ONTARIO
SUPERIOR COURT OF JUSTICE
COURT FILE NO.: CV-15-537425
DATE: 20151119
BETWEEN:
1414391 ONTARIO LTD and 2272822 ONTARIO LTD.
Applicants
– and –
GEORGE GRAFF, STANLEY GORDON JOHN CLAPP and NANAKSAR THATH ISHAR DARBAR
Respondents
Mark A. Klaiman, for the Plaintiff
Stephen Schwartz, for the Respondent George Graff
HEARD: November 17, 2015
M. D. Faieta j.
reasons FOR DECISION
INTRODUCTION
[1] The Applicant 1414391 Ontario Ltd. (“141”) owns lands municipally known as 1031 Wilson Avenue, Toronto, Ontario. Five collateral mortgages in varying amounts were registered against the Wilson property in favour of the Respondent George Graff, as well as Irene Graff and Lili Glaser, during the period from January 12, 2012, to November 14, 2013. A Notice of Sale in respect of each of the five mortgages was issued. The first Notice of Sale was issued on August 27, 2014, in the amount of $709,470.00. A second Notice of Sale was issued on June 8, 2015, in the amount of $2,013,583.75. The other Notices of Sale were issued on September 18, 2015, in the amounts of $180,520.00, $330,520.00 and $130,520.00. The amounts demand under all five Notices of Sale a total of $3,364,613.75, which is comprised of the amount due on the mortgages for principal, appraisal fee, discharge fees, property management charges and costs.
[2] On September 9, 2015, Graff executed a conditional agreement of purchase and sale to sell the Wilson property for $4,650,000.00. However, that agreement lapsed because the condition was not satisfied as the tenant of the Wilson property exercised its right of first refusal.
[3] On September 15, 2015, arrangements were made by 141 to pay out and discharge the five mortgages on the Wilson property.
[4] A request for a mortgage discharge statement in respect of the Wilson property was made by 141 on September 17, 2015. A discharge statement has not been provided to 141. The undisputed evidence of Navtej Kang, an officer and director of 141, is that 141 had $3,500,000.00 available on September 17, 2015, to discharge the five mortgages.
[5] On October 2, 2015, Graff executed a second conditional agreement of purchase and sale (“APS”) to sell the Wilson property to the tenant, Carwash Incorporated. Carwash Incorporated waived the conditions under the APS on October 2, 2015. It is undisputed that 141 wishes to redeem the mortgage and that it has funds in the amount of $3,500,000 available for this purpose.
[6] 141 brings this motion for an Order:
declaring that the APS is a nullity on the basis that, at the time the APS was executed, Graff’s rights to enforce the mortgage were suspended pursuant to subsection 22(3) of the Mortgages Act;
discharging the Graff mortgages upon the payment of $3,364,613.75 into court pursuant to section 12 of the Mortgages Act;
ANALYSIS
ISSUE #1: Is the APS a nullity pursuant to [subsection 22(3)](https://www.canlii.org/en/on/laws/stat/rso-1990-c-m40/latest/rso-1990-c-m40.html#sec22subsec3_smooth) of the Act?
[7] 141 submits that the APS is a nullity as it was executed while Graff’s enforcement rights under the mortgages were suspended under subsection 22(3) of the Mortgages Act, R.S.O. 1990, c. M.40 (the “Act”). Section 22 of the Act states:
Relief before action
- (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.
Statement of arrears, expenses, etc.
(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,
(c) and of the amount of any expenses necessarily incurred by the mortgagee.
Idem
(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).
Did the September 17, 2015 letter constitute a request for a statement within the meaning of subsection 22(2) of the Act?
[8] The request for a discharge statement was communicated by letter dated September 17, 2015, from counsel for 141 to counsel for Graff in reference to the Notice of Sale of the Wilson property:
Please provide my office with a mortgage discharge statement setting out all amounts payable in respect of the above noted property, more specifically the discharge amount, your fees and any other applicable fees.
[9] Graff submitted that this letter was not a request for a discharge statement within the meaning of section 22(2) of the Act because it did not ask for a balance as of a certain date as is often the case when a mortgage is discharged. There is nothing in the Act that requires a request for a discharge statement to stipulate an effective date for the balance owed. In my view, the above letter was a request for a discharge statement within the meaning of subsection 22(2) of the Act.
Does Graff have a “reasonable excuse” within the meaning of subsection 22(3) of the Act for failing to provide a discharge statement?
[10] Graff submitted that the request for a discharge statement was made for the purposes of delaying the sale of the property. He submits that 141 did not provide evidence that he had financing or was otherwise in a position to pay the mortgage arrears on the Wilson property until October 27, 2015, when cheques for $2,595,000.00 and $590,000.00 were presented.
[11] What is meant by the phrase “reasonable excuse” is to be determined by reading those words “in their entire context and in their grammatical and ordinary sense harmoniously with the scheme of the Act, the object of the Act, and the intention of Parliament.”[^1]
[12] Subsections 22(2) and 22(3) were added to the Act in 1970.[^2] These amendments were made on the recommendation of the Ontario Law Reform Commission following a submission that the exercise of the right to tender arrears, under what is now subsection 22(1) of the Act, was causing “…difficulties for the mortgagor who wishes to pay up his arrears and is met with the refusal by the mortgagee to state the amount of the arrears and to accept any such payment.”[^3] The Commission stated:
There is nothing to compel the mortgagee to give a statement of the arrears and the mere fact that the mortgagor holds a copy of the mortgage instrument does not necessarily mean he is capable of calculating the exact amount of the arrears.
Accordingly, the Commission recommends that section 20 be amended to enable the mortgagor to procure a statement of arrears from the mortgagee….”[^4]
[13] The Commission did not address the purpose of the “reasonable excuse” provision that it recommended which is now found in s. 22(3) of the Act.
[14] The “reasonable excuse” provision should not be so broadly interpreted as to undermine the purpose of s. 22 which is to aid mortgagors who want to pay their mortgage arrears. Typically, the preparation of a mortgage statement is a relatively straightforward matter and thus there must be a compelling reason to refuse to provide a discharge statement. I accept Graff’s submission that a mortgagor would have a reasonable excuse for refusing to respond to a request for a discharge statement under s. 22(2) of the Act when that request is not made in good faith, for instance when a mortgagor at the time of the request does not desire to make good its default under the mortgage.[^5]
[15] There is no evidence in this case that the mortgagor’s request was not made in good faith. The unchallenged and uncontradicted evidence of Kang is that prior to asking Graff for a discharge statement, he had the desire and the necessary funds to redeem the mortgages. Kang had obtained refinancing funds in the amount of $3,100,000.00 in addition to his own personal funds of $400,000.00. Those amounts appear sufficient to cover the total amount owed under the five Notices of Sale.
[16] Graff submits that he did not provide a discharge statement because 141 did not provide proof that it had sufficient available funds to redeem the mortgages or pay those amounts into court. However there is no evidence that Graff requested such material until after the 15 period had expired on October 5, 2015 and after 141 had made a second request for a discharge statement. Graff indicated that a discharge statement would not be provided without a binding commitment letter or a binding term sheet. 141 provided two letters attesting that Kang had financing in place to discharge the Graff mortgages, however Graff responded that those letters were not helpful. In my view, 141’s failure to provide a binding commitment letter or binding term sheet, in form and substance satisfactory to Graff, or at all, does not constitute a “reasonable excuse” under s. 22(3) of the Act. Similarly, 141’s failure to pay monies into Court in an amount that it estimated would be sufficient to discharge the Graff mortgages is not a “reasonable excuse” for failing to provide a discharge statement. To find otherwise would be to undermine the purpose of the 1970 amendments to the Act. If the Legislature had intended to impose those requirements, it would have done so expressly.
[17] Graff submits that the request for a discharge statement was made for the purpose of delaying his power of sale remedy. There is no evidence that the prompt provision of a discharge statement would have resulted in any such delay. It is Graff’s failure to provide a discharge statement that has delayed the recovery of the monies owed under the mortgages. There is no reasonable excuse for Graff’s refusal to provide a discharge statement as required by the Act. More than anything else, it appears that Graff’s failure to provide the requested discharge statement has been driven by its desire to sell the Wilson property rather than to have 141 redeem its mortgage.
Is the APS a nullity?
[18] As a consequence of my findings, the Act provides that the “…mortgagee shall answer a notice given under subsection (2) within fifteen days after receiving it and…any rights that the mortgagee may have to enforce the mortgage shall be suspended…”.
[19] Graff’s submissions focused on the two issues described above. Graff did not dispute that the APS is of no force and effect in the event that those two issues were resolved in favour of 141. In my view, Graff’s rights to enforce the five mortgages were suspended on the day that it entered the APS and they continue to be suspended given that Graff has not provided the required discharge statements.[^6]
[20] Accordingly, the APS is of no force and effect.
ISSUE #2: Should the Court grant 141 authorization to pay $3,364,613.75 into court and thereby obtain a discharge of the mortgage pursuant to [section 12](https://www.canlii.org/en/on/laws/stat/rso-1990-c-m40/latest/rso-1990-c-m40.html#sec12_smooth) of the Act?
[21] 141 seeks an Order of this Court directing that the five mortgages shall be discharged upon 141 paying the sum of $3,364,613.75 into court.
[22] 141 relies on section 12 of the Act for this Order, the relevant provisions of which state:
Where mortgagee cannot be found
(3) When a mortgagor or any person entitled to pay off a mortgage desires to do so and the mortgagee, or one of several mortgagees, cannot be found or when a sole mortgagee or the last surviving mortgagee is dead and no probate of his or her will has been granted or letters of administration issued, or where from any other cause a proper discharge cannot be obtained, or cannot be obtained without undue delay, the court may permit payment into court of the amount due upon the mortgage and may make an order discharging the mortgage.
Payment out of money paid into court
(4) The money paid into court shall be paid out of court with any accrued interest to the mortgagee or mortgagees or to the executor or administrator of the mortgagee or as the court by order for payment into court or any subsequent order may direct…
When amount offered questioned
(6) When the amount admitted to be due upon the mortgage appears to be open to question the court may as a condition of making the order require payment into court of a sum in excess of the amount admitted to be due and in such case the additional sum is subject to the further order of the court.
Provision for subsequent interest and costs
(7) The court may require payment into court of an additional sum to answer any claim by the mortgagee for subsequent interest and costs.
[23] I find that the failure of Graff to provide the requested discharge statements constitute “other cause” within the meaning of subsection 12(3) of the Act. 141 submitted that the amount owed under the mortgages has been reduced by about $550,000.00 as a result of the sale of another property by Graff which secured the same loans that were secured by the five mortgages on the Wilson property. Accordingly, 141 submits that the amounts owed under the five mortgages on the Wilson property is about $550,000.00 less than the amount claimed in the Notices of Sale. Graff did not dispute this assertion. Nevertheless, in order to protect Graff’s interests, I am not prepared to reduce the amount paid into court until Graff provides discharge statements.
[24] In my view, pursuant to subsection 12(3) of the Act it is appropriate to order the discharge of the Graff mortgages upon $3,364,613.75 being paid into court by 141.
CONCLUSIONS
[25] I order that: (1) the APS is of no force and effect; (2) the Graff mortgages shall be discharged upon 1414391 Ontario Ltd. paying the sum of $3,364,613.75 into court; (3) such funds shall be paid into court by 1414391 Ontario Ltd. within one week of the date of this Order; (4) the funds paid into Court by 1414391 Ontario Ltd. shall be released to Graff to the extent of 1414391 Ontario Ltd.’s indebtedness under the Graff mortgages as outlined in a discharge statement that Graff will deliver to 1414391 Ontario Ltd.; (5) Graff shall deliver the aforementioned discharge statement to 1414391 Ontario Ltd. in respect of the Graff mortgages within one week of the date of this Order; (6) any surplus funds paid into court on account of this Order following payment of the Graff mortgages, shall be released to 1414391 Ontario Ltd. upon its request.
[26] I ask that the parties make best efforts to resolve the issues of costs failing which I request written submissions no longer than three pages within one week of today’s date.
Mr. Justice M. D. Faieta
Released: November 19, 2015
COURT FILE NO.: CV-15-537425
DATE: 20151119
ONTARIO
SUPERIOR COURT OF JUSTICE
BETWEEN:
1414391 ONTARIO LTD and 2272822 ONTARIO LTD.
Applicants
– and –
GEORGE GRAFF, STANLEY GORDON JOHN CLAPP and NANAKSAR THATH ISHAR DARBAR
Respondents
REASONS FOR JUDGMENT
Mr. Justice M. D. Faieta
Released: November 19, 2015
[^1]: Rizzo & Rizzo Shoes Ltd., 1998 837 (SCC), [1998] 1 S.C.R. 27, at para. 21.
[^2]: The Mortgages Amendment Act, 1970, S.O. 1970, c. 54.
[^3]: Ontario Law Reform Commission, Report on Section 20 of the Mortgages Act (1970), page 3.
[^4]: Ontario Law Reform Commission, Report on Section 20 of the Mortgages Act (1970), page 4.
[^5]: See Double D Developments Co. v. Green (1979), 1979 2065 (ON SC), 24 O.R. (2d) 391 (H. Ct. J.), at para. 8, where the Court found that there was no suggestion that the mortgagor desired to redeem the mortgage.
[^6]: Seville Group Inc. v. Bank of Nova Scotia (1992), 26 R.P.R. (2d) 314 (Gen. Div.), para. 22.