COURT FILE NO.: CV-15-5198-00 RELEASED: November 14, 2016 TRANSCRIBED: January 16, 2017

SUPERIOR COURT OF JUSTICE - ONTARIO

RE: IDRIS KOLIA and ANTONIA KOLIA, Applicants v. LOUIE MARCHESE, TONY YUNG, PATRICIA BAILEY and CAROLYN LEDERER, Respondents

BEFORE: BARNES J.

COUNSEL: Bruce Robertson, for the Applicants Eugene Dankanych, for the Respondents Louie Marchese and Tony Yung H. David Marks, for the Respondent, Patricia Bailey

HEARD: May 18, 2016

ENDORSEMENT

INTRODUCTION

[1] This is an application by Idris Kolia and Antonia Kolia (Applicants) for a determination that their interest in 4165 Rawlins Common in Burlington (the property) has priority over the interests of Respondents Louise Marchese, Tony Yung and Patricia Bailey. The Respondent Carolyn Lederer owned the property.

[2] Upon reading the material filed and considering the submissions of counsel this court orders as follows:

(i) The application is dismissed. (ii) Paragraph 1 of the Order of Justice Emery, December 10, 2015, in this matter is rescinded and the property is no longer enjoined from transfer. (iii) Paragraph 2 of the Order of Justice Emery, December 10, 2015, in this matter is rescinded. (iv) The Respondent Patricia Bailey shall disclose to the Respondents Louie Marchese and Tony Yung all relevant evidence regarding the lease monies since taking possession of the property.

[3] The Applicants and the Respondents Mr. Marchese, Mr. Yung, and Ms. Bailey are creditors of the Respondent Carol Lederer, who has filed no material in response to this Application. All creditors claim an interest in the property.

BACKGROUND FACTS

The Mortgagees Claim on the Property

[4] Ms. Lederer became the owner of the Property on June 26, 2008 and obtained a mortgage from First National Bank (the “First National Mortgage”). The mortgage amount was $414,341.55

[5] On January 18, 2013, Ms. Lederer obtained a second mortgage on the Property, from Patricia Bailey in the amount of $22,650.00 (the “Bailey Mortgage).

[6] The Bailey Mortgage is subject to Standard Charge Terms 200033. The Standard Charge Terms include the provision that the chargee (Ms. Bailey) may satisfy any encumbrances on the Property. Any monies paid by the chargee to satisfy these encumbrances shall be added to the principal of the charge (the principal of the Bailey Mortgage). The Standard Charge Terms 200033 were filed with the Land Registry Office as an addendum to the Bailey Mortgage.

[7] By June 2013, Ms. Lederer was in default of the first priority mortgage, the First National Mortgage. Ms. Bailey loaned Ms. Lederer approximately $40,000.00 to cure the default. As per the loan agreement, this additional amount was added to the initial principal of the Bailey Mortgage and Ms. Lederer granted Ms. Bailey a Power of Attorney to manage the Property.

[8] When the First National Mortgage fell into default again, Ms. Bailey decided to pay it out to protect her interest. As Ms. Bailey did not have sufficient funds for this transaction, she partnered with Mr. Marchese and Mr. Yung to cover the shortfall. As part of the partnership agreement between the three, half of Ms. Bailey’s existing mortgage interest was transferred in the proportion of 25% each. This transfer was registered in the Land Registry Office.

[9] The First National Mortgage was paid off. Ms. Bailey contributed $207,000, and Mr. Marchese and Mr. Yung each contributed $103,500. The First National Mortgage was discharged on November 12, 2013. In effect, the First National Mortgage on the Property was replaced by a new mortgage in favour of Ms. Bailey, Mr. Marchese and Mr. Yung.

[10] In January 2014, Ms. Bailey, Mr. Marchese and Mr. Yung issued a Notice of Sale under the charge on the Property. In April 2004, they began an action against Ms. Lederer to recover the amounts they had paid to discharge the First National Mortgage and the approximately $40,000.00 Ms. Lederer owed them. Ms. Lederer did not defend the action and summary judgment was granted against her on May 29, 2014 for $525,269.87 plus post-judgment interest. A Writ of Possession for the Property was issued on June 25, 2014.

The Applicants’ Claim

[11] In 2011, Ms. Lederer agreed to purchase a property owned by the Applicants’ for $2,750,000. The sale did not close. The Applicants eventually sold their property in late 2011. In 2012, the Applicants sued Ms. Lederer, claiming breach of contract and seeking $500,000 in damages because they had sold their property for a lower price than that agreed to by Ms. Lederer.

[12] On February 13, 2015, the Applicants were granted summary judgment for $500,000, plus $14,993.77 in costs. Ms. Lederer’s appeal was dismissed for delay on May 25, 2015.

[13] The Applicants had previously conducted a Land Registry search for outstanding encumbrances on Ms. Lederer’s property. The Bailey Mortgage in an amount of $22,650 was discovered. Later, in an attempt to enforce their judgment, the Applicants requested a discharge statement for the Bailey Mortgage in 2015 and discovered that the total amount claimed by Ms. Bailey, Mr. Marchese and Mr. Yung far exceeded $22,650.00

ISSUES

[14] The issue raised in this Application is:

(1) Which parties are entitled to a priority claim in the equity of the Property?

DISCUSSION/ ANALYSIS

Priority of the Claims

[15] Ms. Bailey, Mr. Marchese and Mr. Yung are entitled to a priority claim in the equity of the Property for the reasons that follow.

[16] The Bailey Mortgage expressly refers to Standard Charge Terms number 200033. Ms. Lederer acknowledged in Schedule A to the Bailey Mortgage that she received the Standard Charge Terms and she agreed to be bound by them.

[17] Section 9(1) of the Land Registration Reform Act, R.S.O. 1990, c. L.4, states that a set of standard charge terms expressly referred to in a mortgage by its filing number shall be deemed to be part of that mortgage. Therefore the Standard Charge Terms 200033 are part of the Bailey Mortgage.

[18] Section 78(4) of the Land Titles Act, R.S.O. 1990, c. L.5, states:

When registered, an instrument shall be deemed to be embodied in the register and to be effective according to its nature and intent, and to create, transfer, charge or discharge, as the case requires, the land or estate interest therein mentioned in the register.

[19] By virtue of Section 78(4) of the LTA the Applicants are deemed to have notice of the terms and provisions of the Standard Charge Terms 200033 as applicable to the Bailey Mortgage: See Elle Mortgage Corp. v. Adalath, 2012 ONSC 7061, 28 R.P.R. (5th) 137, at para. 22.

[20] The Standard Charge Terms 200033, at Clause 8, permit the chargees, Ms. Bailey, Mr. Marchese and Mr. Yung, to pay out any other encumbrance on title to the Property. This includes the First National Mortgage.

[21] Clause 8 of the Standard Charge Terms further stipulates that any money paid by the chargees to pay out another encumbrance will be added to the principal of the original charge, at the interest rate provided for in the charge.

[22] In this case, when Ms. Bailey, Mr. Marchese and Mr. Yung paid $414,427.95 to discharge the First National Mortgage, the amount paid was added to the principal of the Bailey Mortgage, at an interest rate of 12.49% per annum. Similarly, the $40,000.00 Ms. Bailey, as a chargee, lent to Ms. Lederer to pay off the first arrears of the First National Mortgage in June 2013 was added to the principal of the Bailey Mortgage.

[23] In summary, by the operation of Clause 8 of the Standard Charge Terms, which are deemed by statute to be part of the terms of the Bailey Mortgage, the principal of the Bailey Mortgage has increased from the original $22,650, by $454,427.95.

[24] The interests of third parties, such as the Applicants, are subject to the terms of the Bailey Mortgage. This mortgage continues to have priority: Reynolds Extrusion Co. Ltd. v. Cooper, 21 O.R. (2d) 419 (H. Ct. J.), at para. 7.

[25] This conclusion is dispositive of this motion; however, I will address the Applicants’ claim regarding reliance on the parcel abstract.

The Applicants’ Reliance on the Parcel Abstract

[26] The Applicants claim that they relied on the parcel abstract showing that the Property was only encumbered by the Bailey Mortgage, with a monetary value of $22,650.00, in deciding whether to proceed with the action against Ms. Lederer. According to the Applicants, the parcel abstract indicated there was sufficient equity in the Property to satisfy any judgment obtained.

[27] According to Mr. Kolia’s affidavit, the Applicants conducted a search of title prior to November 7, 2012 and did not discover the First National Mortgage. Instead, they discovered the Bailey Mortgage. This statement is untrue. The First National Mortgage was registered on June 26, 2008. It was not discharged until November 12, 2013. So the First National Mortgage would have been discovered if a search of title had been conducted prior to November 7, 2012.

[28] Furthermore the Bailey Mortgage was registered on title on January 18, 2013, so it could not have been registered on title when the Applicants conducted the search prior to November 7, 2012. By that date the Bailey Mortgage was not in existence.

[29] On cross-examination at discovery Mr. Kolia, through his counsel, explained that on the first title search the Applicants discovered the First National Mortgage, prior to commencing the action against Ms. Lederer. Counsel explained that the Applicants disregarded this mortgage because it was dated and assumed there would be equity in the Property given the age of the Property.

[30] At the time of the Applicants’ search they also discovered another property which they mistakenly thought Ms. Lederer owned.

[31] I find that it was based on the Applicants’ assessment of the First National Mortgage and Ms. Lederer’s perceived ownership of a second unencumbered property that led the Applicants to commence the action against Ms. Lederer.

[32] Even if I accepted the Applicants’ contention that they had relied on the monetary value ascribed to the Bailey Mortgage on the parcel abstract in deciding to commence their action, the inclusion and operation of the Standard Charge Terms and the Applicants’ deemed notice of such, as I have previously described, is dispositive of the issue. However, the application also fails because of the Applicants’ misapprehension of the role of entries on a parcel abstract under the Land Titles and Land Registry systems.

[33] I agree with Sosna J.’s description of the role of the Registry in Elle, at paras. 31-32:

Further, our law of real property is to a large extent based on notice given by registration of documents, including mortgages/charges, standard charge terms, and other registered instruments…

A potential lender is entitled to be able to ascertain the value of the proposed security by making reasonable inquiries and by relying on the Land Titles Register or the Land Registry abstract and instruments registered in either system. A potential subsequent encumbrancer is entitled to rely on a first mortgagee statement of the status of its first mortgage and other facts of which the potential subsequent encumbrancer has notice. Unless terms of prior encumbrance were or should have been known by a subsequent encumbrancer at the time of registration of its mortgage/charge, the subsequent encumbrancer cannot be prejudiced by such unknown terms. Otherwise, knowledge, reasonable due diligence and the importance of notice in our Land Registry and Land Titles Systems becomes irrelevant. [Emphasis added.]

[34] The Land Titles Register or the Land Registry abstract provides notice of a legal interest affecting or relating to real property. Such notice includes ownership and any encumbrances or charges affecting real property. The monetary value of such charges at the time of their registration is provided. The parcel abstract cannot, however, be relied on to provide the current monetary values of any charges/encumbrances registered against real property. These values may have changed significantly since registration due to a myriad of factors, such as payments made to reduce the charge, or additional borrowing adding to the principal by the operation of the terms of the mortgage. Therefore, while the parcel abstract can be relied on with respect to the existence of charges/encumbrances, other reasonable inquiries are required to determine the accuracy of the monetary values noted.

[35] Sosna J was alive to this distinction in Elle. Justice Sosna refers to the entitlement to rely on “reasonable inquiries and … the Land Titles or Land Registry Abstract” Elle, at para. 32.

[36] Had the Applicants, in truth, relied solely on the Bailey Mortgage as described in the parcel abstract, the prudent course of action would nonetheless have been to then take the reasonable step of ordering a Mortgage Discharge Statement to ascertain the correct monetary value of the mortgage prior to basing their decision to pursue litigation upon this information.

[37] The application is dismissed. Should the Parties be unable to agree on costs, a cost outline should be submitted within 20 days.

BARNES J

RELEASED: November 14, 2016 TRANSCRIBED: January 16, 2017