Toronto Dominion Bank v. Letendre, 2011 ABQB 369

Court of Queen ’ s Bench of Alberta Citation: Toronto Dominion Bank v. Letendre, 2011 ABQB 369 Date: 20110607 Docket: 0903 02174 Registry: Edmonton Between: The Toronto Dominion Bank Plaintiff - and - Roy Letendre, Wendy Hawryliw Letendre, Rene Thibault and Roxanne L. Thibault Defendants _______________________________________________________ Memorandum of Decision of W. S. Schlosser, Master in Chambers _______________________________________________________ [ 1 ] This is an application by competing creditors for funds in Court.

The main issue has to do with limitations. [ 2 ] The Toronto Dominion Bank was the first mortgagee on title. Their interest is followed by a Caveat with respect to realtor’s commission, the Applicant’s second mortgage and the Respondent’s writ. This application is primarily a competition between the second mortgagee and a writholder for the remaining funds in court. [ 3 ] The Toronto Dominion Bank commenced foreclosure proceedings on its first mortgage and an Order Nisi was granted May

[ 3 ] The Toronto Dominion Bank commenced foreclosure proceedings on its first mortgage and an Order Nisi was granted May 28, 2009. The Applicant was given notice of the proceedings in the foreclosure action and was present at some of the applications, including the application for the Order Nisi. The Applicant did not commence an action with respect to its mortgage but instead brings this application for the surplus funds paid into Court.

The last payment under the second mortgage was made in November, 2007. [ 4 ] In the MCAP Service Corporation v. 973632 Alberta Ltd. , 2011 CarswellAlta 127 , 2011 ABQB 36 , Master Laycock held: 34 In order to succeed on this application, Gaastra must show an entitlement to the funds. It is not sufficient merely to show that he had a charge upon the lands; it is necessary for him to show that he had an enforceable claim when his charge was removed from the land. The sale order effectively extinguished Gaastra’s right to enforce his debts against the land.

His claim is then limited to the amount of surplus money paid into court . The entitlement of the interested parties to the fund is determined by the rights of the parties at the date of the sale order. There is no real time limit fixed for applying to determine the entitlement to the surplus funds. (emphasis added) [ 5 ] The Respondent’s position is that the Applicant did not have an enforceable claim when its charge was removed from the land.

They argue that since the last payment was made on the Applicant’s mortgage in November of 2007, the failure of the Applicant to have commenced proceedings for a remedial Order under the mortgage prior to November, 2009 (or at all) meant that they did not have an enforceable right at the time of the Order. [ 6 ] The Applicant argues that only the Defendant (Mortgagor) can raise the Limitations Act; not a subsequent, or competing encumbrancer. The Applicant also argues that proceedings were not “warranted” for the purposes of section 3(1)(a)(iii) of the Limitations Act , 2000 c.

L-12 until the first mortgagee’s foreclosure proceedings were well advanced, and before it was determined there would be a surplus. Limitations [ 7 ]

Section 3 of the Limitations Act , 2000 c L-12, provides: 3(1) Subject to

section 11, if a claimant does not seek a remedial order within (a) 2 years after the date on which the claimant first knew, or in the circumstances ought to have known, (

i) that the injury for which the claimant seeks a remedial order had occurred, (ii) that the injury was attributable to conduct of the defendant, and (iii) that the injury, assuming liability on the part of the defendant, warrants bringing a proceeding or (b) 10 years after the claim arose, whichever period expires first, the defendant, on pleading this Act as a defence, is entitled to immunity from liability in respect of the claim.

(emphasis added) [ 8 ] The last part of

Section 3 simply codifies old Rule 109 which required that limitations be pleaded. The equivalent Rule is now 13.6(3)(q). [ 9 ] Section 3(5) provides further: Under this section, (

a) the claimant has the burden of proving that a remedial order was sought within the limitation period provided by subsection (1) (a), and (

b) the defendant has the burden of proving that a remedial order was not sought within the limitation period provided by subsection (1)(b). (emphasis added) [ 10 ] Our Limitations Act is “substantive” in that it affects rights. However, our Act accomplishes this “procedurally” by giving the Defendant an immunity on pleading the Act. The Act does not purport to extinguish rights, to satisfy a remedy, or otherwise bar claims within the 10 year cap.

In some sense, at least, the right to seek a remedial order remains alive within the 10 year period unless the Act is raised as a defence. [ 11 ] The policy underlying the Act, which is to provide a Defendant with repose by conferring an immunity at the Defendant’s option, may have no direct application to a contest between competing creditors.

In many instances the Defendant may have no active involvement in the proceedings. [ 12 ] However, in my view, a proper determination of the entitlement of an interested party to funds in court requires a consideration of the relevant limitations even if the limitation is raised by one of the competing parties rather than the Defendant debtor. It is a relevant consideration for determining whether or not a competing creditor has “an enforceable claim.” [ 13 ] To hold otherwise would, in effect, permit the courts to enforce what would otherwise be an unenforceable claim.

Therefore, unless it can be shown that there is a compelling reason that the Defendant would not have raised the limitations defence, the Court is bound to consider it. A number of decided cases appear to have proceeded on this basis even though the point may not have been directly raised or argued. [ 14 ] The burdens expressed by section 3(5) of the Limitations Act apply and the standard for demonstrating an enforceable claim approaches the standard for

summary judgment. Even though the strict formalities or Rule 7.3 do not apply, the requirements of Rule 13.18(3) with respect to evidence should apply. The evidence should be first-hand rather than on information and belief. ‘ Warrants Bringing a Proceeding’ [ 15 ] The undisputed facts are that the last mortgage payment was made on the Applicant’s mortgage in November of 2007. The mortgage was a standard demand mortgage with an acceleration provision. The mortgagee knew or ought to have known of the “injury” for the purposes of Section 3(1)(a)(

i) of the Limitations Act upon default and also that the injury was attributable to the conduct of the Defendant for the purposes of section 3(1)(a)(ii): . R. P. Choma Financial & Associates Inc. v. McDougall, 2008 CarswellAlta 790 , 2008 ABQB 359 . If there were nothing more, an action over two years later would be out of time. In this case the Applicant did not

commence an action at all. [ 16 ] As mentioned above, the Applicant was provided with notice of the proceedings in the first mortgagee’s foreclosure action. It attended some of these applications. The Applicant argues that it would have been pointless to commence an action prior to knowing whether there was a surplus and so proceedings were not “warranted” until the property was sold. The Applicant participated in some of the proceedings while its right to commence an action remained alive in the sense that two years had not elapsed since the last payment on the mortgage.

The Order Nisi was granted in May 2009, approximately six months prior to the expiry of the two year period. [ 17 ] As Beck, J. observed in C.P.R. v. Canada Wheat Growing Co. [1919] [vol. 2] W.W.R. at 313 (Harvey, C.J. concurring) at p. 314: Our practice in mortgage actions differs materially from the practice in other jurisdiction where subsequent encumbrancers if not made parties originally, are required to be served with a notice of the judgment or order and thereupon to come in and prove their claims and have their priorities settled.

With us the intention is to postpone all such questions until it can be seen whether there is likely to be a fund by which any of them can benefit. . . . (emphasis added) [ 18 ] The Applicant argues in effect that the practice referred to by Beck J. supports the argument that proceedings are not warranted for the purposes of the Limitations Act until it is demonstrated there is a surplus. [ 19 ] The Alberta Law Reform Institute, in its final report on Limitations (Report No. 55 Dec. 1989), which lead to the current Limitations Act, describes the rationale underlying section 3(1)(a)(iii) as follows: As to the third requirement, the discovery period will not begin until the claimant first knew that his injury was sufficiently serious to have warranted bringing a proceeding, that is, there must be relatively serious harm.

This criterion will protect litigants from incurring unnecessary legal expenses, and bringing unnecessary legal action. The discovery rule will, in effect, invite the judge to put himself in the claimant’s shoes, to consider what knowledge he had at the relevant time, and to make the cost-benefit analysis which would be reasonable for the actual claimant. (ALRI Report No. 55. p. 33). [ 20 ] And further: 8. When was harm sufficiently serious to have warranted bringing a proceeding? The circumstances may vary enormously from one specific situation to another.

The Act does not attempt to list considerations common to many cases because a statutory list would be of dubious benefit to experienced judges, to whom the considerations will be patently obvious, and might unnecessarily constrain their judgment. Experienced trial judges are well equipped to answer such a judgmental question. Clause (iii) of s. 3(1)(

a) invites the judge to put himself in the claimant’s shoes, to consider what knowledge he had at the relevant time, and to make the analysis of the advantages and disadvantages of bringing a legal proceeding which would be reasonable for the actual claimant. (ALRI Report No. 55 p.64). [ 21 ] The wording proposed by the ALRI was: “That the injury, assuming liability on the part of the defendant, was sufficiently serious to have warranted bringing a proceeding,” Even though the words “sufficiently serious” did not make it into the Act (and the Act is also framed in the present tense), the type of analysis contemplated in the report is necessary for the words “warrants bringing a proceeding” to have any meaning.

As the decided cases have shown, the considerations are not just economic ones. The R. P. Choma decision, referred to above, provides a thoughtful and detailed analysis of the sorts of consideration involved in the decision.

[ 22 ] It would be easy to envision circumstances that might justify a creditor taking a wait-and-see approach until it can be seen whether there will ‘likely be a fund by which it can benefit’, especially in a fluctuating economy. Unfortunately, this is not one of those cases. The May 28, 2009 Order Nisi showed $97,679.26 owing under the first mortgage. The Order Nisi gave a three month redemption period followed by a Judicial Listing at $255,000.00. The land was ultimately ordered sold on August, 2010 for $200,000.00.

The surplus at that time; $74,197.30, was paid into Court. [ 23 ] The value of the second mortgage was $56,018.16 as at November 23, 2010. In other words, there was a surplus likely to have been sufficient to satisfy the second mortgage in full, even if the preceding Caveat had been paid out in full. [ 24 ] Where there is little or no equity, it would be pointless for a second mortgagee to seek a remedial Order that would only have the effect of satisfying a prior creditor. In this case, the Applicant, second mortgagee, should have protected its position by filing an action.

The failure to do so meant that it did not have an “enforceable claim” in the sense that its claim was not otherwise recoverable legal process at the date of the sale Order. The facts in this case, unlike those in Choma , are clear enough to deal with it summarily. [ 25 ] The second mortgagee’s application is dismissed. Heard on the 26 th day of May, 2011. Dated at the City of Edmonton, Alberta this 7 th day of June, 2011. W. S. Schlosser M.C.C.Q.B.A. Appearances: Paul Greep Reynolds, Mirth, Richard & Farmer LLP for the Applicant Suzanne Thomas Duncan & Craig LLP for the Respondent