COURT FILE NO.: CV-15-541149

DATE: 2015-12-15

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: 2304347 ONTARIO INC. (Carrying on Business as 'DFSIN MISSISSAUGA, Applicant

AND:

2390322 ONTARIO INC. and MAHAGANAPATHIKURUKAL KUMARASASARMA (also known as KUMARASASARMA MAHAGANAPATHIKURUKAL), Respondents

BEFORE: F.L. Myers J.

COUNSEL:
G. Matlofsky, for the Applicant
H. Gahir, for the Respondents

HEARD: December 15, 2015

ENDORSEMENT

[1] The applicant is a judgment creditor of the respondent Kumarasasarma. It holds an execution against his lands and properties.

[2] The respondent 2390322 Ontario Inc. is also a creditor of Mr. Kumarasasarma. It holds a second mortgage against a piece of Mr. Kumarasasarma’s land. In October, 2015, the mortgagee commenced power of sale proceedings to enforce its mortgage debt.

[3] The applicant became concerned that the mortgagee and the borrower may not be independent. If this were so, the applicant feared that the sale under power of sale might be constrained artificially so as to realize less than the fair market value of the land. This could leave the applicant’s judgment debt unpaid.

[4] The judgment creditor’s counsel requested that the mortgagee’s counsel undertake to pay off the judgment debt as part of the power of sale process. For a mortgagee to agree, it would have to be willing to assume the risk of a subsequent encumbrance and therefore be very assured of the realizable value of the subject land. That sounds most unlikely in most circumstances. Moreover, there is no reason why a lawyer ought to give his or her undertaking as to the client’s potential future recovery in any circumstances.

[5] The mortgage has priority over the judgment debt. The mortgagee is entitled to sell, in a proper sale, and pay itself first. If there are funds left over for subsequent encumbrancers then so be it. If a subsequent encumbrancer does not like its odds, it is free to pay out the ranking creditor and take an assignment of its superior position and rights. That is what the lawyer for the mortgagee suggested that the execution creditor do.

[6] Within a few days, the mortgagee’s counsel advised that he had been instructed to hold off selling the land because the borrower was promising to pay out the mortgage debt. The mortgagee’s counsel promised to provide notice to the execution creditor if plans changed. In the interim, he suggested that the execution creditor enforce its execution if it wished to do so. But, he noted, there was no need for legal proceedings between the creditors.

[7] The applicant’s counsel continued to push for an undertaking by the mortgagee’s lawyer to pay out the judgment debt. The mortgagee’s lawyer declined but he did convey his client’s agreement to obtain two appraisals before putting the borrower’s property on the market and to sell the property only on the open market through MLS. He reminded the execution creditor’s lawyer that his client could buy the property in such a sale if he thought the property was being undersold.

[8] The applicant’s counsel disputes the timing and receipt of some of the correspondence recited above. He says that had he received the correspondence as now claimed, the application would have settled earlier or been avoided. Ultimately, the application settled on terms that resembled those offered by the mortgagee throughout that provided the applicant with some degree of assurance that the borrower’s property would only be sold in a public sale process that would be most likely to realize fair market value.

[9] The applicant seeks its costs from the mortgagee. It blames the mortgagee for failing to respond to correspondence on a timely basis. However, if the mortgagee pays costs to the execution creditor, the mortgagee will still be entitled to add those costs to its mortgage debt and be repaid those costs from the proceeds of sale before the execution creditor is paid. In other words, the execution creditor will still be bearing the economic risk of the costs unless there is insufficient funds realized to even pay out the mortgagee. No one thinks that is a likely outcome as this entire application would have been a waste of time were it so.

[10] The respondent mortgagee wants its costs from the execution creditor. That is just a timing issue as the mortgagee is entitled to its costs from the borrower under the mortgage as noted above. Requiring the execution creditor to pay costs now just means that the mortgagee is paid the costs sooner. However, were I inclined to order costs against the execution creditor, I would likely order that the payment occur from the proceeds in any event. While the execution creditor overreached in its demands, I cannot say that it was unreasonable in desiring to have the assurances offered by the mortgagee formalized in an order of the court.

[11] In all, it is the borrower’s failure to meet his obligations that is the cause of the strife as between his creditors. The borrower’s liability to his mortgagee and his execution creditor for costs of enforcement is already established by law. I also would not interfere with the priorities that are established by law. Accordingly, I make no order as to costs. This order is without

prejudice to whatever rights the creditors have to seek recovery of the costs incurred herein as costs of enforcement of their debts and security against the borrower Kumarasasarma and his property.

F.L. Myers J.

Date: December 15, 2015