Frenchmen's Creek Estates Inc. v. Tuckernuck Mortgage Administration Inc., 2009 ONCA 89
CITATION: Frenchmen's Creek Estates Inc. v. Tuckernuck Mortgage Administration Inc., 2009 ONCA 89
DATE: 20090130
DOCKET: C49326
COURT OF APPEAL FOR ONTARIO
Sharpe, Juriansz and Rouleau JJ.A.
BETWEEN
Frenchmen’s Creek Estates Inc., 550075 Ontario Inc., and Joseph Zawadzki
Applicants (Respondents)
and
Tuckernuck Mortgage Administration Inc., In Trust, Tuckernuck Mortgage Administration Inc., Mathews Southwest Developments Limited, MSW Dallas Limited and Bruce Bent
Respondents (Appellants)
AND BETWEEN
Tuckernuck Mortgage Administration Inc., In Trust
Plaintiff (Appellant)
and
550075 Ontario Inc., Joseph Zawadzki, Robert Hamather, John Allen, 533438 Ontario Limited, 875174 Ontario Limited, 829977 Ontario Limited and Tuckernuck Mortgage Administration Inc.
Defendants (Respondents)
AND BETWEEN
Tuckernuck Mortgage Administration Inc., In Trust
Plaintiff (Appellant)
And
Frenchmen’s Creek Estates Inc., Joseph Zawadzki and Tuckernuck Mortgage Administration Inc.
Defendants (Respondents)
Mark A. Klaiman, for the appellants
John F. Evans and Andrea M. Hill, for the respondents
Heard: January 23, 2009
On appeal from the judgment of Justice Kim A. Carpenter-Gunn of the Superior Court of Justice dated July 31, 2008 and reported at 2008 CanLII 39955 (ON S.C.).
Rouleau J.A.:
[1] The respondents collectively own three properties in the Niagara Falls / Fort Erie area. The appellants hold first mortgages over two of these properties, the Frenchmen’s Creek property and the 550075 property (the first mortgages). The appellants also hold second mortgages over both of these properties as well as over a third property, the Old Willoughby property (the second mortgages).
[2] As a result of previous defaults in payment by the respondents on the first mortgages, the parties entered into a settlement agreement. The settlement agreement bound together and dealt with all five mortgages. Section 3 of the settlement agreement provided that the respondents would make a series of payments to the appellants in respect of the first mortgages. The settlement agreement also stipulated that the respondents would provide the appellants with consents to judgment for foreclosure in relation to the first mortgages on the Frenchmen’s Creek and 550075 properties to be used by the appellants in the event of default by the respondents on the first mortgages. The parties later entered into an amending agreement and, pursuant thereto, s. 3.1 was added to the settlement agreement. Section 3.1 provided that the respondents would make a further series of payments to the appellants. It did not stipulate to which mortgages these payments would apply.
[3] The only issue on this appeal is whether the motion judge erred in concluding that all of the payments made by the respondents to the appellants, which totalled $871,345.95, ought to be applied first to pay down and ultimately retire the first mortgages and only thereafter to reduce the second mortgages. In my view, the motion judge did not err in reaching this conclusion. Accordingly, the appeal should be dismissed.
[4] The $871,345.95 in payments can be grouped as follows: $630,000 paid by way of a series of cheques; and, $241, 345.95 paid out of the proceeds of the judicial sale of a portion of the Old Willoughby property, which represents the balance of the sale proceeds after a first mortgage held by a non-related party was retired.
The $630,000 paid by a series of cheques
[5] Section 3 of the original settlement agreement provided for a series of monthly payments by the respondents to the appellants in respect of the Frenchmen’s Creek and 550075 first mortgages. Payments were to continue until June 15, 2005 and the balance of the debt was to be retired by June 30, 2005.
[6] The respondents were unable to pay the balance due on the first mortgages by June 30. This led to the parties entering into an amending agreement whereby s. 3.1 was added to the settlement agreement. Although s. 3.1 did not state the debt against which these further payments were to be applied, the motion judge observed that the context in which s. 3.1 was negotiated, including the ongoing threat by the appellants to use the consents to judgment for foreclosure in respect of the first mortgages, suggested that the payments were intended to “stave off” the appellants’ use of the consents to judgment for foreclosure. Further, the motion judge found that the specific numbering of the paragraph added to the settlement agreement, s. 3.1, suggested that it was intended to constitute an amendment to s. 3. Accordingly, the motion judge concluded that s. 3.1 should be read as an integral part of the original s. 3 of the settlement agreement and that the payments made pursuant thereto were to be applied in the same manner as payments made under the original s. 3 – i.e. to pay down the first mortgages.
[7] The appellants submit that, because s. 3.1 does not stipulate to which mortgages the funds were to be applied and, further, since the respondents failed to specify to which debt the sums were to be applied when they made the payments, the appellants were not precluded from applying the payments against the amounts owing under the second mortgages. I would not give effect to this submission.
[8] In my view, considering the context, it was open to the motion judge to make the finding she did and I see no basis to interfere with her conclusion. I note also that the series of payments provided for in s. 3.1 is, in effect, simply a continuation of the series of payments provided for in s. 3 and, logically, should therefore be applied in the same way.
The Old Willoughby proceeds
[9] The appellants submit that the $241,349.95 paid to them out of the proceeds of the judicial sale of a portion of the Old Willoughby property ought not to be applied to pay down the first mortgages over the Frenchmen’s Creek and 550075 properties. These monies were the proceeds of a judicial sale and, according to the appellants, the question of against which debt the proceeds of sale were to be applied is governed by the terms of the interim and final reports on sale in the mortgage proceedings involving the Old Willoughby property or, alternatively, by s. 6 of the settlement agreement.
[10] The interim report on sale provided that after retirement of the unrelated first mortgage, the appellants were entitled to receive the excess funds on account of the second mortgage they had registered against the Old Willoughby property. The appellants argue that the motion judge therefore erred in not applying these sums to reduce the second mortgage on the Old Willoughby property.
[11] Further, s. 6 of the settlement agreement provided that the proceeds of sale of any of the properties were to be paid to the appellants on account of all five mortgages, not just in relation to the first mortgages. According to the appellants, the motion judge’s finding that all of the monies advanced by the respondents to the appellants ought to be applied to the first mortgages was therefore inconsistent with both the interim and final reports on sale, as well as with the terms of the settlement agreement.
[12] I disagree with this submission. In my view, by entering into a settlement agreement that bound all five mortgages together, it is apparent that the parties intended that all of the payments made by the respondents to the appellants were to be governed by the settlement agreement. Section 6 of the settlement agreement specifically provides that payment to the appellants out of the proceeds of sale of any of the properties would be on account of all five mortgages. Although s. 6 does not specify to which mortgage or in what proportion a payment received on account of sale was to be applied, the motion judge concluded that, in the context, the payment from the Old Willoughby sale should be applied to reduce the first mortgages. On the facts of this case, I do not consider her conclusion to be unreasonable.
[13] Shortly before receiving the payments from the sale, the appellants demanded from the respondents a payment of $250,000, failing which they would use the consents to judgment for foreclosure with respect to the first mortgages. Although I acknowledge that the payment of $241,349.95 was made pursuant to a judicial sale and would have been paid to the appellants regardless of the demand, the amount generated from the sale was nonetheless almost the same as the amount that had been demanded. Other relevant facts are that:
(a) all of the payments previously received by the appellants were applied in respect of the first mortgages;
(b) there was the continuing threat that, if payments were not made, the appellants would use the consents to judgment for foreclosure in relation to the first mortgages; and
(c) section 6 of the settlement agreement provided that proceeds from the sale of any of the properties were to be on account of all five mortgages and did not stipulate how the allocation among them was to be made.
[14] As a result, it was not unreasonable for the motion judge to conclude that the proceeds from the judicial sale of a portion of the Old Willoughby property should be applied first to reduce and retire the first mortgages and only thereafter to reduce the second mortgages.
[15] In conclusion, I would dismiss the appeal with costs to the respondents fixed at $20,000, inclusive of GST and disbursements.
“Paul Rouleau J.A.”
“I agree Robert J. Sharpe J.A.”
“I agree R. Juriansz J.A.”
RELEASED: January 30, 2009