



COURT OF APPEAL FOR ONTARIO

CITATION: C & K Mortgage Services Inc.
    v. Camilla Court Homes Inc., 2020 ONCA 817

DATE: 20201217

DOCKET:
C68751

Strathy C.J.O., Huscroft and
    Roberts JJ.A.

BETWEEN

C & K Mortgage Services Inc.

Applicant (Respondent)

and

Camilla Court Homes Inc. and
    Elite Homes Inc.

Respondents (Respondents)

Richard Macklin and Wei Jiang, for the
    appellant Yong Yeow Tan

David Preger and David Seifer, for the
    respondent C & K Mortgage Services Inc.

Eric Golden and Elsir Tawfik, for the receiver
    of the respondents Camilla Court Homes Inc. and Elite Home Inc.

Heard by videoconference:
    December 7, 2020

On appeal from the order of Justice Bernadette
    Dietrich of the Superior Court of Justice, dated August 27, 2020, with reasons
    reported at 2020 ONSC 5071, 82 C.B.R. (6th) 289.

REASONS FOR DECISION


[1]

This is an appeal from the decision of the
    motion judge, dismissing the appellants motion for an order directing that the
    court-appointed receiver of Elite Homes Inc. and Camilla Court Homes Inc., Rosen
    Goldberg Inc., refrain from disclaiming the agreement of purchase and sale (APS)
    between the appellant and Elite Homes and requiring the APS to be completed.

[2]

The appeal in this matter was dismissed on
    December 8, 2020 with reasons to follow. These are the reasons.

BACKGROUND

[3]

The appellant, the interested party Mr. Yong
    Yeow Jereemy Tan, entered into the APS to purchase a residential unit (the
    Mateo Property) for $1,758,000 in a condominium project being built by Elite
    Homes. He paid a deposit of $500,000, but only $100,000 of that was paid in
    trust to the real estate broker. The remaining $400,000 was paid directly to
    Elite Homes, ostensibly to assist the builder in timely completion of
    construction.

[4]

At the time of the sale, the property was
    subject to a first mortgage given by the respondent owner, Camilla Court, to the
    respondent mortgagee, C&K Mortgage Services Inc. The mortgagee agreed to
    provide partial discharges of the $4.55 million loan for individual house sales
    from the project, provided that it received 100% of the net proceeds, less
    commission, fees, and taxes, and not less than $1.75 million per home.

[5]

The APS was made without the knowledge or authorization
    of C&K Mortgages. It provided, at clause 41 of Schedule A, that the
    agreement is subordinate to and postponed to any mortgage(s) arranged by the
    Vendor.

[6]

Closing was to take place on April 30, 2020 but
    was extended to June 26, 2020. On June 10, 2020, Elite Homes informed C&K
    Mortgages that it would be seeking a discharge of the mortgage to complete the
    sale of the property to the appellant, and that proceeds from the $1,758,000
    sale would be short $400,000, because Elite Homes had used the appellants
    $400,000 deposit to fund ongoing construction and development activity.

The decision to appoint a receiver

[7]

C&K Mortgages applied to have a receiver
    appointed over the assets of Camilla Court and Elite Homes and a hearing was
    held before Conway J. on June 18, 2020. The matter was adjourned to July 2,
    2020, but Conway J. made an interim order that had the effect of freezing the
    status quo. Consequently, the APS could not be closed on the scheduled date, June
    26, 2020.

[8]

The application proceeded on July 2, 2020 and the
    appellant was represented by counsel at the hearing. Conway J. found that the
    first mortgage could not be paid in full from the sale proceeds and that there
    were additional construction liens registered on title. She appointed a
    receiver to finance the remaining construction and to market and sell the
    properties, taking account of the interests of the various stakeholders. The appointment
    of the receiver precluded the closing of the sale of the property to the
    appellant.

[9]

The appellant did not appeal the order of Conway
    J. Subsequently, the receiver decided to disclaim the APS.

The decision of the motion judge

[10]

This is the backdrop against which this appeal
    must be understood. The appellant sought an order requiring the receiver to
    complete the APS rather than disclaim it. The appellant asserted that he had an
    equitable or proprietary interest in the Mateo Property of $500,000, the amount
    he paid as a deposit.

[11]

The motion judge concluded that the receivership
    order authorized the receiver to disclaim any contracts of the debtors,
    including the appellants APS. She noted that the appellants ability to vary
    the order was limited because he did not appeal the receivership order.

[12]

The motion judge considered and rejected the
    appellants argument that he had an equitable or proprietary interest in the
    Mateo Property created prior to Elite Homes receivership. The appellants
    claim was precluded by two provisions of Schedule A to the APS: (i) clause 27,
    which states that the APS does not create an interest in the real property and
    that the appellant shall have no interest in the real property until a
    Transfer/Deed of Land is registered in favour of the Purchaser; and (ii) clause
    41 which, as noted above, provides that the APS is subordinate to and postponed
    to any mortgage(s) arranged by the Vendor. The motion judge also rejected the
    appellants argument that clauses 27 and 41 were inoperative because the APS had
    been terminated. She found that the APS had not been terminated. On the
    contrary, the appellant had attempted to complete the sale and on the motion
    sought an order of specific performance. Further, the receivership order
    provided specifically that the respondents security over the property ranked
    in priority to the interests, if any, of the appellant purchaser.

[13]

In short, the motion judge found that the
    appellant did not have an interest in the Mateo Property that would negate the
    legal priority of C&K Mortgages, nor did the equities justify subordinating
    the respondents legal priority. If the receiver did not disclaim the order and
    instead completed the APS, the appellant would benefit at the expense of the
    respondent, whose interest in the property was secured.

DISCUSSION

[14]

We see no errors of the motion judge that would
    justify the intervention of this court on appeal.

[15]

Assuming that the appellant had a purchasers
    lien on the property as a result of his payment of the money as a deposit,
    clause 27 operated to preclude him from obtaining an interest in the property
    and clause 41 rendered his interest subordinate to the mortgagees.

[16]

The appellant argues that the motion judge
    misapprehended his central argument. The appellant says that he argued the APS
    was not terminated but was breached when the receiver failed to close on June
    26. This breach is said to free him from the effect of clause 27 of Schedule A
    to the APS.

[17]

We disagree. The inability to close on the
    scheduled date did not mean that these clauses no longer applied but the rest
    of the contract did, such that the appellant could continue to seek an order
    for specific performance of the agreement.

[18]

The motion judge properly distinguished the
    cases proffered by the appellant, including
Armadale Properties Ltd. v. 700
    King Street (1997) Ltd.
(2001), 25 C.B.R. (4th) 198 (Ont. S.C.). In that
    case, the purchaser had paid the entire amount owing under the agreement by way
    of deposit, moved into the commercial unit prior to the closing date, and spent
    approximately $80,000 on improvements and moving expenses. In these
    circumstances, the court held that sale to a
bona fide
purchaser prior
    to the bankruptcy was valid and effectual and the receiver could not disclaim
    the contract. The court added that the equitable interest under the contract passed
    prior to the bankruptcy and the purchaser could have obtained an order for
    specific performance prior to the receivership.

[19]

The facts of this case differ starkly. For
    whatever reason, the appellant agreed to pay a deposit of $500,000,
    significantly in excess of what would normally be required, and only $100,000 of
    that amount was paid in trust (to the realtors firm). The other $400,000 was given
    straight to the developer. There is no evidence as to what became of this
    deposit, and in particular no evidence that it went into the property the
    appellant sought to purchase.

[20]

The bottom line is this: The appellant purchased
    land that was subject to a prior mortgage. The property could not be conveyed
    to him unless the mortgage was redeemed in accordance with its provisions, and
    that required a minimum discharge in the amount of $1.75 million. A purchasers
    lien would put the appellant in no better position against the respondent
    mortgagee. The mortgage properly takes precedence.

[21]

The appellant raises a number of additional
    issues in his factum, but in essence these arguments seek to relitigate
    arguments considered and rejected by the motion judge. We see no error in the
    reasons of the motion judge.

[22]

Accordingly, the appeal is dismissed.

[23]

The respondents are entitled to costs of the
    appeal. If the parties cannot agree on costs, they may make brief 2-3 page
    submissions to this court, along with their bills of costs, within 30 days of
    this decision.

G.R. Strathy
    C.J.O.

Grant Huscroft
    J.A.

L.B. Roberts
    J.A.


