Reasons for Decision

Court File No.: CV-24-00003479
Date: 2025-04-02
Ontario Superior Court of Justice (Stratford)

Between:
2642948 Ontario Inc.
Plaintiff (Defendant to the Counterclaim)

– and –

Jonny’s Antiques Ltd.
Defendant (Plaintiff by Counterclaim)

Appearances:
Manuela Jimenez Bueno, for the Plaintiff (Defendant to the Counterclaim)
David Johnson, for the Defendant (Plaintiff by Counterclaim)

Heard: March 31, 2025
Justice E. ten Cate

Introduction

[1] This dispute arises out of the Defendant’s purchase of corporate shares financed by a vendor take-back mortgage from the Plaintiff.

[2] The Plaintiff is a holding company with only one asset -- the mortgage. The sole director and shareholder of the corporation is an 83-year-old woman named G-Lien Kwik.

[3] The Defendant is the registered owner of a commercial building municipally known as 10 Shakespeare Street in Shakespeare, Ontario, which houses an antiques business. David Johnson is a director of the Defendant corporation and operates the business. He was granted leave to act on its behalf by order of Perfetto J. dated January 31, 2025, pursuant to Rule 15.01(2). [1]

[4] Before the court are two motions: (1) the return of the Defendant’s motion granting leave to issue and register a certificate of pending litigation (“CPL”), and a declaration that the Defendant is in possession of the property; and (2) the Plaintiff’s motion setting aside the ex parte order of Cook, J. dated May 14, 2024, vacating the CPL, and declaring the Plaintiff is in possession of the property.

[5] There is some urgency to this matter because the Plaintiff signed an agreement to sell the property with a closing date of May 9, 2025. Two extensions of the closing date were agreed to by the purchaser, but no further extensions are possible.

Positions of the Parties

[6] The Plaintiff takes the position that the Defendant defaulted on the mortgage and that it is entitled to the self-help remedy of power of sale pursuant to the standard charge terms.

[7] The Defendant takes the position that an oral agreement made with Ms. Kwik permits him to continue to make “interest only” payments indefinitely. He admits the principal is due and owing, but submits he was unlawfully locked out of the property.

Disposition

[8] For reasons that follow, I am prepared to grant the Plaintiff’s request to set aside the order of Cook J. dated May 14, 2024, vacate the CPL, and declare that the Plaintiff is in possession of the property. I also dismiss the Defendant’s motion in its entirety.

Factual Background

[9] The Defendant agreed to purchase corporate shares from the Plaintiff. To finance the purchase, it also agreed to an eleven-month mortgage, commencing in August of 2018.

[10] A mortgage was subsequently registered against title to the property on July 11, 2018, with the following terms:

• principal amount of $385,000;
• maturity date of July 10, 2019;
• interest payable at the rate of 2.5% calculated semi-annually, not in advance;
• monthly payments in the amount of $802.08 payable on the 10th day of each month; and
• incorporation by reference of standard charge terms (200033).

[11] On January 21, 2020, the Plaintiff’s lawyer wrote to the Defendant’s former lawyer as follows:

I am writing once more as your client has made no response to Ms. Kwik’s October 9, 2019, proposal and the mortgage is now in substantial arrears.

You advised in December that Mr. Johnson was going to speak directly to Ms. Kwik regarding her very accommodating proposal to pay out the mortgage on or before January 10, 2020. Mr. Johnson did not speak with Ms. Kwik at any time. Further, the last payment was the cheque dated September 16, 2019, for $2,406.24. As your client did not accept the proposal from Ms. Kwik, or even respond, he is now more than $16,454.58 in monthly payment arrears plus an additional $10,000 owing because the mortgage was not paid on the one-year maturity date.

If all payments are not made by February 7, 2020, or if your client cannot provide proof of a definite refinance of the property to pay all funds due and owing to my client, I will be advising my client to obtain counsel to bring enforcement proceedings.

[12] On February 28, 2020, in response to this letter, Mr. Johnson met with Ms. Kwik at her home in Toronto. In that meeting, he advised her that Jonny’s Antiques was trying to transition from a retail to an online auction business because the retail business was “not good”. He also advised that the corporation may not qualify for a mortgage based upon its sales. Mr. Johnson advised he would try to obtain a new mortgage after a few more auctions in 2020 or sell the property to his wife as she would qualify for a mortgage. In the meantime, he would continue to pay $806 per month, interest only. He gave Ms. Kwik a cheque for $2,408, representing interest only payments for three months, which she accepted. Ms. Kwik agreed to forego the penalties outlined in her lawyer’s letter.

[13] For the next three years, the Defendant continued to make the interest payments every three months but made no payments toward the principal. During that time, the Plaintiff took no steps to enforce the mortgage. In her cross-examination, Ms. Kwik testified that she gave the Defendant “a break” because he told her there was “no business” during the Covid-19 pandemic. She takes the position that she continued to accept the interest payments to reduce the balance owing, but never agreed to amend the mortgage.

[14] On July 14, 2023, the Plaintiff’s lawyer wrote another letter as follows:

I am writing on behalf of 2642968 Ontario Inc. & Lien Kwik (the “Lender”). The mortgage matured on July 10, 2019. As a courtesy, the Lender did not demand payment at that time and continued to allow monthly payments.

However, the Lender is now requiring that the mortgage be paid in full on or before October 10, 2023. Assuming all payments are made up to and including the October 10, 2023, payment, the balance owing on October 10, 2023, will be $385,000 as the mortgage payments have been interest only.

[15] The Plaintiff received no response, and no payment on the principal.

[16] On December 19, 2023, the Plaintiff served a Notice of Sale Under Mortgage and a Notice of Intent to Enforce Security under the Bankruptcy and Insolvency Act [2] on the Defendant via registered mail at the address for service listed on the mortgage registered on title (10 Shakespeare Street). On January 8, 2024, the envelope was returned, unclaimed.

[17] On February 1, 2024, once the 35-day mandatory notice period passed, the Plaintiff issued a Statement of Claim against the Defendant to enforce the mortgage. Several attempts were made by a process server to contact and serve the Defendant, without success.

[18] The Defendant provided to the court a copy of an email dated February 20, 2024, from his former lawyer to his accountant. The email attaches the Notice of Intention to Enforce Security under the BIA which the accountant was to review to provide advice to Mr. Johnson and his wife. Since it is attached, it is clear from the email that Mr. Johnson received the document.

[19] On March 15, 2020, Mr. Johnson met with a representative of CIBC in Stratford regarding possible re-financing. At the meeting, Mr. Johnson was asked to provide updated financial statements for the corporation to the bank. Despite this meeting, the Defendant did not refinance the property or otherwise respond to the Plaintiff’s demand for payment of the principal.

[20] Approximately one month later, on April 12, 2024, the Plaintiff hired a professional bailiff to change the locks on the property. When the bailiff arrived, the property appeared vacant, and the locks were changed uneventfully.

[21] The Plaintiff then retained a real estate broker and a professional appraiser in preparation for listing the property for sale.

[22] On April 18, 2024, Mr. Johnson emailed the Plaintiff’s lawyer indicating he intended to stay in the property. It was clear from the email that Mr. Johnson had broken into the property. While the appraisal was underway, there was a verbal altercation between the Plaintiff’s broker, Mr. Johnson, and Mr. Johnson’s wife. The Ontario Provincial Police were called, resulting in Mr. Johnson being escorted from the property and arrested.

[23] On April 22, 2024, Mr. Johnson emailed the Plaintiff’s lawyer again, indicating he had sold the property and chattels for $1,675,000. No details were provided to the Plaintiff, and none were contained in the motion materials before this court. On the same day, the Plaintiff’s lawyer received a call from the OPP indicating that Mr. Johnson had attempted to enter the property again and was warned he would be arrested.

[24] On May 7, 2024, a window at the property was broken, and the lockbox smashed. The OPP commenced an investigation.

[25] On May 10, 2024, the Plaintiff listed the property for sale.

[26] On May 13, 2024, the Plaintiff received the Defendant’s Statement of Defence and Counterclaim. The Defendant brought an urgent ex parte motion for leave to issue a CPL and declaratory relief that it is in possession of the property. On May 14, 2024, the Defendant appeared before Cook J. who granted the motion, in part.

[27] On May 31, 2024, the Plaintiff filed a Reply and Defence to Counterclaim.

[28] On August 7, 2024, the Plaintiff entered into an agreement of purchase and sale for the property, however, the agreement was terminated on consent, on October 31, 2024. On the same day, the Plaintiff accepted a new offer for $650,000 with a closing date of January 17, 2025, which was subsequently extended to March 14, 2025. The closing date was extended again to May 9, 2025, but no more extensions are available.

[29] The Plaintiff paid the outstanding property tax arrears of $6,269.20. Since December 11, 2024, the Plaintiff has also paid the heat and electricity bills at the property and the Defendant paid the insurance.

Issues

[30] There are two issues to be decided:

a. Should the ex parte order of Cook J. dated May 14, 2024, be set aside and the CPL vacated/discharged from title?
b. Which party should be granted an order declaring it to be in possession of the property?

A. Should the ex parte order of Cook J. dated May 14, 2024, be set aside and the CPL vacated/discharged from title?

[31] Pursuant to Rule 39.01(6) of the Rules of Civil Procedure, where a motion is made without notice, the moving party “shall make full and fair disclosure of all material facts, and failure to do so is in itself sufficient ground for setting aside any order obtained”.

[32] In determining whether full and frank disclosure of material facts were provided to the motions judge, the test is not whether the CPL would or would not have been issued had the omitted disclosure not been made, but rather whether the omitted facts might have had “an impact on the original granting of the order”. Coupey v. Hamilton Police Services Board, 2005 CarswellOnt 2220, para 23

[33] It is settled law that it is incumbent upon the moving party to make a balanced presentation of the facts before the motions judge on an ex parte motion, meaning the moving party must state its own case fairly and inform the court of any points of fact or law known to it which favour the other side. United States v. Friedland, 1996 CarswellOnt 5556, para 27; 790668 Ontario Inc. v. D’Andrea, 2003 CarswellOnt 689, para 24 In determining whether to discharge a CPL, the courts must also examine the harm that the certificate has on each party if it is or is not removed. [572383 Ontario Inc. v. Dhunna (1987), 24 CPC (2d) 287]

[34] Section 103(6) of the Courts of Justice Act, permits a CPL to be discharged where the party at whose instance it was issued,

i. claims a sum of money in place of or as an alternative to an interest in the land claimed;
ii. does not have a reasonable claim to the interest in the land claimed; or
iii. does not prosecute the proceeding with reasonable diligence.

[35] Paragraph 19 of the Standard Charge Terms incorporated into the mortgage, states that a charge must be renewed by an agreement in writing. Pursuant to the Statute of Frauds, agreements concerning an interest in writing must be evidenced in writing and signed by the parties, failing which they are void and unenforceable.

[36] Paragraph 6 of Cook J.’s endorsement indicates that she was not provided with a copy of the mortgage agreement which indicated the mortgage maturity date of July 10, 2019, at which time the principal was payable. Instead, the Defendant advised Cook J. that an oral agreement was made in 2019, one year prior to the meeting with Ms. Kwik, such that he could make interest payments only, indefinitely.

[37] Mr. Johnson also failed to provide the court with the letters from the Plaintiff’s lawyer dated January 21, 2020, and July 14, 2023. The second letter clearly demanded payment of the principal no later than October 10, 2023. Additionally, he did not disclose he had been served with the Notice of Sale and the Notice of Intention under the BIA which his lawyer provided to his accountant no later than February 20, 2024, well in advance of the motion on May 14, 2024.

[38] In my view, these significant omissions misled Cook J. on several material facts at the hearing. Specifically, Mr. Johnson misled her regarding the timing and existence of whether there was an oral agreement to delay the payment of the principal indefinitely, thereby delaying default. This finding would have been fundamental to her decision to grant the CPL.

[39] I therefore determine that these omissions would have had an impact on the original granting of the order for the CPL.

[40] I am also required to examine the harm to each side if the CPL is, or is not, removed.

[41] Because of the CPL, the Plaintiff is unable to sell the property to recover monies owed under the mortgage. If the CPL is not removed by the closing date of May 9, 2025, the agreement will be frustrated. On the other hand, the Defendant will lose the property and be forced to carry on business elsewhere. On balance, I find that the harm to the Defendant is outweighed by the harm to the Plaintiff who has waited patiently for payment of the principal for over five years with no end in sight. Should this sale not close, it is highly likely she will be waiting even longer.

B. Which party should be granted an order declaring it to be in possession of the property?

[42] The Defendant submits that the Mortgages Act prohibits a mortgagee from taking possession of a property without obtaining a writ of possession. The Defendant is mistaken; there is no such prohibition.

[43] Paragraph 9 of the Standard Charge Terms entitles the mortgagee, in the event of default, to exercise the powers of “entering, leasing or selling” the property mortgaged without any notice provided proper notice of the sale has been effected. This is colloquially known as the “self-help” power of sale remedy.

[44] Furthermore, paragraph 10 of the Standard Charge terms entitles the mortgagee to “enter into and take possession of the land” and to “hold, use, occupy, possess and enjoy the land without the let, suit, hindrance, interruption or denial” of the mortgagor or any other person.

[45] Section 7(a)(iv) of the Mortgages Act provides that “on default, the mortgagee shall have quiet possession of the land, free from all encumbrances.”

[46] In Zapfe Holdings Inv. v. 1923159 Ontario Inc., 2023 ONCA 190 the Court of Appeal reiterated the rules that apply to mortgagees who take possession under power of sale. The Court referred extensively to its earlier decision in Hume v. 11534599 Canada Corp., 2022 ONCA 575 which contains an extensive review of the jurisprudence on the requirement that a mortgagee take “peaceable possession” of a property. The legal principles set out in Hume are as follows:

• a mortgagee who is entitled to take possession of a property must do so peaceably;
• taking peaceable possession refers to the manner in which a mortgagee who has a legitimate entitlement to possession of a property actually takes possession of that property;
• whether a mortgagee has taken peaceable possession of a property is a fact-driven inquiry that depends on the circumstances;
• at a minimum, taking peaceable possession means taking possession of a property without violence or threat of violence;
• factors that will inform a court’s assessment of a mortgagee’s conduct include whether the property was vacant or unoccupied at the time of taking possession; whether there was any physical or verbal resistance to the taking of possession at the time the mortgagee took possession; whether the property was used as a dwelling-place; and whether the mortgagee’s possession would dispossess any person of their home; and
• whether changing the locks constitutes peaceable conduct will depend upon the circumstances. Zapfe Holdings Inv. v. 1923159 Ontario Inc., 2023 ONCA 190, para 10

[47] In Zapfe, the mortgagee attempted to take possession of the property. The mortgagor refused to vacate the premises which were occupied by commercial tenants and the police were called. The motions judge found that the mortgagee knew there would be serious resistance to the changing of the locks and that the property was not vacant.

[48] The facts in Zapfe differ significantly from the facts in this case. Here, the registered mail addressed to the Defendant at the address indicated in the mortgage was returned, unclaimed. The process server hired by the Plaintiff attended on several occasions and found no one. When the bailiff attended to change the locks, no one was present, and no one offered resistance.

[49] In Hume, the Court drew a distinction between residential and non-residential properties, suggesting that in the case of residential properties a mortgagee could only take possession of a property occupied as a residence by applying to the court for a writ of possession. Hume v. 11534599 Canada Corp., 2022 ONCA 575, para 22

[50] Mr. Johnson confirmed during his submissions that although there is a residential part of the building, it was not used as such. He lives in Stratford at a different address. Based on these admissions, I therefore find that the property was non-residential.

[51] The Defendant submits that the property was not vacant at the time the locks were changed. Mr. Johnson advised the court that his business was open “by appointment only” and that “most of the business is online”. He offered no explanation as to why the registered mail containing the notices was returned unclaimed, or why the process server had difficulty serving the documents, even though the address for service matched the one listed on the mortgage.

[52] Based upon these facts, I find that the mortgagee took vacant and peaceable possession of the property when it changed the locks on April 12, 2024.

Order

[53] I therefore order and declare the following:

1. The ex parte Order of Cook J. dated May 14, 2024, is hereby set aside;
2. The Certificate of Pending Litigation registered on May 14, 2024, on title to the property municipally known as 10 Shakespeare Street, Shakespeare, Ontario, is hereby vacated and discharged;
3. The Plaintiff, 2642948 Ontario Inc. is in possession of the property;
4. The Defendant’s motion is dismissed; and
5. Costs of both motions are payable by the Defendant to the Plaintiff.

Costs

[54] The Defendant did not file any costs submissions prior to the motion. If the parties are unable to agree on costs, they may make submissions limited to three pages, exclusive of bills of costs, as follows:

a. Plaintiff’s submissions by April 15, 2025;
b. Defendant’s submissions by April 29, 2025; and
c. There shall be no right of reply without leave of the court.

Justice E. ten Cate
Released: April 2, 2025

Endnotes

[1] Rules of Civil Procedure, R.R.O. 1990, Reg. 194, made under the Courts of Justice Act, R.S.O. 1990, c. C.43.
[2] Bankruptcy and Insolvency Act, R.S.C. 1985, c. B-3, hereinafter the “BIA”.

[3] Rules of Civil Procedure, supra.

[4] Coupey v. Hamilton Police Services Board, 2005 CarswellOnt 2220 at para. 23.

[5] United States v. Friedland, 1996 CarswellOnt 5556 at para. 27; and 790668 Ontario Inc. v. D’Andrea, 2003 CarswellOnt 689 at para. 24.

[6] 572383 Ontario Inc. v. Dhunna (1987), 24 CPC (2d) 287.

[7] Courts of Justice Act, R.S.O. 1990, c. C.43.

[8] Statute of Frauds, R.S.O. 1990, c. S.19, paras. 4 and 9.

[9] Mortgages Act, R.S.O. 1990, c. M.40.

[10] Zapfe Holdings Inv. v. 1923159 Ontario Inc., 2023 ONCA 190.

[11] Hume v. 11534599 Canada Corp., 2022 ONCA 575.

[12] Zapfe Holdings Inv. v. 1923159 Ontario Inc., supra at para. 10.

[13] Hume v. 11534599 Canada Corp., supra, at para. 22.