



COURT OF APPEAL FOR ONTARIO

CITATION: 1173928 Ontario Inc. v. 1463096 Ontario Inc., 2018
    ONCA 669

DATE: 20180727

DOCKET: C63357

Lauwers, Benotto and Nordheimer JJ.A.

BETWEEN

1173928 Ontario Inc.

Plaintiff
(Appellant)

and

1463096
    Ontario Inc., the Estate of Luella Ramsden

and Barbara Ramsden

Defendants
(Respondents)

AND BETWEEN

1463096 Ontario Inc.

Plaintiff
(Respondent)

and

Robert
    Van Alphen, Joanne Van Alphen,

1358329 Ontario Inc., 1358329
    Ontario Inc. carrying on business as Nu-Co, 1732076 Ontario Limited and 1173928
    Ontario Inc.

Defendants
(Appellants)

Geoff R. Hall and Anu Koshal, for the appellants

Peter M. Callahan, for the respondents

Heard: May 14, 2018

On appeal from the judgment of Justice Alissa K. Mitchell
    of the Superior Court of Justice, dated January 24, 2017, with reasons reported
    at 2017 ONSC 588, and from the corrigenda, dated March 14, 2017, and from the costs
    reasons, dated May 16, 2017.

Lauwers J.A.:

A.

Introduction

[1]

The underlying fact situation in this appeal is convoluted, but the
    basics can be simply stated. The appellant, Robert Van Alphen, operates a
    business known as Nu-Co Plastics in a building on a property at 34 Storey
    Street in Blenheim owned by the respondent corporation, 1463096 Ontario Inc.
    (146). The property was leased to Mr. Van Alphens company, 1358329 Ontario
    Inc. (135).

[2]

In March 2008, the landlord, 146, defaulted in paying the mortgage held
    by Bayview Financial LP. Seeing the situation either as perilous to the business
    operations of Nu-Co Plastics or as an opportunity (or both), Mr. Van Alphen
    took active steps to acquire the property. Through his various companies, he played
    a cat-and-mouse game over the succeeding years with 146 in an ongoing attempt
    to acquire the property.
[1]


[3]

In the judgment under appeal, Mr. Van Alphen lost. The trial judge decided
    two actions. She dismissed the mortgage action for payment and possession
    brought against the respondents as mortgagors by Mr. Van Alphens company,
    1173928 Ontario Inc. (117), as assignee of the mortgage. She also granted
    judgment in the lease action in favour of 146, as landlord, against Mr. Van
    Alphen, 135, and 1732076 Ontario Limited (173), jointly and severally.

[4]

The appellants appeal the judgment in the mortgage action but not in the
    lease action. For the reasons that follow, I would dismiss the appeal.

B.

The Facts

[5]

The chronology and many of the critical facts were set out by the trial
    judge at para. 9 of her reasons for decision, on which I build. For the most
    part, these are not in dispute. The story is best laid out chronologically.

(1)

Matching defaults

[6]

146, the landlord from which 135 rented the property, defaulted in its
    obligations under Bayview Financials mortgage on March 1, 2008. A short time
    later, on July 1, 2008, Mr. Van Alphen caused 135 to default in payment of its
    increased rental obligations to 146 under the lease. This obviously added to
    the financial woes of 146.

[7]

As mortgagee, Bayview Financial took several steps in response to 146s mortgage
    default. On October 16, 2008, it demanded payment under the mortgage, claiming arrears
    of $67,244.60. On November 6, 2008, it issued a notice of direction of rents
    and demand for particulars of tenancy to 135, as the original named tenant
    under the lease. Then, on November 17, 2008, Bayview Financial issued a notice
    of sale to 146 and to Luella and Barbara Ramsden (the original shareholders,
    officers, and directors of 146), as guarantors. The notice claimed the fully
    accelerated amount of $368,472.41 owed under the mortgage.

(2)

Mr. Van Alphen buys the mortgage

[8]

On January 6, 2009, 117 borrowed $230,000 from Libro Credit Union
    Limited and purchased the mortgage from Bayview Financial for $360,705.12, which
    was the balance then owing under the mortgage. On that same date, 117 received
    an assignment of the mortgage, the guarantees, and related security including
    the attornment of rents and a Loan and Security Agreement.

[9]

Bayview Financial gave 146 notice of the assignment of the mortgage and
    related security. 117 registered the Assignment of Mortgage and Notice of
    Assignment of Leases and Rents on title to the property later in January 2009.

[10]

On
    January 8, 2009, 117 listed the property for sale on MLS at the price of
    $400,000, utilizing the notice of sale issued by Bayview Financial.

[11]

On
    January 12, 2009, 117 purported to terminate the existing lease and enter into
    a new lease on significantly more favourable terms in an effort to reduce the
    rental credit to which 146 was entitled as mortgagor.

[12]

On
    January 16, 2009, 146 responded by starting an application as landlord under s.
    20 of the
Commercial Tenancies Act
, R.S.O. 1990, c. L.7, against Mr. Van
    Alphen and 117 seeking payment of the outstanding rental arrears together with
    injunctive relief restraining 117 from enforcing the mortgage.

[13]

On
    March 4, 2009, 117 started the mortgage action that is the subject of this
    appeal. Within several days, 117 received but did not accept an offer to purchase
    the property for $250,000.

[14]

On
    June 25, 2009, 117 tried to sell the property through a public auction. The
    highest bid at the auction was $210,000, well below the reserve price of $531,000
    ordered by the court.

(3)

Mr. Van Alphens efforts to acquire the property and the progress of the
Commercial Tenancies Act
application

[15]

I
    consider Mr. Van Alphens efforts to acquire the property via mortgage remedies
    together with the progress of the
Commercial Tenancies Act
application
    because the chronology reveals the steps in the cat-and-mouse game I
    mentioned earlier.

[16]

Mr.
    Van Alphen made three separate efforts to acquire the property, all relying on
    the original notice of sale issued by Bayview Financial in November 2008. First,
    on October 1, 2009, acting as mortgagee selling under power of sale, 117 entered
    into an agreement of purchase and sale with itself as purchaser to acquire the property
    for a price of $210,000 plus unpaid municipal taxes of $29,327 (First Sale). 117
    did not give 146 notice of the purported sale of the property. This transaction
    took place in the teeth of the
Commercial Tenancies Act
application
    brought by 146, which was scheduled to be heard on November 2, 2009.

[17]

The
    First Sale foundered on the basis that 117 did not have an interest in the mortgage
    entitling it to sell the property because it had earlier assigned the mortgage
    and related security to Libro Credit Union as security for its loan. The
    assignment was registered against title to the property in favour of Libro
    Credit Union on January 23, 2009. It is now common ground among the parties that
    117s first effort to buy the property was invalid.

[18]

F
or the same reason, 117 had no status to bring the mortgage action
    when it did so on
March 4, 2009
. The form of the trial
    judges order curing this defect is important. She stated, at para. 10:

At the outset of trial, 117 moved for an order granting
    standing to 117,
nunc pro tunc
, to commence the Mortgage Action,
without prejudice to 146 to defend the action on the basis 117
    did not hold title to the Mortgage during the period January 23, 2009 through
    May 27, 2010
. That order was granted and the trial of the Mortgage
    Action proceeded. [Emphasis added.]

[19]

On
    November 2, 2009, a month after the abortive First Sale, Hockin J. heard 146s
Commercial
    Tenancies Act
application. By judgment dated January 18, 2010, with
    reasons reported at 2010 ONSC 394, he granted an interim order relieving 117
    from forfeiture of the lease for the property. The terms of the order provided:

After a calculation of the liquidated amounts payable to this
    date under the lease and the mortgage, the net figure will be paid to 146. I
    mean by the net figure that 117 may subtract from what is owing under the
    lease, the arrears payable by 146 under the mortgage. No set-off will be
    included under the calculation of the rent payable.



In the event that this court[-]mandated attempt to reinstate
    the lease and mortgage fails, 146 may move for final relief and 117 may proceed
    under its mortgage as it may be advised.

[20]

On
    May 27, 2010, Libro Credit Union re-assigned the mortgage back to 117 and took
    a general security agreement from 117 in its place, and 117 regained status to
    act under the mortgage as of that date.

[21]

Justice
    Hockin had crafted the interim order in the
Commercial Tenancies Act
application in an attempt to help the parties return to a peaceful,
    commercially sensible relationship, but it failed. The parties appeared again
    before him on August 16, 2010.  On August 20, 2010, he ordered 117 and Mr. Van
    Alphen to pay the rental arrears owed under the lease for the period from
    January 1, 2007 to August 31, 2010, fixed in the amount of $240,000 as agreed
    by the parties. He ordered costs of the application payable to 146 on a full
    indemnity basis.

[22]

Less
    than a week later, on August 26, 2010, Mr. Van Alphen listed the property for
    sale at a price of $225,000. No offers were received.

[23]

Then,
    on October 6, 2010 (before the listing expired on October 26, 2010), Mr. Van
    Alphen made a second effort to acquire the property. Relying once again on Bayview
    Financials original notice of sale, 117 purported to convey the property to itself
    under power of sale for the purchase price of $210,000 (Second Sale).

[24]

Less
    than a week later, on October 12, 2010, as the putative owner, 117 purported to
    convey the property in fee simple to 173 for the purchase price of $213,750 (Third
    Sale).

[25]

This
    court dismissed the appeal from Hockin J.s order on May 3, 2011 with costs:
1463096
    Ontario Inc. v. Van Alphen
, 2011 ONCA 346. On August 3, 2011, Thomas J.
    directed that all amounts owing under Hockin J.s order, then totaling
    $286,793.80, be paid into court pending the outcome of the mortgage action that
    is the subject of this appeal.

[26]

On
    January 12, 2012, 146 started the lease action against Mr. and Ms. Van Alphen,
    135, 117, and 173, in order to recover all rental arrears including those
    accrued and owing after Hockin J.s order. As noted, the trial judge granted
    judgment to 146 in the lease action.

C.

The Decision under appeal

[27]

The
    trial judge held that the First Sale was invalid because Libro Credit Union 
    not 117  owned the mortgage at the date of the purported transaction. As noted
    above, the appellants concede that the First Sale was invalid.

[28]

The
    trial judge found that the Second Sale of the property by 117 to itself was
    invalid. She held, at para. 26, that a mortgagee can legally transfer its
    security to itself, but only where it can establish it acted in good faith and
    took reasonable precautions to obtain a proper price. However, the trial judge
    found that 117 lacked good faith, giving three reasons, which I summarize here and
    describe in more detail below.

[29]

First,
    she cited, at para 28, Mr. Van Alphens long history of self-help and
    self-dealing when it comes to dealing with the Ramsdens and in particular,
    146. Second, the trial judge cited 117s failure to provide an updated
    statement of account to 146 to reflect the reduction of the mortgage balance
    achieved through the attornment of rents, contrary to ss. 22(2) and (3) of the
Mortgages
    Act
, R.S.O. 1990, c. M.40. Third, she found the notice of sale to be
    invalid under s. 31 of the
Mortgages Act
.


[30]

The
    trial judge also found that 117 took few, if any, reasonable precautions to
    obtain a proper price for the property but rather relied on a single bid
    received at auction more than a year prior.

[31]

Accordingly,
    the trial judge stated, at para. 42: 117's attempt to sell the Property to
    itself pursuant to power of sale on October 6, 2010 was ineffective in
    transferring title. Because 117 did not acquire title to the property through
    the Second Sale, it was not the fee simple owner. This invalidated the Third
    Sale.

[32]

The
    trial judge concluded, at para. 43, that [s]ince there were no valid transfers
    of the Property by 117, as mortgagee, 117 remained holder of the Mortgage until
    the mortgage was paid in full from the receipt of rents. Accordingly 146 had
    retained title to the property throughout. She ordered Mr. Van Alphen, 135, and
    173 to pay the rental arrears on the basis of joint and several liability. In a
    subsequent unreported corrigendum, she provided guidance on the calculations
    the parties should undertake to determine the date on which 146 could be said
    to have paid off the mortgage. The trial judge found that enough rent was
    standing to the credit of the mortgage that all amounts owed under the mortgage
    were paid in full by November 1, 2014.

[33]

The
    trial judge found that 117 had no further rights under the mortgage and
    dismissed the mortgage action.

D.

The Issues on Appeal

[34]

The
    appeal raises two issues:

1.    Was the original notice of sale issued by Bayview
    Financial valid?

2.    Did the mortgagee, either Bayview Financial or later 117,
    fail to comply with s. 22 of the
Mortgages Act
, and, if so, what was
    the effect of non-compliance on the Second Sale and Third Sale?

Although the notice of sale preceded the request for a
    mortgage statement, I begin with the second issue, and, in light of the
    decision on it, I decline to make a definitive ruling on the first. I am also obliged
    to comment on the trial judges invocation of s. 41 of the
Conveyancing and
    Law of Property Act
,
R.S.O. 1990, c. C.34, because of its broader
    potential application
.

E.

Analysis

[35]

I
    start with four observations. First, the factual context is most unusual. The
    parties were locked in a terminal struggle. Justice Hockin noted, at para. 3:
    There is a strange twist to the positions of the parties in relation to each
    other in law and in equity. He explained how [s]ince both parties are in
    default, Mr. Van Alphen now finds himself at risk of the forfeiture of his
    lease with 146 and 146 is at risk of the loss of Storey Street to Mr. Van
    Alphen acting under his power of sale under the mortgage. However, Hockin J. pointed
    out, at para. 12, that the inability of 146 to honour its obligation on the
    covenant is principally related to Mr. Van Alphen's failure to pay rent.

[36]

Second,
    it is necessary to bear in mind the purposes served by mortgage law in order to
    set the legal issues in context. The evolution of mortgage law shows growing
    recognition that a mortgage is simply security for a debt: see the Ontario Law
    Reform Commission,
Report on the Law of Mortgages
(Toronto: Ministry
    of the Attorney General, 1987), at pp. 136-149. Equity worked to mitigate the
    harshness of the common law in its treatment of mortgagors; later the
    Legislature acted to control the contractual power of sale, which provided a
    measure of protection to mortgagors. The provisions of the
Mortgages Act
reflect these equitable purposes and must be construed in a purposive manner.

[37]

Third,
    it is not the courts function to seek pretexts to invalidate a mortgage sale.
    The cases insist that the mortgagee is entitled to be paid in full and is
    entitled to take enforcement steps without undue judicial interference. The
    courts have taken a functional approach:
1175945 Ontario Ltd. v. Michael
    Wade Construction Co
.
, 2010 ONSC 3732, 95 R.P.R. (4th) 257, at
    paras. 14-17. In a commercial context involving sophisticated parties who know
    what is going on, reasonable expectations should govern, and a court should be
    reluctant to force a mortgagee to start over. No useful purpose would be served
    by replicating the "technical traps and procedural delays" of
    foreclosure and judicial sale in respect of the contractual power of sale: see
    the Ontario Law Reform Commission,
Report on the Law of Mortgages
,

at
    p. 137.

[38]

The
    fourth observation is that the cases have not addressed the appropriate
    interplay between s. 31(1) of the
Mortgages Act
, which prescribes the
    content and use of a notice of sale, and s. 22(2), which prescribes the content
    and use of a mortgage statement. To some extent the cases have tended to see
    these legislative provisions as silos; in my view, mortgage remedies are better
    seen as an integrated package, as I will explain. I now turn to the issues.

(1)

Did the mortgagee, either Bayview Financial or later 117, fail to comply
    with s. 22 of the
Mortgages Act
, and if so, what was the effect of
    non-compliance on the Second Sale and Third Sale?

[39]

The
    trial judge found that 117 failed to provide updated statements of account to
    146 to reflect the reduction of the mortgage balance achieved through the
    attornment of rents, contrary to ss. 22(2) and (3) of the
Mortgages Act
.
    She also noted, at para 29:

The evidence of Dennis Asher makes it clear Bayview did not
    provide credits for amounts held in Escrow and insurance premiums paid by 146.
    No efforts were made by 117 to facilitate 146's redemption of the Mortgage or
    enable 146 to place the Mortgage back into good standing despite the repeated
    requests by 146 for a proper statement of account.

(a)

The Governing Principles

[40]

Section
    22 of the
Mortgages Act
provides:

(1)
Despite
    any agreement to the contrary, where default has occurred in making any payment
    of principal or interest due under a mortgage or in the observance of any
    covenant in a mortgage and under the terms of the mortgage, by reason of such
    default, the whole principal and interest secured thereby has become due and
    payable,

(a)     at
    any time before sale under the mortgage; or

(b)     before
    the commencement of an action for the enforcement of the rights of the
    mortgagee or of any person claiming through or under the mortgagee,

the mortgagor may perform such covenant or pay the amount due
    under the mortgage, exclusive of the money not payable by reason merely of
    lapse of time, and pay any expenses necessarily incurred by the mortgagee, and
    thereupon the mortgagor is relieved from the consequences of such default.

(2)  The mortgagor may, by a notice in writing, require
    the mortgagee to furnish the mortgagor with a statement in writing,

(a) of the amount of the principal
    or interest with respect to which the mortgagor is in default; or

(b) of the nature of the default or
    the non-observance of the covenant,

and of the amount of any expenses necessarily incurred by the
    mortgagee.

(3)  The mortgagee shall answer a notice given under
    subsection (2) within fifteen days after receiving it, and, if without
    reasonable excuse the mortgagee fails so to do or if the answer is incomplete
    or incorrect, any rights that the mortgagee may have to enforce the mortgage
    shall be suspended until the mortgagee has complied with subsection (2).

[41]

The
    purpose of s. 22(1) of the
Mortgages Act
(and also of s. 23(1), which
    does not figure into this decision) is to provide a mortgagor with access to
    relief from acceleration of the entire mortgage debt that came about because of
    the default. See generally
Marriott and Dunn: Practice in Mortgage Remedies
    in Ontario
, loose-leaf, 5th ed. (Toronto: Thomson Reuters, 1995), at §19.2.

[42]

Section
    22(2) works together with s. 22(3). Where the mortgagee fails to answer a
    request for a mortgage statement within 15 days without reasonable excuse or
    answers it incompletely or incorrectly, then the mortgagees rights to enforce
    the mortgage, including the exercise of a power of sale or commencement of a
    mortgage action, is suspended until the mortgagee provides an accurate and
    complete mortgage statement. But the provision is not to be used as a shelter
    by a mortgagor who does not desire to bring the mortgage into good standing. A
    mortgagor is not entitled to suspend the mortgagees rights for an indefinite
    period of time, simply by questioning the [mortgage statement]:
Double D
    Developments Ltd. v. Green
(1979), 24 O.R. (2d) 391 (H.C.), at para. 9.
    Tendering or paying into court the amount of money that the mortgagor claims is
    owed could evince an intention to redeem the mortgage in the face of ongoing
    accounting disputes:
Double D Developments Ltd
.
, at para. 8.

[43]

Section
    22(3) of the
Mortgages Act
applies before the mortgagors right to get
    relief from acceleration by putting the mortgage into good standing ends. That
    right ends under s. 22 at the earlier of: (i) the acceptance by the mortgagee of
    an offer to purchase (such as an agreement arising from the exercise of a power
    of sale); or (ii) the commencement of a mortgage action by the mortgagee (after
    which the mortgagor can seek relief from acceleration under s. 23):
Michael
    Wade
, at para. 22;
Mission Construction Ltd. v. Seel Investments Ltd
.
,
    [1973] 2 O.R. 190 (H.C.);
Theodore Daniels Ltd. v. Income Trust Co
.
(1982), 37 O.R. (2d) 316 (C.A.), at para. 13; and
Armanasco v.
    Linderwood Holdings Inc
.
, 2016 ONSC 1605, 66 R.P.R. (5th) 150, at
    paras. 51-59. However, although the suspension effect of s. 22(3) of the
Mortgages
    Act
will no longer apply after the mortgagors right to put the mortgage
    in good standing ends, the mortgagor continues to have the right to a mortgage
    statement under s. 22(2) of the
Mortgages Act

until the right
    of redemption is irrevocably lost.

(b)

The Positions of the Parties

[44]

The
    respondents submit that the trial judge properly invalidated the Second Sale
    because neither Bayview Financial nor 117 provided a mortgage statement that
    complied with ss. 22(2) and (3) of the
Mortgages Act
, despite requests
    from 146. The fundamental purpose of an updated mortgage statement in the
    context of a sale  to allow the mortgagor to intelligently assess its position
     was not met.

[45]

The appellants submit that 117 did provide an updated statement of
    account to 146 that complied with s. 22 of the
Mortgages Act
in August 2010, as part of the
Commercial Tenancies Act

application.
The statement consisted of a schedule that
    was an exhibit to Mr. Van Alphens affidavit in that proceeding. It stated that
    the outstanding mortgage balance on August 1, 2010 was $209,412.92. The
    appellants argue that the statement constituted an answer within the meaning of
    s. 22(2) of the
Mortgages Act
; providing the statement lifted the
    suspension of 117s rights to enforce the mortgage before the date of the
    Second Sale on October 6, 2010.

(c)

The Principles Applied

[46]

The
    critical dates for determining the effect of s. 22 of the
Mortgages Act
are (i) the date of the mortgagors request for a mortgage statement; (ii) the
    date of the mortgagees response; (iii) the date of a sale (the possibilities
    are October 6, 2010, the date of the purported Second Sale; or October 12,
    2010, the date of the purported Third Sale); and (iv) the date of the
    commencement of a mortgage action by the mortgagee (March 4, 2009 at the
    earliest). As I will explain, neither the dates of the purported sales nor the
    date on which 117 started the mortgage action figure into the decision.

[47]

On
    the facts of this case, the date of the first request for a mortgage statement
    could be one of three dates. The first is December 10, 2008, which is the date
    for which the respondents contend. This is the date of Mr. Ashers letter to Bayview
    Financials counsel in which he questioned the accuracy of the notice of sale. In
    that letter, he also took the customary step of requesting a mortgage statement
    as to principal and interest arrears and mortgagees expenses relating to the
    mortgage effective December 28, 2008. The second and third possible dates are
    June 15, 2009 and January 19, 2010, when 146 gave written notice of a request
    for a mortgage statement to 117.

[48]

The
    trial judge did not clearly find the governing date, nor need I do so, in view
    of the status of 117 to bring the action.

[49]

With
    respect to the first date, December 10, 2008, the evidence is that Bayview
    Financials lawyers responded after the 15-day period by letter, dated January
    13, 2009, in which they gave the amount outstanding at January 7, 2009 as
    $67,270.67. However, the letter noted that the mortgage had been assigned to
    117 on January 7, 2009. The respondents assert that Bayview Financials
    response was inaccurate; it did not come within 15 days and not until after it
    sold the mortgage to 117; and therefore, it did not comply with s. 22(3) of the
Mortgages Act
.

[50]

On
    the second date, June 15, 2009, Mr. Asher wrote to 117s lawyers requesting a
    statement of the mortgage account and a notice of the interest rate adjustment,
    since it was a variable rate mortgage. They did not respond.

[51]

On
    the third date, January 19, 2010, Mr. Asher wrote again to 117s lawyers
    requesting a mortgage statement and an account of the rental money received by
    117. In his letter, dated February 12, 2010, Mr. Asher confirmed that he had
    received no response.

[52]

Although
    117 started the action on March 4, 2009, 117 had no status to do so then
    because the mortgage was in hands of Libro Credit Union, which did not consent
    to the proceeding. The trial judge found that the mortgage had been assigned
    absolutely to Libro Credit Union, which had not consented to any of 117s
    mortgage enforcement efforts including the commencement of the action. 117 did
    not get the re-assignment of the mortgage and full status to pursue it until
    May 27, 2010.

[53]

The
    trial judges
nunc pro tunc
order at the outset of trial, which
    granted standing to 117, provided expressly
, at para. 10, that
    it was 
without prejudice to 146 to defend the action on the basis 117
    did not hold title to the Mortgage during the period January 23, 2009 through
    May 27, 2010. This was the period in which the mortgage was in the hands of
    Libro Credit Union. Both the second and third requests to 117 for a mortgage
    statement fell into the interim. It is necessary to give effect to this
    qualifier in the
nunc pro tunc
order.

[54]

Accordingly,
    when 117 gained full status on May 27, 2010 to enforce the mortgage and bring
    the action (and therefore to continue it), there were two outstanding requests
    to 117 for a mortgage statement that 117 had never answered, leaving the
    suspension in place.

[55]

I
    do not accept the appellants argument that the court should deem the schedule
    to Mr. Van Alphens August 10, 2010 affidavit to constitute a mortgage
    statement within the meaning of s. 22 of the
Mortgages Act
, even
    taking the functional approach. As noted, the schedule took the position that
    the outstanding mortgage balance on August 1, 2010 was $209,412.92. It was
    based on Mr. Van Alphens position on the amount and allocation of rental
    arrears, which Hockin J. later rejected as wrong. Justice Hockin concluded,
    based on the agreement of the parties, that the rental arrears alone, as of
    August 1, 2010, totaled $240,000.

[56]

Plainly,
    the purported statement was substantially incomplete and incorrect, contrary to
    s. 22 of the
Mortgages Act
. This was not a mere technical error that
    could be remedied through the application of the functional approach. It was
    part of a strategy by Mr. Van Alphen, and it prejudiced 146s ability to assess
    its position under the mortgage. In my view, the radically misleading mortgage
    statement, on which the appellants rely in this case, takes it out of the
    run-of-the-mill mortgage statements over which there are accounting quibbles.
    Here, the actual amount owing could not be determined without the trial, at
    which point Mr. Van Alphens machinations stood fully revealed. Accordingly,
    117s ability to enforce the mortgage was suspended by operation of s. 22 of
    the
Mortgages Act
until the trial of this action, when the outstanding
    factual issues were resolved and the mortgage accounts fully reconciled with
    the rent accounts.

[57]

Consequently,
    both the Second Sale and the Third Sale were invalid because they were executed
    at a time when 117s enforcement rights were statutorily suspended under s.
    22(3) of the
Mortgages Act
.

[58]

This
    is a sufficient basis on which to dismiss the appeal. I nonetheless consider
    the next issue because it raises several questions of broader application.

(2)

Was the original Bayview Financial notice of sale valid under s. 31 of
    the
Mortgages Act
?

[59]

The
    trial judge found the Bayview Financial notice of sale to be invalid under s.
    31 of the
Mortgages Act
on two grounds. First, the original notice of sale
    issued by Bayview Financial, upon which 117 relied throughout, was not correct
    in all material aspects when it was issued. She found, at para 29, that it did
    not reflect the correct amount needed to redeem the mortgage then, contrary to
    s. 31 of the
Mortgages Act
.

[60]

Second,
    the trial judge expressed the view that 117 was obliged to issue a fresh notice
    of sale because the mortgage debt had changed over time, as she noted at paras.
    28 and. 32. Accordingly, the notice of sale was invalid because it no longer
    met the requirements of s. 31 of the
Mortgages Act
.

(a)

The Governing Principles

[61]

Section
    31 of the
Mortgages Act
provides:

(1)
A
    mortgagee shall not exercise a power of sale unless a notice of exercising the
    power of sale in the Form to this Act has been given by the mortgagee to the
    following persons, other than the persons having an interest in the mortgaged
    property prior to that of the mortgagee and any other persons subject to whose
    rights the mortgagee proposes to sell the mortgaged property:



[T]o every person appearing  to have an interest in the
    mortgaged property.

[62]

The
    Form of the Prescribed Notice of Sale under Mortgage requires the disclosure of
    certain information identifying the property, the mortgage, and the amounts due.
    It warns the mortgagor and others having an interest in the property that, if
    the amounts are not paid by a certain date, the mortgagee will sell the
    property. The form is provided to recipients who may be entitled to redeem the
    same.

[63]

The
    law has generally required strict compliance with the legal requirements for
    the exercise of a power of sale. See
Re Botiuk v. Collison

(1979),
    26 O.R. (2d) 580 (C.A.), at p. 589; and
Roth v. 340529 Ontario Ltd
.
(1982), 24 R.P.R. 198 (Ont. H.C.), at pp. 199-200. This is because [t]he
    exercise of the power of sale is considered a self-help measure, with serious
    consequences for all persons having an interest in the property: the Ontario
    Law Reform Commission,
Report on the Law of Mortgages
, at p. 147. The
    recipients of the notice of sale are in danger of losing their interest in the
    property through its sale by the mortgagee.

[64]

However,
    the cases also qualify the notion of strict compliance. This is not a
    formalistic requirement but a substantive one; a notice of sale should not be held
    inoperative because of minor irregularities, so long as it meets the purpose
    for which it is required.

That purpose was explained by
    Zuber J.A. in
Grenville Goodwin Ltd. v. MacDonald

(1988), 65 O.R. (2d) 381 (C.A.)
,
at
    para. 6. The demand for accuracy is imposed so that "the mortgagor or,
    indeed, subsequent encumbrancers may intelligently assess their position with
    respect to redemption of the mortgage."

[65]

While
    s. 31 of the
Mortgages Act
has been interpreted to require accuracy,
    the cases show a degree of tolerance for errors. The required degree of
    accuracy has not been definitively resolved in the cases; in my view, it is
    evolving towards a standard of commercial reasonableness:
Hornstein v.
    Gardena Properties Inc.

(2005), 34 R.P.R. (4th) 301 (Ont. S.C.),
    appeal dismissed, (2006), 46 R.P.R. (4th) 56 (Ont. C.A.), at paras. 4-5.

[66]

That
    said, serious errors will invalidate a notice of sale. In
Grenville Goodwin
,

the court addressed the notice of sales failure to accurately deal with
    municipal taxes. The balance on the mortgage was about $4.7 million. Justice Zuber
    stated, at para. 7:

This is not a case of an inadvertent minor variance that might
    be excused by the operation of s. 27(d) of the
Interpretation Act
[R.S.O.
    1980, c. 219
[2]
].
    The amount claimed to be due is overstated by $221,331.43. Nor is this a case
    where a mortgagee has a reasonable basis upon which to claim that an amount is
    due and that amount may be shown to be in error in a subsequent accounting: see
Toronto-Dominion Bank v. Pallet Developments Ltd.
(1984), 47 O.R. (2d)
    251, 3 O.A.C. 161 (Div. Ct.).

[67]

This
    court found the magnitude of the error to be fatal to the notice of sale, which
    it invalidated, along with the sale itself.

[68]

I
    turn now to consider the governing principles as to when a fresh notice of sale
    will be required, on which the trial judge opined. Neither the
Mortgages
    Act
, which does not expressly require a fresh notice of sale at any time,
    nor the cases provide clear guidance. I make two observations.

[69]

First,
    there is some case support for the proposition that a fresh notice of sale
    might be required on occasion, apart from the obvious case where the first
    contains material errors. For example, in
Hornstein
,

the
    mortgage on a commercial building went into default. A notice of sale was
    issued, and eventually the mortgagee entered into an agreement of purchase and
    sale. Immediately thereafter the mortgagor produced an offer that was $440,000
    or about 11.4% higher. The mortgagor challenged the validity of the notice of
    sale that had gone unchallenged for 25 months. Justice Feldman held that the
    notice of sale was not misleading. She noted, at para. 5:

The appellants also challenge the continued validity of the
    Notice of Sale on the basis that while payments were made by the mortgagors and
    other amounts were received that reduced the amount owing, no new Notice was
    issued. They submit that as a result of the changes in the amount outstanding,
    at some point the Notice of Sale expired. Counsel (who was not counsel on the
    application), advised that this aspect of the challenge to the Notice of Sale
    was not raised before the application judge. In my view, there is no merit to
    the submission in this case. The application judge made it clear that the
    appellants raised none of their objections to the Notice of Sale until they
    came forward with their new purchaser, nor did they ever attempt to redeem the
    mortgage.
Although there may well be circumstances when a
    Notice of Sale becomes inaccurate and misleading, in this case the application
    judge concluded that the Notice was reasonable.
I would not interfere
    with that finding. [Emphasis added.]

[70]

I
    note that Feldman J.A. considered the point that a fresh notice of sale might
    be required on occasion to be arguable, but she did not identify circumstances
    in which it would be required. An obvious example would be where the mortgage
    was brought into good standing and later went into default again.

[71]

Second,
    the expectation in the legislation is that the notice of sale is valid at a
    point in time, and this is the point at which the calculations in it are made.
    If it is not misleading at that point in time, it does not become misleading
    simply because of the flow of time and changes in the mortgage debt.

[72]

No
    cases have held that a fresh notice of sale is required whenever there is a
    change in the mortgage debt. The reason for this is obvious. For practical
    purposes and in normal circumstances, a party seeking to redeem will request a mortgage
    statement under s. 22 of the
Mortgages Act
, which will supersede the
    figures in the notice of sale. This is where the practical interplay between ss.
    22 and 31 the
Mortgages Act
comes into operation
.

[73]

As
    Morawetz J. pointed out at first instance in
Hornstein
,
at
    para. 46, in the context of a receivership, the numbers are always changing.
    The same is true where, for example, the interest rate in the mortgage is
    variable, as in this case; or where the mortgagee has attorned the rents, as in
    this case; or where the mortgagee has gone into possession and leased the
    property, as in
Michael Wade
. There is also case law supporting the
    proposition that partial payment of arrears owing under a mortgage does not lead
    to the requirement for a new notice of sale:
Aloi v. Spencer
,
(1980)
,
29 O.R. (2d) 435 (H.C.);

and

Karteri v. Sugarman

(1990),
    22 R.P.R (3d) 38 (Ont. Ct. (Gen. Div.)), at para. 68, (2003), 15 R.P.R. (4th)
    38 (Ont. C.A.).

[74]

Based
    on this courts decision in
Hornstein
,

at para. 5, the
    applicable standard is whether the notice of sale was reasonable in the
    circumstances. The court must assess whether the magnitude of the error in the
    notice of sale affected whether the borrower and subsequent encumbrancers were
    misled by it in assessing whether to redeem the mortgage, based on a
    commercially reasonable standard.

[75]

Neither
Grenville Goodwin
nor
Hornstein

addressed the
    appropriate interplay between a notice of sale issued under s. 31(1) of the
Mortgages
    Act
and a mortgage statement issued under s. 22(2) in assessing
    reasonableness. In my view, a timely, accurate, and complete mortgage statement
    would form part of the relevant circumstances and could serve to correct an
    inaccurate notice of sale.

(b)

The Positions of the Parties

[76]

The
    appellants submit that courts have adopted a functional approach to the evaluation
    of the validity of a notice of sale, citing

Michael Wade
, at
    paras. 17, 42, 45-46; and
Taro Properties Inc. v. Henry Waks & Sons Inc
.
,
    [1990] O.J. No. 643,  1990 CarswellOnt 659 (Ont. H.C.), at paras. 60-63. They
    assert that errors that do not prejudice the mortgagors ability to redeem the
    mortgage, should not invalidate a notice of sale. They add that any errors in
    the amounts claimed in the Bayview Financial notice of sale did not materially
    affect 146s ability to redeem, which it never attempted to do even though it
    was aware that 117 had purchased the mortgage.

[77]

The
    appellants argue that a fresh notice of sale was not required as a result of a
    reduction in the amounts owed under the mortgage through the attornment of
    rents. While a change in the terms of the agreement between the parties
    requires a new notice of sale, partial payment of arrears does not.

[78]

The
    respondents submit that the notice of sale provisions in s. 31 of the
Mortgages
    Act

require strict compliance. Incorrect figures in a notice of
    sale invalidate it. In this case, the notice had inaccurate figures in it that
    were never corrected.

(c)

The Principles Applied

[79]

As
    noted, the trial judge made two essential findings. First, she found that the
    original notice of sale did not reflect the correct amount needed to redeem the
    mortgage and contained material errors. She relied on the evidence of Dennis
    Asher, who was the lawyer representing the respondents.

[80]

Mr.
    Ashers evidence was that he sent a letter, dated December 10, 2008, to Bayview
    Financials lawyers pointing out (i) that the notice of sale did not account
    for 146s payment of insurance premiums, so that the inclusion of $4,774.00 as
    a disbursement was wrong; (ii) that the property taxes of $22,028.12 should
    have been paid out of an escrow account held by the mortgagee for that purpose
    and not added to the mortgage debt; (iii) that the notice failed to account for
    two payments of rent under the rent attornment, totalling $12,180.00; and (iv) finally,
    he disputed a small NSF charge.

[81]

In
    his December 10, 2008 letter to the appellants counsel, Mr. Asher pointed out
    the errors in the notice of sale and requested a mortgage statement as to
    principal and interest arrears and mortgagees expenses relating to the
    mortgage effective December 28, 2008.

[82]

Ordinarily
    a mortgagee would have responded in a timely manner to such a request. Had
    Bayview Financial done so, then any inaccuracies in the notice of sale could
    have been superseded by the new mortgage statement. The response by Bayview Financials
    lawyers came after the mortgage was assigned to 117.

[83]

I
    am reluctant to agree with the trial judge that the errors in Bayview Financials
    notice of sale were fatal to its validity based on the standard of commercial
    reasonableness. Counsel for 146 was aware of the alleged errors and brought
    them to Bayview Financials attention.

[84]

There
    is, as noted, a principle that partial payment of arrears owing under a
    mortgage does not lead automatically to the requirement of a new notice of
    sale. However, I would reject the appellants argument that the principle applies
    on the facts of this case. They cite
Aloi

and

Karteri
,
    but in neither case did the mortgagee surreptitiously attempt to alter the rent
    payments to its advantage as tenant and to the mortgagors detriment, as Mr.
    Van Alphen did in this case, in the trial judges view, at para.29.

[85]

I
    also find unpersuasive the appellants argument that any errors in the amounts
    claimed in the notice of sale did not materially affect 146s ability to redeem
    and that 146 never attempted to do so. I point out that this argument is more
    related to the issue of getting proper mortgage statements under s. 22 of the
Mortgages
    Act
, which I addressed earlier. The fight was ongoing about the
    relationship between the rents and the mortgage payments from the beginning
    until the bitter end at trial, and Mr. Van Alphen did not provide ongoing and
    proper disclosure of what he was doing. For 146 to redeem before trial and on
    Mr. Van Alphens terms would have required the respondents to capitulate to his
    theory of the case, which, in light of the outcome, would have been a mistake.

[86]

The
    trial judges second finding was that a fresh notice of sale was required in
    this case because the flow of time and the stream of attorned rental payments
    changed the state of the accounts, increasingly rendering inaccurate the
    original notice of sale. Because a notice of sale is a point-in-time document,
    it does not become inaccurate with the flow of time. The accounts undoubtedly
    changed, but the usual process for addressing changes in accounts is by the
    mortgagor requesting a mortgage statement under s. 22 of the
Mortgages Act
,
    not by requiring a fresh notice of sale.

[87]

The
    artificial staging of the issues brought about by Mr. Van Alphens strategy
    suggests that it would not be wise to rule definitively on when, if ever, a fresh
    notice of sale is required, and I would decline to do so.

(3)

Was 117 legally entitled to sell the property to itself under the power
    of sale?

[88]

Although
    the issue is moot, in her discussion of whether 117 was legally entitled to
    sell the property to itself under the power of sale, the trial judge opened a
    door better left closed. In the Second Sale, 117 purported to sell the property
    to itself under power of sale. The appellants invoked s. 41 of the
Conveyancing
    and Law of Property Act
.

[89]

The
    trial judge stated, at para 24: The common law and obligations of 117 pursuant
    to the
Mortgages Act
comprise the law applicable to the purported sale
    by 117 to itself on October 6, 2010. She then turned to consider s. 41 of the
Conveyancing
    and Law of Property Act
. It provides:

A person may convey property to or vest property in the person
    in like manner as the person could have conveyed the property to or vested the
    property in another person.

[90]

The
    trial judge described this as a general statutory provision that is subject
    to the more restrictive statutory provisions and common law principles imposed
    on mortgagees as transferors. She identified one such limit in the common law:
    a mortgagee cannot sell to itself under a power of sale, citing
Farrar v.
    Farrars Ltd.

(1888), 40 Ch. D. 395 (Eng. C.A.).

[91]

However,
    the trial judge stated that the rule in
Farrar

gives rise to a
    presumption that is rebuttable in certain circumstances. The trial judge
    referred to
Ostrander v. Niagara Helicopters Ltd
.
(1973)
,
1
    O.R. (2d) 281 (H.C.) and held, at para. 26, that a mortgagee can transfer its
    security to itself where it can establish it acted in good faith and took
    reasonable precautions to obtain a proper price. She found that Mr. Van Alphen
    could not rely on
Ostrander

because he had not acted in good
    faith and had not taken reasonable precautions to obtain a proper price for the
    property.

[92]

In
    my view, the trial judge had no basis upon which to apply the rebuttable
    presumption in
Ostrander
to the facts of this case. In
Ostrander
,
    a helicopter company defaulted on loans, and a receiver-manager took possession
    pursuant to the contractual terms of a mortgage deed (not a court-appointed
    receiver). The receiver-manager conducted a thorough sales process. However, during
    the sales process, the receiver-manager purchased shares in a company
    (representing a 2% interest in its total issued shares) that was chosen as the
    purchaser of the helicopter company. The mortgagor, who preferred another
    potential purchaser, brought an action to set aside the sale. The court held
    that the receiver-manager was not a fiduciary but was an agent for a mortgagee
    in possession, whose purpose was to protect the security of the bondholder.
    Since the receiver-manager had conducted a thorough sales process and was not
    acting in bad faith (i.e., fraud), the sale was valid.

[93]

Ostrander

does not stand for the proposition that the common law allows a mortgagee
    to sell under a power of sale to itself nor for the proposition that a
    mortgagee can sell to a company that is owned by the mortgagee. Rather, it
    stands for the proposition that a party acting for the mortgagee can sell to a
    corporation in which that party has some interest, if it can rebut the
    presumption of an invalid sale by evidence that it took reasonable steps to
    obtain a proper price and acted in good faith.
Ostrander
does not
    apply to a mortgagee selling to itself under power of sale.

[94]

Even
    though s. 41 of the
Conveyancing and Law of Property Act
was enacted
    (with slight differences) in 1933
[3]
,
    there are no reported decisions in which an Ontario court has squarely
    considered its effect on the common law rule in
Farrar
in a mortgage
    action.

[95]

Whether
    s. 41 of the
Conveyancing and Law of Property Act
has overcome the
    rule in
Farrar
is an issue best left for another day.  Given the
    potential for lenders to manipulate the system, allowing s. 41 of the
Conveyancing
    and Law of Property Act
to have this effect could adversely affect the purposes
    behind the centuries-long development of law and equity in the context of the
    power of sale: see the Ontario Law Reform Commission,
Report on the Law of
    Mortgages
,

at pp. 154-155; and Walter M. Traub,
Falconbridge on
    Mortgages
, loose-leaf, 5th ed. (Toronto: Thomson Reuters, 2018), at pp.
    35-35 to 36-36.

[96]

Given
    this conclusion, I would not address whether the trial judges finding that Mr.
    Van Alphens precautions to obtain a proper price for the property were inadequate.

F.

Disposition

[97]

I
    would therefore dismiss the appeal. As agreed by the parties, the appellants
    shall pay the respondents costs in the amount of $30,000, inclusive of
    disbursements and applicable taxes.

Released: July 27, 2018 PL

P. Lauwers J.A.

I agree. M.L. Benotto J.A.

I agree. I.V.B. Nordheimer J.A.





[1]
The appellant corporations are all controlled by Robert Van Alphen or his wife,
    Joanne Van Alphen.



[2]
Section 27 of the
Interpretation Act
,
R.S.O. 1990, c. I.11,
    which dealt with deviations in a form that did not affect the substance of the
    form, is now s. 84 of the
Legislation Act
,
2006
, S.O. 2006 c.
    21 Sched. F.



[3]

In 1933, it was s. 39a of the
Conveyancing and Law
    of Property Act
and stated:

A person may convey property
    to or vest property in himself in like manner as he could have conveyed such property
    to or vested such property in another person.


