CITATION: Manias v. Norwich Financial Inc., 2008 ONCA 532

DATE: 20080703

DOCKET: C48184

COURT OF APPEAL FOR ONTARIO

FELDMAN, MacPHERSON and CRONK JJ.A.

BETWEEN:

ARNOLD MANIAS

Respondent (Applicant)

and

NORWICH FINANCIAL INC., HOUSEHOLD REALTY CORPORATION LIMITED and WANDA DIEPSTRA

Appellant (Respondent)

Matthew R. Todd, for the appellant

Amanda Jackson, for the respondent

Heard and released orally: June 30, 2008

On appeal from the judgment of Justice Terrence L.J. Patterson of the Superior Court of Justice dated November 19, 2007.

JUDGMENT

BY THE COURT:

[1] This appeal concerns a priorities dispute between two mortgagees.

[2] In 2002, Wanda Diepstra mortgaged her home in Windsor, Ontario to raise $108,000. The funds were advanced by two separate parties: the amount of $75,000 was provided by the respondent, Arnold Manias, while the balance of the funds was furnished by Household Realty Corporation Limited (HRCL). The same solicitor, David Connor, acted for both the mortgagor and the mortgagees on the transaction. The mortgage statements signed by Diepstra indicated that she was granting a first mortgage to Manias and a second mortgage to HRCL. The solicitor’s reporting letters to all parties confirmed Manias as first mortgagee and HRCL as second mortgagee. However, when the mortgages were registered on title, HRCL’s mortgage was registered as a first charge and Manias’ mortgage was registered as a second charge.

[3] Subsequently, in March 2004, Diepstra borrowed additional funds from a predecessor company to the appellant, Norwich Financial Inc., to purchase a vehicle. The vehicle loan was secured by a collateral third mortgage on Diepstra’s home in the amount of $17,875.00.

[4] When Diepstra defaulted on the Manias mortgage in the summer of 2006, power of sale proceedings were commenced on Manias’ behalf by solicitor Connor. About one month later, Connor discovered the error in the registration on title of the original Manias and HRCL mortgages. He promptly informed the solicitor for Norwich of the registration error and of the fact that HRCL acknowledged that its mortgage on Diepstra’s home was in second place, ranking behind Manias’ mortgage in priority. Norwich, through its owner Kamal Duggal, acknowledged in this proceeding that it learned from its lawyer of the registration error communicated by solicitor Connor.

[5] Nonetheless, Norwich negotiated with HRCL for the assignment to Norwich of the HRCL mortgage. By that time, it appears that the assets of HRCL had been acquired by a related company. Before completing the assignment, a representative of HRCL told Duggal of the issue of the registration error and offered an assignment of the HRCL mortgage at a discount. Norwich accepted this offer and acquired an assignment of the HRCL mortgage at a discounted price. As requested by Duggal, the assignment referred to the HRCL mortgage as the “first mortgage”. Thereafter, when the Diepstra property was eventually sold, Norwich asserted that the assigned HRCL mortgage was a first mortgage, such that it was entitled to the proceeds of sale of the Diepstra property in priority to Manias.

[6] The application judge rejected Norwich’s priority claim on three grounds. First, he found as a fact that Norwich had actual knowledge of the registration error before it acquired an assignment of the HRCL mortgage and that, by asserting priority over the Manias mortgage, Norwich’s principal was “merely trying to take advantage of the error in registration to try to better his position” as third mortgagee. Second, he held that Norwich would be unjustly enriched if the Manias mortgage was denied priority. Finally, the application judge also found that HRCL had always acknowledged that it held a second mortgage on the Diepstra property and that Norwich could be in no better position than HRCL.

[7] In our view, the application judge’s factual finding that Norwich had actual notice of the fact that the Manias mortgage was in first position is a complete answer to Norwich’s priority claim. This critical finding was amply supported by the evidential record, including by the evidence of: (i) the communication of the registration error by solicitor Connor to Norwich’s solicitor; (ii) Norwich’s admitted knowledge that Connor, as the original lawyer for the mortgagor and the mortgagees (Manias and HRCL), was positioned to know the intended order of registration of the original mortgages; and (iii) the HRCL representative that she also brought the issue of the registration error to Norwich’s attention and, in light thereof, offered a discounted price for the assignment of the HRCL mortgage.

[8] This evidence, and the application judge’s finding of actual notice, defeat Norwich’s claim that it is a bona fide purchaser for value without notice of the priority of the Manias mortgage. Norwich does not contest that a finding of actual notice precludes its reliance on s. 78(5) of the Land Titles Act. That provision does not displace the doctrine of actual notice. See United Trust Co. v. Dominion Stores Ltd., 1976 CanLII 33 (SCC), [1977] 2 S.C.R. 915.

[9] The determination of actual notice did not require the trial of an issue or the assessment of credibility in the face of conflicting versions of the facts. The documentary record was more than sufficient to ground the application judge’s factual finding of Norwich’s actual notice of the registration error and the priority of the Manias mortgage.

[10] The appellant acknowledges that, at the end of the day, it bore the onus to satisfy the application judge that it did not have notice of the actual priority of the HRCL mortgage. It did not meet that onus in this case.

[11] The finding of actual notice by Norwich is sufficient for the disposition of the issue on this appeal, which is the priority of the Manias mortgage. Accordingly, it is unnecessary to address the other grounds of appeal raised by Norwich.

[12] The appeal is dismissed. The respondent is entitled to his costs of the appeal, fixed in the amount of $9,000, inclusive of disbursements and GST.

RELEASED:

“KF” “K. Feldman J.A.”

“JUL -3 2008” “J.C. MacPherson J.A.”

“E.A. Cronk J.A.”