2011 ONSC 3051, 2011 ONSC 3051

2272045 Ontario Inc. (Re) 107 O.R. (3d) 578 2011 ONSC 3051 Ontario Superior Court of Justice, Pattillo J. October 14, 2011 Mortgages -- Power of sale -- Assignee of mortgage was entitled to rely on notice of sale issued by mortgagee prior to assignment --Assignee required to give mortgagor reasonable notice of assignment in writing. O held a third mortgage on M's property. The mortgage went into default, and O issued a notice of sale. The notice was properly servedon M and on all other persons entitled to notice. O agreed to assign the mortgage to the applicant.

In contemplation of that assignment,the applicant "as mortgagee under power of sale" agreed to sell the property to a third party. The third party advised the applicant that hewas not satisfied that the applicant could convey title to the property pursuant to O's power of sale proceedings. The applicant brought anapplication for an order confirming its power to sell. Held, the application should be granted. A notice of sale issued by a mortgagee can be relied upon by a subsequent assignee to sell the property. The notice given by O compliedwith s. 31(1) of the [page579] Mortgages Act, R.S.O. 1990, c. M.40.

Section 31 does not require that the person exercising the power ofsale be the person who sent the notice. In order to comply with s. 31(1), an assignee who wishes to rely on the assignor's prior notice ofsale to sell the property under power of sale must give the mortgagor reasonable notice of the assignment in writing. Reasonable noticewas given in this case. APPLICATION for an order confirming the applicant's power to sell property. Cases referred to Lee v. Korea Exchange Bank of Canada (1999), (ON SC), 44 O.R. (3d) 366, [1999] O.J.

No. 2296,99 O.T.C. 223, 25 R.P.R. (3d) 206, 89 A.C.W.S. (3d) 380 (S.C.J.), not folld Other cases referred to 490352 Ontario Inc. v. ASAAPVFinancial Corp., [1985] O.J. No. 384, 1 C.P.C. (2d) 36, 30 A.C.W.S. (2d) 469 (H.C.J.); 967305 Ontario Ltd. v. North American TrustCo. (1996), (ON SC), 28 O.R. (3d) 212, [1996] O.J. No. 517, 1 R.P.R. (3d) 84, 61 A.C.W.S. (3d) 376 (Gen. Div.);Botiuk v. Collison (1979), (ON CA), 26 O.R. (2d) 580, [1979] O.J. No. 4429, 103 D.L.R. (3d) 322, 11 R.P.R. 39(C.A.); Emedi v. McMaster, [1982] O.J. No. 2304, 25 R.P.R. 41 (H.C.J.); Morra v. Aloe, (ON SC), [1971] 2 O.R. 532,[1971] O.J.

No. 1545, 18 D.L.R. (3d) 396 (H.C.J.); Novak v. Kovacevic, [1994] O.J. No. 2578 (Gen. Div.) Statutes referred toConveyancing and Law of Property Act, R.S.O. 1990, c. C.34, s. 53(1) Land Titles Act, R.S.O. 1990, c. L.5 [as am.] Mortgages Act,R.S.O. 1990, c. M.40, s. 1,

Part III [as am.], ss. 31 [as am.], (1) [as am.], 32, 33, 34, 35, 36, 37, 38, 39, (1) [as am.], 40, 41, 42 [as am.],Form 1 Registry Act, R.S.O. 1990, c. R.20 Alan S. Price, for applicant. PATTILLO J.: -- Introduction [1] This is an ex parte Application by the applicant, 2272045 Ontario Inc., an assignee of a mortgage, for an order confirming its powerto sell property pursuant to a notice of sale delivered prior to the assignment of the mortgage or, alternatively, for leave to exercise powerof sale without notice pursuant to s. 39(1) of the Mortgages Act, R.S.O. 1990, c.

M.40 (the "Act"). [2] After hearing argument and reviewing the authorities provided and in light of the urgency indicated, I issued a brief endorsementgranting the application and confirming the applicant's entitlement as assignee to sell the property pursuant to the notice of sale issued bythe original mortgagee.

I further ordered that the Notice of Power of Sale papers were to contain, in addition to statutory declarations ofthe original mortgagee and his solicitor, statutory declarations of the applicant as assignee and its solicitor. [page580] [3] In my endorsement, I indicated that in due course I would issue more detailed reasons for my decision.

These are my reasons.Background [4] Michael Moldenhauer ("Moldenhauer") is the registered owner of residential property located at [address omitted], Mississauga (the"Property"), which he purchased on March 23, 2000. [5] By charge dated June 7, 2007, and registered the same day in the Land Registry Office for the Land Titles Division of Peel asInstrument No. PR1271607, Moldenhauer gave a third mortgage on the Property to Charles Orenstein, in trust ("Orenstein") in theamount of $2 million (the "Mortgage").

The Mortgage provided for the Standard Charge Terms 200033. [6] At the time the Mortgage was registered, there were two prior mortgages on the Property which had been registered, a first to CIBCMortgages Inc. and a second to Domenic Persechini and Bellquest Investments Inc. On September 14, 2009, Persechini and Bellquestassigned the second mortgage to Serm Investments Limited. [7] The Mortgage was subsequently amended by agreement in writing dated May 26, 2008 to increase the principal amount owing to$2,080,000.

In all other respects, the terms and conditions of the Mortgage remained the same. [8] Sometime in late 2009 or early 2010, the Mortgage went into default. On November 23, 2010, Orenstein, by his solicitors, issued aNotice of Sale (the "Notice") under Mortgage stating, among other things, that the amount due and owing on the Mortgage for principal,

interest and costs was $2,525,605.96. The Notice further stated that unless the amount owing was paid on or before December 29, 2010, the Property would be sold in accordance with the provisions of the Mortgage. [ 9 ] The Notice was served by prepaid registered mail on Moldenhauer and all other persons entitled to notice as required by the Act on November 23, 2010. [ 10 ] The Mortgage was neither redeemed nor put into good standing prior to December 29, 2010, and has continued to remain in default.

At the time of the application, the total amount due and owing under the Mortgage was $2,738,000. [ 11 ] By agreement of purchase and sale dated January 25, 2011, the applicant "as mortgagee under power of sale" agreed to sell the Property to a third party for $1,795,000.

The applicant entered into the agreement in contemplation of assignment of [page581] the Mortgage from Orenstein in accordance with an agreement between them to sell and transfer the Mortgage. [ 12 ] Subsequently, the solicitor for the mortgagee of the third party purchasers advised the solicitor for the applicant that he was not satisfied on the authorities that the applicant could convey title to the Property pursuant to the assignor's power of sale proceedings. [ 13 ] The agreement between Orenstein and the applicant assigning the Mortgage was not registered until May 11, 2011.

On the same day, written notice of the assignment was provided to and acknowledged by Moldenhauer in writing. [ 14 ] The proposed purchaser has agreed to enter into a further agreement of purchase and sale in terms identical to the agreement of January 25, 2011, subsequent to registration of the assignment. That agreement, when executed, is scheduled to close early in the week of May 16, 2011. [ 15 ] The sale price of $1,795,000 is well in excess of an appraisal obtained for the Property dated August 16, 2009, which appraised it at $1,350,000 at that time.

As at May 11, 2011, the amount owing to CIBC Mortgages Inc. on the first mortgage was $578,298.40. The amount owing to Serm Investments, the second mortgagee, was $379,560.04. Accordingly, the sale price will provide sufficient funds to repay the first and second mortgages in full and partially repay the Mortgage. There will be no funds available to pay any execution creditors or the Canada Revenue Agency. [ 16 ] The applicant is content with the proposed sale and the proceeds it will receive from the sale.

I was advised by counsel on the application that Moldenhauer is aware of the application and does not oppose the sale. [ 17 ] The amount owing to subsequent execution creditors and the Canada Revenue Agency at the time the Notice was issued exceeded $6 million. Subsequent to the issuance of the Notice, three writs of execution have been registered against Moldenhauer arising from personal guarantees he gave in respect of his corporations.

None of the executions are for funds advanced with respect to the Property. [ 18 ] At the time of the application, Serm Investments, the second mortgagee, had obtained judgment against Moldenhauer and served him with a notice to vacate the Property on or before May 19, 2011. [page582] Issue [ 19 ] The question for determination is whether the applicant as assignee of the Mortgage can rely on the Notice to sell the Property pursuant to power of sale.

Discussion [ 20 ] The Mortgage, by s. 9 of the Standard Charge Terms, provides that on default of payment for at least 15 days, the mortgagee may, on at least 35 days' notice in writing given to the mortgagor, enter on and lease the land or sell the land. The notice is to be given to such persons and in such manner and form and within such time as provided by the Act .

Further, s. 26 of the Standard Terms provides, in part, "that all rights, advantages, privileges, immunities, powers and things secured to . . . the Chargee or Chargees, shall be equally secured to and exercisable by his, her, their or its heirs, executors, administrators and assigns or successors and assigns as the case may be". [ 21 ]

Part III of the Act, ss. 31 to 41, deals with the contractual power of sale under a mortgage and sets forth, among other things, the notice to be given and the manner in which the notice is to be served.

Section 31(1) provides, in part: 31(1) A mortgagee shall not exercise a power of sale unless a notice of exercising the power of sale in the Form to this Act has been given by the mortgagee to the following persons, other than the persons having an interest in the mortgaged property prior to that of the mortgagee and any other persons subject to whose rights the mortgagee proposes to sell the mortgaged property[.] The subsection goes on to list the various people or entities that must be served with the notice depending on whether the property is registered under the Land Titles Act, R.S.O. 1990, c.

L.5 or the Registry Act, R.S.O. 1990, c. R.20 . [ 22 ] The form referred to in s. 31(1) is Form 1 of the Act , which provides: NOTICE OF SALE UNDER MORTGAGE (Sections 26(1) and 31(1)) Take notice that default has been made in payment of the money due under a certain mortgage dated the .... day of ......, 20.., made between (here state parties and describe mortgaged property) which mortgage was registered on the ... day of....., 20..., in the registry division, etc. (and, if the mortgage has been assigned, add: and which mortgage was assigned to the undersigned on the ...... day of ........, 20..).

And I hereby give you notice that the amount now due on the mortgage for principal money, interest (if so, add: taxes, insurance premiums, or other matters) and costs, respectively as follows: [page583] (Set out items claimed to be due) And unless the said sums are paid on or before the .... day of ....., 20... (a day not less than forty-five days from the service of the notice where the power of sale is exercised under

Part II, or a day not less than thirty-five days from the service of the notice where

Part III applies), I shall sell the property covered by the said mortgage under the provisions contained in it (or if so: under

Part II of the

Mortgages Act). This notice is given to you as you appear to have an interest in the mortgaged property and may be entitled to redeem the same. Dated the ......... day of ...., 20.. (Signed) ............ Mortgagee [23] The case law is divided and unclear in respect of whether a notice of sale issued by a mortgagee can be relied upon by a subsequentassignee to sell the property. [24] In Emedi v. McMaster, [1982] O.J. No. 2304, 25 R.P.R. 41 (H.C.J.), Trainor J. restrained a sale under a mortgage by an assigneepursuant to a notice of sale issued prior to the assignment. In a brief, one paragraph endorsement, the learned judge stated [at para. 1]:

Section 30 of the Mortgages Act, R.S.O. 1980, c. 296, must be strictly complied with. An assignee of a mortgage cannot rely on power ofsale proceedings commenced by the mortgagee prior to assignment where no notice of such assignment has been given and where it failsto comply with Form 1 in that it fails to provide notice of the assignment. An interim injunction is to be issued restraining the assignee ofthe mortgage from proceeding under the power of sale dated March 1, 1982. [25] In 490352 Ontario Inc. v. ASAAPV Financial Corp., [1985] O.J.

No. 384, 1 C.P.C. (2d) 36 (H.C.J.), Callaghan J. (as he then was)held that an assignment of a mortgage after a notice of sale had been served but prior to the time specified for redemption in the noticedid not violate s. 40 (now s. 42) of the Act, which prohibits any further proceeding or action with respect to the mortgage or themortgaged property until after the time specified for redemption has passed. The learned judge noted that an assignment did not affectthe right of the mortgagor to redeem so long as the mortgagor was given notice of the assignment. [26] In Novak v. Kovacevic, [1994] O.J. No. 2578 (Gen.

Div.), the plaintiff sought injunctive relief to restrain the sale of his propertypursuant to a power of sale. The notice of sale was issued by the second mortgagee, the National Bank, on October 1, 1991. On October31, 1991, the second mortgage was assigned to the defendant 767236 Ontario Ltd. The assignment was agreed to by the plaintiff. In early1993, 767236 took steps to sell [page584] the property pursuant to the original notice of sale and entered into an agreement in the regard.Day J. dismissed the plaintiff's motion on the basis that he failed to meet any of the required tests for an injunction.

At the end of hisreasons, the learned judge stated, at para. 30: On the question of whether or not the power of sale commenced by the National Bank was interrupted by intervening events, when thatmortgage was bought out by 767236, it was bought in accordance with all the equities which prevailed at the time, including the power ofsale. [27] More recently, in Lee v. Korea Exchange Bank of Canada (1999), (ON SC), 44 O.R. (3d) 366, [1999] O.J. No.2296 (S.C.J.), the applicants sought an order that they had good title to their property.

At issue was the validity of a prior sale of theproperty 15 years earlier under power of sale. After the mortgage went into default and the mortgagee, Canada Trustco MortgageCompany, sent notice of sale in accordance with

Part III of the Act, it assigned the mortgage. The assignees subsequently sold theproperty to a third party pursuant to the power of sale without any further notice to the mortgagors. In dismissing the application, CullityJ. held that a mortgagee's right to sell pursuant to a notice of sale was not a right that could be assigned. After reviewing s. 31(1) andForm 1 under the Act, the learned judge stated [at para. 14]: It is, I believe, clearly implicit in this language that, if the person exercising the power of sale is an assignee of the mortgage, this mustbe stated: see Emedi v.

McMaster (1982), 25 R.P.R. 41 (Ont. H.C.). The reason is that it is imperative that the mortgagor have notice of the identity of the personexercising the power of sale: see Salciccia v. Reid (1978), (ON SC), 21 O.R. (2d) 10 (H.C.). This is the person withwhom the mortgagor would have to deal, or against whom the mortgagor would have to act if the notice was defective, within 35 days ifa sale was to be prevented. In consequence, the notice of sale exhibited to the statutory declaration of Canada Trustco's solicitor did notcomply with s. 30(1) as it was not given by the person proposing to sell the property.

It was not a notice of sale for the purposes of thatprovision. [28] In my view, on the facts of this case, the applicant can rely on the Notice issued by Orenstein to sell the Property pursuant to powerof sale. The Notice complies with s. 31(1) of the Act. [29] With respect, I disagree with Cullity J. in Lee v. Korea Exchange Bank, supra, when he says that any "right" a mortgagee obtainswhen it complies with the notice provisions of

Part III of the Mortgages Act cannot be assigned. In this case, the terms of the Mortgagespecifically provide that the mortgagee may sell on default, subject to certain terms and notice and that "all rights, advantages, privileges,immunities, powers and things" secured to the mortgagee shall be equally secured to its [page585] successors and assigns. If theMortgage goes into default and the mortgagee gives notice, in my view an assignee is entitled, by the terms of the Mortgage, to rely onthat default and notice and to sell the Property pursuant to the power of sale.

It is a contractual right which, although shaped andconstrained by statute, is capable of being assigned along with the Mortgage. [30] Further, I do not consider that s. 31 of the Act or Form 1 which is incorporated by it require that the person exercising the powermust be the person sending the notice. The purpose of s. 31 of the Act and Form 1 incorporated therein is to ensure that the mortgagor isgiven an opportunity and the information required to redeem the property within the 35-day notice period: 967305 Ontario Ltd. v. NorthAmerican Trust Co. (1996), (ON SC), 28 O.R. (3d) 212, [1996] O.J. No. 517 (Gen.

Div.). [31] As noted, "mortgagee" is defined in s. 1 of the Act to include "any person deriving title under the original mortgagee". In my view,when s. 31 is read having regard to its context in the Act and its purpose, it does not require that the mortgagee exercising the power ofsale and the mortgagee giving the notice be the same entity. The provision of notice to the mortgagor is not affected by the fact that the

mortgagee giving the notice may be different from the mortgagee exercising the power of sale save and except in circumstances wherethe mortgagor has no notice of the assignment. [32] Further, in my view, the wording of Form 1 has no impact on the issue. It is incorporated into s. 31(1) and has the same purpose asthat section. The use of the word "I" in the form cannot be interpreted to mean that the power can only be exercised by the personproviding the notice in circumstances where it is clear from both the Mortgage and the Act that the Mortgage may be assigned.

Onceagain, what is important is that the mortgagor has notice of the assignment. The form recognizes that by providing, where the mortgagehas been assigned prior to the notice, details of the assignment must be provided. That does not preclude, however, notice of theassignment being provided to the mortgagor after the notice of sale has been delivered. [33] One of the significant distinctions in the above cases is that in Emedi v. McMaster and Lee v. Korea Exchange Bank, both of whichheld that an assignee could not rely on the assignor's prior notice of sale, the mortgagor received no notice of the assignment.

In both490352 Ontario Inc. v. ASAAPV Financial Corp. and Novak v. Kovacevic, where the mortgagor was given notice, the court had nodifficulty with the validity of the notice or the assignee relying on it. [page586] [34] To be effectual in law, express notice in writing of the assignment must be given to the debtor or, in this case, the mortgagor: s.53(1) of the Conveyancing and Law of Property Act, R.S.O. 1990, c. C.34.

In my view, in order to comply with s. 31(1) of the Act, anassignee who wishes to rely on the assignor's prior notice of sale to sell the property under power of sale must give the mortgagorreasonable notice of the assignment in writing. [35] It is clear that s. 31 of the Act must be strictly complied with: Botiuk v. Collison (1979), (ON CA), 26 O.R. (2d)580, [1979] O.J. No. 4429 (C.A.). In my view, in this case it was. The Notice was given by Orenstein, the mortgagee at the time of theNotice.

The Notice was in accordance with Form 1 and was provided to all of the people having an interest in the Property as required bys. 31(1). Neither Moldenhauer nor any of the other persons or entities with an interest in the Property who were served with the Noticetook any steps to redeem the Mortgage within the time period provided or attack the Notice as deficient.

Moldenhauer and all otherpersons or entities served were aware that, in the absence of redemption within the time provided, the Property could be sold by themortgagee and their rights in respect of it extinguished. [36] Subsequent to the Notice and prior to notice of the assignment, Moldenhauer was able to deal with Orenstein in regard to theMortgage and the Notice if he so chose. After the Mortgage was assigned and written notice of the assignment was given toMoldenhauer, he was then able to deal with the applicant as assignee in respect of the Property.

There is no issue in this case that thenotice of assignment, although late served, was unreasonable. Moldenhauer is aware of the proposed sale and does not oppose. The factthat the Mortgage was assigned therefore had no impact on Moldenhauer's rights under the Mortgage. [37] Nor does the applicant's reliance on the Notice have any impact in my view on the rights of all other persons entitled to receivenotice under s. 31. The Notice was properly served on all of the listed execution creditors and the Canada Revenue Agency as requiredby s. 31(1) of the Act.

They were entitled to redeem within the time period provided but didn't. Further, execution creditors that file writswith the sheriff after the notice of sale are not entitled to notice: Morra v. Aloe, (ON SC), [1971] 2 O.R. 532, [1971]O.J.

No. 1545 (H.C.J.). [38] For the reasons given, therefore, it is my view on the facts of this case that the applicant is entitled to rely on the Notice issued byOrenstein on November 23, 2010 and may power to sell the Property pursuant to the power of sale in the Mortgage. [page587] Iaccordingly granted the application with the provision that the Notice of Power of Sale papers contain, in addition to statutorydeclarations of Orenstein and his solicitor as required by s. 35 of the Act, statutory declarations of the applicant, as assignee and itssolicitor. Application granted.