Ontario Superior Court of Justice
Court File No.: CV-24-86598
Date: 2025-02-14
Between
Lan Thi Nguyen and An Truong
Applicants
L. Rakowski, counsel for the Applicants
-and-
Jodyanne Norean McComb MacDonald and Wayne Alexander MacDonald
Respondents
J. Bruggeman, counsel for the Respondents
Heard: January 23, 2025
Decision on Application
Justice J. Krawchenko
Introduction
1The Respondents purchased a new residential property on Fiddlers Green Road prior to selling their home on Chancery Road. To close on Fiddlers Green, the Respondents required bridge financing.
2The Applicants were private lenders who advanced $460,000.00 to the Respondents for the bridge financing.
3The bridge financing was secured by two second mortgages registered against Chancery Road and Fiddlers Green.
4The Respondents sold Chancery Road with a closing date set for June 2024.
5Although the sale of Chancery Road did not close, the Applicants’ two mortgages were discharged.
6In this application, the Applicants sought leave to register two new mortgages on the same lands and on the same terms [1].
7In the alternative, the Applicants sought an Order directing the Land Registrar to re-instate the two earlier mortgages and to delete the corresponding discharges.
8The only question put to this court was whether rectification or re-registration was to be granted to the Applicants.
9For reasons that will follow, neither form of relief was appropriate.
Chronology of Events
10The events that led up to this application were as follows:
a. On May 1, 2024, the Respondents entered into an Agreement of Purchase and Sale (“APS”) of Chancery Road for the sum of $2,300,000.00.
b. The sale was scheduled to close on June 27, 2024.
27 June 2024 – Closing Day
c. On June 27, 2024, the Purchasers delivered the required closing documents and the required purchase funds of $2,199,656.42 to the Respondents’ lawyer, Mr. Gatto and his firm Gerry G. Gatto Professional Corporation (“Gatto”).
d. At 1:19 p.m. Gatto acknowledged receipt of the purchase funds. Gatto requested a discharge statement from the lawyers acting for the Applicants in respect of the second mortgages. The Applicants' lawyers were Ms. Chepil and her law firm Terralaw (“Chepil”).
e. At 1:50 p.m., Gatto received a discharge statement from Chepil who advised that she would register discharges on the $460,000.00 second mortgages, upon receipt of the sum of $482,658.45.
f. At 3:59 p.m., Gatto “wired” $482,658.45 to Chepil.
g. At 4:30 p.m., Gatto provided proof to the Purchasers that he had made the wire transfer to Chepil.
h. At 4:45 p.m., Gatto released the transfer of the Chancery Road property for registration.
i. At 5:28 p.m., the Purchasers’ lawyer wrote to Chepil stating that he understood that she was still waiting for receipt of the discharge funds pursuant to the Document Registration Agreement (“DRA”). The Purchasers’ lawyer stated that he was still hoping to close the transaction in escrow that day, with registrations to occur first thing in the morning on June 28, 2024.
j. At 5:32 p.m., Chepil informed the Purchasers’ lawyer that she had not yet received the wired funds into her account.
k. At 10:23 p.m. the Purchasers’ lawyer sent a notice of termination of the APS to Gatto and Chepil and demanded the return of the $2,199,656.42 in purchase funds along with their initial $100,000.00 deposit.
28 June 2024
l. On June 28, 2024, at 8:39 a.m. Gatto sent a letter to the Purchasers’ lawyer stating that the transaction had “closed” on June 27, 2024. Gatto stated that he had paid out the second mortgages, gave proof of payment, and that the transfer had been released for registration. Gatto's position was that the transaction was completed.
m. At 9:27 a.m., the Purchasers’ lawyer replied to Gatto's email, copying Chepil, maintaining that the APS was at an end and insisting that all funds be returned by close of business that day.
n. At 1:01 p.m., Chepil sent an email to the Purchasers’ lawyer and Gatto, confirming that the wired funds had just been received in the sum of $482,640.95 and asked if the Purchasers’ lawyer would like to register the discharges or have her message them to him in the Terraview system.
o. At 1:47 p.m., the Purchasers’ lawyer reiterated his position that the contract was at an end. If he did not receive the funds back before the end of the day, he was instructed to refer the matter to litigation to secure an order that Chepil and Gatto comply with the signed multi-party DRA and return the balance of funds that were due on closing.
p. At 1:57 p.m., Gatto again advised the Purchasers’ lawyer that the transaction was completed, that the discharge funds had been transferred to the private lender and that Gatto had released the Transfer for registration. Gatto stated that he would not be returning funds to the purchasers.
q. At 3:35 p.m., Gatto advised the Purchasers’ lawyer that it was his position that the Purchasers' refusal to register the Transfer was a breach of the terms of the APS and that unless the Purchasers obtained a court order on July 2, 2024, he would be paying out the first mortgage in favour of RBC.
r. At 4:28 p.m. Chepil registered the discharges of the Applicants’ second mortgages against both properties and paid the discharge funds to the Applicants.
s. Gatto subsequently agreed not to pay out RBC's first mortgage and to hold the remaining funds in an interest-bearing trust account pending the resolution of the Purchasers’ Application (which was separate from this application).
15 July 2024
t. The Applicants voluntarily returned the discharge funds to Chepil, who deposited them into an interest-bearing account where they remain to this date.
The Law
11The Applicants relied on the Land Titles Act (“LTA”) in support of the rectification of the registers for the Chancery and Fiddlers Green properties.
12Section 159 of the LTA provides that if the court “…has decided that a person is entitled to an estate, right or interest in or to registered land or a charge and as a consequence of the decision the court is of opinion that a rectification of the register is required, the court may make an order directing the register to be rectified in such manner as is considered just.”
13Section 160 of the LTA further provides that “…if a person is aggrieved by an entry made, or by the omission of an entry from the register…the person aggrieved…may apply to the court for an order that the register be rectified, and the court may either refuse the application….or may, if satisfied of the justice of the case, make an order for the rectification of the register.”
14The Applicants argued that the court should exercise its equitable discretion to correct the situation and restore the parties to their original bargain, i.e. a loan of money in exchange for the security of a registered mortgage. They relied upon the decision in Tiao v. Leone et al., 2016 ONSC 3015 as support for the proposition that rectification under sections 159 and 160 could be ordered to reverse a mistake with respect to the discharge of a mortgage. They also relied upon Central Guaranty Trust Co. v. Dixdale Mortgage Investment Corp. to address the scenario wherein the registration of a discharge was because of a mortgagee’s own negligence. In Central Guaranty the court found that if they did not allow for rectification, unjust enrichment would ensue with a corresponding windfall. Bank of Nova Scotia v. Niemira, 2023 ONSC 1380 followed the reasoning in Central Guaranty and also concluded that even in a situation where the bank negligently discharged its own mortgage in error, this would not preclude the court from correcting that error and restoring the bank's priority as mortgagee on the basis of an unjust enrichment analysis.
15The Respondents argued that the Applicants’ own lawyer was fully aware of the Purchasers’ view that the agreement was at an end and the contrary position taken by Gatto but elected to register the discharges. The Respondents argued that given this knowledge, there was neither error/mistake nor negligence in registering the discharges. They also argued that there was no statutory or equitable basis to grant the relief sought under the LTA. In support of this argument they referenced section 78 of the LTA wherein absent fraud or an error by the Registrar, the discharges were presumptively valid.
16Additionally, the Respondents argued that the Applicants could not be viewed as “aggrieved” pursuant to section 160, as the discharges were registered after they received full payment.
17The Respondents (and Applicants) referenced the decision in Sylvan Lake Golf & Country Club Ltd. v. Performance Industries Ltd., 2002 SCC 19 in which the court wrote: “The court’s task in a rectification case is corrective, not speculative. It is to restore the parties to their original bargain, not to rectify a belatedly recognized error of judgment by one party or the other.”
Analysis
18When this application was commenced, the Applicants feared that if the closing funds were returned to the Purchasers (including the portion that was earmarked to discharge their second mortgages) then the Applicants would neither have their money nor any security for their loan.
19At the hearing, the court was advised that circumstances had changed since this application had started. An agreement had been reached between the Respondents and the original Purchasers. In that agreement, all closing funds (including the funds originally tendered to discharge of the subject second mortgages) were to be returned to the Purchasers; however, the Respondents were using their own funds to pay back the portion representing the original second mortgage payout. The original funds for the second mortgage payout remained under the control of the Applicants’ lawyer, in an interest-bearing account.
20With this change of circumstances and with funds being held by the Applicants’ own lawyer, there was no longer a need to rectify the register for the principal purpose of providing security for the loan. The only remaining purpose of rectification would be to effectively revive the original terms of the loan, the most significant of which would be to immediately increase the interest rate to 18% and to put the Respondents into a position of default.
21The evidence of the Applicant Truong summed things up when he stated that he considered “the deal to be done” and further stated that he had not wanted to return the mortgage payout, but did so, at the request of Chepil. From this evidence we see that in the eyes of the Applicant the Respondents had fulfilled the terms of the mortgage loan. There was nothing more for the Respondents to do, the agreement had come to an end.
22To summarize, Applicants provided a discharge statement, they received the exact amount they needed to discharge their mortgages and in fact registered the discharges. The fact that they later voluntarily placed those same funds into an interest-bearing account at the request of their lawyer, is of no moment.
23On these facts, Section 159 of the LTA did not assist the Applicants because as noted earlier, it would be unjust to order a rectification of the register to provide the Applicants with security to which they were no longer entitled. Additionally, under section 160, the Applicants were not aggrieved by the discharges as they received and continued to hold discharge funds that were accruing interest; here again it would be unjust to order a rectification.
24I would add that the cases relied upon by the Applicants were distinguishable as far as the Respondents in this case could not be said to have been unjustly enriched in any way.
Conclusion
25For the foregoing reasons, this application for rectification of the register or re-registration of mortgages is dismissed.
Costs
26If the parties cannot agree on costs of this application, the Respondents shall deliver their costs submissions of no more than 2 pages, double spaced, (not including offers to settle and bills of costs) within 14 days of the date of release of this decision.
27The Applicants shall deliver their costs submission, also of no more than 2 pages, double spaced (not including offers to settle and bills of costs) within 7 days thereafter.
28If required, the Respondent shall deliver any reply submissions, of no more than 1 page, double spaced within 3 days thereafter.
29If a submission is not delivered within the aforenoted time frame, the party who had the opportunity to make it, will be deemed to take no position.
Justice J. Krawchenko
Released: February 14, 2025
Note
1The mortgages were for a 6-month term, commencing 28 February 2024 and maturing 28 August 2024. Interest was at a rate of 12% per annum, calculated daily and charged on the last day of the month. The loan could be repaid at any time on a regular payment date and with 15 business days’ notice upon payment of 3 months interest penalty. In addition, if the loan was not repaid on time, the interest rate charged was to be calculated at 18%. Nonpayment was considered to be an “Event of Default.” The terms of the loan provided that in the event the loan was not repaid on time, or if the charge was otherwise in default, the lenders could commence Power of Sale or other enforcement proceedings or issue a Statement of Claim or take possession of the property and the Applicants herein were entitled to charge a management fee equal to 5% of the principal outstanding.