Court of Appeal for Ontario

Date: 2017-05-05 Docket: C62398

Judges: Doherty, Benotto and Trotter JJ.A.

Between

Marshallzehr Group Inc. Applicant (Respondent)

and

Callidus Capital Corporation Respondent (Appellant)

Counsel

Stephen Schwartz, for the appellant

J. Greg Murdoch, for the respondent

Heard and released orally: April 27, 2017

On appeal from: the judgment of Justice D.J. Gordon of the Superior Court of Justice, dated June 13, 2016.

Endorsement

[1] The parties agree that the application judge properly identified the applicable legal principles at para. 6 of his reasons. The parties also agree that the application judge accurately summarized the relevant background facts.

[2] The outcome on the application and indeed on this appeal turns on the application of the well-established legal principle to the entirety of the circumstances as revealed by the evidence on this application.

[3] Counsel for the appellant (mortgagee) ably argues that the application judge misinterpreted the terms of the forbearance agreement, the crucial document in this case, and that he drew certain unreasonable factual inferences from the totality of the evidence.

[4] We do not agree. As counsel for the respondent (mortgagor) concisely put it, after the forbearance agreement was in place, the mortgagor had virtually no control over the property.

[5] We do not accept that the application judge misread the forbearance agreement. We read the agreement as he did and note, in particular, the following:

• the mortgagee had control over the sale of the property;
• the mortgagee had control over whether any capital improvements could be made on the property;
• the mortgagee had effective control over the ongoing relationship with the tenant in the building; and
• the mortgagee had control over the cash flow generated by the property. Any funds received by the mortgagor were held in trust for the mortgagee under the terms of the forbearance agreement. Those funds had to be deposited into the designated blocked account and at that point became the property of the mortgagee.

[6] The application judge's ultimate factual finding appears at para. 16:

The purpose of this forbearance agreement was for Callidus (the mortgagee) to obtain complete control of the property and the business operation of Cheese Factory and the related corporations. The critical term of the agreement was the enhanced security not previously available to BMO. I am not persuaded this was merely a situation of rent payments going to the mortgagee. Callidus controlled every decision, including lease renewal, repairs and marketing.

[7] We see no error in the trial judge's findings in para. 16. Certainly, the effect of the forbearance agreement was to give the mortgagee total control. The mortgagee proceeded to exercise that control.

[8] In terms of the broader implications that counsel for the appellant says will flow from the application judge's decision, we emphasize, as did the application judge, that the findings are limited or are based on the specific facts of this case. The application judge's ultimate conclusion was not based solely on the language of the forbearance agreement. As he said, at para. 17, "Not every forbearance agreement puts a mortgagee in control. This agreement and the conduct of the parties does."

[9] The appeal is dismissed. The parties agree that the successful party, the respondent, should have its costs in the amount of $15,000, inclusive of relevant taxes and disbursements.

"Doherty J.A."

"M.L. Benotto J.A."

"G.T. Trotter J.A."