COURT OF APPEAL FOR ONTARIO
CITATION: DBDC Spadina Ltd. v. Walton, 2016 ONCA 220
DATE: 20160321
DOCKET: C60593
Laskin, Simmons and Huscroft JJ.A.
BETWEEN
DBDC Spadina Ltd. and those corporations listed on Schedule “A” hereto
Applicants
and
Norma Walton, Ronauld Walton, The Rose & Thistle Group Ltd.
and Eglinton Castle Inc.
Respondents
and
Those corporations listed on Schedule “B” hereto, to be bound by the result
Christopher Sparling, for Junior Academy Inc. and Dibri Inc.
Danielle Glatt, for 368230 Ontario Ltd.
Heard: January 25, 2016
On appeal from the order Justice Frank J.C. Newbould of the Superior Court of Justice dated May 26, 2015.
By the Court:
A. overview
[1] The issues on appeal relate to the allocation of credits as between the purchaser of a property and a tenant following a receiver’s sale and to the distribution of the net proceeds of sale following the receiver’s sale.
[2] The appellants, Dibri Inc. and Junior Academy Inc., share common principals. The property at issue is 2454 Bayview Avenue, Toronto (the “property”).
[3] Prior to the receiver’s sale in January 2015, Dibri held a second mortgage on the property and Junior Academy leased the property from the owner. Under the vesting order transferring the property to the purchaser, 368230 Ontario Ltd., Junior Academy’s lease vested in the purchaser and Dibri’s second mortgage, along with most other encumbrances, was extinguished.[^1]
[4] Dibri originally purchased the property in 2005 and later built a school on the property. Junior Academy operated the school.
[5] In late 2011, Dibri agreed to sell the property to The Rose and Thistle Group Ltd., in trust for a company to be incorporated (the “first sale agreement”). The first sale agreement contemplated that Junior Academy would continue as a tenant of the property.
[6] Around the time of the first sale agreement, Junior Academy, Dibri and The Rose and Thistle Group entered into a further agreement under which $100,000 would be held back from the purchase price to account for an anticipated retroactive realty tax reassessment arising from the construction of the school. Instead of this holdback, the parties later agreed (the “side agreement”) that Junior Academy would pay $25,000 to Academy Lands Ltd., the company incorporated to complete the first sale agreement.
[7] As contemplated by the first sale agreement, in early December 2011, Junior Academy leased the property from Academy Lands[^2] on a net-net basis for about 10 years. Dibri guaranteed Junior Academy’s obligations under the lease for five years. In contemplation of the property tax reassessment, the lease required that Junior Academy pay $5000 monthly to Academy Lands on account of estimated property taxes. Under the lease, in the event the property taxes as assessed were “less than the amount paid by the Tenant”, the Landlord was required to credit the Tenant “the difference on account of the taxes due for the following year”.
[8] In September 2014, the first mortgagee of the property obtained an order appointing msi Spergel inc. as receiver of the assets of Academy Lands.
[9] Following Spergel’s appointment as receiver, Junior Academy stopped paying amounts owing under its lease. On December 17, 2014, the motion judge ordered Junior Academy to pay $188,845 on account of rent and other arrears to Spergel, without prejudice to Spergel’s right to establish more was owing to the end of December 2014.
[10] By a vesting order dated January 8, 2015, Spergel transferred the property to the purchaser.
[11] Following the transfer, under an order dated April 21, 2015, the motion judge directed that $188,845 be held back from the initial distribution of the net proceeds of sale (the “disputed balance”) pending determination of: i) whether amounts paid by Junior Academy to Academy Lands on account of property taxes under the lease were enforceable against the purchaser; and ii) the entitlement of various parties to the disputed balance.
[12] On a motion brought by Dibri and Junior Academy, the motion judge held that the amounts paid by Junior Academy to Academy Lands on account of property taxes under its lease are enforceable against the purchaser. However, the motion judge also found that the purchaser should be paid the amount owing under the December 17, 2014 order from the disputed balance, less credit for the property tax overpayments. Finally, the motion judge denied Junior Academy’s request to enforce against the purchaser the $25,000 payment made to Academy Lands under the side agreement.
[13] Junior Academy and Dibri raise three issues on appeal:
i) did the motion judge err in holding that the purchaser is entitled to be paid the amount owing under the December 17, 2014 order;
ii) did the motion judge err in failing to order that the entire disputed balance be paid to Dibri; and
iii) did the motion judge err in denying Junior Academy’s claim for a $25,000 credit against the purchaser?
[14] For the reasons that follow, we dismiss the appeal.
B. discussion
- Did the motion judge err in holding that the purchaser is entitled to be paid the amount owing under the December 17, 2014 order?
[15] The appellants claim that the amount Junior Academy owed for arrears under the lease merged in the December 17, 2014 judgment and therefore remained the property of Academy Lands through its receiver.
[16] We reject this argument. On our review of the vesting order, it operates as an assignment of Junior Academy’s lease to the purchaser and explicitly vests all Academy Lands’ interest in rents in the purchaser.
[17] Under para. 2 of the vesting order “all of [Academy Lands’] right, title and interest in and to the Purchased Assets described in the Sale Agreement … vest[ed] absolutely in the [p]urchaser ... free and clear of … all [encumbrances excepting permitted encumbrances]”.
[18] The Sale Agreement referred to in para. 2 of the vesting order is an agreement of purchase and sale dated December 1, 2014. It defines “Purchased Assets” as “the Land, the Buildings and the Rights”. It defines “Rights” as “the right, title and interest, if any, of Academy Lands Ltd. in all benefits, advantages … income, rents and options relating to the Lands and the Buildings” (emphasis added).
[19] Moreover, Schedule “D” of the vesting order lists the notice of Junior Academy’s lease as a permitted encumbrance.
[20] Thus the sale documents make clear that all benefits and obligations under the lease, including rents, vested in the purchaser.
[21] The appellants relied on two decisions, Hislop v. Canada (Attorney General), 2007 SCC 10, 1 S.C.R. 429, and Lew v. Lee, 1924 CanLII 19 (SCC), [1924] S.C.R. 612, for the proposition that a cause of action merges in a judgment, such that an appeal can be prosecuted in relation to a judgment even after the holder of a personal action has died.
[22] However, these case do not go so far as to establish that the December 17, 2014 order, which clarified that Junior Academy owed arrears under the lease to the receiver, somehow excludes those arrears from the operation of the vesting order.
[23] We would not give effect to this ground of appeal.
- Did the motion judge err in failing to order that the entire disputed balance be paid to Dibri?
[24] The appellants claim that Dibri’s second mortgage gives it priority over any unsecured claims of the purchaser against Junior Academy for arrears of rent. They say that the motion judge therefore erred in failing to direct that the entire disputed balance be paid to Dibri on account of the balance owing under its second mortgage.
[25] We do not accept this argument.
[26] In concluding that the purchaser was entitled to be paid the rent arrears less the property tax overpayment from the disputed balance in priority to Dibri, the motion judge said that the parties had consented to the holdback of the disputed balance “in lieu of the payment to be made by [Junior Academy] under the December 17, 2014 order. [The holdback amount] is owing under the account taken over by [the purchaser].”
[27] In effect, the motion judge concluded that the arrears formed part of the sale and had to be accounted for as part of the transaction.
[28] We note as well that Dibri and Junior Academy had common principals and that Dibri guaranteed Junior Academy’s obligations under the lease.
[29] In the circumstances, we see no error in the motion judge’s decision to make all proper adjustments between the parties.
- Did the motion judge err in denying Junior Academy’s claim for a $25,000 credit against the purchaser?
[30] The appellants submit that whether the $25,000 was paid under the lease, that sum was paid to Academy Lands on account of property taxes and therefore increases the amount by which Junior Academy overpaid Academy Lands for property taxes during the relevant period under the lease. Put another way, the $25,000 payment effectively reduced the amount owing on account of assessed property taxes. Junior Academy claims it should be entitled to a credit against the purchaser for that amount.
[31] We do not accept this argument. As the motion judge noted, the purchaser was not a party to the side agreement. Moreover, the vesting order did not transfer the benefits or obligations under the side agreement to the purchaser. In these circumstances, the motion judge did not err in denying Junior Academy’s claim for a credit against the purchaser for the $25,000 payment. Junior Academy’s rights against the purchaser arise from the lease. Moreover, the evidence did not demonstrate that Academy Lands had used the $25,000 to reduce the property taxes owing.
C. disposition
[32] Based on the foregoing reasons, the appeal is dismissed. Costs of the appeal are to the purchaser fixed in the amount of $10,000 inclusive of disbursements and applicable taxes.
Released:
“MAR 21 2016” “John Laskin J.A.”
“JS” “Janet Simmons J.A.”
“Grant Huscroft J.A.”
Schedule “A” Companies
Dr. Bernstein Diet Clinics Ltd.
2272551 Ontario Limited
DBDC Investments Atlantic Ltd.
DBDC Investment Pape Ltd.
DBDC Investments Highway 7 Ltd.
DBDC Investments Trent Ltd.
DBDC Investments St. Clair Ltd.
DBDC Investments Tisdale Ltd.
DBDC Investments Leslie Ltd.
DBDC Investments Lesliebrook Ltd.
DBDC Fraser Properties Ltd.
DBDC Fraser Lands Ltd.
DBDC Queen’s Corner Inc.
DBDC Queen’s Plate Holdings Inc.
DBDC Dupont Developments Ltd.
DBDC Red Door Developments Inc.
DBDC Red Door Lands Inc.
DBDC Global Mills Ltd.
DBDC Donalda Developments Ltd.
DBDC Salmon River Properties Ltd.
DBDC Cityview Industrial Ltd.
DBDC Weston Lands Ltd.
DBDC Double Rose Developments Ltd.
DBDC Skyway Holdings Ltd.
DBDC West Mall Holdings Ltd.
DBDC Royal Gate Holdings Ltd.
DBDC Dewhurst Developments Ltd.
DBDC Eddystone Place Ltd.
DBDC Richmond Row Holdings Ltd.
Schedule “B” Companies
Twin Dragons Corporation
Bannockburn Lands Inc. / Skyline – 1185 Eglinton Avenue Inc.
Wynford Professional Centre Ltd.
Liberty Village Properties Inc.
Liberty Village Lands Inc.
Riverdale Mansion Ltd.
Royal Agincourt Corp.
Hidden Gem Development Inc.
Ascalon Lands Ltd.
Tisdale Mews Inc.
Lesliebrook Holdings Ltd.
Lesliebrook Lands Ltd.
Fraser Properties Corp.
Fraser Lands Ltd.
Queen’s Corner Corp.
Northern Dancer Lands Ltd.
Dupont Developments Ltd.
Red Door Developments Inc. and Red Door Lands Ltd.
Global Mills Inc.
Donalda Developments Ltd.
Salmon River Properties Ltd.
Cityview Industrial Ltd.
Weston Lands Ltd.
Double Rose Developments Ltd.
Skyway Holdings Ltd.
West Mall Holdings Ltd.
Royal Gate Holdings Ltd.
Royal Gate Nominee Inc.
Royal Gate (Land) Nominee Inc.
30 Dewhurst Development Ltd.
Eddystone Place Inc.
Richmond Row Holdings Ltd.
[^1]: In addition to a notice of Junior Academy’s lease, the vesting order listed a site plan agreement in a schedule of “Permitted Encumbrances, Easements and Restrictive Covenants.”
[^2]: The lease was actually between Junior Academy and The Rose and Thistle Group Ltd., in trust for a company to be incorporated. As already noted, Academy Lands is the company incorporated to complete the first sale agreement and therefore became the Landlord under the lease.