



COURT OF APPEAL FOR ONTARIO

CITATION: 58 Cardill Inc. v. Rathcliffe Holdings Limited,
    2018 ONCA 672

DATE: 20180802

DOCKET: C64744

Feldman, Hourigan and Brown JJ.A.

BETWEEN

58 Cardill Inc.

Applicant (Respondent)

and

Rathcliffe Holdings Limited

Respondent (Appellant)

Robert Choi, for the appellant

Richard Worsfold, for the respondent

Heard: July 4, 2018

On appeal from the judgment
    of Justice Andrew A. Sanfilippo of the Superior Court of Justice, dated November
    15, 2017, with reasons reported at 2017 ONSC 6828, 55 C.B.R. (6th) 230.

REASONS FOR DECISION

I.

OVERVIEW

[1]

The appellant, Rathcliffe Holdings Limited (Rathcliffe), loaned money
    to the respondent, 58 Cardill Inc. (Cardill), secured by a mortgage on a
    development property (the Mortgage). Cardill defaulted on the loan.

[2]

Rathcliffe, exercising its rights under the Mortgage, appointed a
    receiver over the property. The receiver, Schwartz Levitsky Feldman Inc. (SLF
    Inc.), sold the property and paid part of the sale proceeds to Rathcliffe in
    full satisfaction of the Mortgage debt, including accrued interest. The amount
    paid to Rathcliffe included approximately $351,000, representing an extra three
    months interest on the outstanding principal due under the Mortgage.

[3]

Rathcliffe took the position that it was entitled to the three months
    interest pursuant to one of the additional provisions contained in Schedule B
    of the Mortgage (the Additional Provisions), which states:

12.  The said Chargor covenants with the Chargee that in
    the event of non-payment of the principal amount at the time or times above
    provided in the mortgage then
he shall
    not require the Chargee to accept payment
of the said principal
    amount without first giving three months previous notice in writing, or paying
    a bonus equal to three months interest in advance on the said principal amount.
    [Emphasis added.] [Hereafter the Three-Month Interest Provision]

[4]

Following the payout of the Mortgage, Cardill applied for a declaration
    that Rathcliffe was not entitled to the three months interest and an order
    requiring Rathcliffe to pay the amount to Cardill. The application judge
    granted the relief Cardill sought.

[5]

Rathcliffe appeals. For the reasons that follow, the appeal is
    dismissed.


II.

ANALYSIS

[6]

Rathcliffe does not take issue with the application judges finding, at
    paras. 21-23, that s. 17 of the
Mortgages Act
, R.S.O. 1990, c. M.40,
    does not apply where a mortgagee acts to realize on its security by appointing
    a receiver: see
Ialongo v. Serm Investments Limited
,
54 R.P.R. (4th) 310
(Ont. S.C.), at para. 30. Instead,
    Rathcliffe grounds its claim to interest in the Mortgages Three-Month Interest
    Provision.

[7]

Rathcliffe submits the application judge erred by interpreting the
    Three-Month Interest Provision as one that is mortgagor-centric, embodying a
    right available to the mortgagor: at para. 35. In Rathcliffes view, the
    provision is mortgagee-centric in that it obligates the mortgagor, upon
    default, either to give the three-month written notice or make a payment in
    lieu of notice. It argues that the receiver, acting as agent for the mortgagor,
    required the mortgagee to accept payment of the Mortgage debt, thereby
    triggering the provision.

[8]

In our view, the application judge made no error in rejecting
Rathcliffes submission.

[9]

First, we agree with the application judge that the language of the Three-Month
    Interest Provision indicates that it is only when the Chargor seeks to require
    the Chargee to accept payment of the principal amount that the Chargor agrees
    either to pay the three months interest or give the three months notice.

[10]

Second,
    we do not accept Rathcliffes argument that the application judge misunderstood
    the jurisprudence when he concluded that the receiver did not act as Cardills
    agent in paying out the Mortgage on the receivers sale. The application judge
    correctly stated the governing general principle, articulated by Houlden J.A. in
Peat Marwick Ltd. v. Consumers Gas Co.
(1980), 29 O.R. (2d) 336
    (C.A.), at p. 344:

It seems to me that the receiver and manager in a situation,
    like the present, is wearing two hats. When wearing one hat, he is the agent of
    the debtor company; when wearing the other, the agent of the debenture holder.
    In occupying the premises of the debtor and in carrying on the business, the
    receiver and manager acts as the agent of the debtor company. In realizing the
    security of the debenture holder, notwithstanding the language of the
    debenture, he acts as the agent of the debenture holder, and thus is able to
    confer title on a purchaser free of encumbrance.

[11]

Nor
    do we accept Rathcliffes argument that the application judge erred in law
    when, at para. 44 of his reasons, he held that [i]t would be a
    mischaracterization of the role of SLF Inc. as the receiver privately appointed
    by Rathcliffe to state that the steps taken by SLF Inc. to realize maximum
    recovery of the Property for the benefit of Rathcliffe were actually taken by
    SLF Inc. on behalf of Cardill for the purpose of requesting a pay-out of the
    Mortgage. As this court stated in
Sperry Inc. v. Canadian Imperial Bank of
    Commerce
(1985), 50 O.R. (2d) 267, at p. 277: It is only in realizing
    that the receiver acts as the creditors agent  to give commercial efficacy to
    the security agreement, i.e., so that title may be conferred on the purchaser
    free of encumbrance.

[12]

In
    the present case, the receivers sale agreement with the third party purchaser
    required the conveyance of title to the purchaser free and clear of all
    encumbrances, including the Mortgage. In order to convert the charged asset
    into cash  i.e., close the sale transaction  the receiver was required to
    discharge the Mortgage. To do that, it had to pay Rathcliffe. That payment was
    not made at the request of Cardill but to complete the sale. As a result, the
    process of realization during which the receiver acted as Rathcliffes agent
    necessarily encompassed the discharge of the Mortgage by payment to the
    mortgagee. Consequently, the application judge did not misunderstand or
    misapply the general principles in the jurisprudence.

[13]

Rathcliffe
    contends that the brief endorsement of this court in
1220510 Ontario Inc.
    v. Radium-O Developments Ltd.
, 2017 ONCA 490, affirms the proposition that
    as a matter of law three months interest can be collected by a mortgagee who
    has commenced receivership proceedings. The decision does not stand for that
    proposition. The case involved the enforcement of a negotiated settlement
    following default on a mortgage and the initiation of receivership proceedings.
    The negotiated settlement included payment of three months interest. This
    court upheld the motion judges enforcement of the settlement. The case did not
    involve the interpretation of the three months interest provision or its
    applicability in contested realization proceedings.

[14]

Further,
    we see no error in the application judges finding that the general principle
    set out in
Peat Marwick
was not displaced by the specific language of
    the Mortgage. He considered s. 5(1)(g) of the Additional Provisions, which
    described one of the powers of the receiver as follows:

To execute and deliver to the purchaser of any part or parts of
    the charged lands, good and sufficient deeds for the same,
the Receiver hereby being constituted the
    irrevocable attorney of the Chargor for the purpose of making such sale and
    executing such deed
, and any such sale made as aforesaid shall be a
    perpetual bar both in law and equity against the Chargor, and all other persons
    claiming the said property or any part of parcels thereof by, from, through or
    under the Chargor, and the proceeds of any such sale shall be distributed 
    in the manner hereinafter provided. [Emphasis added.]

[15]

We
    agree with the application judges interpretation of that provision, at para.
    45, as one that limits the appointment of the receiver as agent for the
    borrower to the specified purpose of making such sale [of the Property] and
    executing such Deed [in relation thereto]. This would not support the
    characterization of SLF Inc. as agent for Cardill for the purpose of requesting
    pay-out of the Mortgage.

[16]

In
    his reasons, the application judge did not address s. 5(3) of the Additional
    Provisions, which states:

The Chargee shall not be liable to the Receiver for his
    remuneration costs, charges or expenses, and the Receiver shall not be liable
    for any loss however arising unless the same shall be caused by his own gross
    negligence or wilful default; and he shall, when so appointed, by notice in
    writing pursuant hereto, be deemed to be the agent of the Chargor and the
    Chargor shall be solely responsible for his acts and defaults and for his
    remuneration.

[17]

However,
    the application judges conclusion that s. 5(1)(g) would not support the
    characterization of the receiver as agent for Cardill for the purpose of
    requesting pay-out of the Mortgage would apply equally to the interpretation of
    s. 5(3).

III.

DISPOSITION

[18]

For
    the reasons set out above, the appeal is dismissed.

[19]

Cardill
    is entitled to its costs of the appeal fixed in the amount of $11,500,
    inclusive of disbursements and all applicable taxes.

K.
    Feldman J.A.
C.W. Hourigan J.A.
David Brown J.A.


