ONTARIO

SUPERIOR COURT OF JUSTICE

COURT FILE NO.: 11-29844
DATE: 2012-06-29

B E T W E E N:

TERRANCE FULTON, STEPHEN FULTON and DAVID FULTON

Robert W. Collins, Counsel for the Applicants

Applicants

• and -

802048 ONTARIO LTD. and 849893 ONTARIO LTD.

Jonathan Jacobs, Counsel for the Respondent 802048 Ontario Ltd.

Respondents

HEARD: May 28 th , 2012

RULING ON APPLICATION

Glithero J.

[ 1 ] The Applicants seek orders discharging two charges made by them on the same day, January 28 th , 1991, as against the same lands described in the parcel registry Property Identifier 17530-0073(LT).

[ 2 ] The first charge is in favor of 849893 Ontario Ltd. (“893”) and registered as instrument VM73817. The other charge is in favor of both “893” and 802048 Ontario Ltd. (“048”), with the former having an undivided 29.726 percent interest and the latter having a 70.274 percent interest.

[ 3 ] The lands and premises in question consist of approximately five acres together with several buildings which house a commercial farmers’ market operation. The Applicants purchased the property from “893”. That company is named as respondent in this application, but did not file any materials or appear on the hearing of the application. Accordingly, the evidence of the Applicants is unchallenged and claims that “893” gave false and misleading representations and warranties which overvalued the cash revenues to be expected from the operation of the property.

[ 4 ] In order to satisfy the purchase price of $400,000.00 at the time of closing, the Applicants assumed an existing first mortgage in favor of the Federal Business Development Bank (FBDB) which has since been fully paid off and discharged. A second mortgage remains in effect. The Applicants granted a third mortgage to “893” which was intended to provide further security for the FBDB first mortgage that the Applicants had assumed.

[ 5 ] A fourth mortgage in the amount of $142,300.00 was granted in favor of “893” and “048” with those companies having an undivided 29.726 percent and a 70.274 percent interest respectively. This mortgage was for a term of one year, ending on January 28 th , 1992, and called for monthly payments of interest only for the year. That mortgage was dated and signed on February 28, 1991. It provides that the last interest payment was to be due January 28, 1992, and the balance of the mortgage was due that same date.

[ 6 ] By reason of the misrepresentations concerning the revenue prospects of the subject property, the Applicants ceased making any payments on the fourth mortgage on or before January 28 th , 1992, and have made no payments on that mortgage since then. The best evidence is that the last payment was made about September, 1991. The evidence of Terrence Fulton is that he advised the principal of “893” that he would be making no more payments as a result of the fraud that had been perpetrated upon him by the vendors.

[ 7 ] There have been no written claims or demands for payment on that fourth mortgage, and no written acknowledgements of the existence of that debt, and no court proceedings of any kind commenced to enforce payment of that mortgage debt at any time since the mortgage was entered into, and no payments since approximately September 1991, and certainly none since the due date, January 28 th , 1992, and up to the present time, a period in excess of 20 years.

[ 8 ] The principals of “048” are Mr. and Mrs. Banzon. A few months before the purchase of the property by the Applicants, “048” had purchased half of the shares of “893”. Mr. and Mrs. Banzon had had no dealings with the Applicants before the purchase. Mr. and Mrs. Banzon similarly felt they had been deceived by Mr. Madsen, the principal of “893” and had sued him and “893”.

[ 9 ] The Applicant Terrance Fulton was called by “048” to give evidence during its lawsuit against “893”. During his evidence under oath on March 21 st , 2001, Mr. Fulton acknowledged giving back the fourth mortgage in the amount of $142,000.00 and acknowledged that he made payments on that mortgage for approximately eight months, and that he has made no payments since sometime in 1991. He also acknowledged that he was aware that, “there is discussion and negotiation concerning that mortgage outside of this lawsuit”. A little later in his examination Mr. Fulton acknowledged under oath that in December of 1991 or January of 1992, Mr. Banzon had phoned Mr. Fulton, “wanting his mortgage payments,” to which Mr. Fulton replied that he had been getting them, but Mr. Banzon replied that he had not been getting the payments and wanted Mr. Fulton to send the payments to Mr. Banzon. Mr. Fulton explained he could not do that as the mortgage called for the cheques to be paid to another entity on behalf of the two numbered companies. The interest payments that Mr. Fulton did make were to the other entity, but those were the ones which ceased in approximately September, 1991.

[ 10 ] In her affidavit, Mrs. Banzon swears that from March of 2001, when the trial of the action against “893” by “048” was being heard, until January of 2003, when the judgment in that action was released, her company’s ability to enforce the mortgage against the Applicants was “hampered” by the lawsuit against “893”. She gives no further particulars of what she means by that. She further swears that she and her company decided to wait to receive payments from the Applicants based on Mr. Fulton’s “acknowledgement of the debt” at the trial.

[ 11 ] Mrs. Banzon also swore in affidavit that her then-lawyer assured her in 2001 that he did not know of any limitation periods that would affect her ability to collect the mortgage monies owing by the Applicants. In support of that allegation she produced a handwritten note that she alleges she made on November 30 th , 2001, in which she recites the gist of a message left for her by her lawyer to that effect.

[ 12 ] Mrs. Banzon also swears that in 2008 she instructed a real estate agent, acting as her agent, to go and speak to the Applicants in terms of demanding payment of the principal on the mortgage, failing which foreclosure proceedings would be commenced. She swears that she heard back from the agent that he had met with Mr. Fulton, who had acknowledged the debt and promised to get back to him about repayment. In support of that assertion she attaches an email from the agent to her dated November 7 th , 2008, in which he advises he had spoken to Terrance Fulton again that day, and that Mr. Fulton was trying to figure something out and so he thought, “we should give him a little more time”.

[ 13 ] The Respondents have also filed an affidavit by the agent, Mr. Formosi, which asserts that he was retained by Mrs. Banzon to act as her agent and that of her company in respect of collecting on this mortgage. He swears that in November of 2008 he spoke with one of Terrance Fulton’s sons about options as to payment, and possibly the sale of the subject property. He also swears he met with and spoke with Terrance Fulton and his sons twice during the months of October and November of 2008 about the outstanding mortgage and the possibility of foreclosure. He further swears that on November 7 th , 2008, he spoke to Terrance Fulton, who acknowledged the existence of the mortgage owing to “048”; that he wanted to bring the arrears up to date and would be getting back to Formosi shortly concerning the payments.

[ 14 ] The Respondents rely on an affidavit by Mr. Banzon, who swears to a number of verbal references to the mortgage owing. He swears that in December of 1991 or January of 1992, he phoned Terrance Fulton and demanded payment of the monthly mortgage payments and that they be sent directly to him. He does not testify as to any response.

[ 15 ] He also refers to and relies on the responses given by Mr. Fulton on oath when he testified on March 21 st , 2001, at the trial of the action by “048” against “893” as previously referred to.

[ 16 ] Mr. Banzon further swears that on the day of Mr. Fulton’s testimony, March 21, 2001, that Mr. Fulton and he discussed the outstanding amount owing on the mortgage, and he alleges that Mr. Fulton acknowledged that the amount was still owing, and that when he demanded the mortgage payments Mr. Fulton answered, “you can’t get blood from stone”.

[ 17 ] Terrance Fulton filed a reply affidavit in which he swears that his first knowledge of the existence of “048” or the Banzons arose when, on closing of the purchase of the property, “893” provided a direction that the fourth mortgage be in favor of both numbered companies.

[ 18 ] He further acknowledges that he testified at the trial of the Respondent’s lawsuit and affirms that his evidence was true and correct.

[ 19 ] In response to the assertion that Mr. Banzon had telephoned him in December of 1991 or January of 1992 and demanded payments on the mortgage, Mr. Fulton swears in his affidavit that when Mr. Banzon called and requested payments, that Mr. Fulton did not even know who Mr. Banzon was, and further that he never heard from Mr. Banzon again until he was asked to testify in the lawsuit. He agrees that there was a long conversation between he and Mr. Banzon while he was waiting to testify, but swears that during that conversation at no time did Mr. Banzon ask for payment on the mortgage. He swears that he’s received no demands for payment from the Banzons.

[ 20 ] In respect of the allegations concerning Mr. Formosi’s involvement, Mr. Fulton swears that Mr. Formosi did speak to him, but only to see if he was interested in selling the premises and that Formosi asked him for a listing on the property for that purpose. During that conversation he swears that there was no demand for payments made by Formosi and no acknowledgement by Mr. Fulton of any debt or amount owing in respect of the mortgage.

[ 21 ] At an examination for discovery of Terrance Fulton held on January 12 th , 2012, he admitted that he made an offer to the Banzons to settle the matter on payment of a partial amount of $25,000. He was unsure of the date, but indicated it was long before the trial of the action between “048” and “893”. The transcript reveals that counsel for Mr. Fulton took the position that this offer was without prejudice as it was an offer to settle. That appears to be common ground as between counsel in that neither of them referred to it in argument before me.

[ 22 ] A review of those portions the transcript of Mr. Fulton’s trial evidence on March 21, 2001, contain no admission that the money is owing as I read them. He does admit he did not pay after September 1991. His position is and has been that he doesn’t owe the money and that position is not compromised by any answers in the transcript.

[ 23 ] In summary with respect to the facts, it is clear and undisputed that no payments were made on this mortgage for interest or principle after September, 1991. It is also clear that there has been no acknowledgment in writing of the debt or signed acknowledgment. Where the parties differ is with respect to what was allegedly said orally by way of acknowledgment. The evidence relied on by the respondents is that Mr. Fulton orally acknowledged the debt to Mr. Banzon in a telephone call in December of 1991 or January 1992, and in person on March 21, 2001 while waiting to testify at the trial, and while testifying, and to the realtor Formosi in 2008. Mr. Fulton denies making any such acknowledgments orally. In respect of his trial evidence, in my opinion no oral acknowledgment was given.

Discussion

[ 24 ] An order will go discharging the charge made between the Applicants and 849893 Ontario Ltd. registered as instrument VM73817 on January 28 th , 1991 as against the lands and premises described in the parcel register for Property Identifier 17530-0073(LT). This order is based on two grounds. Firstly, the uncontradicted evidence before me is that this charge was given to secure payment on the first mortgage described earlier as the FBDB mortgage. That mortgage has been paid off and discharged. There is no reason for the mortgage registered as VM73817 to continue. Secondly, on the evidence before me, it appears that 849893 Ontario Ltd. is no longer in existence as its charter was cancelled on or about March 15 th , 2006. Accordingly, pursuant to section 12(3) of the Mortgages Act , R.S.O. 1990, c. M. 40, the order ought to go.

[ 25 ] In respect of the fourth mortgage, that granted by the Applicants in favor of both numbered companies, the application for an order discharging that mortgage is based alternatively on the Limitations Act , 2002, S.O. 2002, c.24, Sch. B, or alternatively the Real Property Limitations Act , R.S.O. 1990 c.L.15 (RPLA). In my opinion, it is the Real Property Limitations Act which is applicable. I base this on the reading of section 2(1) of the Limitations Act which sets out that it applies to proceedings other than proceedings to which the Real Property Limitation Act applies. I also rely on the analysis by the Court of Appeal in Equitable Trust Company v. Marsig, 2012 ONCA 235 . There it was pointed out that limitation periods with respect to real property are to be viewed as against the provisions of the Real Property Limitations Act .

[ 26 ] Within the RPLA there are two sections that have potential application. The first one, referred to by both counsel in submissions, is section 23. It reads as follows:

23(1) No action shall be brought to recover out of any land or rent any sum of money secured by any mortgage or lien, or otherwise charged upon or payable out of the land or rent…but within ten years next after a present right to receive it accrued to some person capable of giving a discharge for, or release of it, unless in the meantime some part of the principal money or some interest thereon has been paid, or some acknowledgment in writing of the right thereto signed by the person by whom it is payable, or the person’s agent, has been given to the person entitled thereto or that person’s agent, and in such case no action shall be brought but within ten years after the payment or acknowledgment, or the last of the payments or acknowledgments if more than one, was made or given.

[ 27 ] In the Equitable Trust case, supra, the Court of Appeal dealt with a motion for summary judgment in which the Applicant sought to recover a deficiency on a power of sale on the basis of a guarantee to a mortgage signed by the Respondent. The court upheld Ramsay J. and dealt with the matter under section 43(1) which reads as follows:

43(1) No action upon a covenant contained in an indenture of mortgage or any other instrument made on or after July 1, 1894 to repay the whole or part of any money secured by a mortgage shall be commenced after the later of,

(a) the expiry of 10 years after the day on which the cause of action arose;

[26] Both section 23 and 43 set a 10 year limitation period. The difference is that section 23 provides that that period runs from the date of any partial payment or written acknowledgement of the debt, whereas section 43 contains no comparable provision to restart a limitation period based on partial payment or acknowledgment.

[27] In my opinion the somewhat curious difference between the 2 sections is immaterial. Under section 43 the right to recover monies owing on the mortgage would have become statute-barred over 10 years ago. While the respondents place great reliance on section 23, in my opinion it leads to the same result. There has been no payment and no acknowledgment in writing and signed by the debtor. So the qualifiers placed on the 10 year rule by section 23 are not met.

[ 28 ] The respondent’s urge me to resort to equitable principles and to refuse the order sought on the basis of discretion. Much reliance is placed on the judgment in Re Craddock et al. v. Harstone (1981), 32 O. R. (2d) 339. There the court refused similar relief, holding that there was a discretion to do so which ought to be exercised to avoid an inequitable result. The significant factual difference between that case, as I read it, and this one is that there it was either a finding of the court or agreed that the mortgagor had verbally sought extensions of time in which to pay repeatedly. So while there was no written and signed acknowledgment, there was no dispute as to verbal acknowledgments. I think that difference to be significant.

[ 29 ] Assuming I have discretion, I would not exercise it in favour of the Respondents in the circumstances of this case. They owned 50% of the shares of the vendor company. The Applicants claim that company, through its principle, made fraudulent representations about the worth of the property. It would seem that they Respondents share the same views as to the dishonesty of the vendor company, and its principle, as the Respondents sued them in the 2001 action. The Applicants had said they weren’t paying the mortgage because they felt they had been cheated. They didn’t pay. Over 20 years have gone by without any claim or written demand.

[ 30 ] The requirement that an acknowledgment be in writing and that it be signed makes good sense in the circumstances of this case. As pointed out in Falconbridge on Mortgages , loose-leaf, 5 th Ed.,(Aurora, On; 2004), Ch 30 at page 30-2, limitation periods are creatures of statute and are intended to “ensure that there will be an end to the prospect of litigation once a claim has become stale. The concern is the increasing difficulty to produce evidence and witnesses with the passage of time and the need for persons to be free of unexpected claims arising after an unreasonable period of time.”

[ 31 ] Where it is determined that recovery on a mortgage is statute barred, the Superior Court has jurisdiction to discharge the mortgage and order its deletion from title: McVan General Contracting Ltd. v. Arthur, 2002 45035 (ON CA) ; Falconbridge on Mortgages , [2004], p. 30-7.

[ 32 ] In Behmanesh v. Kaplan , [2000] O.J. N.o. 889 , it was held that a mortgage was ordered to be discharged in circumstances where the Applicant swore that the mortgage had been paid off and the assignee of the mortgage denied this and claimed that it was in default. It was held that the assignee’s rights were extinguished at the expiration of 10 years.

[ 33 ] For these reasons, the application is granted and orders to go in accordance with paragraphs 1 (a) and (b) of the prayer for relief.

[33] As to costs, this may not be an appropriate case to award costs, but I leave that for counsel’s consideration. If counsel wish to make cost submissions, they may do so in writing with such submissions not to exceed 5 pages excluding bills of costs, which should be sent to my chambers in Kitchener at 20 Weber Street East, Kitchener, N2H 1C3. Those of the applicants are to be received within 3 weeks of the release of this ruling, with responding submissions within 3 weeks thereafter.

C. S. Glithero, J.

Released: June 29, 2012

COURT FILE NO.: 11-29844
DATE: 2012-06-29

ONTARIO SUPERIOR COURT OF JUSTICE B E T W E E N: TERRANCE FULTON, STEPHEN FULTON and DAVID FULTON Applicants - and – 802048 ONTARIO LTD. and 849893 ONTARIO LTD. Respondents RULING Glithero J. CSG//dm

Released: June 29, 2012