Gottlieb (David M.) Professional Corp. et al. v. Champion Homes Inc. et al., 2012 ABQB 64

• Judge: Kenny, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: November 01, 2011
• Citations: 2012 ABQB 64;(2012), 528 A.R. 284 (QB)

Gottlieb Prof. Corp. v. Champion Homes (2012), 528 A.R. 284 (QB)

MLB headnote and full text

Temp. Cite: [2012] A.R. TBEd. FE.011

David M. Gottlieb, Professional Corporation and Swiss Investments Inc. (plaintiffs/appellants) v. Champion Homes Inc., 1412263 Alberta Ltd. and Satpal Nahal (defendants/respondents)

(1001 07856; 2012 ABQB 64)

Indexed As: Gottlieb (David M.) Professional Corp. et al. v. Champion Homes Inc. et al.

Alberta Court of Queen's Bench

Judicial District of Calgary

Kenny, J.

January 24, 2012.

Summary:

Peoples Trust held security against the Champion land by way of a third mortgage. A prior mortgage on the land was held by 907840 Alberta Ltd. (the 907 Champion mortgage). Peoples Trust expected that some of the debt owing under the 907 Champion mortgage would be paid from a mortgage 907840 held on the Nahal land (the 907 Nahal mortgage), thereby decreasing the amount of secured debt ahead of it. However, subsequent co-mortgagees of the Nahal land (Swiss Investments Inc. and Gottlieb) caused Swiss Investments and a trust company (Swiss Olympia) to purchase the security for the debt owed to 907840, including the 907 Champion mortgage and the 907 Nahal mortgage. They then discharged the 907 Nahal mortgage. As a result, there was less debt before Swiss Investments and Gottlieb's mortgage and they would receive more funds from the imminent sale of the Nahal land. Peoples Trust applied for relief advancing a number of marshalling arguments as to why the full debt owed to 907840 should not be allowed to be enforced against the Champion land to the prejudice of Peoples Trust.

A Master of the Alberta Court of Queen's Bench, in a decision reported at 518 A.R. 295, concluded that the 907 Champion mortgage was a collateral mortgage for the payment of money in default under the 907 Nahal mortgage. With the satisfaction of the debt owing under the 907 Nahal mortgage, there were no funds in default and therefore nothing to be paid under the 907 Champion mortgage. By discharging the 907 Nahal mortgage, Swiss Olympia released Champion from any further liability under the 907 Champion mortgage. The Master did not address the marshalling arguments. Gottlieb and Swiss Investments appealed.

The Alberta Court of Queen's Bench allowed the appeal, holding that the unilateral discharge of the 907 Nahal mortgage did not release Champion from its obligation to pay any monies that remained owing to Swiss Olympia under that mortgage.

Courts - Topic 8442

Provincial courts - Alberta - Masters - Appeals from - A Master's decision applied a judgment from the Court of Appeal that was not identified by the parties and not argued on the record - On appeal, the Alberta Court of Queen's Bench stated that the Master had jurisdiction to apply a Court of Appeal decision that she found to be directly applicable to the case before her - The relief granted by the Master was that sought by the applicant, however, the grounds for granting that relief were not the same as the grounds relied upon by the applicant - That, in itself, did not prevent the Master from granting the relief requested so long as it did not prejudice the parties - If the parties were prejudiced, the prejudice was relieved because they were entitled to, and did, address the grounds for relief applied by the Master during the appeal - Although rule 6.14 stated that appeals from a Master were "on the record", it immediately went on to state that appeals were also based on any further evidence that was placed before the Queen's Bench justice on appeal - See paragraphs 51 to 54.

Courts - Topic 8444

Provincial courts - Alberta - Masters - Jurisdiction - [See Courts - Topic 8442 ].

Mortgages - Topic 23

General principles - Mortgage defined - Collateral mortgage - Peoples Trust held security against the Champion land by way of a third mortgage - A prior mortgage on the land was held by 907840 Alberta Ltd. (the 907 Champion mortgage) - Peoples Trust expected that some of the debt owing under the 907 Champion mortgage would be paid from a mortgage 907840 held on the Nahal land (the 907 Nahal mortgage), thereby decreasing the amount of secured debt ahead of it - However, subsequent co-mortgagees of the Nahal land (Swiss Investments Inc. and Gottlieb) caused Swiss Investments and a trust company (Swiss Olympia) to purchase the security for the debt owed to 907840, including the 907 Champion mortgage and the 907 Nahal mortgage - They then had Swiss Olympia discharge the 907 Nahal mortgage to maximize the money available to them on their subsequent mortgage - Peoples Trust applied for relief, asserting that the full debt owed to 907840 should not be allowed to be enforced against the Champion land to the prejudice of Peoples Trust - A Master concluded that the 907 Champion mortgage described itself as, and was, a collateral mortgage for the payment of money in default under what it called the "principal mortgage" (i.e., the 907 Nahal mortgage) - With the satisfaction of the 907 Nahal mortgage, there were no funds in default and therefore nothing to be paid under the 907 Champion mortgage - By discharging the 907 Nahal mortgage, Swiss Olympia released Champion from any further liability under the 907 Champion mortgage - The Alberta Court of Queen's Bench allowed an appeal - The unilateral discharge of a mortgage had the effect of deeming the mortgagee to have elected to forego the debt in exchange for unilaterally taking away the mortgagor's right to a transfer of the mortgage and thereby to redeem its equity of redemption - As a result, the unilateral discharge of the 907 Nahal Mortgage precluded Swiss Olympia from suing Nahal on the covenant for payment under that mortgage - Although there was no evidence that Nahal was actually prejudiced by the mortgage's unilateral discharge, that was not required - The prejudice arose from the fact that Nahal was denied its right to have the mortgage transferred to a designate of its choice - Section 73(3) of the Law of Property Act prohibited the mortgagor from waiving that right - The Master erred in concluding that, because the debt owing under the mortgage was deemed to have been satisfied, there was no amount outstanding under the 907 Nahal mortgage - Swiss Olympia lost its right to sue the mortgagor on the mortgage's personal covenant to pay by operation of law - The right was not lost because the debt was satisfied - The 907 Champion mortgage was a separate mortgage granted by a separate party on a separate property - Under that mortgage, Champion agreed that a "foreclosure, cancellation or any other dealing with any other security for the monies advanced or secured under the [907 Nahal mortgage] shall not release or affect the [907 Champion mortgage]." - Therefore, the unilateral discharge of the 907 Nahal mortgage did not release Champion from its obligation to pay Swiss Olympia any monies that remained owing under that mortgage - See paragraphs 58 to 148.

Mortgages - Topic 1427

The mortgage - Amount secured - Collateral mortgage - [See Mortgages - Topic 23 ].

Mortgages - Topic 4615

Redemption of mortgage - General principles - Mortgagee precludes right to redeem - Effect of - [See Mortgages - Topic 23 ].

Mortgages - Topic 4615

Redemption of mortgage - General principles - Mortgagee precludes right to redeem - Effect of - Peoples Trust held security against the Champion land by way of a third mortgage - A prior mortgage on the land was held by 907840 Alberta Ltd. (the 907 Champion mortgage) - Peoples Trust expected that some of the debt owing under the 907 Champion mortgage would be paid from a mortgage 907840 held on the Nahal land (the 907 Nahal mortgage), thereby decreasing the amount of secured debt ahead of it - However, subsequent co-mortgagees of the Nahal land (Swiss Investments Inc. and Gottlieb) caused Swiss Investments and a trust company (Swiss Olympia) to purchase the security for the debt owed to 907840, including the 907 Champion mortgage and the 907 Nahal mortgage - They then had Swiss Olympia discharge the 907 Nahal mortgage to maximize the money available to them on their subsequent mortgage - Peoples Trust applied for relief, asserting that the full debt owed to 907840 should not be allowed to be enforced against the Champion land to the prejudice of Peoples Trust - A Master, applying a Court of Appeal decision that was not identified and argued by the parties, concluded that the 907 Champion mortgage was a collateral mortgage for the payment of money in default under the "principal mortgage" (i.e., the 907 Nahal mortgage) and with the satisfaction of the 907 Nahal mortgage, there were no funds in default and therefore nothing to be paid under the 907 Champion mortgage - By discharging the 907 Nahal mortgage, Swiss Olympia released Champion from any further liability under the 907 Champion mortgage - Gottlieb and Swiss Investments appealed, asserting that Nahal's consent to the discharge could be inferred from the fact that he did not raise lack of consent as an argument in the hearing below or at any time prior to that - The Alberta Court of Queen's Bench rejected the argument - There was no evidence before the Master that Nahal was asked for and gave his consent to the discharge - The parties had the opportunity to present new evidence regarding Nahal's consent on appeal, but did not do so - Further, the case law did not require a mortgagor to show actual prejudice resulting from the unilateral discharge of a mortgage in order to obtain relief - See paragraphs 55 to 57.

Mortgages - Topic 4617

Redemption of mortgage - General principles - Collateral mortgages - [See Mortgages - Topic 23 ].

Mortgages - Topic 5405

Mortgage actions - Action on the covenant - Prohibition against - [See Mortgages -Topic 23 ].

Mortgages - Topic 5405

Mortgage actions - Action on the covenant - Prohibition against - Section 40 of the Law of Property Act stated that "In an action brought on a mortgage of land, whether legal or equitable, or on an agreement for the sale of land, the right of the mortgagee or vendor is restricted to the land to which the mortgage or agreement relates and to foreclosure of the mortgage or cancellation of the agreement for sale, as the case may be, and no action lies (a) on a covenant for payment contained in the mortgage or agreement for sale, ..." - The Alberta Court of Queen's Bench stated that "Section 40 has been interpreted by the courts as prohibiting a mortgagee from enforcing a security that is little more than a personal covenant because it contains the same obligations as those contained in the personal covenant in the mortgage securing the same debt. The decisions depend upon the circumstances of each case, specifically the specific contractual provisions and the circumstances surrounding the granting of the security. ... The law is clear that s. 40 of the Law of Property Act restricts a lender from recovering any deficiency between the amount received under foreclosure proceedings and the amount which the mortgagor covenants to pay under the mortgage. However, it does not prohibit or restrict a mortgagee's ability to take additional or collateral security for the prime debt." - See paragraphs 70 to 72.

Mortgages - Topic 5408

Mortgage actions - Action on the covenant - Liability of collateral mortgagor guaranteeing mortgage debt - [See Mortgages - Topic 23 and second Mortgages - Topic 5405 ].

Mortgages - Topic 5555

Mortgage actions - Foreclosure and sale - Deficiency judgment - Defences or bars - [See Mortgages - Topic 23 and second Mortgages - Topic 5405 ].

Cases Noticed:

First National Mortgage Co. and Block Bros. Realty Ltd. v. L.J.V. Holdings Ltd. et al. (1989), 95 A.R. 237; 1989 ABCA 88, dist. [para. 41].

Royal Bank of Canada v. Place (2010), 504 A.R. 230; 2010 ABQB 733, refd to. [para. 42].

Lee v. Lepage et al., [2010] A.R. Uned. 914; [2011] A.W.L.D. 1770; 2010 ABQB 829, refd to. [para. 42].

Janvier et al. v. 834474 Alberta Ltd. et al. (2010), 511 A.R. 76; 48 Alta. L.R.(5th) 156; 2010 ABQB 800, refd to. [para. 43].

Gudzinski Estate v. Allianz Global Risks US Insurance Co. et al. (2012), 519 A.R. 215; 539 W.A.C. 215; 2012 ABCA 5, refd to. [para. 50].

Isman v. Sinnott (1920), 61 S.C.R. 1, refd to. [para. 66].

Krook et al. v. Yewchuk and Panas, [1962] S.C.R. 535; 39 W.W.R.(N.S.) 13; 34 D.L.R.(2d) 676, refd to. [para. 73].

Francois v. Vanderputt and Palace Plumbing Ltd. (1985), 60 A.R. 81; 16 D.L.R.(4th) 481 (C.A.), refd to. [para. 74].

Traders Realty Ltd. v. Dion and Belanger (1986), 66 N.B.R.(2d) 262; 169 A.P.R. 262 (C.A.), dist. [para. 84].

Co-operative Trust Co. of Canada v. Target 21 Industries Ltd. et al., [1988] 3 W.W.R. 97; 63 Sask.R. 13 (C.A.), dist. [para. 87].

Rushton v. Industrial Development Bank, [1973] S.C.R. 552, dist. [para. 89].

Douglas v. Mutual Life Assurance Co. (1918), 57 S.C.R. 243, dist. [para. 94].

Ukrainian (Calgary) Savings and Credit Union v. Gacek (1986), 70 A.R. 237, refd to. [para. 138].

Canadian Imperial Bank of Commerce v. Robertshaw (1985), 61 A.R. 192 (C.A.), refd to. [para. 138].

Statutes Noticed:

Law of Property Act, R.S.A. 2000, c. L-7, sect. 40(1)(a) [para. 70]; sect. 73 [para. 80].

Counsel:

Judy D. Burke, Derek Nash and Andrew K. Maciag, for the plaintiffs/appellants;

Francis N.J. Taman, Anthony L. Dekens, Kuly S. Gill and John McKinley, for the defendants/respondents.

This appeal was heard on November 1, 2011, by Kenny, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on January 24, 2012.