of redemption, no longer existed.