Court File and Parties
COURT FILE NO.: C-2023-12
DATE: 20130415
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
917488 Ontario Inc.
Plaintiff (Defendant by Counterclaim)
– and –
Sam Mortgages Ltd.
Defendant (Plaintiff by Counterclaim)
Counsel: Laura L. Pinkerton, agent, for the Plaintiff (Defendant by Counterclaim) Sonja Turajlich, for the Defendant (Plaintiff by Counterclaim)
HEARD: March 22, 2013
Reasons for Judgment
R.D. Gordon J.:
Overview
[1] The Defendant is the holder of a mortgage on property owned by the Plaintiff. It says the mortgage is in default and issued a Notice of Sale.
[2] In response to the Notice of Sale, the Plaintiff brought this action for a declaration that it is entitled to redeem the property and a declaration that the Notice of Sale is defective.
[3] The Defendant counterclaimed seeking judgment for the amount due under the mortgage and possession of the mortgaged property.
[4] This decision deals with the Defendant’s motion for summary judgment on its counterclaim.
Background Facts
[5] The Plaintiff is owner of property known municipally as 1 Water Street, Gore Bay, Ontario (hereinafter referred to as “the property”). It is a commercial resort known as Gordon’s Lodge.
[6] By way of mortgage dated December 6, 2007 and registered December 12, 2007, the Plaintiff mortgaged the property to Interbay Funding Corp. That mortgage was subsequently assigned to BLG Canada Corporation and then to the Defendant by a document registered October 27, 2009.
[7] The mortgage was initially for $681,000 and called for monthly payments in the amount of $6,806.68 to and including January 1, 2013, and thereafter in accordance with the loan agreement between the parties. On March 1, 2012 the Plaintiff failed to remit the required payment and until recently made no further payments.
[8] On May 7, 2012 the Defendant issued its Notice of Sale indicating, among other things, the outstanding principle balance of $627,381.02, accrued interest of $5,521.03, NSF fees of $45.90, a prepayment penalty of $32,886.10, and legal fees and disbursements of $5,000.
[9] There ensued a good deal of correspondence between counsel in which the Plaintiff indicated a desire to redeem, provided reasonable legal costs could be agreed upon and the prepayment penalty waived. While these negotiations took place, the Plaintiff continued in default of its monthly payments.
[10] In response to the Notice of Sale, the Plaintiff brought its action to redeem and have the Notice of Sale declared invalid.
[11] The Defendant, taking the position its Notice of Sale was valid, requisitioned an appraisal of the property and responded to the Plaintiff’s action with a counterclaim seeking judgment for the amount owing under the mortgage and possession of the property.
[12] Investigation revealed the municipal taxes were unpaid.
[13] Legal fees continued to mount for all parties.
[14] The negotiations between the parties did not bear fruit. Although there were many and varied proposals and counterproposals, no consensus could be reached. Both parties brought motions for summary judgment returnable in November of 2012. Both motions were adjourned with the Defendant’s motion eventually made returnable before me.
[15] On or about February 26, 2013, the Plaintiff registered a second mortgage against the property for the sum of $305,000. It is not readily apparent where all of those funds went, but $88,512.84 was forwarded to counsel for the Defendant on account of the mortgage. This would seem to be an amount sufficient to make current the required monthly payments from March 1, 2012 to and including March 1, 2013. Municipal taxes were also made current.
[16] The Plaintiff has paid nothing towards the legal fees and other costs incurred by the Defendant in attempting to realize on its security.
The Issues
[17] The Plaintiff admits that it did not, for some thirteen months, make the monthly payments required by the mortgage. At this motion, it made three arguments in support of its position that the Defendant should not be granted the requested relief:
(1) That the outstanding mortgage payments have been made current and municipal taxes paid so there is no mortgage default;
(2) The Defendant’s Notice of Sale and Counterclaim do not include all property that was the subject of the mortgage; and
(3) The Defendant failed to give notice under section 244 of the Bankruptcy and Insolvency Act (the “BIA”).
[18] As mentioned, the Plaintiff has an outstanding motion for summary judgment to have the Defendant’s Notice of Sale declared invalid. That motion is not before me. What I am dealing with is the Defendant’s entitlement to summary judgment for the mortgage debt and possession of the property.
Analysis
[19] This is a motion for summary judgment under Rule 20.01(1) of the Rules of Civil Procedure, alleging there is no genuine issue for trial. As the law currently stands, whether a matter may proceed by way of summary judgment requires a consideration of whether the material filed on the motion allows for a full appreciation of the issues and evidence, or whether a trial is required. That determination is made bearing in mind the parties’ responsibility to put their best foot forward on a motion for summary judgment and to lead all facts and evidence that show there is a real issue to be tried.
[20] I am content that this matter can be resolved by way of summary judgment. This is a relatively straight forward contractual dispute. The pertinent facts are largely agreed. There is no need for a trial to address the issues raised by the parties.
Is the Plaintiff In Default?
[21] Article 9.1 of the Standard Mortgage Terms, incorporated in the Mortgage by reference, defines events of default. Default is defined to occur, inter alia, when an amount owing by the mortgagor is not paid on or prior to the date it is due.
[22] Article 9.2 provides that upon an occurrence of default all obligations of the mortgagor shall, at the option of the mortgagee, immediately become due and payable.
[23] Having regard to these provisions, there can be little doubt the Plaintiff is in default. On March 1, 2012, and for 13 months thereafter, it failed to make its payments. The Defendant, as it was entitled to do, required payment of the mortgage in full.
[24] Although the Plaintiff recently remitted the equivalent of 13 monthly payments, the Defendant, in accordance with the terms of the mortgage, was and is entitled to the accelerated payment of the mortgage in full and is entitled to be paid the reasonable costs it has incurred in protecting its interests and realizing upon its security.
The Effect of the Notice of Sale and Counterclaim Not Including All Property
[25] This issue arises out of the conversion of the property from Registry to Land Titles and from traditional recording to the current electronic format.
[26] When the mortgage was first entered into, the property was in the Registry Act system and the land registration records had not yet been converted to an electronic format. The Plaintiff contends that when the property was converted to Land Titles and to electronic format (and assigned PIN #47108-0394 (LT) - the property described in the Defendant’s Notice of Sale and Counterclaim) not all property covered by the mortgage was converted. The result, it is argued, is that the Defendant’s Notice of Sale and Counterclaim do not cover all of the land which was contained in the mortgage.
[27] Assuming this is correct, it was not the position of the Plaintiff that the Planning Act would operate so as to prohibit the Defendant’s actions. That is, it was not alleged that the land omitted from the Power of Sale abuts the property the Defendant wishes to deal with. The Plaintiff’s argument is that the Defendant’s dealing with only the property described in the Power of Sale and Counterclaim will have the effect of dividing the resort property, thereby lessening the value of the asset. Essentially, it contends the property is likely to be of much more value if dealt with as a single entity and the Defendant should be prohibited from proceeding in the manner proposed.
[28] Provided a mortgagee is acting lawfully in the realization of its security, the court will generally not intervene to dictate the manner in which that realization takes place. The mortgagee must, of course, act in a commercially reasonable manner and is obliged to account to the mortgagor following disposition of mortgaged property. To that extent, if it has realized on the security in a manner which does not yield a fair value, the Plaintiff may then be entitled to relief.
[29] The mortgagee is entitled to sue for possession of all or part of the mortgaged property. It is not for the court, at this stage of the proceedings, to question its decision to proceed as it has.
The Effect of Failure to Give Notice Under the Bankruptcy and Insolvency Act
[30] section 244 of the Bankruptcy and Insolvency Act provides as follows:
244.(1) A secured creditor who intends to enforce security on all or substantially all of
(a) the inventory,
(b) the accounts receivable, or
(c) the other property
of an insolvent person that was acquired for, or is used in relation to, a business carried on by the insolvent person shall send to that insolvent person, in prescribed form and manner, a notice of that intention.
[31] The Defendant admits it did not serve the required notice in this instance. The Plaintiff contends the Defendant is therefore prohibited from proceeding with this action for possession or its power of sale.
[32] Although section 244, standing alone, seems to impose a clear precondition to a secured creditor realizing on its security, it must be read in conjunction with other related provisions of the BIA in order to determine its full meaning.
[33] In that regard, it is to be noted that section 69 of the BIA entitles an insolvent person to file a proposal and thereby prevent a secured creditor from enforcing its security unless the creditor has sent the prescribed notice more than ten days earlier. Put another way, a secured creditor who is required to send a notice under section 244 and fails to do so will find its ability to realize on the security stayed if the debtor files a proposal.
[34] Section 248 provides that a court may, on application of an insolvent person, if satisfied a secured creditor has failed to give the appropriate notice under section 244, direct the notice to be given or restrain the secured creditor from taking further action until the notice has been given.
[35] When considered in the context of these additional sections, two things become apparent: Firstly, specific consequences for failing to provide the required notice are provided for in the act; and secondly, those consequences arise through action by the debtor.
[36] The significance of requiring the relief to be sought by the debtor is the allocation to it of the onus of establishing the section applies, that notice has not been given, and that relief is appropriate in all of the circumstances.
[37] In the case before me there is no suggestion that a proposal has been filed by the Plaintiff and, accordingly, no statutory stay of the Defendant’s enforcement is in place.
[38] An application under section 248 must be made by an insolvent person. The onus of proving insolvency is on the applicant, on a balance of probabilities. The definition of an “insolvent person” is found in section 2 of the BIA. Having regard to that definition, although I am satisfied the Plaintiff is not bankrupt, carries on business in Canada, and has liabilities in excess of $1,000, there has been no evidence led upon which I could find it is unable to meet its obligations in the ordinary course of business, has ceased paying its current obligations in the ordinary course of business as they generally become due, or that the aggregate of its property is not, at a fair valuation, sufficient, if disposed of at a fairly conducted sale under legal process, to enable payment of all its obligations.
[39] I am not satisfied the Plaintiff is an insolvent person as defined in the BIA. Accordingly, that the Defendant did not comply with section 244 is of no consequence on the facts currently before me.
Conclusion
[40] I am satisfied the Plaintiff is in default of its obligations under the terms of the mortgage. In the event of default, the mortgage provides that possession be given to the mortgagee. It is so ordered.
[41] With respect to judgment for the amount due and owing to the Defendant, I make the following findings:
(1) The principal balance at the date of default was $627,381.02.
(2) Interest on this amount at the rate of 10.75 percent per annum results in a per diem interest charge of $184.78, which would apply until March 21, 2013 (385 days) for a total of $71,140.30.
(3) Payment in the amount of $88,512.84 was made March 22, 2013, thereby paying off accrued interest and reducing the principal amount of the mortgage by $17,372.54 to $610,008.48.
(4) Interest on $610,008.48 at the rate of 10.75 percent per annum results in a per diem interest charge of $179.66 from March 22, 2013 to April 15, being the date of this judgment, which amounts to $4,311.84.
(5) The Defendant is entitled to prepayment consideration of $32,886.10, as it is specifically provided for in the mortgage and fairly represents liquidated damages having regard to the interest rate and term of the mortgage.
(6) The Defendant is entitled to its legal fees relative to its counterclaim and motion for summary judgment which I fix in the amount of $7,500.00. The Defendant’s legal and other costs related to its power of sale proceedings are more properly the subject of an accounting following completion of a sale as they were not claimed as relief in the counterclaim and were not sufficiently particularized to allow a proper analysis.
[42] The result is that judgment shall issue in favour of the Defendant in the amount of $654,706.42, inclusive of costs, with postjudgment interest to accrue from April 15, 2013 at the rate of 10.75 per annum.
Mr. Justice Robbie D. Gordon
Released: April 15, 2013
COURT FILE NO.: C-2023-12
DATE: 20130415
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
917488 Ontario Inc.
Plaintiff (Defendant by Counterclaim)
– and –
Sam Mortgages Ltd.
Defendant (Plaintiff by Counterclaim)
REASONS FOR JUDGMENT
R.D. Gordon J.
Released: April 15, 2013