Ontario Superior Court of Justice

Court File No.: CV-23-183
Date: 2025-01-22

Between:
Losani Homes (1998) Limited
Applicant
(Monty Dhaliwal, for the Applicant)

- and -
Paris Land Development Ltd.
Respondent
(Paul Ingrassia, for the Respondent)

Heard: January 20, 2025
Judge: L. Bale

Endorsement

Overview

[1] The motion before the court is the Applicant’s motion for the (partial) discharge of a vendor-take-back mortgage over a single subdivided lot (“Lot 002”) on a development property, on a without prejudice basis to the determination of the issues raised in this Application.

[2] The Respondent vendor is opposed to the interim relief sought.

Background

[3] The Applicant, Losani Homes (the purchaser), and Respondent, Paris Land Development Ltd. (the vendor) entered into an Agreement of Purchase and Sale regarding a large parcel of development land in Paris, Ontario (the whole property). The closing date was March 31, 2016.

[4] The purchase price was $6,000,000.00, paid in part by a vendor-take-back mortgage of $3,000,000.00 (“VTB mortgage”). The VTB mortgage was registered as a first charge on the whole property.

[5] At issue in the broader Application before the court is a dispute regarding a small parcel of land, referred to by the parties as the “Heinbuch land”. The parties’ rights and obligations with respect to the Heinbuch land were considered in three separate written documents:

1. Schedule A to the (Commercial) Agreement of Purchase and Sale, dated September 25, 2015;
2. The “Schedule to Charge” appended to the Charge/Mortgage registered on title on March 31, 2016; and
3. A Trust Agreement dated March 31, 2016.

[6] The VTB mortgage matured on March 31, 2019.

[7] In March 2021, the purchaser advised that they were prepared to transfer the Heinbuch land (now a separate parcel from the whole lands) back to the vendor.

[8] The vendor requested a copy of the registered plan of subdivision. On March 29, 2021, the vendor objected to the conveyance of the Heinbuch land in the proffered form on the basis that the purchaser did not amend the draft plan of subdivision to include 6 separate approved lots. Much correspondence then followed, with the purchaser repeatedly making discharge requests for the VTB mortgage to the vendor, and the vendor calling upon the purchaser to comply with the asserted ‘6 lot’ preconditions attached to such a discharge.

[9] It is unclear in the materials before the court whether the purchaser made effort to formally subdivide the Heinbuch land into six separate lots (and were unable to do so) or whether the purchasers have simply proceeded on the belief that they were under no obligation to do so. The issue before the court on this motion does not turn on this.

[10] Since March 2021, the parties have both maintained their positions:

a. The purchaser believes that the conveyance of the Heinbuch land as one severed parcel satisfies any necessary conditions to discharge the VTB mortgage; and
b. The vendor maintains that the conveyance of six approved lots within the Plan of Subdivision is necessary to satisfy the necessary conditions to discharge the VTB mortgage.

[11] Little has been done since March 2021 to resolve the parties’ interpretive differences. The purchaser commenced an Application in July 2023. It was adjourned for reasons unknown to the court.

[12] On July 3, 2024, the purchaser entered into an agreement with an arm’s-length purchaser for the sale of one residential home on the now subdivided property, Lot 002. Lot 002 is not part of the Heinbuch land. The scheduled closing date is January 28, 2025.

[13] The Applicant purchaser submits that they were taken by surprise when they learned of the vendor’s opposition to a partial discharge of the VTB mortgage over Lot 002, as the vendor has cooperated with other such requests when needed for municipal or government purposes, etc. The purchaser’s Application was renewed in November 2024 as a result of the imminency of the upcoming sale transaction.

[14] The purchaser represents that Lot 002 is the only pending sale transaction that is impacted by the VTB mortgage. In submissions, counsel for the purchaser advised that the purchaser is prepared to pay into court the entirety of the VTB mortgage, plus any interest accruing, pending determination of the Application.

The Law

[15] The Applicant’s motion for interim relief is brought pursuant to s. 12(3) of the Mortgages Act, RSO 1990, c M.40:

Where mortgagee cannot be found

(3) When a mortgagor or any person entitled to pay off a mortgage desires to do so and the mortgagee, or one of several mortgagees, cannot be found or when a sole mortgagee or the last surviving mortgagee is dead and no probate of his or her will has been granted or letters of administration issued, or where from any other cause a proper discharge cannot be obtained, or cannot be obtained without undue delay, the court may permit payment into court of the amount due upon the mortgage and may make an order discharging the mortgage [emphasis added]. R.S.O. 1990, c. M.40, s. 12(3).

[16] Section 12(3) of the Mortgages Act is highly discretionary and potentially applicable to a broad range of situations, including some situations where the mortgage amount owing is in dispute: Sub-Prime Mortgage Corporation v. 1219076 Ontario Limited, 2019 ONCA 581, paras. 14-16. A refusal to provide a requested discharge statement may be found to constitute an “other cause” under s. 12(3) in appropriate circumstances: 1414391 Ontario Ltd. v. Graff, 2015 ONSC 7201, para. 23. However, this section does not create a broad general discretion to grant a discharge of a mortgage in any circumstance whatsoever: NJS Midtown Portfolio Inc. v. CMLS Financial Ltd., 2020 ONSC 3973.

Analysis

[17] The parties agree that there is a genuine issue of contractual interpretation to be tried in this Application.

[18] Neither party has moved with speed to have their interpretive differences determined by the court and it is not the task of the court on this motion to determine which interpretation of the various commercial contracts is the correct one.

[19] The main thrust of the Applicant purchaser’s argument is that (a) there is no prejudice to the vendor; (b) Lot 002 is insignificant in the overall dispute; and (c) the rights of an innocent third-party will be negatively impacted by a failure to discharge the VTB mortgage. Accordingly, the court should exercise its discretion under s. 12(3) of the Mortgages Act to permit payment into court and the discharge of the VTB mortgage.

[20] The Respondent vendor argues that requested temporary relief sought (i.e. a partial discharge of the VTB mortgage) should be denied on contractual, statutory, and equitable grounds.

Contractual Entitlement to Partial Discharge

[21] The Respondent vendor argues that there is no contractual language contained within the commercial contracts that would permit a partial discharge of the VTB mortgage over Lot 002 to allow the scheduled sale transaction to proceed. The Respondent highlights that both parties are sophisticated commercial entities and were represented by experienced legal counsel in the sale and mortgage transactions. Specific terms were agreed upon between the parties in the Schedule to Charge which provide for the VTB mortgage to be partially discharged when required for dedications and conveyances made to municipal or other government authorities (i.e. for road widenings, storm water management, parklands, etc.). The vendors honoured all such requests. However, no such terms relating to partial discharges were included in the commercial contracts to permit the potential transfer of lots to third-party purchasers.

[22] The Respondent vendor further draws the court’s attention to their “right to refuse a deliver a Discharge of this Charge until such time as the Chargor has delivered free, clear and unencumbered title to 6 lots in the proposed Subdivision of this property in accordance with the terms of Agreement made between the Chargor and Chargee”, as per the Schedule to Charge. In their view, to permit any discharge of the VTB mortgage contrary to these contractual terms diminishes their ability to arrange their commercial affairs with confidence and removes the only leverage they have in enforcing the terms of the contract. There is merit to this argument.

[23] The Applicant purchaser argues that there is no contractual language which ‘prevents’ a partial discharge; and draws the court’s attention to the clause which permits them the “right to prepay any amount at any time without notice or bonus” in accordance with the Mortgage Schedule. The purchaser asserts that they have been prohibited from doing so by reason of the vendor’s refusal to provide a discharge statement.

[24] I prefer the arguments of the vendor on this issue as it relates to the motion for temporary relief. The contract(s) must be read as a whole, and the court cannot simply ignore the ‘right of refusal’ provision relied upon by the vendor. In my view, the absence of a term which prevents a partial discharge does not advance the analysis when considered in the context of the specific terms that do exist. In the absence of agreement of both parties, there does not appear to be a contractual right within the commercial contracts for partial discharge of the VTB mortgage over Lot 002.

Statutory Entitlement to Partial Discharge

[25] The Respondent vendor argues that the court should not resort to s. 12(3) because purchaser is not ‘entitled’ to pay off the mortgage given the difference of opinion regarding the ‘six lots’ dispute. In Graff, the motions judge found that there was no reasonable excuse for the mortgagee’s refusal to provide a discharge statement as required by the Mortgages Act, and that the mortgagee’s failure to provide the requested discharge statement was driven by his desire to sell the property rather than redeem the mortgage: Graff, at para. 17. The Respondent vendor’s refusal to discharge the VTB mortgage in this case appears to be based on much more compelling grounds.

[26] In this case, the parties agree that there is a genuine issue of interpretation to be tried. Whether or not six separate lots is a necessary condition for the discharge of the VTB mortgage goes to the very core of whether s. 12(3) of the Mortgages Act should be applied; that is, whether or not the purchaser is “entitled to” a “proper discharge” of the VTB mortgage. I am not satisfied that for purposes of this motion the purchaser has established a prima facie entitlement to such relief. I decline to exercise my discretion under s. 12(3) of the Mortgages Act pending determination of this important issue.

Equitable or Common Law Right to Partial Discharge

[27] The purchaser argues that there is no prejudice to the vendor in the granting of a partial discharge of the VTB mortgage over Lot 002, particularly because Lot 002 is not on the Heinbuch lands, and the purchaser is willing to pay the entirety of the VTB mortgage into court, including interest, pending determination of the Application.

[28] In NJS Midtown, Kimmel J. explained that equity is not a freestanding concept that can permit a court to vary the terms of an agreement simply because one of the parties to it contends that the other would not be prejudiced by such an amendment; equitable relief can only be granted when specific equitable doctrines are invoked and the criteria for such relief are all met: paras. 78-80.

[29] The vendor argues that the purchaser has not claimed any equitable causes of action in this Application and does not come to court with entirely ‘clean hands’. The purchaser entered into an Agreement of Purchase and Sale with a third-party purchaser, knowing that the terms of the VTB mortgage were in dispute (after litigation had been commenced), with full knowledge that they might not be able to fulfill their contractual obligations to the third-party purchaser if the issue was not resolved in advance of the closing date.

[30] Neither party provided caselaw to the court which explores how the interests of innocent third-parties might impact the analysis. In this case, while the court is sympathetic to the impact this decision may have on the ability of the third-party purchasers to take possession of their new home, this consideration cannot override the contractual and statutory considerations outlined above. If the pending sale transaction cannot close, the third-party purchasers may be entitled to delayed closing compensation under the terms of their Agreement of Purchase and Sale. The purchasers took a calculated business risk. Any prejudice which may arise to the Applicant purchaser is of a financial nature, and may be considered at a later date if they are ultimately successful in this Application.

Conclusion

[31] In the circumstances, I am not satisfied that this is an appropriate case in which to exercise the court’s discretion to order a full or partial discharge of the VTB mortgage, with or without payment of monies into court.

[32] It is however quite evident that the Application must move forward in an expeditious fashion so as to avoid such future circumstances. Accordingly, there shall be an order to go on the following terms:

1. The Applicant’s motion dated January 16, 2025 is dismissed.
2. This case is adjourned to February 14, 2025 (civil short motions list) at 10:00 a.m. (by Zoom) to establish a timetable. In the event that the parties cannot agree to a timetable, both parties shall upload a proposed timetable to Case Center by February 12, 2025, and the issue will be decided by the court.
3. If not resolved, the issue of costs of this motion may be addressed at the return date.

Released: January 22, 2025
L. Bale