Failure to accept tender reduced interest that could be charged

Real Property - Mortgages - Payment and Discharge of Mortgage

Respondent numbered company (121) was first mortgagee of two properties. Appellant corporation (Sub-Prime), as second mortgagee, filed applications seeking orders permitting it to obtain immediate discharge of 121’s mortgages by paying money into court, pending further court orders or resolution of parties’ dispute. 121 issued different calculations owing on mortgages and Sub-Prime disputed entries and filed two applications relying on provisions of Mortgages Act (Act), Interest Act, and Rules of Civil Procedure. With respect to one mortgage, Sub-Prime took issue with open-ended list of items including charges for non-sufficient funds or missed payments, three-month interest charge, and automatic renewal fee. As for other mortgage, Sub-Prime took position 121 was obliged to accept its tender of $675,937.73 for discharge of mortgage which, due to calculation error, claimed it was $683,133.76. Application judge found that s. 12(3) of Act did not apply as language referenced situations where mortgagee cannot be found, and section “is not engaged automatically any time there is a dispute with respect to the amount owing on a mortgage”. Even if s. 12(3) applied, application judge declined to exercise her discretion as there was no compelling reason to do so. Further, application judge was not satisfied there was sufficient evidence of tender with respect to second property. Application judge held Sub-Prime should have paid mortgage balances under protest and then brought proceeding to dispute excessive charges. Costs awarded on partial indemnity basis of $12,000 was deemed appropriate. Sub-Prime appealed. Appeal dismissed. Application judge erred in law in finding that process under s. 12(3) of Act was unavailable to Sub-Prime because it was second mortgagee. However, application judge decided that even if s. 12(3) of Act could be interpreted as available to Sub-Prime, she would not make order requested which was discretionary decision exercised correctly. If mortgagor had legitimate concerns about amount claimed to discharge mortgage, application should be brought under R. 14.05(3)(e) of Rules. In present case, Sub-Prime did not seek assessment of disputed costs and charges, but rather requested costs and charges be assessed at later date but that mortgages be discharged immediately without any payment to 121. Application judge could not have made finding on validity of amounts claimed by 121 as Sub-Prime never sought judicial determination of all disputed items and lacked evidentiary support for its position. Appropriate course was matter be remitted back to Superior Court, with parties required to file amended application materials for determination under R. 14.05(3)(e) of Rules whether disputed costs and charges should be allowed. Further, 121 was not bound by errors in its discharge statement with respect to second mortgage. However, Sub-Prime was at liberty to argue that 121’s failure to accept tender reduced interest that could be charged or otherwise impacted amount owing. Given decision to remit applications back to Superior Court, substantial indemnity costs order was quashed.

Sub-Prime Mortgage Corporation v. 1219076 Ontario Limited (2019), 2019 CarswellOnt 10901, 2019 ONCA 581, K. Feldman J.A., C.W. Hourigan J.A., and David Brown J.A. (Ont. C.A.).

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