1173928 Ontario Inc. v. 1463096 Ontario Inc.

[Indexed as: 1173928 Ontario Inc. v. 1463096 Ontario Inc.]

Ontario Reports Court of Appeal for Ontario Lauwers, Benotto and Nordheimer JJ.A. July 27, 2018

142 O.R. (3d) 1 | 2018 ONCA 669

Case Summary

Mortgages — Power of sale — Mortgage statement — Mortgagee's ability to enforce mortgage suspended by operation of s. 22 of Mortgages Act at time of two purported sales as it had failed to answer two outstanding requests by mortgagor for mortgage statements — Mortgages Act, R.S.O. 1990, c. M.40, s. 22.

135, 117 and 173 were corporations controlled by V. 135 was a tenant of 146, and V operated a business on the leased premises. 146 defaulted in paying a mortgage held by Bayview in March 2008, whereupon V caused 135 to default in payment of rent. Bayview issued a notice of sale to 146 in November 2008. 146 requested a mortgage statement. In January 2009, 117 purchased the mortgage from Bayview with money borrowed from Libro and assigned the mortgage to Libro as security for the loan. Bayview responded to 146's request for a mortgage statement after the 15-day period, gave the amount outstanding as of January 7, 2009 and noted that the mortgage had been assigned to Libro. 117 also purported to terminate the lease and enter into a new lease on significantly more favourable terms in an effort to reduce the rental credit to which 146 was entitled as mortgagor. 146 responded by starting an application as landlord under s. 20 of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 against V and 117 seeking payment of the outstanding rental arrears together with injunctive relief restraining 117 from enforcing the mortgage. 117 commenced a mortgage action in March 2009. In June 2009 and again in January 2010, 146 wrote to 117 requesting a mortgage statement. There was no response. In October 2009, relying on the original notice of sale issued by Bayview, 117 purported to sell the property to itself (the "first sale"), but the sale foundered on the basis that 117 did not have an interest in the mortgage because it had assigned it to Libro. In November 2009, the application judge heard 146's Commercial Tenancies Act application. The application judge ordered V and 117 to pay the arrears owing and granted an interim order relieving 146 from forfeiture of the lease. On May 27, 2010, Libro reassigned the mortgage back to 117. In October 2010, 117 again purported to convey the property to itself under power of sale (the "second sale"), and then, as the putative owner, purported to convey the property in fee simple to 173 (the "third sale"). In the mortgage action, the trial judge held that the first sale was invalid because Libro, not 117, owned the mortgage at that time. (For the same reason, 117 did not have status to bring the mortgage action in March 2009, but the trial judge made an order nunc pro tunc at the outset of the trial which granted standing to 117. The order expressly provided that it was without prejudice to 146 to defend the action on the basis that 117 did not hold title to the mortgage during the period January 23, 2009 through May 27, 2010.) The trial judge held that the second sale was invalid. She held that a mortgagee can legally transfer its security to itself, but only where it can establish that it acted in good faith and took reasonable precautions to obtain a proper price. She found that 117 lacked good faith. Because 117 did not acquire title to the property through the second sale, it was not the fee simple owner, and the third sale was invalidated. She concluded that, since there were no valid transfers of the property by 117 as mortgagee, 117 remained holder of the mortgage until the mortgage was paid in full from the receipt of rents. Accordingly, 146 had retained title to the property throughout. She found that enough rent was standing to the credit of the mortgage that all amounts under the mortgage were paid in full by November 2014. She dismissed the mortgage action. 117 appealed.

Held, the appeal should be dismissed.

When 117 gained full status on May 27, 2010 to enforce the mortgage and to bring (and therefore continue) the action, there were two outstanding requests from 146 for a mortgage statement. 117's ability to enforce the mortgage was suspended by operation of s. 22 of the Mortgages Act at the time of the second and third sales as it had not responded to those requests. 117's argument that it provided a statement of account that complied with s. 22 of the Mortgages Act in the form of a schedule to V's affidavit in the Commercial Tenancies Act application could not be accepted. The outstanding mortgage balance set out in the schedule was based on V's position on the amount and allocation of rental arrears, which the application judge in the Commercial Tenancies Act application rejected as wrong. The purported statement was substantially incomplete and incorrect, contrary to s. 22 of the Mortgages Act. Both the second and third sales were invalid because they were executed at a time when 117's enforcement rights were statutorily suspended under s. 22(3) of the Mortgages Act. That was a sufficient basis on which to dismiss the appeal.

The trial judge found that the original Bayview notice of sale was invalid under s. 131 of the Mortgages Act on two grounds. First, that notice of sale was not "correct in all material aspects" when it was issued and did not reflect the correct amount needed to redeem the mortgage. Second, she expressed the view that 117 was obliged to issue a fresh notice of sale because the mortgage debt had changed over time. With respect to her first finding, while s. 31 of the Mortgages Act has been interpreted to require accuracy, the cases show a degree of tolerance for errors. The applicable standard is whether the notice of sale was reasonable in the circumstances. The court must assess whether the magnitude of the error in the notice of sale affected whether the borrower and subsequent encumbrancers were misled by it in assessing whether to redeem the mortgage, based on a commercially reasonable standard. A timely, accurate and complete mortgage statement issued under s. 22(2) would form part of the relevant circumstances and could serve to correct an inaccurate notice of sale. In this case, it would be difficult to agree with the trial judge that the errors in Bayview's notice of sale were fatal to its validity based on the standard of commercial reasonableness. Counsel for 146 was aware of the alleged errors and brought them to Bayview's attention. With respect to the trial judge's finding that 117 was obliged to issue a fresh notice of sale because the mortgage debt had changed, a notice of sale is a point-in-time document and does not become inaccurate with the flow of time. The artificial staging of the issues brought about by V's actions in this case made it inappropriate to rule definitively on when, if ever, a fresh notice of sale is required.

Whether s. 41 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, which provides that a person may convey property to or vest property in the person in like manner as the person could have conveyed the property to or vested the property in another person, has overcome the rule that a mortgagee cannot sell to itself under a power of sale was an issue best left for another day.

Cases Considered

Aloi v. Spencer, 29 O.R. (2d) 435; Grenville Goodwin Ltd. v. MacDonald, 65 O.R. (2d) 381; Hornstein v. Gardena Properties Inc., 212 O.A.C. 203; Karteri v. Sugarman, [2003] O.J. No. 1195, 15 R.P.R. (4th) 38 (C.A.); Ostrander v. Niagara Helicopters Ltd., 1 O.R. (2d) 281; 1175945 Ontario Ltd. v. Michael Wade Construction Co., 2010 ONSC 3732, 95 R.P.R. (4th) 257; 1463096 Ontario Inc. v. Van Alphen, 2011 ONCA 346; Armanasco v. Linderwood Holdings Inc., 2016 ONSC 1605, 66 R.P.R. (5th) 150; Botiuk and Collison (Re), 26 O.R. (2d) 580; Double D Developments Ltd. v. Green, 24 O.R. (2d) 391; Farrar v. Farrars Ltd., (1888), 40 Ch. D. 395 (Eng. C.A.); Mission Construction Ltd. v. Seel Investments Ltd., [1973] 2 O.R. 190; Roth v. 340529 Ontario Ltd., [1982] O.J. No. 1149, 24 R.P.R. 198; Taro Properties Inc. v. Henry Waks and Sons Inc., [1990] O.J. No. 643, 39 C.L.R. 151; Theodore Daniels Ltd. v. Income Trust Co., 37 O.R. (2d) 316.

Statutes Referred To

Commercial Tenancies Act, R.S.O. 1990, c. L.7, s. 20

Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34, s. 41

Interpretation Act, R.S.O. 1990, c. I.11

Legislation Act, 2006, S.O. 2006, c. 21, Sch. F, s. 84

Mortgages Act, R.S.O. 1990, c. M.40, ss. 22, 23, 31

Authorities Referred To

Ontario Law Reform Commission, Report on the Law of Mortgages (Toronto: Ministry of the Attorney General, 1987)

Gowling WLG, Recovery Services Group, Marriott and Dunn: Practice in Mortgage Remedies in Ontario, looseleaf, 5th ed. (Toronto: Carswell, 1995)

Traub, Walter M., Falconbridge on Mortgages, looseleaf, 5th ed. (Toronto: Carswell, 2018)

Judgment

APPEAL from the judgment of A.K. Mitchell J., [2017] O.J. No. 336, 2017 ONSC 588 (S.C.J.) dismissing a mortgage action, and from the corrigenda dated March 14, 2017, and from the costs reasons dated May 16, 2017.

Geoff R. Hall and Anu Koshal, for appellants.

Peter M. Callahan, for respondents.

The judgment of the court was delivered by

LAUWERS J.A.:

A. Introduction

[1] The underlying fact situation in this appeal is convoluted, but the basics can be simply stated. The appellant Robert Van Alphen operates a business known as "Nu-Co Plastics" in a building on a property at 34 Storey Street in Blenheim owned by the respondent corporation, 1463096 Ontario Inc. ("146"). The property was leased to Mr. Van Alphen's company, 1358329 Ontario Inc. ("135").

[2] In March 2008, the landlord, 146, defaulted in paying the mortgage held by Bayview Financial LP. Seeing the situation either as perilous to the business operations of Nu-Co Plastics or as an opportunity (or both), Mr. Van Alphen took active steps to acquire the property. Through his various companies, he played a cat-and-mouse game over the succeeding years with 146 in an ongoing attempt to acquire the property.¹

[3] In the judgment under appeal, Mr. Van Alphen lost. The trial judge decided two actions. She dismissed the mortgage action for payment and possession brought against the respondents as mortgagors by Mr. Van Alphen's company, 1173928 Ontario Inc. ("117"), as assignee of the mortgage. She also granted judgment in the lease action in favour of 146, as landlord, against Mr. Van Alphen, 135 and 1732076 Ontario Limited ("173"), jointly and severally.

[4] The appellants appeal the judgment in the mortgage action but not in the lease action. For the reasons that follow, I would dismiss the appeal.

B. The Facts

[5] The chronology and many of the critical facts were set out by the trial judge, at para. 9 of her reasons for decision, on which I build. For the most part, these are not in dispute. The story is best laid out chronologically.

(1) Matching defaults

[6] 146, the landlord from which 135 rented the property, defaulted in its obligations under Bayview Financial's mortgage on March 1, 2008. A short time later, on July 1, 2008, Mr. Van Alphen caused 135 to default in payment of its increased rental obligations to 146 under the lease. This obviously added to the financial woes of 146.

[7] As mortgagee, Bayview Financial took several steps in response to 146's mortgage default. On October 16, 2008, it demanded payment under the mortgage, claiming arrears of $67,244.60. On November 6, 2008, it issued a notice of direction of rents and demand for particulars of tenancy to 135, as the original named tenant under the lease. Then, on November 17, 2008, Bayview Financial issued a notice of sale to 146 and to Luella and Barbara Ramsden (the original shareholders, officers and directors of 146), as guarantors. The notice claimed the fully accelerated amount of $368,472.41 owed under the mortgage.

(2) Mr. Van Alphen buys the mortgage

[8] On January 6, 2009, 117 borrowed $230,000 from Libro Credit Union Limited and purchased the mortgage from Bayview Financial for $360,705.12, which was the balance then owing under the mortgage. On that same date, 117 received an assignment of the mortgage, the guarantees, and related security including the attornment of rents and a loan and security agreement.

[9] Bayview Financial gave 146 notice of the assignment of the mortgage and related security. 117 registered the assignment of mortgage and notice of assignment of leases and rents on title to the property later in January 2009.

[10] On January 8, 2009, 117 listed the property for sale on MLS at the price of $400,000, utilizing the notice of sale issued by Bayview Financial.

[11] On January 12, 2009, 117 purported to terminate the existing lease and enter into a new lease on significantly more favourable terms in an effort to reduce the rental credit to which 146 was entitled as mortgagor.

[12] On January 16, 2009, 146 responded by starting an application as landlord under s. 20 of the Commercial Tenancies Act, R.S.O. 1990, c. L.7 against Mr. Van Alphen and 117 seeking payment of the outstanding rental arrears together with injunctive relief restraining 117 from enforcing the mortgage.

[13] On March 4, 2009, 117 started the mortgage action that is the subject of this appeal. Within several days, 117 received but did not accept an offer to purchase the property for $250,000.

[14] On June 25, 2009, 117 tried to sell the property through a public auction. The highest bid at the auction was $210,000, well below the reserve price of $531,000 ordered by the court.

(3) Mr. Van Alphen's efforts to acquire the property and the progress of the Commercial Tenancies Act application

[15] I consider Mr. Van Alphen's efforts to acquire the property via mortgage remedies together with the progress of the Commercial Tenancies Act application because the chronology reveals the steps in the "cat-and-mouse" game I mentioned earlier.

[16] Mr. Van Alphen made three separate efforts to acquire the property, all relying on the original notice of sale issued by Bayview Financial in November 2008. First, on October 1, 2009, acting as mortgagee selling under power of sale, 117 entered into an agreement of purchase and sale with itself as purchaser to acquire the property for a price of $210,000 plus unpaid municipal taxes of $29,327 ("first sale"). 117 did not give 146 notice of the purported sale of the property. This transaction took place in the teeth of the Commercial Tenancies Act application brought by 146, which was scheduled to be heard on November 2, 2009.

[17] The first sale foundered on the basis that 117 did not have an interest in the mortgage entitling it to sell the property because it had earlier assigned the mortgage and related security to Libro Credit Union as security for its loan. The assignment was registered against title to the property in favour of Libro Credit Union on January 23, 2009. It is now common ground among the parties that 117's first effort to buy the property was invalid.

[18] For the same reason, 117 had no status to bring the mortgage action when it did so on March 4, 2009. The form of the trial judge's order curing this defect is important. She stated, at para. 10:

At the outset of trial, 117 moved for an order granting standing to 117, nunc pro tunc, to commence the Mortgage Action, without prejudice to 146 to defend the action on the basis 117 did not hold title to the Mortgage during the period January 23, 2009 through May 27, 2010. That order was granted and the trial of the Mortgage Action proceeded.

(Emphasis added)

[19] On November 2, 2009, a month after the abortive first sale, Hockin J. heard 146's Commercial Tenancies Act application. By judgment dated January 18, 2010, with reasons reported at [2010] O.J. No. 154, 2010 ONSC 394 (S.C.J.), he granted an interim order relieving 117 from forfeiture of the lease for the property. The terms of the order provided [at para. 18]:

After a calculation of the liquidated amounts payable to this date under the lease and the mortgage, the net figure will be paid to 146. I mean by the net figure that 117 may subtract from what is owing under the lease, the arrears payable by 146 under the mortgage. No set-off will be included under the calculation of the rent payable.

In the event that this court[-]mandated attempt to reinstate the lease and mortgage fails, 146 may move for final relief and 117 may proceed under its mortgage as it may be advised.

[20] On May 27, 2010, Libro Credit Union reassigned the mortgage back to 117 and took a general security agreement from 117 in its place, and 117 regained status to act under the mortgage as of that date.

[21] Justice Hockin had crafted the interim order in the Commercial Tenancies Act application in an attempt to help the parties "return to a peaceful, commercially sensible relationship", but it failed. The parties appeared again before him on August 16, 2010. On August 20, 2010, he ordered 117 and Mr. Van Alphen to pay the rental arrears owed under the lease for the period from January 1, 2007 to August 31, 2010, fixed in the amount of $240,000 as agreed by the parties. He ordered costs of the application payable to 146 on a full indemnity basis.

[22] Less than a week later, on August 26, 2010, Mr. Van Alphen listed the property for sale at a price of $225,000. No offers were received.

[23] Then, on October 6, 2010 (before the listing expired on October 26, 2010), Mr. Van Alphen made a second effort to acquire the property. Relying once again on Bayview Financial's original notice of sale, 117 purported to convey the property to itself under power of sale for the purchase price of $210,000 ("second sale").

[24] Less than a week later, on October 12, 2010, as the putative owner, 117 purported to convey the property in fee simple to 173 for the purchase price of $213,750 ("third sale").

[25] This court dismissed the appeal from Hockin J.'s order on May 3, 2011 with costs: 1463096 Ontario Inc. v. Van Alphen, [2011] O.J. No. 1973, 2011 ONCA 346. On August 3, 2011, Thomas J. directed that all amounts owing under Hockin J.'s order, then totalling $286,793.80, be paid into court pending the outcome of the mortgage action that is the subject of this appeal.

[26] On January 12, 2012, 146 started the lease action against Mr. and Ms. Van Alphen, 135, 117 and 173, in order to recover all rental arrears including those accrued and owing after Hockin J.'s order. As noted, the trial judge granted judgment to 146 in the lease action.

C. The Decision under Appeal

[27] The trial judge held that the first sale was invalid because Libro Credit Union -- not 117 -- owned the mortgage at the date of the purported transaction. As noted above, the appellants concede that the first sale was invalid.

[28] The trial judge found that the second sale of the property by 117 to itself was invalid. She held, at para. 26, that a mortgagee can legally transfer its security to itself, but only where it "can establish it acted in good faith and took reasonable precautions to obtain a proper price". However, the trial judge found that 117 lacked good faith, giving three reasons, which I summarize here and describe in more detail below.

[29] First, she cited, at para. 28, Mr. Van Alphen's "long history of self-help and self-dealing when it comes to dealing with the Ramsdens and in particular, 146". Second, the trial judge cited 117's failure to provide an updated statement of account to 146 to reflect the reduction of the mortgage balance achieved through the attornment of rents, contrary to s. 22(2) and (3) of the Mortgages Act, R.S.O. 1990, c. M.40. Third, she found the notice of sale to be invalid under s. 31 of the Mortgages Act.

[30] The trial judge also found that 117 took few, if any, reasonable precautions to obtain a proper price for the property but rather relied on a single bid received at auction more than a year prior.

[31] Accordingly, the trial judge stated, at para. 42: "117's attempt to sell the Property to itself pursuant to power of sale on October 6, 2010 was ineffective in transferring title". Because 117 did not acquire title to the property through the second sale, it was not the fee simple owner. This invalidated the third sale.

[32] The trial judge concluded, at para. 43, that "[s]ince there were no valid transfers of the Property by 117, as mortgagee, 117 remained holder of the Mortgage until the mortgage was paid in full from the receipt of rents". Accordingly, 146 had retained title to the property throughout. She ordered Mr. Van Alphen, 135 and 173 to pay the rental arrears on the basis of joint and several liability. In a subsequent unreported corrigendum, she provided guidance on the calculations the parties should undertake to determine the date on which 146 could be said to have paid off the mortgage. The trial judge found that enough rent was standing to the credit of the mortgage that all amounts owed under the mortgage were paid in full by November 1, 2014.

[33] The trial judge found that 117 had no further rights under the mortgage and dismissed the mortgage action.

D. The Issues on Appeal

[34] The appeal raises two issues:

(1) Was the original notice of sale issued by Bayview Financial valid?

(2) Did the mortgagee, either Bayview Financial or later 117, fail to comply with s. 22 of the Mortgages Act, and, if so, what was the effect of non-compliance on the second sale and third sale?

Although the notice of sale preceded the request for a mortgage statement, I begin with the second issue, and, in light of the decision on it, I decline to make a definitive ruling on the first. I am also obliged to comment on the trial judge's invocation of s. 41 of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34 because of its broader potential application.

E. Analysis

[35] I start with four observations. First, the factual context is most unusual. The parties were locked in a terminal struggle. Justice Hockin noted, at para. 3: "There is a strange twist to the positions of the parties in relation to each other in law and in equity." He explained how "[s]ince both parties are in default, Mr. Van Alphen now finds himself at risk of the forfeiture of his lease with 146 and 146 is at risk of the loss of Storey Street to Mr. Van Alphen acting under his power of sale under the mortgage". However, Hockin J. pointed out, at para. 12, that "the inability of 146 to honour its obligation on the covenant is principally related to Mr. Van Alphen's failure to pay rent".

[36] Second, it is necessary to bear in mind the purposes served by mortgage law in order to set the legal issues in context. The evolution of mortgage law shows growing recognition that a mortgage is simply security for a debt: see the Ontario Law Reform Commission, Report on the Law of Mortgages (Toronto: Ministry of the Attorney General, 1987), at pp. 136-49. Equity worked to mitigate the harshness of the common law in its treatment of mortgagors; later, the legislature acted to control the contractual power of sale, which provided a measure of protection to mortgagors. The provisions of the Mortgages Act reflect these equitable purposes and must be construed in a purposive manner.

[37] Third, it is not the court's function to seek pretexts to invalidate a mortgage sale. The cases insist that the mortgagee is entitled to be paid in full and is entitled to take enforcement steps without undue judicial interference. The courts have taken a functional approach: 1175945 Ontario Ltd. v. Michael Wade Construction Co., [2010] O.J. No. 3070, 2010 ONSC 3732, 95 R.P.R. (4th) 257 (S.C.J.), at paras. 14-17. In a commercial context involving sophisticated parties who know what is going on, reasonable expectations should govern, and a court should be reluctant to force a mortgagee to start over. No useful purpose would be served by replicating the "technical traps and procedural delays" of foreclosure and judicial sale in respect of the contractual power of sale: see the Ontario Law Reform Commission, Report on the Law of Mortgages, at p. 137.

[38] The fourth observation is that the cases have not addressed the appropriate interplay between s. 31(1) of the Mortgages Act, which prescribes the content and use of a notice of sale, and s. 22(2), which prescribes the content and use of a mortgage statement. To some extent the cases have tended to see these legislative provisions as silos; in my view, mortgage remedies are better seen as an integrated package, as I will explain. I now turn to the issues.

(1) Did the mortgagee, either Bayview Financial or later 117, fail to comply with s. 22 of the Mortgages Act, and, if so, what was the effect of non-compliance on the second sale and third sale?

(a) The governing principles

[39] The trial judge found that 117 failed to provide updated statements of account to 146 to reflect the reduction of the mortgage balance achieved through the attornment of rents, contrary to s. 22(2) and (3) of the Mortgages Act, R.S.O. 1990, c. M.40. She also noted, at para. 29:

The evidence of Dennis Asher makes it clear Bayview did not provide credits for amounts held in Escrow and insurance premiums paid by 146. No efforts were made by 117 to facilitate 146's redemption of the Mortgage or enable 146 to place the Mortgage back into good standing despite the repeated requests by 146 for a proper statement of account.

[40] Section 22 of the Mortgages Act provides:

22(1) Despite any agreement to the contrary, where default has occurred in making any payment of principal or interest due under a mortgage or in the observance of any covenant in a mortgage and under the terms of the mortgage, by reason of such default, the whole principal and interest secured thereby has become due and payable,

(a) at any time before sale under the mortgage; or

(b) before the commencement of an action for the enforcement of the rights of the mortgagee or of any person claiming through or under the mortgagee,

the mortgagor may perform such covenant or pay the amount due under the mortgage, exclusive of the money not payable by reason merely of lapse of time, and pay any expenses necessarily incurred by the mortgagee, and thereupon the mortgagor is relieved from the consequences of such default.

(2) The mortgagor may, by a notice in writing, require the mortgagee to furnish the mortgagor with a statement in writing,

(a) of the amount of the principal or interest with respect to which the mortgagor is in default; or

(b) of the nature of the default or the non-observance of the covenant,

and of the amount of any expenses necessarily incurred by the mortgagee.

(3) The mortgagee shall answer a notice given under subsection (2) within fifteen days after receiving it, and, if without reasonable excuse the mortgagee fails so to do or if the answer is incomplete or incorrect, any rights that the mortgagee may have to enforce the mortgage shall be suspended until the mortgagee has complied with subsection (2).

[41] The purpose of s. 22(1) of the Mortgages Act (and also of s. 23(1), which does not figure into this decision) is to provide a mortgagor with access to relief from acceleration of the entire mortgage debt that came about because of the default. See, generally, Marriott and Dunn: Practice in Mortgage Remedies in Ontario, looseleaf, 5th ed. (Toronto: Carswell, 1995), at 19.2.

[42] Section 22(2) works together with s. 22(3). Where the mortgagee fails to answer a request for a mortgage statement within 15 days without reasonable excuse or answers it incompletely or incorrectly, then the mortgagee's rights to enforce the mortgage, including the exercise of a power of sale or commencement of a mortgage action, is suspended until the mortgagee provides an accurate and complete mortgage statement. But the provision is not to be used as a shelter by a mortgagor who does not desire to bring the mortgage into good standing. A mortgagor "is not entitled to suspend the mortgagee's rights under s-s. (3) for an indefinite period of time, simply by questioning the [mortgage statement]": Double D Developments Ltd. v. Green, 24 O.R. (2d) 391, [1979] O.J. No. 4197 (H.C.J.), at para. 9. Tendering or paying into court the amount of money that the mortgagor claims is owed could evince an intention to redeem the mortgage in the face of ongoing accounting disputes: Double D Developments Ltd., at para. 8.

[43] Section 22(3) of the Mortgages Act applies before the mortgagor's right to get relief from acceleration by putting the mortgage into good standing ends. That right ends under s. 22 at the earlier of (i) the acceptance by the mortgagee of an offer to purchase (such as an agreement arising from the exercise of a power of sale); or (ii) the commencement of a mortgage action by the mortgagee (after which the mortgagor can seek relief from acceleration under s. 23): Michael Wade, at para. 22; Mission Construction Ltd. v. Seel Investments Ltd., [1973] 2 O.R. 190, [1973] O.J. No. 1890 (H.C.J.); Theodore Daniels Ltd. v. Income Trust Co., 37 O.R. (2d) 316, [1982] O.J. No. 3315 (C.A.), at para. 13; and Armanasco v. Linderwood Holdings Inc., [2016] O.J. No. 1174, 2016 ONSC 1605, 66 R.P.R. (5th) 150 (S.C.J.), at paras. 51-59. However, although the suspension effect of s. 22(3) of the Mortgages Act will no longer apply after the mortgagor's right to put the mortgage in good standing ends, the mortgagor continues to have the right to a mortgage statement under s. 22(2) of the Mortgages Act until the right of redemption is irrevocably lost.

(b) The positions of the parties

[44] The respondents submit that the trial judge properly invalidated the second sale because neither Bayview Financial nor 117 provided a mortgage statement that complied with s. 22(2) and (3) of the Mortgages Act, despite requests from 146. The fundamental purpose of an updated mortgage statement in the context of a sale -- to allow the mortgagor to intelligently assess its position -- was not met.

[45] The appellants submit that 117 did provide an updated statement of account to 146 that complied with s. 22 of the Mortgages Act in August 2010, as part of the Commercial Tenancies Act application. The statement consisted of a schedule that was an exhibit to Mr. Van Alphen's affidavit in that proceeding. It stated that the outstanding mortgage balance on August 1, 2010 was $209,412.92. The appellants argue that the statement constituted an answer within the meaning of s. 22(2) of the Mortgages Act; providing the statement lifted the suspension of 117's rights to enforce the mortgage before the date of the second sale on October 6, 2010.

(c) The principles applied

[46] The critical dates for determining the effect of s. 22 of the Mortgages Act are (i) the date of the mortgagor's request for a mortgage statement; (ii) the date of the mortgagee's response; (iii) the date of a sale (the possibilities are October 6, 2010, the date of the purported second sale; or October 12, 2010, the date of the purported third sale); and (iv) the date of the commencement of a mortgage action by the mortgagee (March 4, 2009 at the earliest). As I will explain, neither the dates of the purported sales nor the date on which 117 started the mortgage action figure into the decision.

[47] On the facts of this case, the date of the first request for a mortgage statement could be one of three dates. The first is December 10, 2008, which is the date for which the respondents contend. This is the date of Mr. Asher's letter to Bayview Financial's counsel in which he questioned the accuracy of the notice of sale. In that letter, he also took the customary step of requesting a mortgage statement "as to principal and interest arrears and mortgagee's expenses relating to the mortgage effective December 28, 2008". The second and third possible dates are June 15, 2009 and January 19, 2010, when 146 gave written notice of a request for a mortgage statement to 117.

[48] The trial judge did not clearly find the governing date, nor need I do so, in view of the status of 117 to bring the action.

[49] With respect to the first date, December 10, 2008, the evidence is that Bayview Financial's lawyers responded after the 15-day period by letter, dated January 13, 2009, in which they gave the amount outstanding at January 7, 2009 as $67,270.67. However, the letter noted that the mortgage had been assigned to 117 on January 7, 2009. The respondents assert that Bayview Financial's response was inaccurate; it did not come within 15 days and not until after it sold the mortgage to 117; and therefore, it did not comply with s. 22(3) of the Mortgages Act.

[50] On the second date, June 15, 2009, Mr. Asher wrote to 117's lawyers requesting a statement of the mortgage account and a notice of the interest rate adjustment, since it was a variable rate mortgage. They did not respond.

[51] On the third date, January 19, 2010, Mr. Asher wrote again to 117's lawyers requesting a mortgage statement and an account of the rental money received by 117. In his letter, dated February 12, 2010, Mr. Asher confirmed that he had received no response.

[52] Although 117 started the action on March 4, 2009, 117 had no status to do so then because the mortgage was in hands of Libro Credit Union, which did not consent to the proceeding. The trial judge found that the mortgage had been assigned absolutely to Libro Credit Union, which had not consented to any of 117's mortgage enforcement efforts including the commencement of the action. 117 did not get the reassignment of the mortgage and full status to pursue it until May 27, 2010.

[53] The trial judge's nunc pro tunc order at the outset of trial, which granted standing to 117, provided expressly, at para. 10, that it was "without prejudice to 146 to defend the action on the basis 117 did not hold title to the Mortgage during the period January 23, 2009 through May 27, 2010". This was the period in which the mortgage was in the hands of Libro Credit Union. Both the second and third requests to 117 for a mortgage statement fell into the interim. It is necessary to give effect to this qualifier in the nunc pro tunc order.

[54] Accordingly, when 117 gained full status on May 27, 2010 to enforce the mortgage and bring the action (and therefore to continue it), there were two outstanding requests to 117 for a mortgage statement that 117 had never answered, leaving the suspension in place.

[55] I do not accept the appellants' argument that the court should deem the schedule to Mr. Van Alphen's August 10, 2010 affidavit to constitute a mortgage statement within the meaning of s. 22 of the Mortgages Act, even taking the functional approach. As noted, the schedule took the position that the outstanding mortgage balance on August 1, 2010 was $209,412.92. It was based on Mr. Van Alphen's position on the amount and allocation of rental arrears, which Hockin J. later rejected as wrong. Justice Hockin concluded, based on the agreement of the parties, that the rental arrears alone, as of August 1, 2010, totalled $240,000.

[56] Plainly, the purported statement was substantially incomplete and incorrect, contrary to s. 22 of the Mortgages Act. This was not a mere technical error that could be remedied through the application of the functional approach. It was part of a strategy by Mr. Van Alphen, and it prejudiced 146's ability to assess its position under the mortgage. In my view, the radically misleading mortgage statement, on which the appellants rely in this case, takes it out of the run-of-the-mill mortgage statements over which there are accounting quibbles. Here, the actual amount owing could not be determined without the trial, at which point Mr. Van Alphen's machinations stood fully revealed. Accordingly, 117's ability to enforce the mortgage was suspended by operation of s. 22 of the Mortgages Act until the trial of this action, when the outstanding factual issues were resolved and the mortgage accounts fully reconciled with the rent accounts.

[57] Consequently, both the second sale and the third sale were invalid because they were executed at a time when 117's enforcement rights were statutorily suspended under s. 22(3) of the Mortgages Act.

[58] This is a sufficient basis on which to dismiss the appeal. I nonetheless consider the next issue because it raises several questions of broader application.

(2) Was the original Bayview Financial notice of sale valid under s. 31 of the Mortgages Act?

[59] The trial judge found the Bayview Financial notice of sale to be invalid under s. 31 of the Mortgages Act on two grounds. First, the original notice of sale issued by Bayview Financial, upon which 117 relied throughout, was not [at para. 31] "correct in all material aspects" when it was issued. She found, at para. 29, that it did not reflect the correct amount needed to redeem the mortgage then, contrary to s. 31 of the Mortgages Act.

[60] Second, the trial judge expressed the view that 117 was obliged to issue a fresh notice of sale because the mortgage debt had changed over time, as she noted at paras. 28 and 32. Accordingly, the notice of sale was invalid because it "no longer met the requirements of s. 31" of the Mortgages Act.

(a) The governing principles

[61] Section 31 of the Mortgages Act provides:

31(1) A mortgagee shall not exercise a power of sale unless a notice of exercising the power of sale in the Form to this Act has been given by the mortgagee to the following persons, other than the persons having an interest in the mortgaged property prior to that of the mortgagee and any other persons subject to whose rights the mortgagee proposes to sell the mortgaged property:

[T]o every person appearing . . . to have an interest in the mortgaged property.

[62] The form of the prescribed notice of sale under mortgage requires the disclosure of certain information identifying the property, the mortgage and the amounts due. It warns the mortgagor and others having an interest in the property that, if the amounts are not paid by a certain date, the mortgagee will sell the property. The form is provided to recipients who "may be entitled to redeem the same".

[63] The law has generally required strict compliance with the legal requirements for the exercise of a power of sale. See Botiuk and Collison (Re), 26 O.R. (2d) 580, [1979] O.J. No. 4429 (C.A.), at p. 589 O.R.; and Roth v. 340529 Ontario Ltd., [1982] O.J. No. 1149, 24 R.P.R. 198 (H.C.J.), at pp. 199-200 R.P.R. This is because "[t]he exercise of the power of sale is considered a self-help measure, with serious consequences for all persons having an interest in the property": the Ontario Law Reform Commission, Report on the Law of Mortgages, at p. 147. The recipients of the notice of sale are in danger of losing their interest in the property through its sale by the mortgagee.

[64] However, the cases also qualify the notion of strict compliance. This is not a formalistic requirement but a substantive one; a notice of sale should not be held inoperative because of minor irregularities, so long as it meets the purpose for which it is required. That purpose was explained by Zuber J.A. in Grenville Goodwin Ltd. v. MacDonald, 65 O.R. (2d) 381, [1988] O.J. No. 1437 (C.A.), at para. 6. The demand for accuracy is imposed so that "the mortgagor or, indeed, subsequent encumbrancers may intelligently assess their position with respect to redemption of the mortgage".

[65] While s. 31 of the Mortgages Act has been interpreted to require accuracy, the cases show a degree of tolerance for errors. The required degree of accuracy has not been definitively resolved in the cases; in my view, it is evolving towards a standard of commercial reasonableness: Hornstein v. Gardena Properties Inc., [2005] O.J. No. 3302, 34 R.P.R. (4th) 301 (S.C.J.), affd , [2006] O.J. No. 2757, 46 R.P.R. (4th) 56 (C.A.), at paras. 4-5.

[66] That said, serious errors will invalidate a notice of sale. In Grenville Goodwin, the court addressed the notice of sale's failure to accurately deal with municipal taxes. The balance on the mortgage was about $4.7 million. Justice Zuber stated, at para. 7:

This is not a case of an inadvertent minor variance that might be excused by the operation of s. 27(d) of the Interpretation Act [R.S.O. 1980, c. 219²]. The amount claimed to be due is overstated by $221,331.43. Nor is this a case where a mortgagee has a reasonable basis upon which to claim that an amount is due and that amount may be shown to be in error in a subsequent accounting: see Toronto-Dominion Bank v. Pallet Developments Ltd. (1984), 47 O.R. (2d) 251, 11 D.L.R. (4th) 91 (Div. Ct.).

[67] This court found the magnitude of the error to be fatal to the notice of sale, which it invalidated, along with the sale itself.

[68] I turn now to consider the governing principles as to when a fresh notice of sale will be required, on which the trial judge opined. Neither the Mortgages Act, which does not expressly require a fresh notice of sale at any time, nor the cases provide clear guidance. I make two observations.

[69] First, there is some case support for the proposition that a fresh notice of sale might be required on occasion, apart from the obvious case where the first contains material errors. For example, in Hornstein, the mortgage on a commercial building went into default. A notice of sale was issued, and eventually the mortgagee entered into an agreement of purchase and sale. Immediately thereafter, the mortgagor produced an offer that was $440,000, or about 11.4 per cent higher. The mortgagor challenged the validity of the notice of sale that had gone unchallenged for 25 months. Justice Feldman held that the notice of sale was not misleading. She noted, at para. 5:

The appellants also challenge the continued validity of the Notice of Sale on the basis that while payments were made by the mortgagors and other amounts were received that reduced the amount owing, no new Notice was issued. They submit that as a result of the changes in the amount outstanding, at some point the Notice of Sale expired. Counsel (who was not counsel on the application), advised that this aspect of the challenge to the Notice of Sale was not raised before the application judge. In my view, there is no merit to the submission in this case. The application judge made it clear that the appellants raised none of their objections to the Notice of Sale until they came forward with their new purchaser, nor did they ever attempt to redeem the mortgage. Although there may well be circumstances when a Notice of Sale becomes inaccurate and misleading, in this case the application judge concluded that the Notice was reasonable. I would not interfere with that finding.

(Emphasis added)

[70] I note that Feldman J.A. considered the point that a fresh notice of sale might be required on occasion to be arguable, but she did not identify circumstances in which it would be required. An obvious example would be where the mortgage was brought into good standing and later went into default again.

[71] Second, the expectation in the legislation is that the notice of sale is valid at a point in time, and this is the point at which the calculations in it are made. If it is not misleading at that point in time, it does not become misleading simply because of the flow of time and changes in the mortgage debt.

[72] No cases have held that a fresh notice of sale is required whenever there is a change in the mortgage debt. The reason for this is obvious. For practical purposes and in normal circumstances, a party seeking to redeem will request a mortgage statement under s. 22 of the Mortgages Act, which will supersede the figures in the notice of sale. This is where the practical interplay between ss. 22 and 31 the Mortgages Act comes into operation.

[73] As Morawetz J. pointed out at first instance in Hornstein, at para. 46, in the context of a receivership, the numbers are always changing. The same is true where, for example, the interest rate in the mortgage is variable, as in this case; or where the mortgagee has attorned the rents, as in this case; or where the mortgagee has gone into possession and leased the property, as in Michael Wade. There is also case law supporting the proposition that partial payment of arrears owing under a mortgage does not lead to the requirement for a new notice of sale: Aloi v. Spencer, 29 O.R. (2d) 435, [1980] O.J. No. 3681 (H.C.J.); and Karteri v. Sugarman, [1999] O.J. No. 7, 22 R.P.R (3d) 38 (Gen. Div.), at para. 68.

[74] Based on this court's decision in Hornstein, at para. 5, the applicable standard is whether the notice of sale was reasonable in the circumstances. The court must assess whether the magnitude of the error in the notice of sale affected whether the borrower and subsequent encumbrancers were misled by it in assessing whether to redeem the mortgage, based on a commercially reasonable standard.

[75] Neither Grenville Goodwin nor Hornstein addressed the appropriate interplay between a notice of sale issued under s. 31(1) of the Mortgages Act and a mortgage statement issued under s. 22(2) in assessing reasonableness. In my view, a timely, accurate and complete mortgage statement would form part of the relevant circumstances and could serve to correct an inaccurate notice of sale.

(b) The positions of the parties

[76] The appellants submit that courts have adopted a functional approach to the evaluation of the validity of a notice of sale, citing Michael Wade, at paras. 17, 42, 45-46; and Taro Properties Inc. v. Henry Waks & Sons Inc., [1990] O.J. No. 643, 1990 CarswellOnt 659 (H.C.J.), at paras. 60-63. They assert that errors that do not prejudice the mortgagor's ability to redeem the mortgage, should not invalidate a notice of sale. They add that any errors in the amounts claimed in the Bayview Financial notice of sale did not materially affect 146's ability to redeem, which it never attempted to do even though it was aware that 117 had purchased the mortgage.

[77] The appellants argue that a fresh notice of sale was not required as a result of a reduction in the amounts owed under the mortgage through the attornment of rents. While a change in the terms of the agreement between the parties requires a new notice of sale, partial payment of arrears does not.

[78] The respondents submit that the notice of sale provisions in s. 31 of the Mortgages Act require strict compliance. Incorrect figures in a notice of sale invalidate it. In this case, the notice had inaccurate figures in it that were never corrected.

(c) The principles applied

[79] As noted, the trial judge made two essential findings. First, she found that the original notice of sale did not reflect the correct amount needed to redeem the mortgage and contained material errors. She relied on the evidence of Dennis Asher, who was the lawyer representing the respondents.

[80] Mr. Asher's evidence was that he sent a letter, dated December 10, 2008, to Bayview Financial's lawyers pointing out (i) that the notice of sale did not account for 146's payment of insurance premiums, so that the inclusion of $4,774 as a disbursement was wrong; (ii) that the property taxes of $22,028.12 should have been paid out of an escrow account held by the mortgagee for that purpose and not added to the mortgage debt; (iii) that the notice failed to account for two payments of rent under the rent attornment, totalling $12,180; and (iv) finally, he disputed a small NSF charge.

[81] In his December 10, 2008 letter to the appellants' counsel, Mr. Asher pointed out the errors in the notice of sale and requested a mortgage statement "as to principal and interest arrears and mortgagee's expenses relating to the mortgage effective December 28, 2008".

[82] Ordinarily, a mortgagee would have responded in a timely manner to such a request. Had Bayview Financial done so, then any inaccuracies in the notice of sale could have been superseded by the new mortgage statement. The response by Bayview Financial's lawyers came after the mortgage was assigned to 117.

[83] I am reluctant to agree with the trial judge that the errors in Bayview Financial's notice of sale were fatal to its validity based on the standard of commercial reasonableness. Counsel for 146 was aware of the alleged errors and brought them to Bayview Financial's attention.

[84] There is, as noted, a principle that partial payment of arrears owing under a mortgage does not lead automatically to the requirement of a new notice of sale. However, I would reject the appellants' argument that the principle applies on the facts of this case. They cite Aloi and Karteri, but in neither case did the mortgagee surreptitiously attempt to alter the rent payments to its advantage as tenant and to the mortgagor's detriment, as Mr. Van Alphen did in this case, in the trial judge's view, at para. 29.

[85] I also find unpersuasive the appellants' argument that any errors in the amounts claimed in the notice of sale did not materially affect 146's ability to redeem and that 146 never attempted to do so. I point out that this argument is more related to the issue of getting proper mortgage statements under s. 22 of the Mortgages Act, which I addressed earlier. The fight was ongoing about the relationship between the rents and the mortgage payments from the beginning until the bitter end at trial, and Mr. Van Alphen did not provide ongoing and proper disclosure of what he was doing. For 146 to redeem before trial and on Mr. Van Alphen's terms would have required the respondents to capitulate to his theory of the case, which, in light of the outcome, would have been a mistake.

[86] The trial judge's second finding was that a fresh notice of sale was required in this case because the flow of time and the stream of attorned rental payments changed the state of the accounts, increasingly rendering inaccurate the original notice of sale. Because a notice of sale is a point-in-time document, it does not become inaccurate with the flow of time. The accounts undoubtedly changed, but the usual process for addressing changes in accounts is by the mortgagor requesting a mortgage statement under s. 22 of the Mortgages Act, not by requiring a fresh notice of sale.

[87] The artificial staging of the issues brought about by Mr. Van Alphen's strategy suggests that it would not be wise to rule definitively on when, if ever, a fresh notice of sale is required, and I would decline to do so.

(3) Was 117 legally entitled to sell the property to itself under the power of sale?

[88] Although the issue is moot, in her discussion of whether 117 was legally entitled to sell the property to itself under the power of sale, the trial judge opened a door better left closed. In the second sale, 117 purported to sell the property to itself under power of sale. The appellants invoked s. 41 of the Conveyancing and Law of Property Act.

[89] The trial judge stated, at para. 24: "The common law and obligations of 117 pursuant to the Mortgages Act comprise the law applicable to the purported sale by 117 to itself on October 6, 2010." She then turned to consider s. 41 of the Conveyancing and Law of Property Act. It provides:

41. A person may convey property to or vest property in the person in like manner as the person could have conveyed the property to or vested the property in another person.

[90] The trial judge described [at para. 26] this as a "general statutory provision" that is "subject to the more restrictive statutory provisions and common law principles imposed on mortgagees as transferors". She identified one such limit in the common law: a mortgagee cannot sell to itself under a power of sale, citing Farrar v. Farrars Ltd., (1888), 40 Ch. D. 395 (Eng. C.A.).

[91] However, the trial judge stated that the rule in Farrar gives rise to a presumption that "is rebuttable in certain circumstances". The trial judge referred to Ostrander v. Niagara Helicopters Ltd., 1 O.R. (2d) 281, [1973] O.J. No. 2164 (H.C.J.) and held, at para. 26, that a mortgagee can transfer its security to itself where it "can establish it acted in good faith and took reasonable precautions to obtain a proper price". She found that Mr. Van Alphen could not rely on Ostrander because he had not acted in good faith and had not taken reasonable precautions to obtain a proper price for the property.

[92] In my view, the trial judge had no basis upon which to apply the rebuttable presumption in Ostrander to the facts of this case. In Ostrander, a helicopter company defaulted on loans, and a receiver-manager took possession pursuant to the contractual terms of a mortgage deed (not a court-appointed receiver). The receiver-manager conducted a thorough sales process. However, during the sales process, the receiver-manager purchased shares in a company (representing a 2 per cent interest in its total issued shares) that was chosen as the purchaser of the helicopter company. The mortgagor, who preferred another potential purchaser, brought an action to set aside the sale. The court held that the receiver-manager was not a fiduciary but was an agent for a mortgagee in possession, whose purpose was to protect the security of the bondholder. Since the receiver-manager had conducted a thorough sales process and was not acting in bad faith (i.e., fraud), the sale was valid.

[93] Ostrander does not stand for the proposition that the common law allows a mortgagee to sell under a power of sale to itself nor for the proposition that a mortgagee can sell to a company that is owned by the mortgagee. Rather, it stands for the proposition that a party acting for the mortgagee can sell to a corporation in which that party has some interest, if it can rebut the presumption of an invalid sale by evidence that it took reasonable steps to obtain a proper price and acted in good faith. Ostrander does not apply to a mortgagee selling to itself under power of sale.

[94] Even though s. 41 of the Conveyancing and Law of Property Act was enacted (with slight differences) in 1933,³ there are no reported decisions in which an Ontario court has squarely considered its effect on the common law rule in Farrar in a mortgage action.

[95] Whether s. 41 of the Conveyancing and Law of Property Act has overcome the rule in Farrar is an issue best left for another day. Given the potential for lenders to manipulate the system, allowing s. 41 of the Conveyancing and Law of Property Act to have this effect could adversely affect the purposes behind the centuries-long development of law and equity in the context of the power of sale: see the Ontario Law Reform Commission, Report on the Law of Mortgages, at pp. 154-55; and Walter M. Traub, Falconbridge on Mortgages, looseleaf, 5th ed. (Toronto: Carswell, 2018), at pp. 35-35 to 36-36.

[96] Given this conclusion, I would not address whether the trial judge's finding that Mr. Van Alphen's precautions to obtain a proper price for the property were inadequate.

F. Disposition

[97] I would therefore dismiss the appeal. As agreed by the parties, the appellants shall pay the respondents costs in the amount of $30,000, inclusive of disbursements and applicable taxes.

Appeal dismissed.

Notes

¹ The appellant corporations are all controlled by Robert Van Alphen or his wife, Joanne Van Alphen.

² Section 27 of the Interpretation Act, R.S.O. 1990, c. I.11, which dealt with deviations in a form that did not affect the substance of the form, is now s. 84 of the Legislation Act, 2006, S.O. 2006 c. 21, Sch. F.

³ In 1933, it was s. 39a of the Conveyancing and Law of Property Act and stated:

A person may convey property to or vest property in himself in like manner as he could have conveyed such property to or vested such property in another person.