SUPERIOR COURT OF JUSTICE – ONTARIO

(COMMERCIAL LIST)

2012 ONSC 5742

COURT FILE NO.: CV-11-9454-00CL
DATE: 20121010

RE: MORRISON FINANCIAL MORTGAGE CORPORATION AND HEATH BANK AND TRUST LIMITED, Applicants

AND:

SHELLARD DEVELOPMENTS INC., Respondent

BEFORE: CUMMING J.

COUNSEL:
R. B. Bissell, for the Applicants, Morrison Financial Mortgage Corporation and Heath Bank and Trust Limited

R. M. Slattery and D. T. Ullmann, for the Receiver

HEARD: OCTOBER 9, 2012

ENDORSEMENT

The Motions

[ 1 ] There are two motions before the Court. First, the Receiver in respect of the Respondent Shellard Developments Inc. (“Shellard”) moves for, inter alia, approval of a Sale Agreement between the Receiver for Shellard and Greycliffe Homes Ltd. as purchaser in trust for a company to be incorporated (“Greycliffe”) in respect of the purchased assets, consisting of a dormant project registered as a common elements condominium, of Shellard.

[ 2 ] There is no opposition to the sale. The sale process was conducted in accordance with the requisite Court Order. Of the multiple offers received by the Receiver, it is clear that the offer by Greycliffe was superior to all other offers. The Sale Agreement was negotiated in a fair, transparent and commercially reasonable manner.

[ 3 ] Second, the Receiver, together with the Applicants, seeks a Declaration that: the mortgage granted by Shellard to the Applicants, registered as BC132914 (the ”Morrison/Heath Mortgage”) for $4,550,000, was validly amended by the notice registered by Instrument No. BC180789 (the “Morrison/Heath Mortgage Amendment”) to increase that mortgage to $4,9000,000; and the mortgage granted by Shellard to the Applicant, Morrison Financial Mortgage Corporation, registered as BC184873 (the “Morrison Mortgage”) for $1,000,000 was validly amended by the application registered as Instrument No. BC190499 (the “Morrison Mortgage Amendment”) to increase that mortgage to $3,000,000.

The Evidence

[ 4 ] The record is clear that Greycliffe’s offer represents the highest net offer of the purchased assets. Greycliffe’s offer is materially higher than the next nearest offer.

[ 5 ] The consideration to be paid by the purchaser, Greycliffe, for the Shellard assets is to be principally by way of the assumption of debt owed by Shellard to the first in priority secured creditor (other than any creditors holding construction liens, to the extent of the validity of such liens or amounts claimed), being the Applicants.

[ 6 ] The security held by the mortgagees is valid and enforceable in accordance with its terms, however, the Receiver, the Applicants and Greycliffe are concerned that the extent of debt secured by the security of the Applicants is potentially marred by a technical issue relating to the form of registered security Instrument used by the Applicants in amending the mortgages.

[ 7 ] The amending Instruments in each instance were registered on title and thereby gave effective notice to the world. The terms are clear as to them constituting amendments to the existing charges and constituting continuing charges for the increased amounts of debt.

[ 8 ] The only parties with an economic interest in the issue of increased quantum of the mortgages is represented by David Dolson, in trust and Shellard, both of whom are signatories or have postponed to the registrations.

[ 9 ] The issue raised is whether a charge to be registered against land in the Land Titles system “in the prescribed manner” under s. 93(1) of the Land Titles Act necessarily involves a Land Titles form that is entitled “Charge/Mortgage” or whether registration is effective with the amending documents entitled “Notice” and “Application (General)”, both of which registrations were made under s. 71 of the Land Titles Act.

[ 10 ] In my view, and I so find, s. 71 of the Land Titles Act, which permits the registration of “rights, interest or equities” and provides that such registration means that persons (excepting owners of encumbrances registered prior to the registration of such notice) “shall be deemed to be affected with notice of any [...] right, interest or equity referred to therein” has the statutory effect of rendering the Morrison/Heath Mortgage Amendment and the Morrison Mortgage Amendment to be valid amendments to the respective mortgages.

Disposition

[ 11 ] For the reasons given, the motion of the Receiver for an Approval Order and Vesting Order, inter alia , is granted.

[ 12 ] Second, for the reasons given, the motion of the Receiver, together with the Applicants, for a Declaration that: the Morrison/Heath Mortgage for $4,550,000 was validly amended by the Morrison/Heath Mortgage Amendment to increase that mortgage to $4,9000,000; and the Morrison Mortgage for $1,000,000 was validly amended by the Morrison Mortgage Amendment to increase that mortgage to $3,000,000, is granted.

[ 13 ] Finally, the Motion of the Receiver as to a continuation of the sealing of the confidential Appendices (relating to offers received in the course of the sale process) is granted, pending the closing of the transaction at hand to Greycliffe.

[ 14 ] Orders to implement this Endorsement have been signed today, to issue.

CUMMING J.

Date: October **, 2012