Toronto-Dominion Bank v. Dufault, 2011 NSSC 453

SUPREME COURT OF NOVA SCOTIA Citation: Toronto-Dominion Bank v. Dufault, 2011 NSSC 453 Date: 20111206 Docket: Hfx 345709 Registry: Halifax Between: The Toronto-Dominion Bank Plaintiff and Shelley L. Dufault, and WBLI Incorporated, trustee in Bankruptcy for Dennis R. Dufault Defendants Judge: The Honourable Justice Patrick J. Duncan Heard: September 8, 2011, in Halifax, Nova Scotia Final Written Submissions: November 9, 2011 Counsel: Nicholas C.G. Mott, for the plaintiff Shelley L. Dufault, and WBLI Incorporated, trustee in Bankruptcy for Dennis R. Dufault, defendants, not appearing

By the Court : Introduction [ 1 ] By deed dated June 5, 2001, Shelley and Dennis Dufault, acquired title as joint tenants of property situated in Maccan, Cumberland County, Nova Scotia. On June 20, 2001 the Dufaults executed a mortgage of the property in favor of the plaintiff, The Toronto-Dominion Bank. The mortgage went into default and the plaintiff filed an action on March 11, 2011 claiming principal of $8,764.09 plus interest, costs and disbursements. The Dufaults were properly served but a Defence has not been filed. [ 2 ] Mr. Dufault was granted an automatic discharge in bankruptcy in April of 2007.

He filed a second assignment in bankruptcy in April of 2011. On July 25, 2011 the plaintiff filed a Notice of Discontinuance of its claim against Mr. Dufault personally. The style of cause was amended to name his Trustee in Bankruptcy as a defendant. [ 3 ] On September 2, 2011, the plaintiff filed an ex parte motion for foreclosure, sale and possession, seeking to bar and foreclose all of the interest and equity of redemption of Shelley Dufault and WBLI Incorporated, the trustee in bankruptcy for Dennis Dufault. The matter came on in Chambers for argument.

Having reviewed the mortgage document I questioned whether Shelley Dufault had mortgaged her interest as there was no place in the documentation that identified her as a mortgagor, only as a “Releasor”. Plaintiff’s counsel requested that the matter be adjourned without day to permit him an opportunity to file further documentation and legal argument on this issue. This decision responds to those arguments and the evidence tendered.

Analysis [ 4 ] The plaintiff acknowledges that Shelley Dufault is not identified in the mortgage as a mortgagor, but submits that she created an equitable mortgage of her interest in favor of the plaintiff, which provides the legal basis on which to grant the plaintiff’s motion. [ 5 ] Counsel argues that the parties were under a mistaken belief that title to the property was in Mr. Dufault’s name only and that it was the common intention of the parties that the whole interest in the property be pledged as security for the debt. Counsel says that this is evidenced by Mr.

Dufault’s representation in Paragraph 7 that “ ... he has good title, in fee simple, to the said lands; and that he has the right to convey the said lands to the Mortgagee”. [ 6 ] Equitable mortgages have been known and accepted by the courts for many years. [ 7 ] In The Canadian Law of Mortgages 2 nd ed. (Roach, Joseph E. Markham: Lexis Nexis, 2010) the author introduces the subject in this way, at p. 356: The equitable mortgage differs from the mortgage at common law by the nature of the title conferred upon the mortgagee, the nature of the instrument, and the nature of the security.

Unlike the mortgage at common law, the equitable mortgage does not convey legal title to the mortgagee but rather a property interest available against all persons in equity, such as a second mortgagee. In addition, whereas the mortgage at common law must be in the form of the deed, the equitable mortgage may be created by a written instrument, though no standard form is required, or by the simple deposit of title deeds. [ 8 ] An oft cited description of such a mortgage is found in Anger and Honsberger , Law of Real Property , 2 nd ed.

Vol. 2 (Toronto: Canada Law Book, 1985) at p. 1643 paragraph 3405: An equitable mortgage is one that does not transfer the legal estate in the property to the mortgagee, but creates in equity a charge upon

the property. It may be created by mortgaging the equity of redemption (i.e., a second or subsequent mortgage) or a future interest, orby a deposit of title deeds, or by an agreement to give a mortgage or charge property for a debt. It may also be created when themortgage is insufficient to transfer the legal estate because of improper execution, or because of an incorrect description. An essential feature of an equitable mortgage is a common intention that the property be made security for a debt due or for futureadvances.

If that intention is lacking, no equitable mortgage can be created. (Emphasis added) see, Banks v. Elliott (1988), (NS SC), 83 N.S.R.(2d) 189; Luscombe v. Luscombe (NL SC),[1990] 80 Nfld & P.E.I. R. 325 (Nfld. S.C.T.D.) [9] An equitable mortgage, if determined to exist, is enforceable. Falconbridge on Mortgages, 5th ed., (Traub, Walter M. ed.)(Toronto, ON: Canada Law Book, 2003) §5-3: If a document in the form of a legal mortgage is signed, but not sealed, or for any other reason is not sufficient to transfer the legal estate,it is an equitable mortgage.

An instrument intended to operate as a legal mortgage, which fails so to operate for want of some formality is valid as an equitablecharge and gives the mortgagee a right to a perfected assurance. [10] In Principles of Property Law, 5th ed. (Ziff, Bruce) (Toronto: Carswell, 2010) at pp. 434-435, the author looks at the basicapproach a court may take in deciding whether a document constitutes an equitable mortgage: Equity will always look beyond the form or ostensible purport of a legal transaction in search of its underlying substance; its truemeaning.

In the case of mortgage transactions this notion is reflected, obliquely, by the maxim “once a mortgage, always a mortgage”. Put another way, a mortgage should be treated as a form of security only; therefore, the equity of redemption-the residual ownershiprights that remain after the mortgages granted-will fall under the protective wing of the Chancery. The maxim also encodes the point that equity will examine the nature of the transaction to see if it is, in fact, a mortgage parading aroundas some other form of arrangement. … So, is this really a mortgage?

The documents themselves may hint at that characterization, andparol evidence may be tendered on the issue. At the end of the day, there must be “powerful collateral” evidence to displace theapparent meaning of the documents when taken at face value. The point of pursuing the issue of characterization is plain enough: itdetermines whether or not the rights of the parties are to be governed by the special rules of mortgage law. [11] The case of Royal Bank of Canada v. Fraser (1994), (NS SC), 139 N.S.R. (2d) 27 raised a very similarproblem to the one in this case.

The defendants were spouses who executed a mortgage on their matrimonial home, which they held asjoint tenants. The mortgage document named only the husband as mortgagor. The wife signed in her capacity as "spouse of themortgagor". There was a clause in the mortgage that provided that the mortgagor's spouse consented to the transaction and postponedher interest in the property. [12] MacLellan J., granted foreclosure against the defendant husband's interest only.

Since the only evidence of the parties'intention at the time of executing the mortgage document was the document itself, the court was not prepared to reach a conclusion thatby consenting to the transaction, it necessarily followed that it was the wife's intention to mortgage her interest in the property: 16 By agreeing to postpone her interest in the matrimonial home, she was, I find, simply giving up her Matrimonial Property Actrights in his property interests and not her own.

17 Here, Mrs. Fraser held the property jointly with her husband. It is clear that a joint tenant can Mortgage his interest in a property without consent from the other joint tenant. Such an event would terminate the joint tenancy, ( See Fort Garry v. Sutherlands, supra ). 18 In the Fort Garry v. Sutherland case Cowan, J. found that the parties intended to have both parties execute the Mortgage. No such evidence is present here.

Also, in that case, the wife executed a subsequent document clearly indicating that she intended to be joined as a Mortgagor on the Mortgage document. 19 The Statement of Claim served on the Defendants described Mrs. Fraser as a Mortgagor. That was in fact not correct. It asked for a Deficiency Judgment against only Mr. Fraser.

If the Plaintiff intended what is requested in this application, this could have been made clear to both Defendants in the Statement of Claim. 20 I find that the fact that Tracy Lynn Fraser did not defend the foreclosure action does not permit the Plaintiff to foreclose on her property if it did not have that right based on the Mortgage document. The Plaintiff has the obligation to show that it has the right to a Foreclosure Order against the interest of Mrs. Fraser. I find that no such right exists. I am therefore not prepared to issue a Foreclosure Order against the Defendant Tracy Lynn Fraser.

I will grant such an Order against William Kevin Fraser, however, the advertisement of the Foreclosure Sale should clearly indicate that the sale is only of Mr. Fraser's interest in the property. [ 13 ] The arguments advanced in the case at bar follow the same line of reasoning as that advanced by the plaintiff in Royal Bank. The evidence in this matter that speaks to the formation of the mortgage is contained in the documents themselves. There is no parol or other evidence that assists in deciding what the intention of the parties was in creating or renewing the agreement. [ 14 ] The mortgage names Mr.

Dufault as the “... Mortgagor OF THE FIRST PART”. It erroneously describes him as the “beneficial and sole owner” of the lands. Paragraph 7 of the mortgage creates the obligation on the mortgagor to, among other things, “... pay the mortgage money and interest ...”. [ 15 ] The affidavit evidence of the Mortgage Recovery Manager for the plaintiff satisfies me that the payments required by the mortgage have not been made in accordance with the terms of the mortgage and that the plaintiff is entitled to remedies on default as against Mr.

Dufault, or in this case, his Trustee in Bankruptcy. [ 16 ] Shelley Dufault is described in the Mortgage as: Shelley Dufault, (who holds a matrimonial property interest in the lands as described in

Schedule “B”) ( the “Releasor”) ( spouse of the mortgagor), OF THE THIRD PART. [ 17 ] Mrs. Dufault signed on a line that is captioned “Shelley L. Dufault, Releasor”.

Schedule “A” to the Mortgage describes Mr. Dufault as “mortgagor” and Mrs. Dufault as “Releasor”. [ 18 ] The attached Affidavit of Status identifies Dennis R. Dufault and Shelley L. Dufault as “spouses of one another”. There is no reference to her as a mortgagor. [ 19 ] There is no provision in the mortgage or the attached

Schedule that affixes liability on the “Releasor”. There is no description of what is being released. [ 20 ] The plaintiff issued an “Approval of Mortgage Loan” letter which was dated June 18, 2001. It describes Mr. Dufault as the

[ 20 ] The plaintiff issued an “Approval of Mortgage Loan” letter which was dated June 18, 2001. It describes Mr. Dufault as the “mortgagor”. He signed it on June 20, 2001. The space for “Co-applicant” had an “x”, as if intending that a second signature be affixed to the document, but that “x” is scratched out. The Statement of Disclosure, also prepared by the plaintiff refers to and is only signed by Mr. Dufault. [ 21 ] A Mortgage Renewal Agreement prepared by the plaintiff and dated January 29, 2010, names only Mr.

Dufault and is signed only by him and the Bank’s representative. [ 22 ] I am advised that there was also a Mortgage Renewal Agreement entered into in, or about, July 2006 but the plaintiff is unable to locate a copy of the Agreement. [ 23 ] At paragraph 2 of the Statement of Claim the plaintiff provides particulars of the mortgage: (

b) Name of Mortgagor: Dennis Dufault (Shelley L. Dufault, spouse of the mortgagor) [ 24 ] It is clear from these various documents that the parties, throughout the history of the mortgage, acted as if only Mr. Dufault was the mortgagor. There is no evidence to the contrary. [ 25 ] As Justice MacLellan observed, it is open to a joint tenant to mortgage their interest in a property without the agreement of the joint tenant. In my view, the evidence in this case could support an inference that Mr. Dufault sought to borrow monies from the plaintiff and as security for that he pledged his interest in the property.

For her part, Mrs. Dufault may have been unwilling to do more that act as a Releasor, whatever that term was intended to mean. I note this latter point here since the mortgage in this case does not even have the description of what was being released, as was present in the Royal Bank case. [ 26 ] I am asked to draw the conclusion that the parties were mistaken as to the title of the property, and had they known that both of them, not just Mr. Dufault, were titleholders, then the mortgage would have been prepared correctly with Mrs. Dufault as a co- mortgagor.

This would lead in turn to the conclusion that an intent to mortgage the property was formed by both property owners. I find no evidentiary basis on which I could reach that conclusion. I would be speculating in making such a finding. [ 27 ] I conclude that the plaintiff has failed to meet the burden to demonstrate on evidence that Shelley Dufault had an intention to mortgage her interest in the lands and therefore the plaintiff does not have the right to foreclose against her interest.

I grant an order of foreclosure, sale and possession as against the interest of WBLI Incorporated as trustee in bankruptcy of the estate of Dennis R. Dufault. The advertisement of the Foreclosure Sale should clearly indicate that the sale is only of Mr. Dufault’s interest in the property. [ 28 ] I direct that counsel for the plaintiff prepare and submit an Order reflecting this decision and with supporting calculations for the amount claimed at this time. Duncan, J.