



COURT OF APPEAL FOR ONTARIO

CITATION: Toronto-Dominion Bank v. Phillips, 2014 ONCA 613

DATE: 20140829

DOCKET: C58084

MacFarland, Pepall and Strathy JJ.A.

BETWEEN

The Toronto-Dominion Bank

Applicant

and

Cindy Louise Phillips and Richard Joseph Phillips

Respondents (Appellant and
  Respondent, respectively)

Gustavo F. Camelino, for the appellant, Cindy Louise
    Phillips

Michael Odumodu, for the respondent, Richard Joseph
    Phillips

Heard: April 15, 2014

On appeal from the judgment of Justice Douglas K. Gray of
    the Superior Court of Justice, dated November 18, 2013, with reasons reported
    at 2013 ONSC 7016.

Pepall J.A.:

[1]

This appeal addresses the interaction between a consumer proposal under s.
    66.13 of the
Bankruptcy and Insolvency Act
, R.S.C. 1985, c. B-3 (the
BIA
),
    and a writ of execution registered against joint debtors, one of whom has filed
    a consumer proposal.

[2]

The appellant, Cindy Louise Phillips, the consumer debtor who filed the
    proposal, submits that after payment to the execution creditor, the application
    judge erred in ordering that the remaining sum of $32,217.64 be distributed
    equally between her and the respondent, her estranged husband, Richard Joseph
    Phillips.

[3]

For the reasons that follow, I agree with the appellant.

A.

Facts

(1)

Joint Indebtedness

[4]

The appellant and the respondent were spouses and owned residential property
    in Guelph, Ontario as joint tenants.  In November 2008, they granted a mortgage
    on the property in the amount of $268,000 to the Toronto-Dominion Bank (TD).

[5]

The appellant incurred debt using an overdraft facility on the parties joint
    bank account with the Bank of Montreal (BMO).  On April 6, 2011, BMO obtained
    a default judgment against the appellant and the respondent in the amount of
    $32,734.37 plus costs of $1,161.15.

[6]

On April 13, 2011, BMO filed a writ of seizure and sale with the Sheriff
    of the County of Wellington (Guelph).

[7]

The mortgage in favour of TD went into default.  On November 5, 2012, TD
    commenced power of sale proceedings.

[8]

In December 2012, the appellant and the respondent separated.

(2)

Consumer Proposal

[9]

On February 1, 2013, the appellant filed a Division II consumer proposal
    pursuant to s. 66.13 of the
BIA
.  Hoyes, Michalos & Associates
    Inc. was appointed as the proposal administrator.  Notice of the proposal was
    provided to the appellants creditors, including BMO.  The proposal
    contemplated payment of secured creditors and preferred claims and payment of
    $18,000 over five years for the benefit of unsecured creditors.  Property would
    remain vested in the appellant.  The appellants statement of affairs did not
    mention any interest in the Guelph property.  The appellant stated that at the
    time she filed her proposal, she was unaware that there would be any equity
    left in the Guelph property.

[10]

BMO
    filed two claims in the proposal proceedings.

[11]

BMO
    and the other creditors that participated voted in favour of the proposal.  On
    March 18, 2013, the appellants proposal was deemed to have been approved by the
    court.  Under the proposal, BMO was entitled to a dividend of $3,682.79.

[12]

On
    April 4, 2013, TD sold the property.  There was a surplus of $52,295.14 after
    payment of its mortgage and associated costs.

[13]

The
    proposal administrator advised the appellants creditors of the surplus funds
    and gave them an opportunity to request a meeting of creditors in order to
    amend the proposal.  No creditor responded.

(3)

TDs Court Application

[14]

TD
    applied to pay the surplus funds into court less $750 on account of its costs
    of the application, leaving a surplus of $51,545.14.  On the return of the
    application, the application judge heard submissions from the parties to the
    application and from BMO.  The appellant and the respondent agreed that the sum
    of $19,327.50 would be paid out of the surplus to the Bank of Montreal, and the
    application judge so ordered.  On payment, BMO withdrew its claim in the
    proposal proceedings.  According to the appellants oral submissions before
    this court, the payment to BMO was without prejudice to the positions of the
    appellant and the respondent on the proper allocation of the remaining balance
    of $32,217.64.

[15]

Before
    the application judge, the respondent argued that after TD and BMO had been
    paid, the remaining balance of $32,217.64 should be split equally between the
    appellant and the respondent.  In contrast, the appellant argued that, due to
    the operation of the stay of proceedings imposed by s. 69.2(1) of the
BIA
,
    50% of the remaining balance should be paid to her, and BMOs writ should be
    paid out of the respondents 50% share.  Under this proposed distribution plan,
    the appellant would receive $25,772.57 and the respondent would receive $6,445.07,
    which is the balance remaining after payment to the appellant and BMO.

[16]

The
    motion judge ordered distribution of the funds in accordance with the scheme
    proposed by the respondent.  Applying s. 27 of the
Mortgages Act
,
    R.S.O. 1990, c. M.40, and provisions of the
Executions Act
, R.S.O.
    1990, c. E.24, he determined that a writ of execution created a right to or an
    interest in land.  As such, BMO was a subsequent encumbrancer within the
    meaning of s. 27 of the
Mortgages Act
and had to be paid before there
    was any residue owing to the appellant and the respondent.

B.

Grounds of Appeal

[17]

The
    appellant submits that the application judge erred in finding that an execution
    creditor is a subsequent encumbrancer within the meaning of s. 27 of the
Mortgages
    Act
and erred in respect of BMOs right to enforce its writ against her. 
    It is her position that BMOs claim against her was stayed as a result of s.
    69.2(1) of the
BIA
.  Accordingly, BMO could only realize against the
    respondents share of the residue remaining after payment of the mortgagee, TD. 
    As such, the respondent is entitled to $6,445.07 and the appellant is entitled
    to $25,772.57.

[18]

The
    proposal administrator is funding this appeal on behalf of the appellant, who
    has agreed that her interest in the surplus will be paid to the administrator
    to pay its fees and to fund payments due under the proposal.  This would
    include any amendments that may be agreed upon between the appellant and her
    creditors as a result of the disclosure of the existence of the surplus funds. 
    In the event that there is a balance left over, it would be paid to the
    appellant.

C.

Analysis

(1)

Proposals

[19]

Under
    the
BIA
, insolvency may be addressed by proposals and by bankruptcy. 
    In general terms, a proposal provides a debtor with an opportunity to
    restructure debt, whereas bankruptcy provides a mechanism for liquidation of
    assets.

[20]

Proposals
    enable debtors to make arrangements with their creditors, including settlement
    of debts and extensions of time for payment.  They are available under Divisions
    I and II of Part III of the
BIA
. Division I proposals are available to
    an insolvent or bankrupt debtor, including a corporation.  A Division II
    proposal, which is at issue in this appeal, is known as a consumer proposal.  A
    consumer proposal is available to an insolvent or bankrupt individual who has
    indebtedness of not more than $250,000 (or any other prescribed amount) excluding
    debts secured by the individuals principal residence.

[21]

Consumer
    proposals are described in s. 66.11 and following of the
BIA
.  A
    consumer proposal is to be made to the creditors of the debtor generally: s. 66.12(3).
     A consumer proposal that is accepted, or deemed to have been accepted, by the
    creditors, and approved, or deemed to have been approved, by the court, is
    binding in respect of all unsecured claims: s. 66.28(2)(a).

[22]

Unlike
    a bankruptcy where the debtors property vests in the trustee in bankruptcy, in
    a proposal property may remain with the debtor.  Like a bankruptcy, however, a
    stay of proceedings is available to a debtor on the filing of a consumer
    proposal.  Section 69.2(1) of the
BIA
states:

[O]n the filing of a consumer proposal under subsection
    66.13(2) or of an amendment to a consumer proposal under subsection 66.37(1) in
    respect of a consumer debtor, no creditor has any remedy against the debtor or
    the debtors property, or shall commence or continue any action, execution or
    other proceedings, for the recovery of a claim provable in bankruptcy until

(a) the consumer proposal or the amended consumer proposal,
    as the case may be, has been withdrawn, refused, annulled or deemed annulled;
    or

(b) the administrator has been discharged.

[23]

Section
    69.2(4) exempts secured creditors from the stay, although in appropriate
    circumstances, the court may extend the application of the stay to secured
    creditors as well.

[24]

Section
    69.2(1) therefore imposes a comprehensive prohibition on remedies against the
    debtor or the debtors property once a consumer proposal has been filed.  The
    stay includes a prohibition against the commencement or continuation of any
    action, execution or other proceeding for the recovery of a claim.

(2)

Execution Creditor

[25]

This
    appeal also involves a writ of execution held by BMO, the execution creditor.

[26]

Section
    1 of the
Execution Act
defines execution creditor as including a
    person in whose name or on whose behalf a writ of execution is issued on a
    judgment, or in whose favour an order has been made for the seizure and sale of
    personal property, real property or both real property and personal property.

[27]

In
    bankruptcy, it has long been established that an execution creditor is not a
    secured creditor: see
Québec (Attorney General) v. Bélanger (Trustee of)
,
    [1928] A.C. 187 (Canada P.C.), at p. 197;
Re Sklar and Sklar
(1958),
    37 C.B.R. 187 (Sask. C.A.) at p. 194;
Ontario Development Corp. v. Trustee
    of the Estate of I.C. Suatac Construction Ltd.
(1976), 12 O.R. (2d) 465
    (C.A.), at p. 476; and
James Hunter and Associates Inc. v. Citifinancial
    Canada Inc.
(2007), 40 C.B.R. (5th) 149 (Ont. S.C.), at para. 22.  Rather,
    unless the execution has been completed by payment to the creditor, the debt of
    the execution creditor is treated rateably with other unsecured debt.

[28]

This
    jurisprudence relies in part on the need to treat unsecured creditors equally
    under the bankruptcy regime and on s. 70 of the
BIA
and its
    predecessor, s. 50 of the
Bankruptcy Act
, R.S.C. 1970, c. B-3. Section
    70(1) of the
BIA
is found under the sub-heading
General Provisions
in Part IV of the
BIA
.  It states:

Every bankruptcy order and every assignment made under this Act
    takes precedence over all judicial or other attachments, garnishments,
    certificates having the effect of judgments, judgments, certificates of
    judgment, legal hypothecs of judgment creditors,
executions or other process against the property of a bankrupt, except
    those that have been completely executed by payment to the creditor
or the creditors representative, and except the rights of a secured creditor. [Emphasis
    added.]

[29]

This
    sub-section speaks of the precedence of bankruptcy orders and assignments. 
    Arguably a proposal or an order approving a proposal is not a bankruptcy order
    or assignment and does not fall within the ambit of that provision.  However,
    s. 66.4(1) of the
BIA
provides that:

All the provisions of this Act, except Division I of this Part,
    in so far as they are applicable, apply, with such necessary modifications as
    the circumstances require, to consumer proposals.
[1]


[30]

In
    my view, section 66.4(1) directs that certain general provisions of the
BIA
, including s. 70(1),
should be read to
    apply to consumer proposals even though there is no such express reference.  Moreover,
    quite apart from the statutory language, the policy rationale of treating
    unsecured creditors equally applies to the proposal regime: see
Forest v.
    Hancor Inc.
(1995), 37 C.B.R. (3d) 117, at p. 72 (Fed. C.A.).   In short, I
    would conclude that the hierarchy reflected in s. 70(1) applies with equal
    force to consumer proposals.

[31]

Section
    27 of the
Mortgages Act
therefore could not serve to elevate BMOs
    status to achieve priority over the appellants other unsecured creditors.  The
    decisions of
National Bank of Canada v. Young
,
[2002] O.J. No. 3823 (S.C.) and
Re
    Polsak
(1978), 19 O.R. (2d) 570
    (S.C.),
do not assist.  The former did not engage the provisions of
    the
BIA
, and the latter involved a secured creditor who clearly took
    priority over any claim of the mortgagors to residue.

[32]

At
    the time the proposal was filed and approved, BMO was an execution creditor and
    its debt was unsecured.  Consistent with this characterization, BMO filed a
    proof of its unsecured claim in the appellants proposal proceedings.  Its debt
    was paid only after TD commenced its court application, BMO appeared and made
    submissions, and the parties consented to payment.

(3)

Stay of Proceedings

[33]

Pursuant
    to s. 69.2(1)(a), BMOs claim against the appellant was stayed once the
    proposal was filed.  The stay of proceedings is akin to the stay imposed in a
    bankruptcy, which is designed to prevent creditors from gaining an unfair
    advantage and to allow for an orderly restructuring or liquidation: see
Re
    Cohen
(1948)
, 29 C.B.R. 11
    (Ont. S.C.), at pp. 113-14, affd [1948] 4 D.L.R. 808 (Ont. C.A.);
msi
    Spergel Inc. v. I.F. Propco Holdings (Ontario) 36 Ltd.
, 2013 ONCA 550, 117
    O.R. (3d) 81, at para. 40.

[34]

Accordingly,
    I would find that BMO was precluded from executing any remedy against the
    appellant or her property by virtue of the operation of the statutory stay of proceedings.

(4)

Joint Tenancy

[35]

Having
    said the above, the appellant and the respondent held the real property as
    joint tenants. The judgment and execution in favour of BMO was also joint.  As
    such, it would be open to BMO to realize the joint debt as against the
    respondent, as any interest of the respondent was unaffected by the stay. As
    Perell J. noted in
Royal & SunAlliance Insurance Company v. Muir
,
    2011 ONSC 2273, 9 R.P.R. (5th) 104, at para. 23: Joint tenants have identical
    undivided interests in the same property.  Each joint tenant holds 
totum
    tenet et nihil tenet

or 
per
    mie et per tout

which
    means each holds everything and yet holds nothing.

[36]

The
    characteristics of a joint tenancy are succinctly described in Jeffrey W. Lem
    and Rosemark Bocska,
Halsburys Laws of Canada  Real Property
, 1st ed.
    (Markham, Ont.: LexisNexis Canada, 2012), at HRP-37:

There are four essential attributes of a joint tenancy, known
    as the four unities.  A joint tenancy requires:

(1) Unity of Interest  the interest of each joint tenant
    must be equal in nature, extent and duration;

(2) Unity of title  the interests must arise from the same
    act or instrument;

(3) Unity of Time  the interests must vest at the same
    time; and

(4) Unity of possession  the interests must relate to the
    same piece of property.

A joint tenancy depends on the continuance of the unity of
    interest, title and   possession.  The unity of time of vesting only applies to
    the original creation of the tenancy and cannot be affected by any subsequent
    act.

[37]

The
    continuance of a joint tenancy depends on the maintenance of the unities of
    title, interest and possession; a destruction of any of these unities leads to
    a severance:
Power v. Grace
, [1932] O.R. 357 (C.A.), at p. 360.  Severance
    of a joint tenancy may occur: through the unilateral action of a joint tenant
    on his or her own share, such as selling or encumbering it; through a mutual
    agreement between the co-owners to sever the joint-tenancy; or through any
    course of dealing sufficient to intimate that the interests of all were
    mutually treated as constituting a tenancy in common:
Lem and Bocska,
at HRP-41.

[38]

Severance
    also may occur on bankruptcy.  This is because the bankrupts property vests in
    the trustee in bankruptcy, and the four unities are therefore not maintained:
    see
Cameron (Re)
, 2011 ONSC 6471, 108 O.R. (3d) 117, at fn. 9.

[39]

Severance
    by execution is not so straightforward.
Lem
    and Bocska

describe such severance, at HRP-42:

Seizure of property through lawful execution procedures will
    sever a joint tenancy.  However the mere filing of the writ is insufficient; it
    must be acted upon.  Thus, where the sheriff holds a writ of execution against
    a joint tenant but does not execute it prior to that tenants death, the
    surviving joint tenant inherits the property free from the execution.

[40]

The
    appellant argues that the joint tenancy in the surplus was severed such that
    BMO could only recover from the respondents 50% interest in the surplus.  The
    appellant submits that the joint tenancy was severed in either one of two ways:
    as a result of BMOs efforts to collect its debt, or as a consequence of her
    consumer proposal.  She particularly relies on
Power
,
supra
and
Muir
,
supra
in support of her position.

[41]

The
    respondent counters with the following: there was no severance; the application
    judges determination that the joint tenancy was not severed was a finding of
    fact; and in any event, the parties interests are subject to an accounting and
    the equities of the case.  He relies in part on
Arnold Bros. Transport Ltd.
    v. Murphy
, 2013 MBQB 137, 34 R.P.R.
    (5th) 217,
and on
Sirois v. Breton
, [1967] 2 O.R. 73 (Co.
    Ct.) in support of his position.

[42]

In
Power
, this court determined that while advertisement of a sale was
    sufficient to constitute a seizure that severed a joint tenancy, the mere
    filing of a writ of execution with the sheriff was insufficient.  In
Maroukis
    v. Maroukis
, [1984] 2 S.C.R. 137, at p. 143, the Supreme Court stated that
Power
stands for the proposition that, where a writ of
fieri
    facias
is delivered to the sheriff covering the interest of one joint
    tenant in real property and no further steps are taken in the execution
    process, the death of that joint tenant will pass the whole estate to the
    survivor free of execution.

[43]

In
Muir
, Perell J. concluded that the execution creditor took sufficient
    steps to execute the judgment, severing the joint tenancy.  The steps included advertising
    the sale of property by the sheriff.  Perell J. stated, at para. 26:

Severance may occur when an execution creditor takes sufficient
    steps to execute the judgment against the debtors interest in the property,
    although the filing of the writ of execution does not by itself result in a
    severance.

[44]

The decision of
Sirois
, relied
    upon by the respondent, also determined that the mere filing or delivery of a
    writ to the sheriff was insufficient to effect a severance of a joint tenancy. 
    This is of little assistance on this appeal. Similarly,
Arnold Bros.
is
    a very different case.  The key issues were whether the sale of property by a
    mortgagee or property division negotiations between separated spouses served to
    sever the joint tenancy.  Neither was found to sever the joint tenancy, and the
    creditor, who held an execution in the name of only one of the joint tenants, was
    entitled to be paid from the pool of funds prior to any distribution to the
    joint tenants.

[45]

The
    facts in the case under appeal are quite different and indeed, rather unusual. 
    Here, there could be no execution against the appellant because execution
    against her was stayed.  However, the debt was joint, and BMO therefore was at
    liberty to recover its debt against the respondent.  The parties to the
    application and BMO appeared before the application judge and made
    submissions.  The parties consented to, and the application judge granted, an
    order authorizing payment to BMO.  The execution was completed and acted upon. 
    In my view, in these circumstances, the joint tenancy was severed, and the
    payment to BMO could only be from the respondents 50% share of the surplus.

[46]

I
    am also not persuaded of the respondents other submissions.  In my view, the
    application judge erred in law in ignoring the stay and in not finding a
    severance of the joint tenancy.  Furthermore, in the face of a proposal, it is
    not open to the court to effect ostensible equitable readjustments to the allocation
    of the funds in issue.  Lastly, I note that in oral argument, counsel for the
    appellant acknowledged that the respondent could seek redress under the provisions
    of the BIA however, I do not propose to address that potential eventuality.

D.

Disposition

[47]

For
    these reasons, I would allow the appeal.

[48]

The
    issues raised were somewhat novel.  In these circumstances, I would vacate the
    $4,500 costs order below in favour of the respondent and order both parties to
    bear their own costs of both the appeal and the application.

Released:

GS                                                  S.E.
    Pepall J.A.

AUG 29 2014                                   I agree J.
    MacFarland J.A.

I
    agree G.R. Strathy J.A.





[1]
The counterpart provision for Division I provides to the same effect with
    necessary modifications: s. 66(1).)


