



COURT OF APPEAL FOR ONTARIO

CITATION: S.A. v. A.A., 2017 ONCA 243

DATE: 20170327

DOCKET: C60864

Feldman, Simmons and Lauwers JJ.A.

BETWEEN

S.A.

Appellant

and

A.A. and Z.G.

Respondents

William Friedman, Judy Hamilton and
    Mark A. Russell, for the appellant

Harold Niman and Deborah MacKenzie, for the respondent Z.G.

Heard: August 24, 2016

On appeal from the judgment of Justice Emile R. Kruzick
    of the Superior Court of Justice, dated July 14, 2015, with reasons reported at
    2015 ONSC 4397.

By the Court:


[1]

S.A. is A.A.s father, and Z.G.s former father-in-law. For convenience
    and ease of reference, these reasons will refer to S.A. as the father, to A.A.
    as the husband, and to Z.G. as the wife.

A.

Overview

[2]

The trial judge heard two matters that were consolidated, and heard one
    after the other. The trial judge heard the fathers mortgage action against the
    husband and wife, followed by the matrimonial dispute between the husband and
    the wife, and issued consolidated reasons.

[3]

We heard the fathers appeal in the mortgage action and reserved the
    decision. On the wifes motion we adjourned the husbands appeal in the
    matrimonial dispute because he had not complied with the orders of the trial
    judge requiring the payment of spousal support and the posting of security for
    future spousal support payments:
A.A. v. Z.G.
,
2016 ONCA 660. Some weeks later the
    matter came back before the panel, and in light of the husbands failure to
    make the payments, his appeal was dismissed:
A.A. v. Z.G.
,
2016 ONCA 737.

[4]

These are the reasons in the mortgage appeal.

B.

The Facts

[5]

The husband and the wife
were married in 1991. They had a turbulent relationship, with at
    least two separations before the final breakup of the marriage in 2008. They
    lived affluently, with the husband concentrating on business matters, and the
    wife concentrating on raising their son. The wife was qualified in 1995 as a
    real estate sales agent and later as a broker, and worked part time outside the
    home throughout the marriage. The husband owned a company that manufactured
    exterior and interior mouldings for commercial and residential units.

[6]

In April 2005 the
    couple purchased a property for $1,030,000. This was the matrimonial home at
    the date of separation. A first mortgage was registered on the property in the
    amount of $700,000 with HSBC as the lender.

[7]

The couple had the
    original house demolished and began construction of a new home on the property.
    On January 6, 2006 a second mortgage in the amount of $800,000 was registered
    with the father as mortgagee. The mortgage did not require periodic payments or
    the payment of interest, and the principal was due on July 1, 2006.

[8]

The father, husband
    and wife were all parties to the second mortgage. The mortgage was prepared by
    Donald Grant, a lawyer who acted for all three parties. Mr. Grant was well
    known to the family, having been engaged by them on other transactions. He
    advised each of the parties to obtain independent legal advice, but they
    declined to do so.

[9]

A company owned in
    part by the husband, 808276 Ontario Inc. (808), made payments that funded the
    construction of the new home. The father claims these payments were his
    advances under the mortgage. When 808 was originally incorporated, it was owned
    98% by the husband and 2% by the father. The shareholdings of 808 were
    restructured in 1993 and 2003. The father no longer owns shares in 808. On the
    trial judges findings, funds were historically paid to the husband through 808
    and 808 existed largely for the husbands benefit. There was also evidence that
    the father used 808 as an income splitting tool.

[10]

The husband and the
    wife separated on June 12, 2008. The father did not demand repayment of the
    mortgage until August 2008, after the separation. He issued a statement of
    claim to enforce the mortgage against the husband and the wife on November 18,
    2008, the same day on which the husband initiated his divorce application.

[11]

The husband did not defend
    the mortgage action and default judgment against him in his fathers favour was
    entered on March 23, 2009. However, following a trial, the fathers action to
    enforce the mortgage against the wife was dismissed.  That dismissal is the
    subject of this appeal.

C.

The Decision under Appeal

The
    Fathers Mortgage

[12]

The trial judge set the context for the origination of the mortgage, at
    para. 102:

The fathers fears that the marriage was not stable compelled
    him to insist on a marriage contract and then the mortgage. With these
    concerns, the father nevertheless provided funding for the construction.
    Clearly, the father and the husband wanted to protect the husbands interest in
    the property given that it would be an investment in excess of $2 million.

[13]

In the face of two previous separations between the husband and the
    wife, the father was reluctant to finance the construction of the new house
    without financial protection for his son (at para. 71). He initially requested
    that the husband and wife enter into a marriage contract, but the wife refused
    (at paras. 31, 35), even in the face of alleged physical abuse by her husband (at
    para. 72).

[14]

Although the wife refused to sign the requested marriage contract, she
    did sign the mortgage at the husbands insistence, because otherwise the father
    would not have provided the funds to build their new house (at paras. 35-36).
    The trial judge made the following finding of fact: When the wife refused to
    enter a marriage contract, I find the father insisted on this self-serving
    mortgage in an effort to protect his son (at para. 71).

Advances of Money

[15]

The fathers evidence was that during the construction period he advanced
    funds in excess of $900,000 although the face value of the mortgage was
    $800,000 (at para. 45). The funds were paid directly to the husband, the wife,
    the contractors, or the sub-trades.

[16]

The trial judge accepted the evidence of the builders principal that
    the invoice amount for the house construction was $1,147,033.44, and that the
    record shows that some $889,750 of the construction costs came from the sources
    of the father (at para. 79).

D.

The Trial Judges Analysis

[17]

The trial judge provided three reasons for his finding that the
    mortgage was unenforceable against the wife. First, the wife signed the
    mortgage under some form of pressure or duress (at paras. 39, 101(j), (k), (l),
    106). Second, the mortgage was a sham designed to achieve indirectly what the
    husband could not accomplish directly through a marriage contract (at paras.
    100, 104). Third, the father had not proven that the money he provided to fund
    construction of the matrimonial home was advanced under the mortgage (at para.
    96).

E.

Analysis

[18]

We address each of the trial judges findings in order. Our conclusions
    are as follows. First, the trial judge erred in determining the mortgage was
    unenforceable on the basis that the wife signed it under some form of pressure
    or duress. The trial judge did not apply the proper test and the facts do not
    support the finding.

[19]

Second, the trial judge erred in finding that the mortgage was a sham
    from the outset. The trial judge misapplied the sham test.

[20]

Third, however, the trial judge did not err in finding that the father
    had not proven that he made advances under the mortgage. On this ground alone,
    the trial judge was correct in dismissing the fathers action.

[21]

We now explain these conclusions in more detail.

(1)

The Wifes Signature on the Mortgage Was Not Obtained By Duress

[22]

The trial judge did not specify the test he applied in determining that
    the mortgage to the wife was unenforceable on grounds of pressure or duress
    (which term we use in a general sense to catch the matters the trial judge
    addressed).

[23]

The wifes position was that she signed the mortgage with the father
    because she was forced to do so by the husband (at para. 25), and that she
    signed having being coerced by the husband and without independent legal
    advice (at para. 26). The trial judge noted, at para. 27:

The wife maintains that she entered the mortgage in haste and
    without any choice in the matter. She takes the position that given traditional
    [] culture of the family, she obeyed her husband and found herself obliged to
    do as her husband and his father requested.

[24]

The trial judges findings begin at para. 39:

Her evidence, which I accept, is that she reluctantly agreed to
    sign the mortgage. The wife testified that she was afraid and concerned for
    what would happen to her and the couple's plan if she did not accommodate the
    husband and father by entering the mortgage. She also testified that she did
    not want to show any disrespect for the father, whom she liked and esteemed.

[25]

He builds on this, at para. 101(j)  (l), in which he states that the
    wife was told to enter into the mortgage and did not have the benefit of
    independent legal advice; entered into the mortgage pressured by her
    husband; and adds that: The mortgage was imposed on the wife by the father
    and her husband because she refused to enter into a marriage contract with the
    husband. Finally, the trial judge comments, at para. 106: I also accept the [wifes]
    evidence that when she signed the mortgage she did so reluctantly, without
    independent legal advice and feeling pressured by the husband and the father,
    pressure that she felt she could not resist.

[26]

The law will not lightly set aside contracts reached by parties having
    contractual capacity: John D. McCamus,
The Law of Contracts
,
2d ed. (Toronto: Irwin Law, 2012), at p.
    378. Duress is one basis upon which an otherwise valid contract can be rendered
    unenforceable.

[27]

This court set out the test in
Hill v. Forbes
, 2007 ONCA 443, 225
    O.A.C. 74, at para. 12, citing the earlier case of
Stott v. Merit Investment
    Corp
(1988), 63 O.R. (2d) 545, 1988 CarswellOnt 887 (C.A.), at para. 48 (WL
    Can):

But not all pressure, economic or otherwise, is recognized as
    constituting duress. It must be a pressure which the law does not regard
    as legitimate and it must be applied to such a degree as to amount to "a
    coercion of the will", to use an expression found in English authorities,
    or it must place the party to whom the pressure is directed in a position where
    he has no "realistic alternative" but to submit to it, to adopt the
    suggestion of Professor Waddams (S.M. Waddams,
The Law of Contract
(2
nd
ed.,
    1984), at p. 376 et seq.). Duress has the effect of vitiating consent
    and an agreement obtained through duress is voidable at the instance
    of the party subjected to the duress unless by another agreement or
    through conduct, either express or implied, he affirms the
    impugned contract at a time when he is no longer the victim
    of duress.

[28]

Another formulation of the test applicable to economic duress, taken
    from the
Pao On v. Lau Yiu
, [1979] 3 All E.R. 65 (P.C.), and cited in
Stott
,
    at para. 49 (WL Can), is: the victim must have entered the contract
    against his will, must have had no alternative course open to him, and must
    have been confronted with coercive acts by the party exerting the pressure.

[29]

Where duress is alleged, the contractual obligations often demonstrate
    some element of unusual advantage favouring the party with the dominant power.

[30]

The evidence as laid out by the trial judge does not substantiate the
    finding of duress. There is no doubt that the father was the dominant party, in
    the sense that he had the money to which the husband and wife wanted to have
    access in order to build the house, but they were not under any compulsion to
    do so. The wife clearly wanted to have the house built, and giving a mortgage
    was the only way she was going to get access to the fathers money for that
    purpose. Further, there is nothing to suggest that the father abused his
    bargaining power to obtain more favourable terms. He was not obliged to give
    money to the couple. There is nothing in the terms of the mortgage that render
    it unconscionable. There is, for example, nothing like punitive repayment terms
    or a punitive interest rate.

[31]

As mentioned, the mortgage was prepared by a lawyer who acted for all
    three parties. Mr. Grant testified that he advised each of the parties to obtain
    independent legal advice, but they did not (at para. 41). The mortgage was
    executed in July 2005 and registered on the matrimonial home in January 2006. The
    lawyers reporting memorandum to the father, the husband and the wife was
    excerpted by the trial judge, at para. 43:

As you are aware, the Mortgage is in the amount of $800,000.00
    bears no interest and is to be advanced on an "as need" basis during
    the construction of your new home. It matures on July 1st, 2006. As explained,
    the Mortgage incorporates by reference the Standard Charge Terms No. 200033. We
    reviewed these terms and you appeared to understand same. I also provided you
    with a copy thereof for your records. I understand that the sum of $40,000.00
    has already been advanced.

I further explained that it would be in order for you and for [S.A.]
    to seek independent legal advice but you indicated you did not wish to and
    would not do so.

Finally, I explained that if there arises any difficulty or
    difference with respect to any advance under the Mortgage or its repayment I
    would not be in a position to act for any of the parties hereto.

[32]

Although the trial judge accepted that the wife felt pressured to give
    the mortgage, he did not address the fact that given her employment
    qualifications and experience in real estate, it is highly unlikely that the
    wife did not understand what her rights were in the circumstances. Nor did he
    consider that in refusing to sign the marriage contract, the wife demonstrated
    her independence.

[33]

We respectfully conclude that the trial judges finding that the factual
    circumstances were legally sufficient to constitute duress, and thus render the
    mortgage unenforceable against the wife, amounts to an error in law.

(2)

The Mortgage Was Not a Sham

[34]

As noted by the trial judge, the difficult matrimonial circumstances and
    history gave rise to the fathers desire to protect the money he would provide
    to build the house.

[35]

The trial judge concluded that the mortgage was a sham. He found that
    the mortgage was put in place to trick third party claims, or to recover only
    from the wife if the marriage failed.

[36]

The most commonly cited definition of the sham doctrine is that of Lord
    Diplock in
Snook v. London & West Riding Investments Ltd.
, [1967] 1
    All E.R. 518 (C.A.). He stated, at p. 528, that a sham means:

[A]cts done or documents executed by the parties to the
    "sham" which are intended by them to give to third parties or to the
    court the appearance of creating between the parties the legal rights and
    obligations different from the actual legal rights and obligations (if any)
    which the parties intend to create [F]or acts or documents to be a
    "sham", with whatever legal consequences follow from this, all
    parties thereto must have a common intention that the acts or documents are not
    to create the legal rights and obligations which they give the appearance of
    creating.

[37]

This definition of a sham has been cited many times by all levels of
    Canadian courts, including the Supreme Court of Canada. In
Stubart
    Investments Ltd. v. The Queen
, [1984] 1 S.C.R. 536, 1984 CarswellNat 222,
    at para. 51 (WL Can), Estey J. described the element of deceit as being at
    the heart of the sham doctrine. In discussing the required level of deceit in
Antle
    v. Canada
, 2010 FCA 280, 413 N.R. 128, at para. 20, Noël J.A. held that it
    suffices that the parties to a transaction present it as being different from
    what they know it to be. The majority of cases involving the sham doctrine
    arise in the tax context, but the doctrine has been used in appropriate cases
    to strike down mortgages: see
Moghimi v. Dashi
, 2016 ONSC 2580.

[38]

The trial judge identifies two possible shams at play here. The first
    was to give the mortgage proceeds priority over lien claimants. This is the explanation
    that the wife said her husband gave her at the time he asked her to sign the
    mortgage (at para. 35). The trial judge found this explanation to be plausible
    given the various trades involved in the construction (at para. 38). It was
    one of the reasons specified by the trial judge for finding the mortgage to be
    unenforceable against the wife (at paras. 101, 106).

[39]

The other possible sham was that the mortgage was intended to defeat the
    wifes interest in the increase in the value of the house represented by the
    expended construction funds. But this was the exact purpose of the mortgage and
    would have been quite obvious to the wife, and the basic reason for her reluctance
    to sign it.

[40]

The mortgage here does not meet the requirements of the sham doctrine. To
    the contrary, the transaction was prepared by a lawyer with advice to all
    parties. The mortgage was not a
façade
intended to deceive a third party
    or the courts. The wife was aware of what she was signing, and the legal
    obligations created by her signature. The father fully intended to create a
    legally binding mortgage, even if it was possible that he might never seek to
    enforce it. Far from being a sham, the mortgage created a legally-binding
    obligation on the part of the husband and wife to pay back funds advanced to
    them by the father, which is exactly what it purported to do.

[41]

This case cannot be compared to
Moghimi
, in which the husband
    purported to encumber the matrimonial home with a mortgage from his father, but
    never informed his wife of the existence of the mortgage until separation. In
    that case, the mortgage clearly represented a common intention on the part of
    the husband and the father to defeat the rights of the wife. It is difficult to
    see how the sham doctrine can be applied to a case such as this, where the wife
    is a party to the mortgage prepared by a lawyer with her knowledge and
    participation, and there is no third party being deceived.

[42]

The father was not obliged to provide any funds to the husband and wife.
    The mortgage was a legitimate commercial arrangement by which the father could
    protect the funds he was to provide for the construction of the house for the
    benefit of his son. This is not a nefarious arrangement that deserves the label
    self-serving. In the true sense, any security is intended to serve the
    self-interest of the lender. The nature of the transaction is not more
    suspicious because, had the marriage worked out, the father might have forgiven
    the mortgage eventually.

[43]

Furthermore, with respect, given the operation of the
Construction
    Lien Act
, R.S.O. 1990, c. C.30, in particular s. 78, the explanation that
    the mortgage was intended to defeat potential lien claimants is not plausible.
[i]
The wife was an experienced business woman who had been employed in the
    property development business owned by the father and another owned by his
    brother and would have understood that the existence of the mortgage would not
    necessarily defeat a lien claim.

[44]

The trial judges conclusion that the valid mortgage signed by all
    parties was a sham amounts to an error in law.

(3)

Did the Father prove the advances were made under the mortgage?

[45]

While the mortgage was valid, the father, the named mortgagee, must
    prove that he made advances under it in order to enforce it against the wife.

[46]

It is trite law that a mortgage is only security for the loan of funds
    advanced under it. The term advance does not have a technical meaning. It
    arises most frequently in construction lien cases where the competition is
    between the mortgage lender and lien claimants.

[47]

The meaning of advance was discussed in
Canadian Comstock Co. Ltd.
    v. 186 King Street (London) Ltd
., [1964] 2 O.R. 439, 1964 CarswellOnt 134
    (C.A.). This court affirmed the county court judges interpretation of the term
    as referring primarily to an advance of money.

[48]

The evidence confronted the trial judge with an issue to resolve: did
    the funds purportedly directed by the father to fund the construction
    constitute advances under the mortgage? He concluded they did not.

[49]

To succeed, the appellant must establish that the trial judge made a
    palpable and overriding error of fact in concluding that payments made by
808
to fund the construction were
    not the fathers advances under the mortgage.

[50]

The father had a great deal of difficulty reconstructing the cash flow
    on which he relied to show that he was the source of the construction funds. He
    eventually resorted to a tracing exercise by an expert. The trial judge found the
    tracing evidence to be unconvincing in its specific details because the
    accountant who undertook the task refused to provide the documents referred to
    in his scope of work (at paras. 87-88, 97). Further, we observe that the father
    did not advance funds to the husband and wife, the mortgagors, directly, or at
    their direction to those building the home. There is also no evidence that the
    father observed any of the formalities in the mortgage

[51]

The trial judge concluded, at para. 85, that most of the funds came from
    808.  He noted, I accept that the funding is traced to 808 and the funds came
    from the fathers related company (at para 87).

[52]

The trial judge stated, at paras. 96-97:

The father puts great stock in the tracing of the funds back to
    him.
However, he has not substantiated or corroborated his claim that he
    advanced $800,000 (or any money) under the mortgage
. An analysis of the
    invoices and cheques produced by the father, and purporting to be advances
    under the mortgage, shows that the monies received by the general contractor,
    Pegah Construction, were received from multiple sources. The majority of the
    funds

approximately
    $625,838.96 according to the cheques and invoices produced by the father

came from 808. A portion of the
    alleged advances by the father were paid to D
[]
Inc., a company which was owned by the husband.
    The evidence supports that D
[]
Inc. expended a total of $232,000 on the construction of the home.

Even if I accept the tracing report of Mr. Yabrov,
it does
    not prove that advances of funds made by the father to 808 were made under the
    mortgage
. From the evidence, I am satisfied that the husband always had a
    financial dependency upon the father, from which the husband and wife both
    benefitted. The money which the father provided to 808 benefited the husband
    and the wife. The father now [] obviously regrets any benefit to his former
    daughter-in-law. [Emphasis added.]

[53]

Among the reasons for concluding that the mortgage is unenforceable, the
    trial judge made the following observations, at para. 101(h): A large portion
    of the money later alleged to be advanced under the mortgage came from 808, a
    company in which the father had no interest and in which the husband originally
    held 98% and latterly, at least 24% interest; and, The evidence supports that
    historically funds were paid to the husband through 808 and that the company
    existed largely for the husbands benefit. The trial judge was clearly
    troubled that there had been a history of intermingling of funds between the
    husband and his father, so that it is impossible to say with any degree of
    certainty where the husbands interests stand and the fathers begin (at para.
    89).

[54]

In our view, the funds advanced by 808 to fund the construction cannot
    be both advances under the mortgage, and income to the husband. The trial
    judges uncertainty about the character of the funds comes from the evidence
    about the nature and purpose of 808.

[55]

As the trial judge noted, starting at para. 55, the evidence of the
    fathers accountant Lloyd Raskina was that when 808 was originally
    incorporated, it was owned 98% by the husband and 2% by the father. The shareholding
    was re-structured in 1993 and again in 2003. Mr. Raskinas evidence was that
    808 was used by the father for income splitting purposes. While the father
    and the husband take the position that 808 is the fathers company and he is
    the controlling mind, he owns no shares in it.

[56]

The trial judge noted, at para 84:

The evidence of the father and his accountant, Mr. Raskina, was
    that the father put money into 808. The source of these funds was the father's
    business activities, namely management and consulting fees that the father
    earned. It was, then, the father's evidence that he put these funds into 808 so
    that he could share his income with his three children, one being the husband.
    His evidence was that he did so for income tax purposes. His position is that
    in doing so, he did not intend to benefit his daughter-in-law.

[57]

The evidence is that 808 paid the personal expenses of the family
    pre-separation and has paid those of the husband post-separation. The evidence
    amply substantiates the trial judges finding that the financial affairs of the
    father and the husband have been intermingled.

[58]

The trial judge made no palpable and overriding error in concluding that
    the father did not prove that he had made advances under the mortgage, since at
    least some of the funds flowing from 808 appear to be treated as income in the
    husbands hands for tax purposes as part of an income splitting scheme funded
    by the father. As noted, those payments cannot also be advances under the
    mortgage. It was the fathers task to prove that the 808 payments were advances
    under the mortgage. This he failed to do to the trial judges satisfaction.

F.

Conclusion

[59]

In the result, for the reasons set out above, the appeal is dismissed.
    As agreed by the parties, the respondent is entitled to her costs in the amount
    of $25,000.

Released: PL MAR 27 2017

K.
    Feldman J.A.

Janet
    Simmons J.A.

P. Lauwers J.A.





[i]

Priority over
    mortgages, etc.

78. (1)
Except
    as provided in this section, the liens arising from an improvement have
    priority over all conveyances, mortgages or other agreements affecting the
    owners interest in the premises.  R.S.O. 1990, c. C.30,
    s. 78 (1).

Building mortgage

(2)
Where
    a mortgagee takes a mortgage with the intention to secure the financing of an
    improvement, the liens arising from the improvement have priority over that
    mortgage, and any mortgage taken out to repay that mortgage, to the extent of
    any deficiency in the holdbacks required to be retained by the owner under Part
    IV, irrespective of when that mortgage, or the mortgage taken out to repay it,
    is registered.  R.S.O. 1990, c. C.30, s. 78 (2).

Prior mortgages, prior advances

(3)
Subject
    to subsection (2), and without limiting the effect of subsection (4), all
    conveyances, mortgages or other agreements affecting the owners interest in
    the premises that were registered prior to the time when the first lien arose
    in respect of an improvement have priority over the liens arising from the
    improvement to the extent of the lesser of,

(a) the actual value of the
    premises at the time when the first lien arose; and

(b) the total of all amounts
    that prior to that time were,

(i) advanced in the
    case of a mortgage, and

(ii) advanced or
    secured in the case of a conveyance or other agreement.  R.S.O. 1990,
    c. C.30, s. 78 (3).

Prior mortgages, subsequent advances

(4)
Subject
    to subsection (2), a conveyance, mortgage or other agreement affecting the
    owners interest in the premises that was registered prior to the time when the
    first lien arose in respect of an improvement, has priority, in addition to the
    priority to which it is entitled under subsection (3), over the liens arising
    from the improvement, to the extent of any advance made in respect of that
    conveyance, mortgage or other agreement after the time when the first lien
    arose, unless,

(a) at the time when the
    advance was made, there was a preserved or perfected lien against the premises;
    or

(b) prior to the time when the
    advance was made, the person making the advance had received written notice of
    a lien.  R.S.O. 1990, c. C.30, s. 78 (4).

Special priority against subsequent mortgages

(5)
Where
    a mortgage affecting the owners interest in the premises is registered after the
    time when the first lien arose in respect of an improvement, the liens arising
    from the improvement have priority over the mortgage to the extent of any
    deficiency in the holdbacks required to be retained by the owner under Part
    IV.  R.S.O. 1990, c. C.30, s. 78 (5).

General priority against subsequent mortgages

(6)
Subject
    to subsections (2) and (5), a conveyance, mortgage or other agreement affecting
    the owners interest in the premises that is registered after the time when the
    first lien arose in respect to the improvement, has priority over the liens
    arising from the improvement to the extent of any advance made in respect of
    that conveyance, mortgage or other agreement, unless,

(a) at the time when the
    advance was made, there was a preserved or perfected lien against the premises;
    or

(b) prior to the time when the
    advance was made, the person making the advance had received written notice of
    a lien.  R.S.O. 1990, c. C.30, s. 78 (6).

Advances to trustee under Part IX

(7)
Despite
    anything in this Act, where an amount is advanced to a trustee appointed under
    Part IX as a result of the exercise of any powers conferred upon the trustee
    under that Part,

(a) the interest in the
    premises acquired by the person making the advance takes priority, to the
    extent of the advance, over every lien existing at the date of the trustees
    appointment; and

(b) the amount received is not
    subject to any lien existing at the date of the trustees appointment. 
    R.S.O. 1990, c. C.30, s. 78 (7).

Where postponement

(8)
Despite
    subsections (4) and (6), where a preserved or perfected lien is postponed in
    favour of the interest of some other person in the premises, that person shall
    enjoy priority in accordance with the postponement over,

(a) the postponed lien; and

(b) where an advance is made,
    any unpreserved lien in respect of which no written notice has been received by
    the person in whose favour the postponement is made at the time of the advance,

but nothing in this subsection affects the priority of
    the liens under subsections (2) and (5).  R.S.O. 1990, c. C.30,
    s. 78 (8).

Saving

(9)
Subsections
    (2) and (5) do not apply in respect of a mortgage that was registered prior to
    the 2nd day of April, 1983.  R.S.O. 1990, c. C.30,
    s. 78 (9).

Financial guarantee bond

(10)
A
    purchaser who takes title from a mortgagee takes title to the premises free of
    the priority of the liens created by subsections (2) and (5) where,

(a) a bond of an insurer
    licensed under the
Insurance Act
to write surety and fidelity
    insurance; or

(b) a letter of credit or a
    guarantee from a bank listed in Schedule I or II to the
Bank Act
(Canada),

in a form prescribed is registered on the title to the
    premises, and, upon registration, the security of the bond, letter of credit or
    the guarantee takes the place of the priority created by those subsections, and
    persons who have proved liens have a right of action against the surety on the
    bond or guarantee or the issuer of the letter of credit.  R.S.O. 1990,
    c. C.30, s. 78 (10); 1997, c. 19, s. 30.

Home buyers mortgage

(11)
Subsections
    (2) and (5) do not apply to a mortgage given or assumed by a home buyer. 
    R.S.O. 1990, c. C.30, s. 78 (11).


