CITATION: Armanasco v. Linderwood Holdings Inc., 2016 ONSC 1605

COURT FILE NO.: CV-16-545461

COURT FILE NO.: CV-16-547605

DATE: 20160307

ONTARIO

SUPERIOR COURT OF JUSTICE

BETWEEN:

ALBINO ARMANASCO

Applicant

– and –

LINDERWOOD HOLDINGS INC., VALOUR MORTGAGE SERVICES INC., OLYMPIA TRUST COMPANY, ANGELO SARA, 2202463 ONTARIO INC. and JOHN CARLISLE

Respondents

Michael Katzman for the Applicant

Richard C. Belsito for the Respondent Linderwood Holdings Inc., Angelo Sara, and 2202463 Ontario Inc.

Kevin J. Scullion for the Respondent Valour Mortgage Services Inc.

AND BETWEEN:

LINDERWOOD HOLDINGS INC., ANGELO SARA, and 2202463 ONTARIO INC.

Applicants

– and –

ALBINO ARMANASCO

Respondent

Richard C. Belsito for the Applicants Linderwood Holdings Inc., Angelo Sara, and 2202463 Ontario Inc.

Michael Katzman for the Respondent

HEARD: March 4, 2016

PERELL, J.

REASONS FOR DECISION

A. INTRODUCTION

[1] This is an application by a first mortgagee for a court blessing of his power of sale proceeding and a counter-application by the mortgagor to enjoin the sale and allow it to redeem the first mortgage. The second mortgagee opposes the application but supports the counter-application.

[2] Albino Armanasco loaned $1 million to Linderwood Holdings Inc. (“Linderwood”), which is owned and controlled by Angelo Sara. The security for the loan, which included a guarantee from Mr. Sara, was a first mortgage (Instrument No. AT3268411) on the property municipally known as 21 Brumwell St. in Toronto. The property is registered under the Land Titles Act, R.S.O. 1990, c. L.15.

[3] There is a $700,000 second mortgage on the property to Valour Mortgage Services Inc. (“Valour Mortgage”) and Olympia Trust Company (Instrument No. AT3772166).

[4] In the early summer of 2015, the first mortgage went into default, and Mr. Armanasco commenced a mortgage power of sale proceeding. None of Linderwood or the subsequent encumbrancers, including Valour Mortgage, exercised their rights to redeem, and on November 12, 2005, Mr. Armanasco signed an agreement of purchase and sale to sell 21 Brumwell St. to 1882328 Ontario Inc., which was an arms-length purchaser.

[5] After the sale agreement was signed: (1) both Linderwood and Valour Mortgage registered Cautions against the title of the property (respectively Instrument No. AT4104980 and Instrument No. AT4107507); (2) Linderwood transferred the property to 2202463 Ontario Inc., another corporation owned by Mr. Sara (Instrument No. AT4120291); and (3) 2202463 Ontario Inc. mortgaged the property to John Carlisle (Instrument No. AT4120297).

[6] In the application now before the court, Mr. Armanasco seeks orders for, among other things: (1) a declaration that the agreement of purchase and sale with 1882328 Ontario Inc. is valid and binding; (2) a direction to the Land Registrar to delete the Cautions, (Instrument No. AT4104980 and Instrument No. AT4107507) from the title to the property; (3) an order setting aside the transfer from Linderwood to 2202463 Ontario Inc. (Instrument No AT4120291); and (4) an order setting aside the registration of the charge to Mr. Carlisle (Instrument No. AT4120297).

[7] By cross-application, Linderwood, Mr. Sara, and 2202463 Ontario Inc. seek orders for, among other things: (1) leave to issue a Certificate of Pending Litigation claiming an interest in 21 Brumwell St.; (2) an injunction restraining Mr. Armanasco from completing the power of sale of the property to 1882328 Ontario Inc.; and (3) an extension of time to redeem the first mortgage on the property.

[8] For the reasons that follow, I dismiss the application and the cross-application.

B. FACTUAL AND PROCEDURAL BACKGROUND

[9] On April 2, 2013, Linderwood, whose principal is Mr. Sara, purchased 21 Brumwell St. in Toronto for a purchase price of $900,000. The transaction also involved a transfer of the shares of Linderwood to Mr. Sara. The transfer (Instrument No. AT3268410) was registered in the Land Titles Office in Toronto. Linderwood also had an option to purchase the adjoining 15 Brumwell St. The properties had development potential, and Mr. Sara paid an additional $250,000 for the development work that had been done for the properties. Linderwood’s development plan was to sever 21 Brumwell St. into lots and to develop houses on the property.

[10] Linderwood financed the entirety of the purchase by granting a $1 million first mortgage to Mr. Armanasco. The first mortgage was registered on April 2, 2013 as Instrument No. AT3264811. The interest rate was nine per cent. The mortgage had a one-year term. The monthly payments were $7,500. The mortgage included Standard Charge Terms Instrument No. 200033. The mortgage included a guarantee. The guarantors were Lawrence Peter McDonell, Ian James MacLeod, and Shelley McDonell.

[11] Over the next several years, Mr. Sara and his cousin, Tito DiVencenzo, invested over $1.5 million seeking approvals for their project for 21 Brumwell St. and 15 Brumwell St.

[12] On December 19, 2014, Linderwood granted a $1.3 million second mortgage to Valour Mortgage and Olympia Trust Company. The mortgage was registered as Instrument No. AT3772166. Olympia Trust Company eventually assigned its interest to Valour Mortgage, which represents a syndicate of retiree investors using their RRSP funds. Seven hundred thousand dollars has been advanced on this mortgage, and the funds were used to finance Linderwood’s development work.

[13] On January 27, 2015, Linderwood granted a $450,000 third mortgage to Terra Nova and a $130,000 fourth mortgage to Quick Capital Inc. These are collateral mortgages for other loans and no funds have been advanced under these mortgages for 21 Brumwell St.

[14] In June of 2015, Linderwood defaulted in making payments under the first mortgage. Mr. Armanasco advised Mr. Sara that he was not prepared to renew the mortgage and that he wished the indebtedness to be repaid. Mr. Sara understood that he would have some time to arrange financing.

[15] In the process of attempting to find a new lender, Linderwood obtained an appraisal prepared by Avison Young dated May 2015 that indicated that the 21 Brumwell St. property had a value of $1,420,000. Linderwood made concerted efforts to find refinancing but a commitment from Home Trust fell through.

[16] Meanwhile, Mr. Armanasco retained Bruno Di Gregorio of Di Gregorio & Associates to act as his real estate lawyer, and on August 20, 2015, Mr. Armanasco issued a Notice of Mortgage Power of Sale. The Notice of Sale under Mortgage was served on, among others, Linderwood, Valour Mortgage, Olympia Trust Company, Mr. McDonell, Mr. MacLeod, Mrs. McDonell and Tolulope Adewumi, who was a lawyer who had acted for Linderwood. The Notice indicated that unless $1,045,865.55 was paid on or before October 9, 2015, Mr. Armanasco would sell 21 Brumwell St.

[17] In September of 2015, Linderwood attempted to refinance again. This attempt was made with Joe Pizzulo, a private lender, but this prospect also fell through because of the difficulty of obtaining postponement agreements from the syndicate of investors who owned the Valour Mortgage second mortgage.

[18] In October 2015, Linderwood requested a discharge statement in order to advance its refinancing efforts, and Mr. Sara testified that because of this inquiry, he learned for the first time that a notice of power of sale had been issued. He said that Mr. Adewumi had not provided him with a copy of the notice, and he had understood that Mr. Armanasco was going to allow Linderwood some time to refinance.

[19] The reality, however, was that Mr. Armanasco was intent on retiring the indebtedness. The time for redemption under the Notice having expired, he took steps to have the property appraised and marketed for sale. He hired Dianna-Lynne Robinson or Right At Home Realty Inc. as his real estate agent. The listing price for 21 Brumwell St. was $1,420,000. The listing was placed on MLS (multiple listing service).

[20] On November 12, 2015, Mr. Armanasco signed an agreement of purchase and sale under power of sale to sell the property to 1882328 Ontario Inc., which made the second of two offers for the property. The purchase price was $1,150,000. The Agreement provided for a January 21, 2016 closing, but, subsequently, the parties scheduled the closing for January 7, 2016.

[21] Mr. Sara is suspicious about the purchase price, and he believes that Mr. Armanasco improvidently sold the property. Mr. Sara points to the following factors. The property was sold below the appraisal values. The property was only marketed for approximately three weeks, and the real estate agent acted for both the vendor and the purchaser and had acted on the original transaction involving Linderwood’s acquisition of the property. Mr. Sara believes that the agent likely passed on favourable information to the purchaser including the fact that Mr. Armanasco’s main concern was to get his money out and that he was prepared to sacrifice the value of the property. Mr. Sara believes that Mr. Armanasco was aware that the property was worth substantially more than what 1882328 Ontario Inc. paid. In paragraph 30 of his affidavit, Mr. Sara states: “It is my considered opinion and belief that the sale of the property by the Applicant to 1882328 Ontario Inc. is not bona fide and that accordingly, I be allowed an extension of time to redeem the property.” In paragraph 31 of his affidavit, he states:

[Mr. Armanasco] only cared about getting what he was owed ($1,045,865.55 as per the Notice of Sale) and took the second offer that came along with no regard to the harm this would do to the subsequent encumbrancers and specifically Valour and its group. Although I sympathize with the fact that Albino wanted his money out of the project, he owed Linderwood, myself and the subsequent encumbrancers far more of a duty to obtain the highest price than he displayed.

[22] Mr. Sara wishes to have Linderwood redeem the property, and the Agreement of Purchase and Sale in Schedule A-2 does contain a mortgage redemption clause. The clause states:

It is further understood that on the date of acceptance of this Offer there is default under the terms of the Charge/Mortgage which entitles the Seller to exercise the Power of Sale. The only evidence of the default which the Buyer may require shall be a statutory declaration by the Seller setting forth the facts entitling the Seller to sell under the Power of Sale, including the particulars of the notice of exercising the Power of Sale, the names of the persons upon whom service of the notice has been effected, and declaring that default under the Charge/Mortgage entitling the Seller to exercise the Power of Sale has continued up to and including the date of acceptance of this Offer and to the time of closing. The Buyer understands and agrees that the Chargor/Mortgagor has the right to redeem the property up to the time of waiver or expiration of all rights of termination or fulfillment of all conditions and this Agreement is subject to that right. In the event of redemption by the Chargor/Mortgagor, this Agreement shall be null and void and any deposit monies paid will be refunded in full without deduction. Where a court of competent jurisdiction prevents the completion of the within sale by an interim, interlocutory or permanent injunction or otherwise, then the Seller (Chargee/Mortgagee) is not obliged to complete the said transaction and the Agreement shall be terminated and the deposit shall be returned to the Buyer in full without deduction. In no event shall the Seller be responsible for any costs, expenses, loss or damages incurred or suffered by the Buyer and the Seller shall not have any further liability to the Buyer whatsoever. Notwithstanding other provisions of this Agreement, the Seller shall not be required either on or before closing to discharge its own Charge/Mortgage or any existing Charges/Mortgages, liens or other encumbrances subsequent in priority to the Seller’s Charge/Mortgage, which may be registered against the Property. The Buyer also acknowledges that the Seller makes no representation and/or warranties with respect to the state of repair of the premises, inclusions of chattels or fixtures, or ownership of fixtures or appliances, and the Buyer agrees to accept the property “as is”. Chattels and fixtures on the premises may or may not be included with the premises but the Seller shall not be obliged to remove any chattels or fixtures. All the provisions of the Mortgages Act shall supersede any part of this Agreement which may be in variance thereof or in conflict therewith.

[23] On November 18, 2015, after he had already signed the agreement of purchase and sale, Mr. Armanasco received an appraisal report from D. Bottero & Associates Limited, Professional Land Economists. The report concluded that the market value of the property on November 4, 2015 was $1,160,000.

[24] By December 15, 2012 all of the conditions in the agreement between Mr. Armanasco and 1882328 Ontario Inc. had been satisfied and 1882328 Ontario Inc. wished to complete the sale.

[25] On December 22, 2015, Mr. Di Gregorio was contacted by Andres Knudsen, a lawyer representing Valour Mortgage, and separately by Mr. Adewumi, Linderwood’s lawyer. Unaware of the agreement with 1882328 Ontario Inc., the lawyers were inquiring about the status of the power of sale proceeding. Mr. Knudsen and Mr. Adewumi were advised that the property had been sold with a closing date of January 7, 2016.

[26] On December 24, 2015, Linderwood registered a Caution (Instrument No. AT4104980) against the title to the property.

[27] A flurry of correspondence between the lawyers followed throughout the rest of December, 2015 with the lawyers for the second mortgagee and for the mortgagor protesting about the power of sale being illegal and at an undervalue. Litigation and the registration of a Caution were threatened.

[28] On December 29, 2015, Mr. Di Gregorio wrote Mr. Adewumi. The letter stated:

As per your request, I enclose a copy of the Agreement of Purchase and Sale, Amendment to Agreement of Purchase and Sale, Waiver, Listing Agreement and MLS Listing re the sale of this property. You were advised in prior correspondence that the value of the property was fully appraised by a professional appraiser who listed its value at $1,160,000. … The property was sold for $1,150,000.

I also enclose the head notes to the 1999 Ontario Court of Appeal decision Logozzo v. T.D. Bank, wherein the Court of Appeal held that the Mortgagor’s right to redeem under s. 22(1)(a) of the Mortgages Act ends when a sale occurs and for the purpose of s. 22(1)(a) a sale occurs when the Vendor and the Purchaser have entered into an Agreement of Purchase and Sale.

My client’s position and the position of the Buyer is that the Mortgagor’s redemption rights have expired.

My client has retained Michael Katzman … as litigation Counsel who will be opposing your Application and will make his own Application to set aside your Caution. …

[29] On December 31, 2015, Valour Mortgage registered a Caution (Instrument No. AT4107507) against the title to the property.

[30] As noted in Mr. Di Gregorio’s letter, Mr. Armanasco retained Mr. Katzman, and he began to correspond with Mr. Adewumi about scheduling the hearing of an application to resolve whether the sale transaction was to proceed or would be enjoined by an application from Linderwood or Valour Mortgage.

[31] On January 4, 2016, Valour Mortgage caused a Caution to be registered against title to the property.

[32] On January 5, 2016, Mr. Adewumi wrote Mr. Di Gregorio, Mr. Armanasco’s conveyancing lawyer, advising that Linderwood was ready to redeem, having secured financing from Mr. Carlisle who had agreed to make a loan to Linderwood on the security of 15 and 21 Brumwell St. with guarantees from Mr. Sara and Mrs. Lisa Sara. No moneys have been advanced under this mortgage to date, but Mr. Sara testified that the funds are available from Mr. Carlisle’s lawyers.

[33] On January 7, 2016, Mr. Adewumi wrote Mr. Di Gregorio indicating that a refinancing was in place and asking for a payout statement. Mr. Katzman was informed of the correspondence and responded by letter of same date to Mr. Adewumi indicating that Mr. Armanasco was intent on completing a sale of the property and that he had instructed Mr. Katzman to bring an urgent application to resolve the matter.

[34] On January 18, 2016, Linderwood transferred title of the property to 2202463 Ontario Inc. for no consideration. 2202463 Ontario Inc. is another corporation owned and controlled by Mr. Sara. On the same day, 2202463 Ontario Inc. granted a one-year term mortgage to Mr. Carlisle with a face amount of $1.1 million at 12% per annum interest and monthly payments of $11,916.67. The mortgage was registered as Instrument No. AT4120297.

[35] As noted above, the sales transaction had been scheduled to close in January, but as a result of the Cautions being registered, Mr. Armanasco and 1882328 Ontario Inc. agreed to extend the closing date for the transaction to March 7, 2016.

[36] Mr. Armanasco’s application (commenced on January 28, 2016) and the cross-application of Linderwood, Mr. Sara, and 2202463 Ontario Inc. (commenced on February 29, 2016) came on for argument on March 4, 2016.

C. DISCUSSION AND ANALYSIS

1. Mr. Armanasco’s Application

[37] It seems that Mr. Armanasco brought his application because the registration of the Cautions, the transfer of ownership from Linderwood to another of Mr. Sara’s corporations, the registration of the mortgage to Mr. Carlisle, and Linderwood’s threat of seeking an injunction were obstructing his plans to close the transaction with 1882328 Ontario Inc. and this prompted him to make a pre-emptive move to ask the court to expunge the Cautions, transfer, and mortgage and to declare that the agreement of purchase and sale with 1882328 Ontario Inc. was valid and binding.

[38] While one can appreciate why Mr. Armanasco might wish the court to make these orders, the problem for him is that although the court may have the jurisdiction to make the orders he seeks, there is no reason for the court to exercise that jurisdiction.

[39] Section 160 of the Land Titles Act empowers the court to rectify the Land Titles register. Section 160 states:

Application to court to rectify

160. Subject to any estates or rights acquired by registration under this Act, if a person is aggrieved by an entry made, or by the omission of an entry from the register, or if default is made or unnecessary delay takes place in making an entry in the register, the person aggrieved by the entry, omission, default or delay may apply to the court for an order that the register be rectified, and the court may either refuse the application with or without costs to be paid by the applicant or may, if satisfied of the justice of the case, make an order for the rectification of the register.

[40] There is no reason or basis for exercising the jurisdiction found in s. 160 in the circumstances of this case. Dealing first with the cautions, pursuant to s. 128 (4) of the Act, a caution ceases to have effect 60 days from the date of its registration and the caution may not be renewed. However, more to the point, while pursuant to s. 128 (1) of the Act, a caution has the effect that there should be no dealing with the land or charge without the consent of the cautioner, this restraint does not apply to mortgage enforcement proceedings. Section 129 (5) of the Act states:

When consent of cautioner not required

(5) The consent of a cautioner is not required where the dealing proposed to be registered is under the authority of a judgment or order of the court in a proceeding to which the cautioner is a party or where such dealing is under a power of sale contained in a charge or mortgage that is prior to the title under which the cautioner claims and the cautioner has been served with a notice of the proposed exercise of the power of sale and the caution is not in respect of the exercise of the power of sale or where the dealing is of such a nature that it cannot detrimentally affect the interest of the cautioner as claimed in the affidavit filed with the caution or where the transferee, chargee or other person desiring the registration of the dealing is willing that the same should be registered subject to the continuance of the caution and the land registrar thinks fit so to register it, and, where a caution is continued, such continuance prevents further registrations of dealings by the registered owner until the consent of the cautioner is obtained, unless as in this section provided.

[41] Turning to the registration of the transfer to 2202463 Ontario Inc. and the mortgage to Mr. Carlisle, there is no reason or basis to strike these instruments. The grantee and the mortgagee are registrants after the issuance of a power of sale and are subject to the rule of pendente lite. A person who acquires an interest in a property after a mortgage enforcement proceeding need not be made a party to those proceedings but is nevertheless bound by them. This rule, known as the rule of pendente lite (“pending the suit”), explains why execution creditors and others whose interest arise after the commencement of foreclosure proceedings are bound by the foreclosure judgment without necessarily being made parties to those proceedings: Ruthig v. Stuart Bros. Ltd. (1923), 53 O.L.R. 558 (C.A.); Gibson v. Nelson (1901), 2 O.L.R. 500 (C.A.), aff’d (1902), 1902 CanLII 1 (SCC), 35 S.C.R. 181 (S.C.C.); Robson v. Argue (1878), 25 Gr. 407 (Ch.); Bank of Montreal v. Wallace (1867), 13 Gr. 184 (U.C.C. Ch.); Kung v. Zambrano (1980), 16 C.P.C. 239 (Ont. H.C.J.).

[42] As for the request for a declaration that the sales transaction between Mr. Armanasco and 1882328 Ontario Inc. is a valid and binding agreement of purchase and sale, 1882328 Ontario Inc. is not before the court, and, in any event, the court is not in the business of making declarations for one party to a contract in the absence of a dispute between the contracting parties. The agreement of purchase and sale between Mr. Armanasco and 1882328 Ontario Inc. is scheduled to close on the same day as these Reasons for Decision are being released and it remains to be seen whether the agreement will close. The court cannot pre-emptively rule on what may occur in this transaction. Nor, can it pre-emptively rule on whether Linderwood, Mr. Sara, or Valour Mortgage may take proceedings alleging that the sale was an improvident sale. At this juncture, the court cannot give its blessing or its condemnation of the transaction between Mr. Armanasco and 1882328 Ontario Inc.

[43] I, therefore, dismiss the application and turn to the cross-application.

2. Linderwood’s, Mr. Sara’s and 2202463 Ontario Inc.’s Cross-Application

[44] The crux of the cross-application is whether the cross-applicants, Linderwood, Mr. Sara, and 2202463 Ontario Inc. have a right to redeem and whether an injunction should issue to allow them to exercise the right of redemption.

[45] The leading case about injunctive relief against mortgagees is Arnold v. Bronstein, 1970 CanLII 245 (ON SC), [1971] 1 O.R. 467 (H.C.J.). The rule from Arnold v. Bronstein is that subject to a mortgagor’s right to bring the mortgage into good standing or to redeem pursuant to sections 22 and 23 of the Mortgages Act, R.S.O. 1990, c. M.40, a mortgagee acting in good faith and without fraud will not be restrained from a proper exercise of his or her power of sale except upon tender of the amount outstanding. See also: Testa v. GTA Savings & Credit Union Ltd. (2001), 43 R.P.R. (3d) 121 (Ont. S.C.J.); Girard v. MCAP Service Corp., [2004] O.J. No. 1518 (S.C.J.); Hornstein v. Gardena Properties Inc., [2005] O.J. No. 3302 (S.C.J.), aff’d. 2006 CanLII 23142 (ON CA), [2006] O.J. No. 2757 (C.A.); 1175945 Ontario Ltd. v. Michael Wade Construction Co., 2010 ONSC 3732.

[46] In the immediate case, Linderwood, Mr. Sara, and 2202463 Ontario Inc. have not tendered the amount owing, and their ability to do so is tenuous having regard to the $7,500 per month accumulation of interest charges and the growing legal expenses, which are now spiraling beyond Mr. Carlisle’s financing. There is no fraud, and the alleged bad faith is tied to the proposition that it is an improvident sale, unless Mr. Armanasco takes steps to achieve the highest price possible for the mortgaged property. That proposition is not legally correct. Rather, the law applies a negligence standard, and the mortgagee is under a duty to take reasonable precautions to attempt to attain the market value of the property: Bank of Nova Scotia v. Barnard (1984), 46 O.R. (2d) 40 (H.C.J.); Siskind v. Bank of Nova Scotia (1984), 1984 CanLII 2114 (ON SC), 46 O.R. (2d) 575 (H.C.J.); Hausman v. O'Grady (1986), 1986 CanLII 2668 (ON SC), 61 O.R. (2d) 96 (H.C.J.); Manufacturers Life Insurance Co. v. Granada Investments Ltd., 2001 CanLII 2708 (ON CA), [2001] O.J. No. 3932 (C.A.), leave to appeal to S.C.C. ref’d. [2001] S.C.C.A. No. 637; Lay v. 1222055 Ontario Inc., [2005] O.J. No. 3641 (S.C.J.); Padelt v. 638506 Ontario Inc., [2008] O.J. No. 5923 (S.C.J.), aff’d. 2010 ONCA 69.

[47] The determination of whether the duty of care of a mortgagee exercising a power of sale has been breached is highly contextual and will depend upon the facts of the particular case, and the questions to consider may include: (a) did the mortgagee exercise the power of sale in good faith?; (b) did the mortgagee attempt to realize the fair market value for the property?; (c) did the mortgagee consider the interests of the mortgagor?; (d) was the property marketed widely?; (e) did the mortgagee obtain appraisals?; (f) did and how did the mortgagee advertise? (g) did the mortgagee use a multiple listing service?; and (h) how long was the property on the market?: Manufacturers Life Insurance Co. v. Huang & Danczkay Properties, [2003] O.J. No. 3061 (S.C.J.); 1427814 Ontario Ltd. v. 3697584 Canada Inc., 2012 ONSC 156, affd. 2013 ONCA 597.

[48] In the immediate case, assuming that the transaction closes, it may ultimately be shown that the sale to 1882328 Ontario Inc. is an improvident sale, but on the evidence for Linderwood’s, Mr. Sara’s, and 2202463 Ontario Inc.’s motion for an interlocutory injunction, there is a weak case for an interlocutory injunction based on the submission that Mr. Armanasco was acting in bad faith and that he breached his duty of care in the exercise of a power of sale.

[49] The case for an injunction, however, becomes hopeless when the analysis turns to sections 22 and 23 of the Mortgages Act and the question of whether their right to redeem is still extant. Sections 22 (1) and 23 (1) state:

Relief before action

22. (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.

Relief after action commenced

23. (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, in an action for enforcement of the rights of the mortgagee or of any person claiming through or under the mortgagee, the mortgagor, upon payment into court of the sum of $100 to the credit of the action as security for costs, may apply to the court and, conditional upon performance of such covenant or upon payment of the money due under the mortgage, exclusive of the money not payable by reason merely of lapse of time, and upon payment of the costs of the action, the court,

(a) shall dismiss the action if judgment has not been recovered; or

(b) may stay proceedings in the action, if judgment has been recovered and if no sale or recovery of possession of the land or final foreclosure of the equity of redemption has taken place.

[50] The payment of the money is not a condition precedent to relief under s. 23, and the court has the discretion to set the conditions and terms of the order for the mortgagor to perform the covenants of the mortgage and the payment of the arrears: Stewart v. Wilbus Holdings Ltd., [2006] O.J. No. 2619 (S.C.J.) at para. 11; Royal Bank of Canada v. Range Realty Inc., [1991] O.J. No. 724 (Gen. Div.); Bayview at 407 Ltd. v. Mark Park Construction Ltd. (1978), 1978 CanLII 1340 (ON SC), 20 O.R. (2d) 155 (H.C.J.).

[51] In Re Mission Construction Ltd. & Seel Investments Ltd., 1973 CanLII 396 (ON SC), [1973] 2 O.R. 190 (H.C.J.), a mortgagor applied for an injunction to stop the sale of its property by power of sale. The mortgagee had already entered into an agreement of sale but the transaction had not closed. Justice Lieff stated at paras. 191-92:

Section [22(1)(a)] provides that a mortgagor may put a mortgage in good standing "at any time before sale under the mortgage". The acceptance of an offer to purchase constitutes a "sale", so that the applicant lost its rights under this section on February 28, 1973. It was argued, however, that this right has remained in existence to the present date due to the following clause in the offer to purchase:

Acceptance by the Vendor hereof shall be subject to the rights if any of the registered owner of the property to redemption or to put the Vendor's mortgage in good standing.

I cannot accept this argument. The right of the applicant under s. [22(1)(a)] to put the mortgage in good standing ended on the acceptance of the offer to purchase. The "rights if any" referred to in the above clause include only those rights whose existence was not terminated by the acceptance of the offer, such as the right to redemption upon proof that the sale was fraudulent or improper.

[52] The Court of Appeal agreed with this interpretation of s. 22(1)(a) of the Act in Theodore Daniels Ltd. v. Income Trust Co. (1982), 1982 CanLII 1757 (ON CA), 37 O.R. (2d) 316 (C.A.). On behalf of the court, Justice Lacourcière stated at para. 319:

The relief granted to the mortgagor may be obtained pursuant to s.[22(1)(a)] at any time before sale under the mortgage. Thus the mortgagor may perform the covenant or pay the arrears, etc., before any action is commenced, after a notice of exercising power of sale has been served but before the actual sale. Sale in this context has been interpreted as meaning acceptance of an offer. See Re Mission Construction Ltd. and Seel Investments Ltd., 1973 CanLII 396 (ON SC), [1973] 2 O.R. 190 at p. 191, 33 D.L.R. (3d) 286.

[53] Van Minnen Construction Ltd. v. Murphy (1977), 1977 CanLII 1340 (ON SC), 19 O.R. (2d) 125 (H.C.J.) is another case in which it was held that it was too late for a mortgagor to redeem after the property had been sold at auction under power of sale by the mortgagee.

[54] After Re Mission Construction Ltd. and Seel Investments Ltd., supra and Theodore Daniels Ltd. v. Income Trust Co., supra, the law was clear that a mortgagor’s right to bring the mortgage into good standing or to redeem the mortgage and to escape the fate of a power of sale proceeding was extinguished by an unconditional agreement of purchase and sale. See also: Toronto Dominion Bank v. Pallett Developments Ltd. (1984), 1984 CanLII 2062 (ON SC), 47 O.R. (2d) 251 (Div. Ct); Hornstein v. Gardena Properties Inc., supra; Lusinde v. New Haven Mortgage Income Fund (1), Inc., 2014 ONSC 2250.

[55] However, even with these cases, there was some uncertainty about whether the same rule, which precludes redemption, applied: (a) to a conditional agreement of purchase and sale where the satisfaction or waiver of the conditions remained outstanding; and (b) to an unconditional agreement that contained what may be described as a redemption clause.

[56] There is a line of cases that support the proposition that pending the satisfaction of the conditions in a conditional agreement, the mortgagor’s right to redeem is still extant. See: Nalisa Investment Ltd. v. National Bank of Canada, [1980] O.J. No. 643 (Ont. S.C.); Canada Permanent Trust Co. v. Rieckenberg, [1983] O.J. No. 930 (Ont. Dist. Ct.); Miranda v. Wong, [1986] O.J. No. 231 (Ont. H.C.J.); Weiss v. Standard Trust Co. (Ont. Gen. Div.), unreported August 5, 1993, Justice Wilson; National Trust Co. v. Saad (1997), 1997 CanLII 12134 (ON SC), 33 O.R. (3d) 419 (Ont. Gen. Div.).

[57] For present purposes, I need not explore this line of cases because in the immediate case, after December 15, 2015, the agreement of purchase and sale was unconditional, and the issue is thus only whether the mortgagor’s right of redemption still existed because of the so-called redemption clause contained in the agreement.

[58] That said, I think the better argument, which is supported by another line of cases is that, the mortgagor loses his or her right to redeem with the signing of even a conditional agreement of purchase and sale. See: DBM Capital Corp. v. Marino, [2002] O.J. No. 5723 (S.C.J.), aff’d for different reasons [2003] O.J. NO. 4112 (C.A.); Waring v. London & Manchester Assurance Co. (1934), [1935] Ch. 310 (Eng. Ch. Div.). If the conditions in the agreement are ultimately not satisfied, then the conditional agreement will no longer have any effect and the mortgagor may have a revived right to redeem; however, in my opinion, if the conditional agreement has not lapsed, there is no right to redeem.

[59] However, as already noted, the agreement in the immediate case was unconditional, and thus the issue to address in the immediate case is the issue addressed by the Court of Appeal in Logozzo v. Toronto-Dominion Bank (1999), 1999 CanLII 9313 (ON CA), 45 O.R. (3d) 737 (C.A.), where the court analyzed the effect of redemption clauses in agreements by mortgagees selling a property under power of sale.

[60] The facts of Logozzo v. Toronto-Dominion Bank were that in 1994, Mr. Logozzo purchased a 500-acre wilderness tract on Lake Superior for $75,000. In 1996, he mortgaged the property to the Toronto-Dominion Bank as security for a $50,000 loan. In September 1997, the mortgage went into default, and, in April 1998, the Bank served him with a notice of its intent to exercise the power of sale contained in the mortgage. The notice stated that unless the sums demanded were paid on or before May 25, 1998, the property would be sold. Mr. Logozzo did not redeem during the notice period. The Bank listed the property for sale for $79,000, and, on October 22, 1998, it signed a standard form agreement of purchase and sale to sell the property to Mr. Grann for $80,000 with a scheduled closing date of November 16, 1998. The agreement contained the following redemption provision:

The purchaser understands and agrees that the mortgagor has the right to redeem the property up to the time of waiver or expiration of all rights of termination or fulfillment of all conditions, and this agreement is subject to that right. In the event of redemption by the mortgagor, this agreement shall be null and void and any deposit monies paid will be refunded without interest.

[61] Meanwhile, on November 5, 1998, Mr. Logozzo signed a conditional agreement of purchase and sale to sell the wilderness tract to Mr. Purnell for $211,000. The agreement was conditional on Mr. Purnell obtaining financing, and the agreement had a scheduled closing date of November 20, 1998, four days after the scheduled closing of the Bank’s sale to Mr. Grann.

[62] Without tendering the monies necessary to redeem the Bank’s mortgage and without evidence of whether Mr. Purnell had waived the condition about financing and was ready and able to close, on November 6, 1998, Mr. Logozzo commenced proceedings to enjoin the Bank’s sale to Mr. Grann. The Bank brought a counter-application as did Mr. Grann, who was seeking specific performance of his agreement. On its counter-application, the Bank’s position was that it was not opposed to allowing Mr. Logozzo a right to redeem provided that the Bank was not exposed to a claim for breach of contract for failing to complete the sale to Mr. Grann.

[63] Justice Wright ruled that Mr. Logozzo had a right to redeem, and Mr. Grann appealed to the Court of Appeal. In the Court of Appeal, Justice Borins (Justice MacPherson concurring) allowed the appeal and held that Mr. Logozzo had no right to redeem. Justice Borins interpreted the redemption clause and concluded that it did not relieve the Bank from its obligation to convey the property to Mr. Grann. Justice Goudge dissented.

[64] In his judgment for the majority, Justice Borins confirmed that an unconditional agreement of sale ends the mortgagor’s right to redeem, unless the mortgagor can successfully challenge the validity of the power of sale. He held that the sale to Mr. Grann was valid, and in so finding he held that a low sale price may not support a finding that the sale is invalid. Justice Borins, J.A. cited Waring (Lord) v. London & Manchester Assurance Company, Limited, [1935] 1 Ch. 310 for the proposition that the court will not interfere even though the price is very disadvantageous, unless the price is so low as to evidence fraud.

[65] Justice Borins analyzed the effect of the redemption clause, but before doing so he said that he did not need to decide the correctness of the line of cases that differentiated between unconditional agreements and conditional agreements, because that was not the issue in the case, which rather turned on the effect of the redemption provision in an unconditional contract and on whether Mr. Logozzo had any rights under the redemption provision.

[66] In this last regard, Justice Borins decided that Mr. Logozzo had no rights under the redemption provision for two mutually exclusive reasons; namely: (1) under the law of contract, Mr. Logozzo was a third party beneficiary and without any privity of contract, and thus he was not entitled to enforce the redemption provision; and (2) Mr. Logozzo had never tendered payment of the amount due under the mortgage, which was a precondition to a mortgagor’s right to redeem.

[67] As to the redemption provision, as between the Bank and Mr. Grann, at paragraphs paragraphs 44–47, and 53 of his judgment, Justice Borins described and interpreted the provision as follows:

On its face, this clause represents an understanding and agreement between Grann and TD that there are circumstances in which TD may permit the mortgagor to redeem the property. .... However, this cannot serve to confer on Logozzo a right to redeem beyond the time permitted by s. 22(1)(a). This provision is likely for the benefit of TD. It gives TD the opportunity to make the best deal possible in realizing on its security notwithstanding the effect of s. 22(1)(a), and without incurring any liability to the purchaser. .... However, as between Logozzo and TD, it created no rights, nor did it provide Logozzo the foundation to prevent the completion of the Grann-TD transaction. …. [A]lthough [the clause] permits Logozzo to redeem if certain circumstances are met, he could not enforce this benefit against Grann or TD for the reason that he was not a party to the agreement of purchase and sale. …. [A]lthough it is apparent that Grann acted in good faith in submitting his offer, he did so knowing that TD could terminate the agreement by permitting Logozzo to redeem the property within the time frame contained in the provision, in which event the agreement becomes null and void and TD must return his deposit. …. In summary ….. [the clause] entitled TD to accept a proper redemption by Logozzo "up to the time of waiver or expiration of all rights of termination or fulfillment of all conditions" contained in their agreement, and to walk away from the agreement without incurring any liability to Grann. However, … in the circumstances …. the agreement of purchase and sale is "subject to [the] right" of the mortgagor to redeem the property "up to the time of waiver or expiration of all rights of termination or fulfillment of all conditions." …. TD cannot rely on, and enforce, [the clause] for three reasons. Logozzo had not effected a proper redemption at the time his application was brought, as he had neither paid, nor tendered, the appropriate amount of money owing on the mortgage. Paragraphs 8 and 10 of the agreement did not, as TD contended, give Grann a right to terminate it which he had not waived and which had not expired. Finally, the agreement was not conditional.

[68] In other words, Mr. Logozzo had no rights under the redemption provision and the Bank no longer had the unilateral choice of allowing Mr. Logozzo an opportunity to redeem because it was now bound to convey the property to Mr. Grann under the unconditional agreement of purchase and sale.

[69] Logozzo v. Toronto-Dominion Bank, supra was followed in 1391748 Ontario Inc. v. Royal Bank of Canada, [2001] O.J. No. 1849 (S.C.J.); Girard v. MCAP Service Corp., supra; 1175945 Ontario Ltd. v. Michael Wade Construction Co., supra.

[70] With this background, I can now return to the case at bar and the question of whether the redemption clause provides Linderwood, Mr. Sara, and 2202463 Ontario Inc. with a right of redemption.

[71] In my opinion, although the language of redemption provision is more expansive than the language of the provision in Logozzo v. Toronto-Dominion Bank, from the perspective of Linderwood, Mr. Sara, and 2202463 Ontario Inc., the cases are indistinguishable. They are not entitled to redeem because: (1) they have not demonstrated fraud or bad faith in the exercise of the power of sale; (2) they have no privity of contract to enforce the redemption provision; and (3) they are, in any event, not entitled to redeem because they have not satisfied the pre-condition of tendering the amount of the mortgage debt.

[72] I need not and with 1882328 Ontario Inc. not before the court, I should not and I will not opine whether Mr. Armanasco, unlike the Bank in Logozzo v. Toronto-Dominion Bank, has the option under the redemption provision contained in his agreement of purchase and sale to allow Linderwood, Mr. Sara, and 2202463 Ontario Inc. to redeem without incurring liability to 1882328 Ontario Inc.

D. CONCLUSION

[73] For the above reasons, the application and the cross-application are dismissed. If the parties cannot agree about the matter of costs, they may make written submissions beginning with Mr. Armanasco’s submissions within 20 days of the release of these Reasons for Decision followed by Linderwood’s, Mr. Sara’s, and 2202463 Ontario Inc.’s submissions within a further 20 days. I shall not be ordering costs for or against Valour Mortgage.

Perell, J.

Released: March 7, 2016