



COURT OF APPEAL FOR ONTARIO

CITATION: DBDC Spadina Ltd. v. Walton, 2016 ONCA 220

DATE: 20160321

DOCKET: C60593

Laskin, Simmons and Huscroft JJ.A.

BETWEEN

DBDC Spadina Ltd. and those corporations listed
    on Schedule A hereto

Applicants

and

Norma
    Walton, Ronauld Walton, The Rose & Thistle Group Ltd.

and
    Eglinton Castle Inc.

Respondents

and

Those
    corporations listed on Schedule B hereto, to be bound by the result

Christopher Sparling, for Junior Academy Inc. and Dibri
    Inc.

Danielle Glatt, for 368230 Ontario Ltd.

Heard: January 25, 2016

On appeal from the order Justice Frank J.C. Newbould of
    the Superior Court of Justice dated May 26, 2015.

By the Court
:

A.

overview

[1]

The issues on appeal relate to the allocation of credits as between the
    purchaser of a property and a tenant following a receivers sale and to the
    distribution of the net proceeds of sale following the receivers sale.

[2]

The appellants, Dibri Inc. and Junior Academy Inc., share common
    principals. The property at issue is 2454 Bayview Avenue, Toronto (the
    property).

[3]

Prior to the receivers sale in January 2015, Dibri held a second
    mortgage on the property and Junior Academy leased the property from the owner.
    Under the vesting order transferring the property to the purchaser, 368230
    Ontario Ltd., Junior Academys lease vested in the purchaser and Dibris second
    mortgage, along with most other encumbrances, was extinguished.
[1]


[4]

Dibri originally purchased the property in 2005 and later built a school
    on the property. Junior Academy operated the school.

[5]

In late 2011, Dibri agreed to sell the
    property to The Rose and Thistle Group Ltd., in trust for a company to be
    incorporated (the first sale agreement). The first sale agreement
    contemplated that Junior Academy would continue as a tenant of the property.

[6]

Around the time of the first sale
    agreement, Junior Academy, Dibri and The Rose and Thistle Group entered into a
    further agreement under which $100,000 would be held back from the purchase
    price to account for an anticipated retroactive realty tax reassessment arising
    from the construction of the school. Instead of this holdback, the parties
    later agreed (the side agreement) that Junior Academy would pay $25,000 to
    Academy Lands Ltd., the company incorporated to complete the first sale
    agreement.

[7]

As contemplated by the first sale
    agreement, in early December 2011, Junior Academy leased the property from
    Academy Lands
[2]
on a net-net basis for about 10 years. Dibri guaranteed
    Junior Academys obligations under the lease for five years. In contemplation
    of the property tax reassessment, the lease required that Junior Academy pay
    $5000 monthly to Academy Lands on account of estimated property taxes. Under
    the lease, in the event the property taxes as assessed were less than the
    amount paid by the Tenant, the Landlord was required to credit the Tenant the
    difference on account of the taxes due for the following year.

[8]

In September 2014, the first mortgagee
    of the property obtained an order appointing msi Spergel inc. as receiver of
    the assets of Academy Lands.

[9]

Following Spergels appointment as
    receiver, Junior Academy stopped paying amounts owing under its lease. On
    December 17, 2014, the motion judge ordered Junior Academy to pay $188,845 on
    account of rent and other arrears to Spergel, without prejudice to Spergels
    right to establish more was owing to the end of December 2014.

[10]

By a vesting order dated January 8,
    2015, Spergel transferred the property to the purchaser.

[11]

Following the transfer, under an order
    dated April 21, 2015, the motion judge directed that $188,845 be held back from
    the initial distribution of the net proceeds of sale (the disputed balance)
    pending determination of: i) whether amounts paid by Junior Academy to Academy
    Lands on account of property taxes under the lease were enforceable against the
    purchaser; and ii) the entitlement of various parties to the disputed balance.

[12]

On a motion brought by Dibri and Junior
    Academy, the motion judge held that the amounts paid by Junior Academy to
    Academy Lands on account of property taxes under its lease are enforceable
    against the purchaser. However, the motion judge also found that the purchaser
    should be paid the amount owing under the December 17, 2014 order from the
    disputed balance, less credit for the property tax overpayments. Finally, the
    motion judge denied Junior Academys request to enforce against the purchaser
    the $25,000 payment made to Academy Lands under the side agreement.

[13]

Junior Academy and Dibri raise three
    issues on appeal:

i)     did the motion judge err in holding that the
    purchaser is entitled to be paid the amount owing under the December 17, 2014
    order;

ii)    did the motion judge err in failing to order that
    the entire disputed balance be paid to Dibri; and

iii)    did the motion judge err in denying Junior Academys
    claim for a $25,000 credit against the purchaser?

[14]

For the reasons that follow, we dismiss
    the appeal.

B.

discussion

1.       Did the motion judge
    err in holding that the purchaser is entitled to be paid the amount owing under
    the December 17, 2014 order?

[15]

The
    appellants claim that the amount Junior Academy owed for arrears under the
    lease merged in the December 17, 2014 judgment and therefore remained the
    property of Academy Lands through its receiver.

[16]

We
    reject this argument. On our review of the vesting order, it operates as an
    assignment of Junior Academys lease to the purchaser and explicitly vests all
    Academy Lands interest in rents in the purchaser.

[17]

Under
    para. 2 of the vesting order all of [Academy Lands] right, title and interest
    in and to the Purchased Assets described in the Sale Agreement  vest[ed]
    absolutely in the [p]urchaser ... free and clear of  all [encumbrances excepting
    permitted encumbrances].

[18]

The
    Sale Agreement referred to in para. 2 of the vesting order is an agreement of
    purchase and sale dated December 1, 2014. It defines Purchased Assets as the
    Land, the Buildings and the Rights. It defines Rights as the right, title
    and interest, if any, of Academy Lands Ltd. in all benefits, advantages 
    income,
rents
and options relating to the Lands
    and the Buildings (emphasis added).

[19]

Moreover,
    Schedule D of the vesting order lists the notice of Junior Academys lease as
    a permitted encumbrance.

[20]

Thus
    the sale documents make clear that all benefits and obligations under the lease,
    including rents, vested in the purchaser.

[21]

The
    appellants relied on two decisions,
Hislop v. Canada (Attorney General)
,
    2007 SCC 10, 1 S.C.R. 429, and
Lew v. Lee
, [1924] S.C.R. 612, for the
    proposition that a cause of action merges in a judgment, such that an appeal
    can be prosecuted in relation to a judgment even after the holder of a personal
    action has died.

[22]

However,
    these case do not go so far as to establish that the December 17, 2014 order,
    which clarified that Junior Academy owed arrears under the lease to the
    receiver, somehow excludes those arrears from the operation of the vesting
    order.

[23]

We
    would not give effect to this ground of appeal.

2.       Did the motion judge err in failing to order that
    the entire disputed balance be paid to Dibri
?

[24]

The
    appellants claim that Dibris second mortgage gives it priority over any
    unsecured claims of the purchaser against Junior Academy for arrears of rent.
    They say that the motion judge therefore erred in failing to direct that the
    entire disputed balance be paid to Dibri on account of the balance owing under
    its second mortgage.

[25]

We
    do not accept this argument.

[26]

In
    concluding that the purchaser was entitled to be paid the rent arrears less the
    property tax overpayment from the disputed balance in priority to Dibri, the
    motion judge said that the parties had consented to the holdback of the
    disputed balance in lieu of the payment to be made by [Junior Academy] under
    the December 17, 2014 order. [The holdback amount] is owing under the account
    taken over by [the purchaser].

[27]

In
    effect, the motion judge concluded that the arrears formed part of the sale and
    had to be accounted for as part of the transaction.

[28]

We
    note as well that Dibri and Junior Academy had common principals and that Dibri
    guaranteed Junior Academys obligations under the lease.

[29]

In
    the circumstances, we see no error in the motion judges decision to make all
    proper adjustments between the parties.

3.       Did the motion
    judge err in denying Junior Academys claim for a $25,000 credit against the
    purchaser?

[30]

The
    appellants submit that whether the $25,000 was paid under the lease, that sum
    was paid to Academy Lands on account of property taxes and therefore increases the
    amount by which Junior Academy overpaid Academy Lands for property taxes during
    the relevant period under the lease. Put another way, the $25,000 payment effectively
    reduced the amount owing on account of assessed property taxes. Junior Academy
    claims it should be entitled to a credit against the purchaser for that amount.

[31]

We
    do not accept this argument. As the motion judge noted, the purchaser was not a
    party to the side agreement. Moreover, the vesting order did not transfer the
    benefits or obligations under the side agreement to the purchaser. In these
    circumstances, the motion judge did not err in denying Junior Academys claim
    for a credit against the purchaser for the $25,000 payment. Junior Academys
    rights against the purchaser arise from the lease. Moreover, the evidence did
    not demonstrate that Academy Lands had used the $25,000 to reduce the property taxes
    owing.

C.

disposition

[32]

Based
    on the foregoing reasons, the appeal is dismissed. Costs of the appeal are to
    the purchaser fixed in the amount of $10,000 inclusive of disbursements and
    applicable taxes.

Released:

MAR 21 2016                                   John Laskin
    J.A.

JS                                                   Janet
    Simmons J.A.


Grant
    Huscroft J.A.


Schedule A
    Companies

1.       Dr. Bernstein Diet
    Clinics Ltd.

2.       2272551 Ontario
    Limited

3.       DBDC Investments
    Atlantic Ltd.

4.       DBDC Investment Pape
    Ltd.

5.       DBDC Investments
    Highway 7 Ltd.

6.       DBDC Investments
    Trent Ltd.

7.       DBDC Investments St.
    Clair Ltd.

8.       DBDC Investments
    Tisdale Ltd.

9.       DBDC Investments
    Leslie Ltd.

10.     DBDC Investments
    Lesliebrook Ltd.

11.     DBDC
    Fraser Properties Ltd.

12.     DBDC
    Fraser Lands Ltd.

13.     DBDC Queens Corner
    Inc.

14.     DBDC Queens Plate
    Holdings Inc.

15.     DBDC Dupont
    Developments Ltd.

16.     DBDC Red Door
    Developments Inc.

17.     DBDC Red Door Lands
    Inc.

18.     DBDC Global Mills
    Ltd.

19.     DBDC Donalda
    Developments Ltd.

20.     DBDC Salmon River
    Properties Ltd.

21.     DBDC Cityview
    Industrial Ltd.

22.     DBDC Weston Lands
    Ltd.

23.     DBDC Double Rose
    Developments Ltd.

24.     DBDC Skyway Holdings
    Ltd.

25.     DBDC West Mall
    Holdings Ltd.

26.     DBDC Royal Gate
    Holdings Ltd.

27.     DBDC Dewhurst
    Developments Ltd.

28.     DBDC Eddystone Place
    Ltd.

29.     DBDC Richmond Row
    Holdings Ltd.



Schedule B Companies

1.       Twin Dragons
    Corporation

2.       Bannockburn Lands
    Inc. / Skyline  1185 Eglinton Avenue Inc.

3.       Wynford Professional
    Centre Ltd.

4.       Liberty Village
    Properties Inc.

5.       Liberty Village
    Lands Inc.

6.       Riverdale Mansion
    Ltd.

7.       Royal Agincourt
    Corp.

8.       Hidden Gem
    Development Inc.

9.       Ascalon
    Lands Ltd.

10.     Tisdale
    Mews Inc.

11.     Lesliebrook Holdings
    Ltd.

12.     Lesliebrook Lands
    Ltd.

13.     Fraser
    Properties Corp.

14.     Fraser
    Lands Ltd.

15.     Queens Corner Corp.

16.     Northern Dancer Lands
    Ltd.

17.     Dupont Developments
    Ltd.

18.     Red Door Developments
    Inc. and Red Door Lands Ltd.

19.     Global Mills Inc.

20.     Donalda Developments
    Ltd.

21.     Salmon River
    Properties Ltd.

22.     Cityview Industrial
    Ltd.

23.     Weston Lands Ltd.

24.     Double Rose
    Developments Ltd.

25.     Skyway Holdings Ltd.

26.     West Mall Holdings
    Ltd.

27.     Royal Gate Holdings
    Ltd.

28.     Royal Gate Nominee
    Inc.

29.     Royal Gate (Land)
    Nominee Inc.

30      Dewhurst Development
    Ltd.

31.     Eddystone Place Inc.

32.     Richmond Row Holdings
    Ltd.





[1]

In addition to a notice of Junior Academys lease, the vesting
    order listed a site plan agreement in a schedule of Permitted Encumbrances,
    Easements and Restrictive Covenants.



[2]

The lease was actually between Junior Academy and
The Rose and Thistle Group Ltd., in trust for a company to
    be incorporated. As already noted, Academy Lands is the company incorporated to
    complete the first sale agreement and therefore became the Landlord under the
    lease.


