Court File and Parties

COURT FILE NO.: 07-29117 DATE: 2016-09-01

ONTARIO SUPERIOR COURT OF JUSTICE

B E T W E E N:

FRENCHMEN’S CREEK ESTATES INC., 550075 ONTARIO INC. and JOSEPH ZAWADZKI Applicants

G. Gligoric, for the Applicants

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TUCKERNUCK MORTGAGE ADMINISTRATION INC., TUCKERNUCK MORTGAGE ADMINISTRATION INC., IN TRUST, MATHEWS SOUTHWEST DEVELOPMENTS LIMITED, MSW DALLAS LIMITED and BRUCE BENT Defendants

M. A. Klaiman, for the Defendants

HEARD: July 29, 2016 in Hamilton

Reasons for Judgment

LOFCHIK J.

Background

[1] There were two motions before the court, one brought by the plaintiffs and one brought by the defendants Tuckernuck. The plaintiffs’ motion is seeking an order extending the time to complete the terms of minutes of settlement dated May 14, 2015 and to restrain the defendant Tuckernuck Mortgage Administration Inc. from exercising any rights pursuant to the said minutes of settlement to obtain vesting orders. The defendants Tuckernuck seek a vesting order pursuant to the terms of the minutes of settlement executed by the parties on May 14, 2015.

[2] Frenchmen’s Creek Estates Inc. (“Frenchmen’s”) is an Ontario corporation and at all materials times was and is the registered owner of lands referred to as “Frenchmen’s property” described in a charge/mortgage of land registered against such property on November 30, 2001 as instrument number LT197733.

[3] The plaintiff, 550075 Ontario Inc. (“550075”), is an Ontario Corporation and at all materials times herein was and is the registered owner of lands referred to as the “550 property” described in the charge/mortgage of land registered against such property on November 30, 2001 as instrument number LT197732.

[4] The defendants, Tuckernuck Mortgage Administration Inc. and Tuckernuck Mortgage Administration Inc. In Trust (collectively referred to herein as “Tuckernuck”) is a corporation that carries on business in the Province of Ontario and at all materials times was or is the chargee under the charges/mortgage of land referred to above and registered against the Frenchmen’s property and the 550 property.

[5] The action has been dismissed against the remaining defendants.

[6] On or about November 23, 2011 Tuckernuck registered cross-collateral charges in the amount of $2,000,000.00 against the Frenchmen’s property, the 550 property and against lands owned by Old Willoughby.

[7] The lands owned by Old Willoughby have been sold under power of sale.

[8] The Frenchmen’s charge was registered behind a mortgage in favour of Yolles Realty Ltd. (“Yolles”) securing the principal sum of $300,000.00 and the 550 charge was registered behind a first mortgage in favour of Yolles (both mortgages being collectively referred to herein as “Yolles mortgages”) securing the principal sum of $250,000.00.

[9] On or about September 22, 2003 Yolles commenced two foreclosure actions under the Yolles mortgages and on or about December 12, 2003 the Yolles mortgages and hence the foreclosure actions were effectively assigned to Tuckernuck (In Trust).

[10] On or about November 16, 2006 Tuckernuck unlawfully obtained ex parte judgments of foreclosure with respect to the Yolles mortgages which had been assigned to it and caused the title to Frenchmen’s property and the title to 550 property to be registered in the name of Tuckernuck on November 16, 2006.

[11] On January 22, 2007 the plaintiffs herein commenced an application which was converted into this action by way of statement of claim claiming inter alia:

a) an order to set aside the judgments of foreclosure and to have the titles restored in the name of Frenchmen’s and 550; b) for damages for slander of title; and c) for interference with contractual relations of Frenchmen’s with respect to an agreement of purchase and sale (the “City Prop. Agreement”) dated May 29, 2006 entered into between Frenchmen’s and City Prop Holdings Inc. (“City Prop.”) for the sale of the Frenchmen’s property for the sum of $11,160,000.00.

[12] The completion date under the City Prop. Agreement was extended to March 14, 2007 but Frenchmen’s was unable to convey title on that date due to the judgment of foreclosure obtained by Tuckernuck and due to Tuckernuck refusing to allow any extension of completion of the City Prop. Agreement.

[13] The plaintiffs’ motion to set aside the foreclosure order was heard by me and the application was dismissed in the first instance.

[14] Subsequently the matter was heard by the Court of Appeal which set aside the judgments for foreclosure such that Frenchmen’s and 550 became reinstated as owners of the respective properties.

[15] In its endorsement the Court of Appeal stated:

(2) “On appeal it became apparent that Justice Lofchik did not have before him the record that was placed before Justice Echlin to obtain the ex parte orders. That record is before us on the appeal and discloses that on the first attempt to obtain the ex parte orders from Justice Rouleau (as he then was), Justice Rouleau required disclosure of the calculation and the justification of the amount of the consent judgments…” (3) “The respondent then refiled the ex parte foreclosure motions with affidavits from Mr. Ben Bernholtz which included an accounting that showed no monies had been paid on the Yolles first mortgage. These affidavits failed to properly account for monies paid by the appellants which under paragraphs 2 and 3 of the minutes had to be credited to the Yolles first mortgage. Because the material before Justice Echlin did not constitute full, fair and frank disclosure as required on an ex parte motion, these orders should have been set aside by Justice Lofchik and we are satisfied that they would have been had he been aware of the problem.”

[16] Subsequently the applicants brought a motion to have the two first mortgages discharged and an accounting on the second mortgages. The respondents brought a cross-motion for foreclosure and possession of the lands in question.

[17] Madam Justice Carpenter-Gunn in her decision dated July 11, 2008 ordered that the Yolles mortgages which had been pursued by Tuckernuck against both the Frenchmen’s property and the 550 property be discharged based on her finding that those mortgages had been overpaid. She further ordered that the cross-motion of the respondents for foreclosure and possession of the Frenchmen’s property and the 550 property be dismissed and an accounting taken to determine the quantum owing on the Tuckernuck mortgages. An appeal from those orders by Tuckernuck was subsequently dismissed the Court of Appeal.

[18] The matter proceeded to trial in Hamilton in May, 2015. On or about the fourth day of trial a resolution was negotiated between the parties which culminated in execution of minutes of settlement. The terms of the minutes of settlement required the plaintiffs to pay the Tuckernuck defendants the sum of $2,400,000.00 on or before May 14, 2006. In short, the plaintiffs were given one year to raise the money to pay Tuckernuck the amount agreed upon in the minutes of settlement.

[19] Pursuant to the terms of the minutes of settlement, if the plaintiffs were not able to pay Tuckernuck the sum of $2,400,000.00 on or before May 14, 2016, Tuckernuck was entitled to a vesting order with respect to the Frenchmen’s Creek and the 550 properties. The minutes of settlement further provided that in the event of default, Tuckernuck was entitled to bring a motion on notice to the plaintiffs to obtain a vesting order.

[20] Pursuant to paragraph 10 of the minutes of settlement, the plaintiffs were required to ensure that all realty taxes were paid and kept current as and when due. After execution of the minutes of settlement, the plaintiffs paid the arrears of taxes so that the taxes were current as of that time. However, over the one year period the taxes had accrued and the realty taxes are currently in arrears in the sum of $8,801.10.

[21] The purpose of the one year period ending May 14, 2016 in the minutes of settlement was to allow the plaintiffs’ time to sell one or both of the subject properties and pay Tuckernuck the $2,400,000.00.

[22] Subsequent to the execution of the minutes of settlement the plaintiffs attempted to market the properties and produced offers to sell the Frenchmen’s property for $8,940,000.00 and to sell the 550 property for $5,300,000.00.

[23] When the Tuckernuck property obtained the foreclosure orders referred to above, they attempted to market the properties and filed listings with the local multiple listings service for sale of the properties at prices of $1,250,000.00 and $1,450,000.00 respectively. When the improperly obtained foreclosure orders were set aside, these listings were not removed from the MLS service.

[24] The plaintiffs argue that although significant offers to sell the Frenchmen’s property in the amount of $8,940,000.00 and to sell the 550 property in the amount of $5,300,000.00 were obtained, the transactions were not completed due to the previous listings left by Tuckernuck on the MLS service. That is, the purchasers found the properties listed at prices significantly below what they were offering and backed out of the transaction. The plaintiffs argue that if the court were to order Tuckernuck to remove those previous MLS listings improperly filed during its foreclosure proceedings, and extend the time for completion of the terms of minutes of settlement by four months, sufficient funds could be obtained by the plaintiffs to buy out Tuckernuck’s interest as required under the minutes of settlement.

[25] The defendants argue that this is a case of breach of contract pure and simple and that since the plaintiffs have not lived up to the terms of the minutes of settlement, Tuckernuck should be entitled to obtain and file a vesting order as contemplated in the minutes of settlement.

Analysis

[26] Defendants argue that there was no agreement that Tuckernuck would delete previous listings or selling information related to Frenchmen’s Creek properties or 550 properties if it was possible. This was not provided for in the minutes of settlement.

[27] I find that there could be no agreement to remove the listings or other sale material from the MLS if the plaintiffs did not know that the offending listing existed which they did not until the one year period for payment under the minutes of settlement had nearly expired.

[28] Equity may imply in a case such as this a term that the defendants would not cause or allow to continue a situation that would hinder the sale of the property and therefore prevent the plaintiffs from performing their obligations under the minutes of settlement.

[29] The defendants argue that as, the plaintiffs have failed to perform the required actions set out in the minutes of settlement, the defendants should be allowed to exercise the default remedies agreed upon by the parties, namely register vesting orders with respect to the subject properties.

[30] The plaintiffs argue that they took immediate action to carry out the requirements of the minutes of settlement, but were prevented from doing so by the actions or inaction of the defendants in filing listing agreements for considerably under current market value which, as it turns out, they had no right to do because their foreclosure orders were improperly obtained, and neglecting to remove those listings when the foreclosures were set aside.

[31] The plaintiffs argue that the court should exercise its equitable jurisdiction to order the removal of the listings or other sale material and allow a brief extension of time for the plaintiffs to comply with the terms of the minutes of settlement.

[32] Section 96 of the Courts of Justice Act requires that a court “...shall administer all rules of equity and common law...” and that “Where a rule of equity conflicts with a rule of common law, the rule of equity prevails”.

[33] The case law has held that “true, equitable principle has always been that the mortgagor may be permitted to redeem whenever the equities in favour of it undoubtedly outweigh all that are against it.” Dovercourt Land Building & Savings Co. v. Dunvegan Heights Land Co., (1920), 47 OLR 105 (H.C.J.) p. 108. The same principles applies here.

[34] It would be inequitable to deprive the plaintiffs of their property in a situation where improper filings by the defendants have hindered the sale of the property necessary to provide the plaintiffs with the funds required to comply with the minutes of settlement.

[35] I find that the plaintiffs moved reasonably promptly to obtain the relief requested; that the plaintiffs have taken reasonable steps to raise the money necessary to redeem on time; and that the plaintiffs have a substantial interest in the property, that is that the property is worth considerably more than the $2,400,000.00 required to redeem; and that the offers to purchase produced by the plaintiffs show reasonable prospect of payment in a short period of time.

[36] Under these circumstances, it is reasonable for the court to exercise its equitable jurisdiction and grant an extension of time for payment of the funds required to comply with the terms of the minutes of settlement.

[37] If interest were to continue to run during the extended time, given the interest rate being paid, which is considerably higher than current interest rates, the defendants would suffer no hardship.

Conclusion

[38] Order to go that the defendants immediately order the MLS listing service to remove all listings which the defendants have filed with respect to the properties.

[39] Further ordered that the plaintiffs have four months from the time the defendants confirm to them that the offending listings have been removed to comply with the terms of the minutes of settlement.

[40] Further ordered that interest continue to run on the sum of $2,400,000.00 dollars at the rate of 18 percent per annum until the funds are paid to the defendants.

[41] Plaintiffs to have their costs of this motion. If the costs cannot be agreed on, the plaintiffs may apply in writing to fix such costs within 15 days, defendants to have 15 days from receipt of the plaintiff’s submissions to reply, plaintiffs to have 10 days to reply to the defendant’s submissions.

LOFCHIK J.

Released: September 1, 2016