



COURT OF APPEAL FOR ONTARIO

CITATION: Posocco v. Battista, 2016 ONCA 419

DATE: 20160531

DOCKET: C61169

Laskin, Pepall and Brown JJ.A.

BETWEEN

Claudio Posocco

Applicant (Appellant)

and

Felice Battista, Domenic Battista, Casimiro
    Holdings Inc., and Justam Holdings Limited

Respondents (Respondents)

Ronald Birken, for the appellant

Andrea M. Habas, for the respondents Felice Battista and
    Domenic Battista

Christopher E. Reed, for the respondents Casimiro
    Holdings Inc. and Justam Holdings Limited

Heard: April 26, 2016

On appeal from the Judgment of Justice Suhail A.Q. Akhtar
    of the Superior Court of Justice, dated October 8, 2015.

Brown J.A.:

I.        OVERVIEW

[1]

At issue on this appeal is the enforceability of a judgment obtained
    against the appellant, Claudio Posocco, on a guarantee he gave in 2011 to
    secure an extension of the mortgage his company, Sedona Lifestyles (Dixie) Inc.,
    had granted to Nancy Battista. After Nancys death in 2011, her interest in the
    mortgage passed to her sons, the respondents Felice Battista and Domenic
    Battista (the Battistas). They obtained an unopposed judgment, dated February
    21, 2014, on the guarantee against Posocco in the amount of $794,471.41 (the
    Posocco Judgment).

[2]

In September 2015, Posocco applied for orders setting aside the Posocco
    Judgment and related writs of seizure and sale. He argued that when, in 2014, the
    Battistas postponed their first mortgage in favour of two other mortgages on
    the Sedona property, they materially altered the risk on his guarantee, thereby
    terminating it.

[3]

The application judge dismissed the application. Posocco appeals,
    seeking to set aside the Posocco Judgment and related writs. He also seeks a
    declaration that his guarantee has become void and unenforceable, relief he
    did not request in his notice of application.

[4]

I would dismiss the part of the appeal that seeks to set aside the
    Posocco Judgment. In my view, the application judge reasonably interpreted
    Posoccos guarantee as permitting the Battistas to postpone their first
    mortgage without Posoccos consent, and the validity of the Posocco Judgment
    was not affected by the postponements. However, I would allow that part of the
    appeal based on the fresh evidence Posocco filed about a foreclosure judgment
    obtained on the Sedona property. In my view, the fresh evidence raises an issue
    about the effect of the foreclosure judgment on the enforceability of the
    Posocco Judgment and related writs. I would remit that issue back to the
    application judge for a further hearing.

II.       FACTS

[5]

The material facts are not in dispute. Posocco is the president of
    Sedona, which owned a development property in Mississauga. In November 2008,
    Sedona granted a one-year first mortgage on the property to Nancy Battista in
    the principal amount of $700,000 (the Battista Mortgage).

[6]

The Battista Mortgage matured in November 2009. Several extensions to
    the mortgage maturity date were granted. To obtain one of the extensions,
    Posocco provided a personal guarantee to the Battistas dated December 22, 2011,
    guaranteeing due payment by Sedona of all sums of money loaned by the Battistas
    to Sedona (the Guarantee).

[7]

The Battistas granted a final extension of the mortgage until December
    31, 2012. Sedona did not pay the mortgage. The Battistas commenced an action on
    their mortgage.

[8]

By then, Sedona had granted two subsequent mortgages against its property:
    a second mortgage for $1 million to the respondent, Casimiro Holdings Inc.
    (Casimiro), and a third mortgage for $450,000 to Raimondo Holdings Inc.,
    which was assigned to Casimiro in September 2014.

[9]

On June 19, 2013, the Battistas obtained a consent judgment ordering the
    sale of the property and granting judgment against Sedona in the amount of
    $758,540.32 (the Sedona Judgment).

[10]

The Battistas then commenced an action on the Guarantee against Posocco,
    and obtained the Posocco Judgment on February 21, 2014.

[11]

On February 25, 2014, the Battistas filed a writ of seizure and sale against
    Posocco in respect of the Posocco Judgment.

[12]

On April 7, 2014, the Battistas assigned their beneficial interest in
    the Battista Mortgage, the Guarantee, the Posocco Judgment, and the Sedona
    Judgment to Justam Holdings Limited, a company with the same principal as Casimiro,
    Mr. Jose Casimiro. The assignment of the interest in the Battista Mortgage was
    not registered on title because, under the assignment agreement, the Battistas
    continued to hold legal title to all debt claims against Sedona and Posocco.
    Justam gave notice of the assignment to Posocco by counsels letter of April
    29, 2014. Posocco does not suggest that the assignment was not permitted by the
    terms of the Battista Mortgage.

[13]

On September 23, 2014, Raimondo transferred its third mortgage to
    Casimiro. So, by that point in time, companies controlled by Jose Casimiro held
    the three mortgages on the Sedona property.

[14]

Then occurred the two events that lie at the heart of this appeal.

[15]

First, on May 22, 2015, postponements of the Battista Mortgage to the
    second and third mortgages then held by Casimiro were registered on title. At
    the time, Posocco was not aware of the postponements, nor did he consent to
    them.

[16]

Next, Casimiro commenced a foreclosure action in June 2015 under its
    mortgage which, prior to the postponements, had stood second to the Battista
    Mortgage. The statement of claim was served on Posocco.

[17]

Casimiro obtained a judgment on August 14, 2015 foreclosing the right,
    title and equity of redemption of Sedona and the Battistas in the property. That
    Foreclosure Judgment was not before the application judge, and Posocco seeks to
    adduce fresh evidence about it.

[18]

In September 2015, Posocco started an application to set aside the
    Posocco Judgment and related writs. In support of his application, Posocco
    deposed that the postponements of the Battista Mortgage to Casimiros second
    and third mortgages materially altered the risk he had assumed in giving his Guarantee
    because the postponements rendered the Battista Mortgage worthless. Posocco
    argued that, as a result of that material change to which he had not given his
    consent, his Guarantee was no longer enforceable.

[19]

The application judge dismissed Posoccos application. He interpreted
    the Guarantee as permitting the postponement of the Battista Mortgage without Posoccos
    consent.

III.       THE STANDARD OF REVIEW

[20]

In his submissions, Posocco does not address the standard of review
    applicable to the application judges interpretation of the Guarantee, but he
    argues that a proper interpretation of the Guarantee would arrive at a
    different result than that reached below.

[21]

The respondents submit that the interpretation of a non-standard form
    contract, such as the Guarantee, raises a question of mixed fact and law, which
    attracts review on a palpable and overriding error standard, unless extricable
    errors of law are evident:
Sattva Capital Corp. v. Creston Moly Corp
,
    2014 SCC 53;
Energy Fundamentals Group Inc. v. Veresen,
2015 ONCA 514,
    at para. 29.

[22]

There is no dispute that the Guarantee was prepared by the Battistas.
    However, the Guarantee is not a pre-printed contract of adhesion prepared by an
    institutional lender, the interpretation of which would attract review on a
    correctness standard:
MacDonald v. Chicago Title Insurance Company of
    Canada,
2015 ONCA 842, at paras. 40-41. The Guarantee was sought by the
    estate of an individual lender in response to requests by Sedona to extend the
    term of the Battista Mortgage. The language of the Guarantee affects only the
    legal obligations of the present parties  the Battistas (and their assigns)
    and Posocco. As a result, the
Sattva
standard of review applies to the
    interpretation of the Guarantee.

IV.      THE ISSUES

[23]

Posocco raises three main issues on this appeal:

(i)

The first issue focuses on the changes in the
    guarantors risk permitted by the terms of the Guarantee. Posocco argues the application
    judge erred in interpreting the Guarantee as allowing the creditor, the
    Battistas, to postpone the Battista Mortgage to other security, without
    Posoccos consent, and without terminating Posoccos liability under the
    Guarantee;

(ii)

The second issue focuses on the effect of the
    postponement of a mortgage on a guarantors subrogation rights to any security
    held in respect of the guaranteed obligation. Posocco submits the postponement
    of the Battista Mortgage rendered it worthless. The resulting inability of the
    Battistas to return valuable mortgage security to Posocco in the event he paid
    the Posocco Judgment rendered the Guarantee unenforceable; and

(iii)

The third issue focuses on the effect of
    foreclosure on the obligation to pay the mortgage debt, which is the guaranteed
    obligation. The fresh evidence shows that Casimiro obtained and registered the
    Foreclosure Judgment. Posocco contends that by foreclosing on the right, title
    and interest of Sedona and the Battistas in the property, Casimiro looked to
    the property to satisfy its claims. As a result, the Posocco Judgment and
    associated writs should not be enforced.

V.       FIRST ISSUE: THE INTERPRETATION OF THE
    GUARANTEE

The applicable principles of
    interpretation

[24]

In his reasons, the application judge correctly identified the basic
    principles concerning how a material alteration of the terms of the underlying contract
    of debt affects a guarantors continuing liability under a guarantee: (i) at
    common law and equity,
a guarantor will be released from liability on a guarantee in
    circumstances where the creditor and the principal debtor agree to a material
    alteration of the terms of the contract of debt without the consent of the
    guarantor; however, (ii) it is open to the parties to make their own
    arrangements, so a guarantor can contract out of the protection afforded by the
    common law or equity:
Manulife Bank of Canada v. Conlin
, [1996] 3 S.C.R.
    415, at paras. 2 and 4.

[25]

The application judge also correctly
    recognized
that determining the continuing liability of a guarantor
    requires
determining the intention of the
    parties as demonstrated by the words of the guarantee, as well as the events
    and circumstances surrounding the transaction as a whole:
Conlin
, at para. 6.

[26]

The
Conlin
decision summarizes several additional principles of
    interpretation applicable to guarantees:

(i)
    any contracting out of a guarantors protection against a material alteration
    of the terms of the contract of debt without his consent must be clear;

(ii)
    whether the guarantor contracted out of those protections must be determined by
    an interpretation of the clauses of the agreement, through a consideration of
    the transaction as a whole, and the application of the appropriate rules of
    construction;

(iii)
    any ambiguity in the terms used in the guarantee should be construed against
    the party which drew it by applying the

contra
    proferentem

rule;


(iv)
    if there is a doubt or ambiguity as to the construction or meaning of the
    clauses binding the guarantor, they must be strictly interpreted and resolved
    in favour of the guarantor; and

(v)
    the clauses binding guarantors must be strictly construed:
Conlin,
at paras. 4, 8, 15 and 22.

The Meaning of s. 2(iii) of the
    Guarantee

[27]

The dispute between the parties is a narrow one, with each advancing
    different interpretations of s. 2(iii) of the Guarantee which reads as follows:

2. The Guarantor agrees (except
    as specifically stated) as follows:



(iii) The Creditor, in its
    absolute discretion and without diminishing the liability of the Guarantor, may
    grant time or other indulgences to the Borrower or any other person or persons
    liable to the Creditor in respect of the principal sum and interest and may
    give up, modify, vary, exchange, renew or abstaining from, perfecting or taking
    advantage of any Promissory Note, or any security in whole or in part, and may
    discharge any part or parts or accept any composition or arrangement or realize
    upon the Promissory Note or any security when and in such manner as the
    Creditor or any officer thereof may think expedient, and in no case shall the
    Creditor be responsible for any neglect or omission with respect to any such
    security. Any accounts settled or stated by or between the Creditor and the
    Borrower or admitted by or on behalf of the Borrower may be adduced by the
    Creditor and shall in that case be accepted by the Guarantor as conclusive
    evidence that the balance or amount thereof thereby appearing is due by the
    Borrower to the Creditor.

[28]

Posocco acknowledges that where a
    guarantee is given as further security for a mortgage debt, a guarantor can
    agree that a postponement of the underlying mortgage security will not affect
    his liability on the guarantee. However, he argues that on a proper and narrow
    interpretation of s. 2(iii) which resolves any ambiguity in his favour, the
    section only deals with affairs between the creditor, the Battistas, and the
    borrower, Sedona, and does not include language which would allow the creditor
    to postpone its mortgage security to a third party - such as another creditor -
    without Posoccos consent.

[29]

For their part, the respondents point to the language in s. 2(iii)
    stating that the creditor 
may give up, modify,
    vary, exchange, renew or abstaining (sic) from, perfecting or taking advantage
    of  any security in whole or in part. This language, they contend, permits
    the creditor to postpone the Battista Mortgage to other third party mortgages
    on the Sedona property without the consent of the guarantor, Posocco.

[30]

The application judge accepted the respondents interpretation of s.
    2(iii) of the Guarantee stating, at paras. 7-8:

Under the terms of the Guarantee, the applicant undertook
    liability notwithstanding any neglect or default of the creditor which might
    otherwise operate as a discharge, whether partial or absolute, of the Guarantor
    if it were a surety only of the Borrower: para. 2(ii) of the Guarantee. The
    applicant also explicitly contracted to allow the creditor to vary any
    security, in whole or in part, without the creditor being responsible for any
    neglect or omission with respect to any such security: para. 2(iii) of the
    Guarantee.

The language used in the Guarantee indicates that the intention
    of the parties was to ensure that the applicants liabilities remained
    extremely broad even if the mortgage arrangements were altered in a material
    fashion. The terminology contained in para. 2(iii) permitting the creditor to
    vary any security in whole or part must be read to include the subordination
    or postponement of the mortgages. It follows therefore that I reject the
    applicants argument that the terms postponement and subordination were
    required to be expressly stipulated in these paragraphs before the applicant
    could be held to have contracted out of his common law protection. By agreeing [to]
    the terms of the Guarantee, the applicant, agreed to forgo his common law
    rights.

[31]

In my view, the application judge arrived at a reasonable interpretation
    of s. 2(iii) of the Guarantee in light of the applicable principles of
    interpretation. Three reasons support the application judges interpretation
    that s. 2(iii) of the Guarantee permitted the postponement of the Battista
    Mortgage to the other mortgage security Sedona had granted to Casimiro and
    Raimondo.

[32]

First, s. 2(iii) identifies matters which concern both the relationship
    between the creditor and the borrower  such as granting indulgences to Sedona 
    as well as those which concern the creditors ability to deal with the security
    it holds in respect of the underlying debt, including giving up, modifying and
    discharging the security.

[33]

Second, in s. 2(iii), Posocco, as guarantor, agreed that the creditor,
    in its absolute discretion and without diminishing the liability of the
    Guarantor, may give up, modify, vary, exchange, renew or abstaining (sic)
    from, perfecting or taking advantage ofany security in whole or in part. The
    terms modify and vary are broad terms of alteration and, when read in the
    context of s. 2(iii) as a whole, are not ambiguous. The postponement of a
    mortgage involves the modification or variation of a mortgage, specifically the
    priority of the mortgage, and therefore would fall within the ambit of those
    terms.

[34]

Third, given that s. 2(iii) of the Guarantee permits the creditor to
    give up the mortgage security or to discharge any part[of] any security
    when and in such manner as the Creditormay think expedient, in its absolute
    discretion and without diminishing the liability of the Guarantor, it is
    difficult to see how a lesser act  the postponement of the priority of the
    mortgage  would not fall within the terms modify or vary.

[35]

Given the breadth of the alterations s. 2(iii) authorizes the creditor
    to make to the mortgage security without diminishing the liability of the
    Guarantor, the application judge reasonably concluded that the Battistas
    postponement of their first mortgage fell within the permitted alterations.
    Although a postponement of the Battista Mortgage certainly would change Posoccos
    risks, under the plain language of s. 2(iii) Posocco had agreed that the
    creditor could alter his risk in that fashion in the creditors absolute
    discretion and without diminishing the liability of the Guarantor.

[36]

Although that is sufficient to dispose of this ground of appeal based
    upon the arguments advanced before the application judge and this court, I
    would add one observation. In my view, it is not at all clear that the common
    law protection afforded to guarantors against non-consensual material
    alterations in their risk would apply where a guarantor's liability under a
    guarantee had already been fixed by judgment
before
the material
    alteration took place.

[37]

In the present case, the Battistas obtained judgment against the
    borrower, Sedona, in June 2013, and judgment against Posocco on his Guarantee
    in February 2014. In other words, the borrower defaulted, and the creditor
    called on the Guarantee. The assignment and postponement of the Battista
    Mortgage took place after Posocco was adjudged liable on his Guarantee for
    $794,471.41.

[38]

The principle that a guarantor will be released from liability where his
    creditor materially alters the terms of the underlying contract of debt without
    his consent seeks to protect the guarantor against future risks for which he
    did not contract  i.e. the increased risk of a future default by the principal
    debtor resulting from the altered terms of the underlying debt. If those risks
    are altered without his consent, the common law releases the guarantor from
    liability for any default made by the primary debtor after the terms of risk have
    changed:
Conlin,
at paras. 2-3.

[39]

I therefore have difficulty seeing how the common law protection would
    assist a guarantor whose liability under a guarantee already had been crystallized
    and fixed by judgment following a default by the principal debtor, but before
    any material alterations were made to the underlying contract of debt. It
    strikes me that the liability of the guarantor under the guarantee would merge
    in the judgment. However, since the parties did not raise this issue below or
    before us, it is not necessary to decide it.

VI.      SECOND ISSUE: THE ENFORCEABILITY OF THE POSOCCO JUDGMENT
    IN LIGHT OF THE POSTPONEMENT OF THE BATTISTA MORTGAGE TO A POSITION OF NO VALUE

[40]

Posocco advances a second argument in support of his position that a
    postponement of the Battista Mortgage without his consent should terminate his
    obligations under the Guarantee. This ground concerns the right of subrogation
    a guarantor enjoys to any security held in respect of the guaranteed
    obligation: Kevin McGuinness,
The Law of Guarantee,
3d ed. (Markham: LexisNexis
    Canada, 2013), at para. 10.24.

[41]

Posocco relies on s. 2(1) of the
Mercantile Law Amendment Act,
R.S.O. 1990, c. M.10, which provides that where a surety pays the debt of
    another, the surety is entitled to have assigned to it every judgment,
    specialty or other security that is held by the creditor in respect of the debt.
    Posocco argues that the postponement of the Battista Mortgage rendered it
    worthless, thereby depriving Posocco of his right to an assignment of the
    security in the event he paid the debt.

[42]

Section 2(1) of the Act does not assist Posocco because it only entitles
    a surety to an assignment of the security where he has actually paid the debt,
    which Posocco has not done:
George and Asmussen Ltd. v. MCM Projects Inc.
(1992),
    6 O.R. (3d) 645 (Ont. Ct. J. (Gen. Div.)), at p. 648.

[43]

However, in
Bauer v. Bank of Montreal
, [1980] 2 S.C.R. 102, the Supreme Court of Canada stated, at p. 106,
    that where a creditor holds security for the performance of the obligations of
    a debtor or a surety, [t]he creditor, in the absence of agreement to the
    contrary with the debtor or the surety, must protect and preserve the security
    and be in a position, unless excused by other agreement, to return or reassign
    the security to the debtor or surety on repayment of the debt.

[44]

Posocco submits that by postponing their
    first mortgage to the second and third charges on the property, the Battistas
    rendered the first mortgage worthless, thereby preventing the return to Posocco
    of security with value should he ever decide to repay the guaranteed debt.

[45]

The application judge did not address this point in his reasons; it is
    unclear from the record whether the issue was even argued before him.  In any
    event, I would not give effect to Posoccos argument because the Guarantee
    contains an agreement to the contrary, in the language of the
Bauer
case.
    Specifically, s. 2(iv) of the Guarantee provides, in part:

[I]f the Guarantor pays to the Creditor all the money remaining
    unpaid, then the Guarantor shall be entitled, on demand made by it in writing
    to the Creditor, to the assignment of such of the security as remains in the
    Creditor at the times such notice is received by it.

[46]

By agreeing to s. 2(iv), Posocco limited his right of subrogation to any
    security. He expressly acknowledged that if and when he paid the amount owing
    under the Guarantee, he would be entitled only to an assignment of such of the
    security as remains in the Creditor. Given that s. 2(iii) permitted the
    creditor to give up or discharge the mortgage security without Posoccos
    consent, the language of the Guarantee specifically contemplates that no
    security might remain at the time Posocco paid the guaranteed debt, yet that
    would not diminish his liability as guarantor.

[47]

Moreover, in s. 2(ii) of the Guarantee, Posocco agreed
    that he would continue to be liable under all the covenants and terms and
    conditions as agreed upon between the Creditor and the Borrowernotwithstanding
    the releasing in whole or in part of any security held by the Creditor from
    time to time Accordingly, I would not give effect to this ground of appeal.


THIRD ISSUE: THE EFFECT OF THE FORECLOSURE
    JUDGMENT ON THE ENFORCEABLITY OF THE POSOCCO JUDGMENT

[48]

Posocco raises
    one final ground of appeal, a ground related to the fresh evidence he seeks to
    adduce. He submits that the registration of the Foreclosure Judgment renders
    the Posocco Judgment and associated writs unenforceable because the Foreclosure
    Judgment had the effect of extinguishing the guaranteed obligation.

The Evidence

[49]

In August 2015,
    Casimiro obtained the Foreclosure Judgment pursuant to its mortgage, which
    originally stood in second place, but moved up to first as a result of the
    postponements. Although the evidence before the application judge included the
    fact that Casimiro had initiated foreclosure proceedings, the Foreclosure
    Judgment was not brought to the application judges attention. Posocco contends
    that he was not aware of the Foreclosure Judgment at the time of the hearing
    before the application judge.

[50]

Posocco sought
    to file fresh evidence on this appeal that the Foreclosure Judgment was
    registered on title on December 15, 2015; the motion was not opposed.

Positions of the parties

[51]

Posocco submits
Casimiro elected to recover the interests of itself
    and Justam Holdings, a related company, in the mortgages on the Sedona property
by
foreclosing
    on the right, title and interest of Sedona and the Battistas in the property.
    In Posoccos view, that renders the Posocco Judgment unenforceable.

[52]

The Casimiro Respondents concede that as
    a result of the Foreclosure Judgment, all debts due under the (second, subsequently
    first) Casimiro mortgage were satisfied. However, they submit that the debts related
    to the Battista Mortgage, including the Posocco Judgment, remain due. They
    argue that no judicial authority supports the proposition that debts secured by
    a third mortgage (the ultimate position of the Battista Mortgage) are released
    when a first mortgagee (Casimiro) exercises its right of foreclosure. As well,
    they take the position that by the terms of the Guarantee, Posocco promised
    that he would pay the guaranteed debt even if the mortgage had been discharged,
    so he should be held to his bargain.

Analysis

[53]

Although the
    respondents did not oppose the fresh evidence, its admission is governed by the
    test established in
Palmer v. The Queen
, [1980] 1 S.C.R. 759, at p. 775.
    In my view, Posocco has satisfied the due diligence requirement, and the
    evidence is relevant and credible. As well, had the Foreclosure Judgment been before
    the application judge, it could have affected the result. I would therefore
    allow Posoccos motion to adduce the fresh evidence of the obtaining and
    registration of the Foreclosure Judgment.

[54]

However, I have
    significant reservations that it would be appropriate for this court to decide
    the issue of the effect of the Foreclosure Judgment on the enforceability of
    the Posocco Judgment and related writs. For whatever reason, a full record on
    this issue was not before the application judge, and it appears the issue was
    not argued before him. Consequently, we do not have the benefit of the reasons
    of the court below based on a review of a full record.

[55]

What the record
    before us does reveal is that at the time of the postponements of the Battista
    Mortgage, all the mortgages on the property were held by related parties. Mr.
    Casimiro, through his corporations, controlled all three mortgages. As a
    result, whether subsequent encumbrancers would exercise rights of redemption in
    response to Casimiros foreclosure proceeding lay completely within the control
    of the senior mortgagee, Casimiro.

[56]

Further, as a
    result of the registration of the Foreclosure Judgment, the Battista Mortgage,
    the Raimondo mortgage and the postponements were deleted from title. The
    abstract of title records the amount of the Foreclosure Judgment as $2.15
    million, which is the aggregate of the principal amounts of the Battista
    Mortgage ($700,000), the Casimiro second mortgage ($1 million), and the
    Raimondo third mortgage ($450,000).

[57]

It is the
    position of the beneficial holder of the Battista Mortgage, Justam Holdings,
    that although the Foreclosure Judgment extinguished the debt under the first,
    Casimiro mortgage, the amounts due under the postponed Battista Mortgage 
    including the Sedona Judgment and Posocco Judgment  remain due and owing.

[58]

Yet, the law
    provides that in order to bring an action on the mortgage covenant, the
    mortgagee must be able to re-convey the property upon payment of the debt. An
    exception exists in the case of a junior mortgagee. Such a mortgagee may bring
    an action on the covenant, despite a prior foreclosure, where the junior
    mortgagee did not initiate the foreclosure proceeding and was not responsible
    for the loss of the security:
Halsburys Laws of Canada,
Mortgages,
    (Markham: LexisNexis Canada, 2011), at para. HMO-73 Second Mortgage.

[59]

As applied to
    the facts of the present case, these principles of law raise the question as to
    whether the Foreclosure Judgment obtained by the senior mortgagee, Casimiro  a
    company related to the junior mortgagee, Justam Holdings  would affect the
    enforceability of a judgment in respect of the junior mortgage debt where the
    junior mortgagee was no longer in a position to reconvey the property upon
    payment of the debt because it had participated in a postponement transaction
    which resulted in the loss of the security. If, in those circumstances, a
    foreclosure could extinguish a junior mortgage debt, arguably it might
    extinguish the related guarantee obligation.

[60]

Posocco raised this
    issue in connection with his fresh evidence motion. At para. 43 of his factum,
    he argues that by foreclosing after the postponements, Casimiro elected not to
    pursue any debt obligations of [Posocco]. Unfortunately, none of the parties
    squarely addressed this issue or provided full argument on it.

[61]

In those
    circumstances, since the issue was not argued before the application judge, but
    does arise on the facts of the case given the registration of the Foreclosure
    Judgment, in my view the appropriate course of action is to remit to the
    application judge for further hearing the issue of the effect of the
    Foreclosure Judgment on the enforceability of the Posocco Judgment and related writs.

VIII.    DISPOSITION

[62]

The application sought to set aside the Posocco Judgment and related writs.
    The application was dismissed. For the reasons set out above, I would dismiss
    the appeal from the refusal of the application judge to set aside the Posocco
    Judgment: the real issue is not the Posocco Judgments validity, but its
    enforceability in light of the Foreclosure Judgment. I would allow the appeal
    to the extent of remitting for a further hearing before the application judge
    the issue of the effect of the Foreclosure Judgment on the enforceability of
    the Posocco Judgment, including the enforceability of any writs of seizure and
    sale filed pursuant to it.

[63]

In light of the divided success on this appeal, I would make no order as
    to the costs of the appeal.

Released: May 31, 2016 DB

David
    Brown J.A.

I
    agree John Laskin J.A.

I
    agree S.E. Pepall J.A.


