Royal Trust v. 880185 Ont. Ltd., (2005) 198 O.A.C. 235 (CA)

• Judge: Weiler, Armstrong and Blair, JJ.A.
• Court: Court of Appeal (Ontario)
• Case Date: November 15, 2004
• Jurisdiction: Ontario
• Citations: (2005), 198 O.A.C. 235 (CA)

Royal Trust v. 880185 Ont. Ltd. (2005), 198 O.A.C. 235 (CA)

MLB headnote and full text

Temp. Cite: [2005] O.A.C. TBEd. MY.005

Royal Trust Corporation of Canada (plaintiff/respondent) v. 880185 Ontario Limited, Michael John Beattie and Peter Wayne Boshart (defendants/appellants)

(C35759)

Indexed As: Royal Trust Corp. of Canada v. 880185 Ontario Ltd. et al.

Ontario Court of Appeal

Weiler, Armstrong and Blair, JJ.A.

April 29, 2005.

Summary:

The defendant corporation secured mortgage financing on a residential apartment building. The mortgage was guaranteed by the individual defendants. The mortgage went into default for non-payment of taxes. The mortgagee took steps to realize on its security. It attorned the rents, took possession of and managed the property and eventually sold the property under the power of sale. The mortgagee sued for the deficiency under the mortgage. The defendants defended on the basis that the mortgagee had not followed the proper procedures for realizing on its security and counterclaimed for damages.

The Ontario Superior Court dismissed the mortgagee's deficiency claim and allowed the counterclaim to the extent of awarding the defendants a reduced amount of $19,673.26. No damages were awarded for lost profits and pre-judgment interest. The defendants appealed, seeking to vary the judgment to include damages for loss of business opportunity together with pre-judgment interest and costs. The mortgagee cross-appealed seeking judgment for the deficiency under the mortgage.

The Ontario Court of Appeal allowed the appeals to the extent of ordering a new trial on the following issues: (1) whether the mortgagee breached its obligation to act prudently and diligently in the management of the property and to take reasonable precautions to obtain the true market value of the premises at the time of the sale; (2) the extent to which, if at all, the mortgagee's conduct resulted in a decrease in the premises' true market value from what that value would otherwise have been at the time of the sale, and what that value would otherwise have been; (3) the extent to which, if at all, the mortgagee's conduct resulted in a reduced income stream from the premises, and the mortgagee's obligation to account in that event; (4) any accounting that might flow from the resolution of the foregoing; and (5) the quantum of the mortgagee's deficiency claim, in light of the above.

Mortgages - Topic 3004

Payment of mortgage - Default - What constitutes - A mortgage on a residential apartment building went into default for non-payment of taxes - The mortgagee took steps to realize on its security - It attorned the rents, took possession of and managed the property and eventually sold it under the power of sale - The mortgagee sued for the deficiency under the mortgage - The mortgagor asserted that the mortgagee's right to take possession and to attorn rents was dependent on, inter alia, a default in payment and a failure to pay taxes was not a default in payment - The Ontario Court of Appeal rejected the assertion - Although the covenant to pay principal and interest was a covenant to pay the "chargee", whereas the covenant to pay taxes was in the first instance a covenant to pay a third party (i.e., the municipality), they had the same character - In both cases, the mortgagor covenanted or promised to pay, and non-payment constituted "a default in payment" - See paragraphs 25 to 30.

Mortgages - Topic 3008

Payment of mortgage - Default - Notice of - A mortgage on a residential apartment building went into default for non-payment of taxes - The mortgagee took steps to realize on its security - It attorned the rents, took possession of and managed the property and eventually sold it under the power of sale - The mortgagee sued for the deficiency under the mortgage - The mortgagor asserted that although it had notified the mortgagee of its new address for service, the demand letters and the notice of sale were sent to the old address as set out in the mortgage - The Ontario Court of Appeal refused to give effect to this ground of appeal where it was not pleaded and there was ample evidence to support the trial judge's finding that the mortgagor had actual notice - See paragraphs 35 to 37.

Mortgages - Topic 6863

Mortgage accounts - Liability of mortgagee in possession - Duties of mortgagee in possession - A mortgage on a residential apartment building went into default - The mortgagee took steps to realize on its security - It attorned the rents, took possession of and managed the property and eventually sold it under the power of sale - The mortgagee sued for the deficiency under the mortgage - The mortgagor counterclaimed for damages - The Ontario Court of Appeal stated that the mortgagee's entitlement to recover on its deficiency claim and the mortgagor's entitlement to damages for mismanagement and devaluation and the extent of any such entitlement, all turned on whether the mortgagor breached its obligations as mortgagee in possession - That obligation was to act prudently and diligently in the management of the property, and to obtain a reasonable and fair purchase price - See paragraph 41.

Mortgages - Topic 7867

Statutory and contractual rights - Sale under power of sale - Powers of mortgagee - Possession - A mortgage on a residential apartment building went into default for non-payment of taxes - The mortgagee took steps to realize on its security - It attorned the rents, took possession of and managed the property and eventually sold it under the power of sale - The mortgagee sued for the deficiency under the mortgage - The mortgagor asserted that the mortgagee's right to take possession and to attorn rents was dependent on, inter alia, a default in payment that had continued for at least 15 days and 35 days' notice having been provided to the mortgagor after the default had existed for 15 days - The mortgagor relied upon clause 8(a) of the mortgage's Standard Charge Terms - The Ontario Court of Appeal rejected the assertion - Clause 8(a) did not apply where a mortgagee merely attorned the rents or exercised its right to possession under the mortgage - It was confined to circumstances where the mortgagee proposed to enter the premises for purposes of leasing or to sell the property - The mortgage entitled the mortgagee to quiet possession upon default - Absent a contractual requirement to do so, no notice was required - See paragraphs 32 to 34.

Mortgages - Topic 7897

Statutory and contractual rights - Sale under power of sale - Notice - Service - [See Mortgages - Topic 3008 ].

Mortgages - Topic 7902

Statutory and contractual rights - Sale under power of sale - Notice - Validity of - A mortgage on a residential apartment building went into default for non-payment of taxes - The mortgagee took steps to realize on its security - It attorned the rents, took possession of and managed the property and eventually sold it under the power of sale - The mortgagee sued for the deficiency under the mortgage - The mortgagor asserted that the notice of sale should be deemed invalid because it overstated the amount of interest owing - The Ontario Court of Appeal refused to give effect to this ground of appeal where it was not argued - Moreover, the error was not significant - At most, there was an incongruity of $2,867.69 on a total amount of $551,838.21 owing - Minor irregularities in a notice of sale should not render it inoperative - A minor discrepancy of this nature could readily be remedied in the ultimate accounting of proceeds - See paragraphs 38 to 40.

Cases Noticed:

Boyer v. Fox (1980), 29 O.R.(2d) 330 (H.C.), consd. [para. 28].

Manufacturers Life Insurance Co. et al. v. Granada Investments Ltd. et al. (2001), 150 O.A.C. 253 (C.A.), leave to appeal dismissed (2002), 295 N.R. 197; 171 O.A.C. 400 (S.C.C.), refd to. [para. 33].

Lee v. Guettler (1975), 10 O.R.(2d) 257 (C.A.), refd to. [para. 33].

Lusk v. Perrin (1920), 19 O.W.N. 58 (H.C.), refd to. [para. 33].

Royal Trust Corp. of Canada v. Gupta (1997), 24 O.T.C. 27 (Gen. Div.), refd to. [para. 33].

Morgan v. Canada Trust Co. (1983), 42 O.R.(2d) 246 (H.C.), refd to. [para. 35].

Toronto-Dominion Bank v. Pallett Developments Ltd. (1984), 3 O.A.C. 161; 47 O.R.(2d) 251 (Div. Ct.), refd to. [para. 39].

Canada Trustco Mortgage Co. v. Windsor Painting Contractors Ltd. (1991), 22 R.P.R.(2d) 222 (Ont. Gen. Div.), refd to. [para. 41].

Authors and Works Noticed:

Falconbridge, Law of Mortgages (5th Ed. 2003), paras. 32-10, 32-12 [para. 45]; 32-40 to 32-90 [para. 41].

Marriott and Dunn, Practice in Mortgage Remedies in Ontario (5th Ed. 1991) (2005 Looseleaf Supp.), vol. 2, pp. 46-2, 46-4 [para. 33]; 46-29 [para. 41].

Roach, Joseph E., The Canadian Law of Mortgages of Land (1993), p. 209 [para. 33].

Counsel:

Milton A. Davis, for the respondent;

P.M. Ledroit, for the appellants.

This appeal and cross-appeal were heard on November 15, 2004, by Weiler, Armstrong and Blair, JJ.A., of the Ontario Court of Appeal. Blair, J.A., released the following judgment for the court on April 29, 2005.