Petranik v. Dale

Petranik v. Dale
Collection
Supreme Court Judgments
Date
1976-10-05
Report
[1977] 2 SCR 959
Judges
Laskin, Bora; Judson, Wilfred; Ritchie, Roland Almon; Spence, Wishart Flett; Dickson, Robert George Brian
On appeal from
Ontario
Subjects
Priorities and hypothecs
Decision Content
Supreme Court of Canada
Petranik v. Dale, [1977] 2 S.C.R. 959
Date: 1976-10-05
Helga Petranik (Plaintiff) Appellant;
and
Alice Dale, Frederick W. Parker and Eugene F. Berwick (Defendants) Respondents.
1976: May 5; 1976: October 5.
Present: Laskin C.J. and Judson, Ritchie, Spence and Dickson JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Mortgages—Foreclosure—Power of sale in mortgage—Sale under power after judgment nisi in foreclosure—Right of redemption—Equity—Whether exercise of alternative remedy valid—Whether sale void—Rules of Practice, R.R.O. 1960, Reg. 396, Rule 465.
Appellant brought an action against D, P & B claiming that a mortgage purportedly executed by her in favour of D was null and void and that P and B who purchased the property from D under the power of sale held the property in trust for appellant. D as mortgagee had started foreclosure proceedings in 1961 and a specially endorsed writ was issued against appellant as mortgagor. Appellant failed to appear and a default judgment was taken in 1962. The judgment directed a reference and when originally drawn up in typed form contained a clause providing for a reconveyance to the appellant upon payment of the amount due to the mortgagee. This reconveyance clause was struck out and the deletion initialled by the Assistant Registrar. No explanation was given for the deletion. Appellant did not however proceed with the reference directed in the default judgment but instead purported to act under the power of sale contained in the mortgage. The trial judge founding himself on Stevens v. Theatres, Ltd., [1903] 1 Ch. 857, found that the direction for a reference in the default judgment was enough to preclude exercise of the power of sale without leave of the Court. The Court of Appeal reversed.
Held (Judson and Ritchie JJ. dissenting): The appeal should be allowed.
Per Laskin C.J. and Spence J.: The default judgment was a judgment nisi for foreclosure. The mortgagor would have been entitled to invoke the equitable jurisdiction of the Court to claim a right to redeem on payment of the amounts found owing on the reference and on such other terms as the Court might fix. The mortgagee was not entitled to improve her position by proceeding to a sale under the mortgage without leave when she had crystallised her remedies through a judgment nisi which called for a reference. Rule 460A (introduced in 1941 and now Rule 465, R.R.O. 1960, Reg. 396 of the Rules of Practice), which provides for filing of a notice of desire of opportunity to redeem if a mortgagor does not otherwise wish to defend the foreclosure action, must be read with Rule 467 [now Rule 472] which makes it clear that failure to appear or to file a D.O.R. notice enables the plaintiff to sign judgment for immediate foreclosure subject to a reference as to encumbrances. The Rule changes did not however deal with the matter on appeal.
Per Dickson J.: An equity of redemption is an interest in land, which the mortgagor can convey, devise, settle, lease or mortgage like any other interest in land. Equity has always jealously guarded the mortgagor’s right to redeem. Having obtained a judgment of the type obtained by D, the mortgagee must carry out that judgment or obtain the leave of the Court to do otherwise. The failure of appellant to file a D.O.R. did not extinguish her equity of redemption.
Per Judson J., dissenting: Appellant was in default under the mortages, and the property was completely pledged to or claimed by others. When the foreclosure proceedings were instituted she was not able to nor did she indicate a desire to redeem the property. The judgment nisi effectively foreclosed her equity of redemption and directed a reference. The mortagee was entitled to pursue alternative remedies. The fact of obtaining such a judgment nisi did not preclude the mortgagee from exercising her power of sale under the mortgage since the sale did not prejudice any rights asserted by or accorded to appellant in the foreclosure proceeding.
Per Ritchie J., dissenting:. For the reasons given by Arnup J.A. in the Court of Appeal the appeal should be dismissed.
[Stevens v. Theatres, Ltd., [1903] 1 Ch. 857; De Beck v. Canada Permanent Loan and Savings Co. (1907), 12 B.C.R. 409; Marshall v. Miles, [1970] 3 O.R. 394; Casborne v. Scarfe (1737), 1 Atk. 603, 26 E.R. 377; Burgess v. Wheats (1759), 1 Eden 177, 28 E.R. 652; Heath v. Pugh (1881), 6 Q.B.D. 345; Tarn v. Turner (1888), 39 Ch. D. 456; Campbell v. Holyland (1877), 7 Ch. D. 166 referred to.] APPEAL from a judgment of the Court of Appeal for Ontario[1], allowing an appeal from a judgment of Moorhouse J., declaring null and void a conveyance made in exercise of a power of sale under a mortgage. Appeal allowed, Judson and Ritchie JJ. dissenting.
Nelles Starr, Q.C., and Walter S. Gonet, Q.C., for the appellant.
George T. Walsh, Q.C., and Tom Pratt, for the respondents.
The judgment of Laskin C.J. and Spence JJ. was delivered by
THE CHIEF JUSTICE—This appeal arises out of an action brought by the appellant on April 28, 1969 claiming a declaration that (1) a mortgage on certain property allegedly given by her to one Alice Dale on July 12, 1958, registered on January 8, 1959 and subsequently recorded in full on June 15, 1962, was void because the signature thereon was not hers, and (2) a conveyance of the property by Alice Dale to the respondents Parker and Berwick on June 1, 1962 under the power of sale contained in the mortgage was void and that the respondents held the property in trust for the appellant.
Neither the trial judge nor the Ontario Court of Appeal found in the appellant’s favour on her contention that the mortgage was not executed by her, and this question was not pressed in this Court. What is evident from the record is that the mortgage transaction between the appellant and Alice Dale (who was not represented in this Court nor in the Court of Appeal), and other transactions in which the appellant and her husband were involved were carried out by a solicitor whose irresponsibility, incompetence and negligence are made plain in reasons of the trial judge given in a companion case which, as to the evidence and findings, was by consent of counsel, made applicable to the present case. The solicitor in question arranged the mortgage on which no more than $4,000 was advanced although it is stated to be for $5,000. He acted for both parties to the mortgage, and then took foreclosure proceedings on behalf of the mortgagee, Alice Dale. She was an elderly woman and, as found by the trial judge, relied on her daughter, who was the solicitor’s secretary, and upon the solicitor, in respect of the transaction in this case. The daughter herself was involved in a mortgage transaction affecting the very property which is the subject of these proceedings.
A question arose in these proceedings whether the appellant had ever been served with the writ in the foreclosure action and, although it was left open by the trial judge who found on other grounds in the appellant’s favour, I agree with the Court of Appeal that the issues in this case must be considered on the footing that there was proper service, as indeed is shown by a sheriffs officer’s certificate.
Arising out of the foregoing is another matter that should be laid to rest, one which the trial judge considered favourably to the appellant and on which the Court of Appeal did not pronounce because, as it noted, no argument was addressed to that Court on it. I refer to the matter of the delay ex facie involved in the prosecution by the appellant of her claim herein. The proceedings out of which this appeal arises were commenced on April 28, 1969. Since they relate to the foreclosure action, which was begun on July 17, 1961, and to the exercise of a power of sale on June 1, 1962, an explanation of the delay was obviously required.
Default judgment in the foreclosure action was signed against the appellant on March 23, 1962 and a writ of possession was issued on April 17, 1962 and executed at the solicitor’s behest. If the appellant did not know of the default judgment (and it appears that she did not), she certainly knew of the writ of possession; the evidence makes this clear. On learning of the sale to Parker and Berwick on June 1, 1962 pursuant to an accepted offer of May 17, 1962, the appellant took certain proceedings which proved abortive. It is enough to say that by an order of the Ontario Court of Appeal of December 10, 1968, that Court gave leave to the appellant to re-open an action instituted by her in 1964 against Alice Dale, Parker and Berwick, or to institute such other proceedings as she might be advised, under a limiting date in either case of February 3, 1969. A motion by the appellant to re-open the former action was dismissed on April 9, 1969 and the proceedings now in appeal were begun, as already stated, on April 28, 1969. The trial judge indicated that there was no evidence to show that the motion to re-open was not commenced before February 3, 1969. Hence, he proceeded to deal with the case before him on the merits. I think, in view of all the circumstances, that was the proper course. It was the one that the Court of Appeal took, and it was on the merits that the argument proceeded in this Court.
The default judgment in the foreclosure action, which as already noted, was signed on March 23, 1962, was in the following terms:
UPON reading the Writ of Summons issued in this action, and affidavit of service of the said writ and no appearance having been entered and no notice that the defendant desires an opportunity to redeem the mortgaged premises having been filed;
I. IT IS ORDERED AND ADJUDGED that all necessary enquiries be made, accounts taken, costs taxed and proceedings had for redemption or foreclosure and that for these purposes this cause be referred to the Master at the City of Toronto.
II. AND IT IS FURTHER ORDERED AND ADJUDGED that the defendant do forthwith deliver to the plaintiff, or to whom she may appoint, possession of the lands and premises in question in this cause, or of such part thereof as may be in the possession of the said defendant.
When originally drawn up in typed form, the proposed default judgment consisted of three clauses, the first and third clauses being those set out above and a second clause which was as follows:
2. AND IT IS FURTHER ORDERED AND ADJUDGED that the defendant do forthwith after making of the Master’s report pay to the plaintiff what shall be found due her for principal money, interest and costs at the date of the said report and upon payment of the amount due to her that (subject to the provision of section 2 of The Mortgages Act) the plaintiff do assign and convey the mortgaged premises, and deliver up all documents relating thereto.
This clause was struck out, the deletion being initialled by the Assistant Registrar. No explanation was given for the deletion. It is common ground that had this stricken clause remained in the default judgment the appellant would have been entitled to succeed and to have a proper reference at which the accounts would be taken and the amount properly owing on the mortgage ascertained. There was a contention by the respondents that their position was better than that of Alice Dale in that they were purchasers for value, but it is quite clear that they were aware of the foreclosure proceedings and of the default judgment. Since they took with notice thereof, their title would be vulnerable if the mortgagee was disentitled to act when she did under the power of sale in the mortgage.
I note also that Alice Dale swore an affidavit on May 31, 1962 in respect of the sale to the respondents in which she alleged a continuing default of interest under the mortgage to the date of the sale, which she said was May 29, 1962. The deed of June 1, 1962 also recited that there was default in interest for more than two months (this being a proviso in the mortgage permitting sale) and that it had continued to date. The record shows that the solicitor who was behind all the transactions involving the appellant’s mortgaged property had in fact paid up the interest to the end of April, 1962, which was for a period beyond the date on which default judgment was signed and beyond the date of the writ of possession.
The default judgment was a judgment nisi for foreclosure, and para. 1 thereof directed a reference to the Master for the usual enquiries with respect to the accounts and as to redemption or foreclosure. Alice Dale did not proceed with the reference which was directed by para. 1 of the default judgment but, instead purported to act under the power of sale contained in the mortgage, and this is what raises the central issue in the present case. In short, was she entitled to exercise the power of sale against the appellant who had not entered an appearance, had not filed a defence and had not filed a notice of her desire of an opportunity to redeem, and to do so after the judgment nisi for foreclosure and without the leave of the Court?
The trial judge founded himself on the principle expressed in Stevens v. Theatres, Ltd.[2], a case which was followed by the British Columbia Court of Appeal in De Beck v. Canada Permanent Loan and Savings Co.[3] and approvingly referred to by Stewart J. in Marshall v. Miles[4], at p. 397. Although there is language in the reasons of Far-well J. in the Stevens case that indicates that it was because the decree nisi of foreclosure directed a reference and also a reconveyance (as under the paragraph deleted from the default judgment herein) that the power of sale was suspended and could not be exercised without leave of the Court, the trial judge viewed the case in wider compass. For him, the direction in para. 1 of the default judgment for a reference was enough to preclude exercise of the power of sale without leave of the Court.
In the Court of Appeal, Arnup J.A. speaking for the Court, was of opinion that the Stevens case was inapplicable by reason of the omission of the deleted paragraph from the default judgment and, moreover, that his result was compelled by the change in mortgage practice that occurred in Ontario after 1941. His reasons contain the following:
In my opinion, the Stevens rule did not apply in Ontario after 1941 in a situation where a defendant by writ (as mortgagor) did not enter an appearance nor file a D.O.R., even if there were encumbrancers, thus requiring a reference. There would be in such a case no judgment under which the mortgagor acquired rights that would be taken away by the mortgagee’s exercising his power of sale. This conclusion is further justified by the facts of this case, namely, that the actual judgment issued is completely silent as to any right of redemption, or direction to the mortgagee to reconvey on payment. The exercise of the power of sale by the mortgagee was not in any way contrary to the order of the Court which had been issued at the behest of the mortgagee.
I would observe that the learned judge’s statement in the above-quoted passage that there was no right of redemption given in the default judgment herein is not correct, unless it be taken as a specific reference to the mortgagors right of redemption as depending only on whether there was a direction to reconvey, pursuant to the deleted paragraph. In the absence of this paragraph, it was the learned judge’s opinion, fortified by the change in Ontario mortgage practice, that para. 1 of the default judgment referred only to redemption by subsequent encumbrancers and, even if there were such encumbrancers, the failure to proceed to a reference was not a matter of which the mortgagor could complain.
Arnup J.A. conceded that his conclusion “may seem to be a highly technical position to reach but the Stevens rule itself is a technical one…”. I do not think so in the light of the regard which equity has always had for the position of a mortgagor. “Once a mortgage, always a mortgage” is not an idle maxim when even a final order of foreclosure may, in some circumstances, be set aside. Under the original draft of the default judgment containing the paragraph subsequently deleted, the only provision for redemption is in para. 1; the deleted paragraph builds upon para. 1 by referring back to it, and is based upon the assumption that a reference before the Master will take place.
Counsel for the respondent in this Court viewed the deleted paragraph as relating to judgment on the covenant for payment of the mortgage debt, but I do not think that this meets the issue here. The question in this case is whether the excision of the draft para. 2 ipso facto relieves the mortgagee in equity from holding the property to answer the exercise by the mortgagor of the equitable right to redeem when the legal right has. been lost by a default in payment at the time prescribed in the mortgage. The contention of the respondent, which was upheld by the Ontario Court of Appeal, is that para. 1 of the default judgment did not preserve any right of redemption by the mortgagor.
In the Stevens case, it does not appear that the judgment nisi for foreclosure was a default judgment. The recital of facts includes the statement that the order nisi for foreclosure was in the common form, directing accounts and directing the plaintiff to reconvey the property on payment of what should be found due. Instead of proceeding to a reference the mortgagee gave notice to the mortgagor of intention to sell, and two weeks later entered into a contract of sale which was later followed by a conveyance to the purchaser. The holding of Farwell J. that the power of sale in the mortgage was suspended in view of the judgment nisi for foreclosure and could not be exercised without leave of the Court “because it prejudices the rights given to the mortgagor under the direction to reconvey” relates, of course, to the actual terms of the judgment nisi in that case.
The question that arises is whether the Stevens case expresses a principle which is equally applicable where there is a provision, as here, for a reference and for redemption or foreclosure under a default judgment nisi which, as approved by the Registrar (or Assistant Registrar) omits the follow-up clause containing the direction to reconvey upon payment of the amounts found due on the reference. In the course of his reasons, Farwell J. made some general observations as to the relations of mortgagor and mortgagee which, I think, are relevant here. He said this (at p. 860):
Now this question—whether a decree for foreclosure directing accounts and reconvenance, or, by parity of reasoning, a decree for redemption directing accounts and reconveyance, on payment, operates to prevent the exercise of the power of sale in the mortgage, or that given by the statute—has to be decided on principle in the absence of authority. The first proposition, which I think is plain, is this—neither the mortgagee nor the mortgagor is entitled to dismiss his action, or to discon- tinue after judgment. The general principle on which the Court acts with regard to actions of this sort is to regard the plaintiff as dominus litis until judgment; but if, and so far as the judgment operates for the benefit, nor merely of himself but for some one else, he cannot get rid of his action mero motu after judgment…
Now, if the plaintiff cannot get rid of his action after judgment because the judgment is for the benefit also of the defendants, it must follow that he cannot in any way vary the form of that judgment by doing an act which would put it out of his power to perform that which the Court has directed him to do as the condition of getting the judgment.
It is also useful to consider the British Columbia case of DeBeck v. Canada Permanent Loan and Savings Co., supra. There, a mortgagee obtained a judgment nisi for foreclosure against the mortgagor who had appeared in the action and filed a defence, and also a judgment nisi for foreclosure against a second mortgagee who did not (apparently) appear and did not file a defence. A reference was had, and neither the mortgagor nor the second mortgagee attempted to redeem within the six month period fixed on the reference. The foreclosing mortgagee then purported to sell the property, having given notice to the mortgagor but not to the second mortgagee, but without having obtained an order absolute for foreclosure and without having the leave of the Court. The purchaser knew of the foreclosure proceedings. Three years later the mortgagor and the second mortgagee made a tender seeking redemption, and when it was denied they sued the foreclosing mortgagee and the purchaser claiming that they were entitled to redeem.
Their claim was upheld by Hunter C.J. whose judgment, relying on the Stevens case, was sustained on appeal. The trial judge noted that the sale agreement was made before the expiry of the time fixed for redemption, and the foreclosing mortgagee was therefore disentitled to sell without leave of the Court. This is entirely consistent with the principle of the Stevens case. If a private sale is prohibited without leave of the Court where a reference is directed but has not been held, it must equally be prohibited where it is held but the period fixed thereunder for redemption has not expired.
What emerges from the DeBeck case is a reassertion of the well-established proposition that the equitable right to redeem is more than a mere equity but is, indeed, an interest in the mortgaged land which is not lightly to be put aside and which is enforceable by courts of equity: see Falconbridge, Law of Mortgages (3rd. ed. 1942), pp. 50-53. I question, therefore, whether it can be put aside by a rule of practice that would preclude a Court from considering all the circumstances that may support a discretion to allow redemption, albeit on terms.
In his reasons in the Court of Appeal, Arnup J.A. emphasized the view that the reason for the suspension of the power of sale under a judgment nisi for foreclosure, unless leave of the Court is obtained, is that the mortgagor is given certain rights under the foreclosure judgment (for example, the right to a reconveyance on paying what is owing, as ascertained on a reference), and a sale without leave would deprive him of those rights. I think that this overlooks the fact that a mortgagor under a judgment nisi for foreclosure has not yet been deprived of his pre-existing equitable right to redeem; the judgment nisi cannot be said to have conferred new rights but rather to have prescribed a procedure by which the existing right could be pursued and the property reclaimed, so long as the foreclosure did not become absolute.
There were in the present case, subsequent encumbrancers, namely, another mortgagee and two execution creditors, and if the mortgagee had on that account proceeded to a reference instead of purporting to exercise a power of sale without leave, I am of the opinion that the mortgagor, although not entitled to notice of the reference by reason of her non-appearance, would have been entitled to invoke the equitable jurisdiction of the Court to claim a right to redeem on payment of the amounts found owing on the reference and on such other terms as the Court might fix in view of the default of appearance. If this be so, I do not see how the mortgagee could improve her position by proceeding to a sale under the mortgage without leave when she had crystallized her remedies through a judgment nisi which called for a reference. To sell in such circumstances, not by order of the Court nor by its leave, is to defeat what the Court has formally directed.
The Court of Appeal would have it that Ontario Rule 460A, introduced as of May 31, 1941 and companion changes in the Rules, have altered the position of a mortgagor by obliging him to file a notice of desire of opportunity to redeem (known as a D.O.R.) if he does not otherwise wish to defend the foreclosure action; failing this (and failing defence), his previous automatic right to redemption is said to be lost. Rule 460A, which became Rule 465 in the 1960 consolidation of the Ontario Rules and which was in force at the material times herein, is as follows:
Where a defendant by writ in an action for foreclosure or sale desires an opportunity to redeem the mortgaged premises but does not otherwise desire to defend the action, he shall within the time allowed for appearance file and serve a memorandum entitled in the action to the following effect: ‘I desire an opportunity to redeem the mortgaged premises’, whereupon he shall be entitled to four days notice of the taking of the account of the amount due to the plaintiff and shall have six calendar months from the time of the taking of the account to redeem the mortgaged premises.
This Rule must be read with Rule 467 which makes it clear that the failure to appear or to file a D.O.R. enables the plaintiff to sign judgment for immediate foreclosure, subject to a reference being required as to encumbrancers, and the plaintiff will be entitled to a final order of foreclosure if on the reference no encumbrancer proves a claim.
The Rule changes do not appear to have dealt with the case where, as here, a plaintiff does not proceed to final judgment for foreclosure upon a default by the mortgagor and on his failure to file a D.O.R., but instead seeks a judgment nisi. It is my opinion that such a judgment leaves open the equitable right to redeem, at least until judgment absolute is obtained, and that the plaintiff cannot sell under the power of sale without leave of the Court.
I return, too, to the observation previously made that the judgment nisi in this case does direct a reference, although the consequences thereof are not spelled out because of the deleted paragraph. The deletion is, however, mere form and the prevailing practice of allowing six months to redeem after the taking of accounts would be applicable.
Counsel for the appellant stressed the equities of the present case and, apart from the question of delay, they are clearly with the appellant. I refer to three matters; first, the property, mortgaged for $4,000, was sold to the respondents for $25,500; second, the solicitor, who was in complete charge of the dealings between the appellant and Alice Dale, acted on behalf of the latter to the detriment of the former; and third, there were existing subsequent encumbrancers of whom, apparently, no notice was taken by the solicitor and who were entitled to consideration in the foreclosure proceedings, and certainly, upon the reference directed by the judgment nisi.
I would allow the appeal, set aside the judgment of the Ontario Court of Appeal and restore the judgment of Moorhouse J. with costs to the appellant throughout.
JUDSON J. (dissenting)—The appellant Helga Petranik brought an action against Alice Dale, Frederick Parker and Eugene Berwick, claiming a declaration that a $5,000 mortgage on a house and lot known as 62 La Rose Avenue, Etobicoke, Ontario, which was purportedly executed by Mrs. Petranik in favour of Mrs. Dale, was null and void, and that Parker and Berwick, who purchased the property from Mrs. Dale under power of sale in the mortgage, held the property in trust for Mrs. Petranik. Mrs. Dale counterclaimed for the difference between the amount realized on the sale and the amount owing to her on the mortgage and for expenses incurred. Parker and Berwick counterclaimed for damages suffered when a notice of claim registered on title by Mrs. Petranik prevented them from selling 62 La Rose after they had built another home on other property.
Moorhouse J., in a judgment dated June 3, 1971, found that the mortgage was valid to the extent of $4000, but that the sale to Parker and Berwick, which took place after Mrs. Dale had obtained judgment nisi in a foreclosure action of which Parker and Berwick had notice, was null and void. The defendants Parker and Berwick appealed to the Ontario Court of Appeal which, in a unanimous judgment written by Arnup J.A., reported at [1973] 2 O.R. 217, held that the exercise of the power of sale was not invalid since the mortgagor had not given notice that she desired an opportunity to redeem and the judgment nisi did not confer any rights on the mortgagor which could be defeated by a sale. The plaintiff appealed to this Court.
Although the case involves The Mortgages Act, R.S.O. 1960, c. 245, and the Rules of Practice, R.R.O. 1960, Reg. 396, both of which have been substantially amended, it raises an issue which could affect other properties sold under power of sale within the limitation period of the last ten years: The Limitations Act, R.S.O. 1970, c. 246, s. 4.
The issue is not merely one of practice, but, as in any mortgage action, one of equity. It is well established that even a final foreclosure order can be reopened if the circumstances warrant such action. It is thus important to inquire into the dealings of the parties though they are complex and reach back many years. The appellant Helga Petranik and her husband Ludwik came to Canada from Germany in 1949 and worked industriously to establish themselves. Mr. Petranik worked on the construction of houses, at first as a carpenter and then as a self-employed contractor. In 1951 the Petraniks built a triplex at 38 Beckett Avenue. They rented two units and lived in the other until 1957 when they moved into a house which Mr. Petranik had built on Hadrian Drive. They stayed there two months until the house was sold and then moved into a house which Mr. Petranik had built at 37 Beckett Avenue. Mrs. Petranik, on the recommendation of a friend at work, consulted Mr. G.A. Howell, a solicitor, about a by-law affecting 38 Beckett Avenue. Mr. Howell had clients willing to invest in mortgages, and the Petraniks came to rely on him for some of the financing for their growing construction business.
Unfortunately, the conduct of Mr. Howell’s mortgage practice was, in the words of the trial judge, “irresponsible, incompetent or negligent”. It appears that as Mr. Petranik needed money, Mr. Howell would have him or Mrs. Petranik execute a mortgage on one of their properties. There is reason for suspicion that some of these mortgages may have been executed in blank to be used as needed. The trial judge did not find that Mr. Howell had acted fraudulently, but he certainly acted improperly, not only on the mortgage transactions where he acted for both parties, but at trial where he represented Mrs. Dale against Mrs. Petranik.
One of the mortgages registered against 37 Beckett Avenue was a mortgage for $5,000 in favour of Mrs. Dale, a client of Mr. Howell and the 83 year old mother of Mr. Howell’s secretary. On January 11, 1956, Mrs. Dale had advanced $4,000 to Mr. Howell by a cheque marked “Re: Petranik Loan”. It was alleged, but not established, that in return she received an unregistered mortgage from the Petraniks on three houses on Hadrian Drive. On January 12, 1958, Mrs. Dale gave Mr. Petranik an additional $1,000 which was added to the mortgage principal. A $5,000 mortgage was then registered against 37 Beckett Avenue. The Petraniks claimed that the $1,000 was not a loan but was part payment for renovations which Mr. Petranik had completed for another client of Mr. Howell. The trial judge accepted this explanation, but since here was evidence that the Petraniks had made payments to Mrs. Dale for interest on a loan of $4,000, he rejected the Petraniks’ claim that they had never borrowed money from Mrs. Dale.
In May 1958, Helga Petranik purchased municipal lots 62 and 64 La Rose Avenue for $12,800. She paid $3,500 cash and the vendor took back a mortgage for $9,800. Two months later, Mr. Petranik exchanged 37 Beckett Avenue for 50 acres of farmland in Chinguacousy Township. Mrs. Dale’s mortgage on 37 Beckett was discharged before the exchange, and in its place Mrs. Petranik executed a mortgage on 62 La Rose in favour of Mrs. Dale for $5,000. This was dated July 12, 1958, but not registered until January 8, 1959. In the meantime, in order to finance the construction of a house on 62 La Rose, Mrs. Petranik arranged through Mr. Howell to mortgage the property to Mr. White for $16,000. This mortgage was executed November 1, 1958 and registered December 11, 1958. On March 10, 1959, a further mortgage was registered against both 62 and 64 La Rose Avenue to secure $3,000 which was purportedly advanced by Richard and Stella Graham, also clients of Mr. Howell. The first mortgage to the vendor was discharged on March 21, 1959, the discharge being registered on April 22, 1959. On September 23, 1960, White assigned part of his mortgage to May E. Wallace. Thus, in 1960, 62 La Rose was mortgaged to White and Wallace for $16,000, to Dale for $5,000, and to the Grahams for $3,000.
In July 1961 the Petraniks moved to Chatham, Ontario, where Mr. Petranik worked on a construction project. They rented 62 La Rose to Ivor Andrew who lived there with his family from July 15, 1961 to December 31, 1961. After the Andrews moved out, the house was left vacant. The Petraniks returned from Chatham in the fall of 1961 when the contractor for the project went bankrupt. Since the Andrews were still occupying 62 La Rose, the Petraniks moved into one of the houses Mr. Petranik was building in Oakville.
The Petraniks were in a precarious financial position. One of the houses in Oakville was foreclosed and, according to Mrs. Petranik, they had to let it go because they could not afford to redeem it. Mrs. Petranik also volunteered that their cottage was being foreclosed and that she was served with a writ of possession with respect to another Oakville house. Writs of execution amounting to $8,082.81 were registered against the lands of Helga Petranik in 1960 and 1961. Taxes on 62 La Rose were not paid after 1959, no payments were made on the White mortgage after January 1960, and the Dale mortgage was also in default.
On May 26, 1961, Mr. Howell wrote to Mrs. Petranik that, because of the continuing default under the mortgages, he would require vacant possession of both 62 and 64 La Rose. The Dale mortgage provided for repayment of principal on July 12, 1961. On July 17, 1961, payments of the interest and principal were both in default and Mrs. Dale, through Mr. Howell, commenced a foreclosure action. Mrs. Petranik denied being served with the specially‑endorsed writ, but the affidavit of a sheriffs officer, who had died before trial, indicates that it was served on February 2, 1962. The trial judge expressly made no finding as to service, but as Arnup J.A. pointed out in the Court of Appeal, Mrs. Petranik has no cause of action unless the writ was served. Arnup J.A. dealt with the case on the assumption of service and his doing so was not disputed in this Court. The writ provided as follows:
…and that the mortgage may be enforced by foreclosure. And to recover from you the defendant payment of the amount due under a covenant by (you)
in that behalf contained in said Mortgage.
And take notice further that the plaintiff claims to be entitled to recover immediate possession of the mortgaged premises.
And take notice that the plaintiff claims that there is now due for principal money the sum of $5,000.00 and for interest the sum of $384.30 due the 12th day of July 1961.
And that you are liable to be charged with these sums with subsequent interest to be computed at the rate of ten per cent per annum, and costs in and by the judgment to be drawn up, and that judgment for immediate foreclosure of your interest in the mortgaged premises may be entered unless you desire an opportunity to redeem the mortgaged premises and before the expiration of the time allowed you for appearance you do file in the office within named and serve a memorandum in writing entitled in this action and signed by yourself or your solicitor to the following effect: “I desire an opportunity to redeem the mortgaged premises”, and give an address for service, in which case you will be entitled to four days’ notice of the taking of the account of the amount due to the plaintiff and in default of payment of the amount found due within six calendar months from the time of taking of the account and the drawing up of the judgment your interest in the mortgaged premises may be foreclosed.
Mrs. Petranik was thus given notice that if she desired to defend or to redeem she must take certain steps, as provided in Rule 465 (formerly R. 460A). Mrs. Petranik did not file an appearance or a notice desiring opportunity to redeem, and on March 23, 1962, the Assistant Registrar signed judgment, directed a reference with respect to subsequent encumbrancers, and ordered Mrs. Petranik to deliver up possession of the property. The form of judgment as first drafted provided as follows:
Judgment
Friday, the 23rd day of March, 1962.
UPON reading the Writ of Summons issued in this action, and affidavit of service of the said writ and no appearance having been entered and no notice that the defendant desires an opportunity to redeem the mortgaged premises having been filed; 1. IT IS ORDERED AND ADJUDGED that all necessary enquiries be made, accounts taken, costs taxed and proceedings had for redemption or foreclosure and that for these purposes this cause be referred to the Master at the City of Toronto.
2. AND IT IS FURTHER ORDERED AND ADJUDGED that the defendant do forthwith after making of the Master’s report pay to the plaintiff what shall be found due her for principal money, interest and costs at the date of the said report and upon payment of the amount due to her that, (subject to the provision of section 2 of The Mortgages Act) the plaintiff do assign and convey the mortgaged premises, and deliver up all documents relating thereto.
3. AND IT IS FURTHER ORDERED AND ADJUDGED that the defendant do forthwith deliver to the plaintiff, or to whom she may appoint, possession of the lands and premises in question in this cause, or of such part thereof as may be in the possession of the said defendant.
In the judgment as issued, paragraph 2 was struck out and the remaining paragraphs renumber I and II. No explanation was given for this deletion, but it seems clear that it was designed to comply with the possible judgments set out in Rule 472 (formerly R. 467):
472. (1) In an action for foreclosure or sale where the writ has been duly endorsed and the defendant fails to appear or fails to file a notice that he desires an opportunity to redeem the mortgaged premises, the plaintiff may sign judgment for immediate sale or for immediate foreclosure unless a reference is desired as to encumbrancers (Form 104).
(2) If a reference is desired as to encumbrancers, the plaintiff is entitled to judgment with a reference, and, if no encumbrancer, shall prove any claim the Master so certifies, and, upon confirmation of the Master’s report, a final order of sale or of foreclosure shall be made.
(3) If upon the reference a subsequent encumbrancer proves a claim, the usual period of redemption shall be granted, but, if the encumbrancer consents, a final order may be made at an earlier date.
(4) In the event of a notice being filed by the defendant desiring an opportunity to redeem the mortgaged premises and no reference as to encumbrancers being required, judgment may be signed and the officer signing it may in simple cases take the account on four days’ notice to the defendant. His findings are subject to an appeal to a judge in chambers in the manner prescribed for appeals from the Master. In complicated cases a judgment shall issue directing a reference (Form 103).
(5) In the event of a notice being filed b