Supreme Court Judgments

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

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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.]

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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

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$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

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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

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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

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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

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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

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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-

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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

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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

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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

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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

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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.

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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

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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

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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

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            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;

[Page 977]

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’

[Page 978]

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 by the defendant desiring an opportunity to redeem the mortgaged premises and a reference being desired as to encumbrancers, judgment may be signed directing a reference, and the account shall be taken by the Master on four days’ notice to the person filing the notice (Form 102).

(6) Where the writ has not been personally served, the claim of the plaintiff shall be duly verified by an affidavit which shall be filed with the officer taking the account. (467)

If there had been no subsequent encumbrancers, a final order of immediate foreclosure would have been signed on March 23, 1962 since the mortgagor had not indicated that she desired an opportunity to redeem. However, there were subsequent encumbrancers in this case: the Grahams held a $3,000 mortgage on 62 and 64 La Rose Avenue and there were two execution creditors. According to Mr. Howell, he had purchased the Graham mortgage in 1962 and discharged it insofar as it affected 62 La Rose, but neither the assignment nor the discharge had been registered. A reference was directed to enable the encumbrancers to prove their claims. By virtue of Rule 406 (formerly R. 403), Mrs. Petranik was not entitled to any notice of the reference. Her interest in the equity of redemption was already effectively foreclosed, but others with an interest in the equity were to be given their opportunity to redeem. If, like Mrs. Petranik, they took no further steps, a final order of foreclosure would be issued.

The Rules, of Practice do not prevail over the principles of equity which govern mortgage actions, and the court retains jurisdiction to exercise its equitable discretion to allow a mortgagor to redeem his property even after a final order of foreclosure is made: Falconbridge, The Law of Mortgages (3rd ed., 1942), at pp. 450 ff. If Mrs. Petranik had, through inadvertence or otherwise, failed to file a notice desiring opportunity to redeem when in fact she did desire to redeem and had a substantial interest in the equity to protect, a

[Page 979]

court might well have reopened the judgment and allowed her a redemption period. However, Mrs. Petranik at no time indicated a desire to redeem the property even after seeking legal advice about her rights. Her slight interest in the equity of redemption did not make it worth her while to redeem and she was not in a financial position to do so.

On the basis of the March 23, 1962 judgment, Mrs. Dale obtained a writ of possession, and in April 1962 the writ was executed. If Mrs. Petranik had not been aware of the foreclosure action, she certainly was aware that Mrs. Dale had taken possession. She immediately consulted a solicitor, but took no further action at that time.

Mrs. Dale did not proceed with a reference as to subsequent encumbrancers as ordered in the judgment. In May 1962, H.W. Anderson, a real estate broker who was looking for a house for the respondent Berwick, inquired whether 62 La Rose, which was vacant, was for sale. On May 15, 1962, Mr. Berwick offered $23,500 for the house. Mr. Howell’s secretary (Mrs. Dale’s daughter) advertised the house for sale in the Toronto Star on May 15-18, 1962. Mrs. Dale asked $26,800 for the property. On May 29, 1962, Mr. Berwick offered $25,500 subject to adjustments and conditional on the vendor agreeing to discharge any existing mortgages or encumbrances. Mrs. Dale accepted this offer. She sold the property by purported exercise of her power of sale under the mortgage which provided that after default of payment for two months she could sell without notice. Amendments to The Mortgages Act which provide that a power of sale under a mortgage cannot be exercised without 35 days’ notice to the mortgagor and all subsequent encumbrancers did not come into effect until 1964 and thus Mrs. Dale was not required to give notice of the sale.

After adjustments, Mrs. Dale received $24,499.66 from Berwick and Parker, who took joint title. She paid $9,100.64 to Mr. White and $10,086.30 to May Wallace to whom White had

[Page 980]

assigned part of his mortgage. After payment of various expenses associated with the sale, Mrs. Dale received a cheque for $2,250.39.

More than two years after the sale, on July 14, 1964, Mrs. Petranik issued a writ against Mrs. Dale, Mr. Berwick and Mr. Parker, claiming a declaration that the mortgage to Mrs. Dale was null and void and an accounting of the proceeds of the sale. Mrs. Petranik also claimed a declaration that Parker and Berwick hold the property in trust for her and filed a lis pendens against the lands. No further steps were taken, and on September 27, 1966, the action was dismissed by the Master for want of prosecution and the lis pendens vacated. Mrs. Petranik then filed a notice of claim against the property which, on May 30, 1968, Stewart J. ordered vacated. An application to set aside the order dismissing the action for want of prosecution was dismissed on April 9, 1969, but, on appeal from the order vacating the notice of claim, the Court of Appeal reinstated the notice pending commencement by Mrs. Petranik on or before February 3, 1969 of proceedings to reopen the action instituted by her in 1964 or to institute other proceedings. The Court further ordered that if no proceedings had been taken by February 3, 1969, Berwick and Parker could revive their application to vacate registration of the notice of claim. Mrs. Petranik issued the writ in this action on April 28, 1969. The defendants applied to vacate the notice of claim, and on May 28, 1969, Stark J. so ordered. In their statement of defence to this action, Parker and Berwick argued that the action should be dismissed because of the plaintiff’s laches, but the trial judge dealt with the case on its merits. No argument was addressed either to the Court of Appeal or to this Court on the question of delay, but when assessing the equities, it is relevant to consider the plaintiff’s delay in asserting her claim.

The refusal of Mrs. Petranik to remove the notice of claim registered on title prevented Parker and Berwick from selling the property. They had

[Page 981]

built a house on 30 acres in Campbellville, and planned to sell 62 La Rose. In September 1968, they received an offer to purchase 62 La Rose for $44,000, but because of the notice of claim they could not satisfy the requisitions with respect to title. A subsequent offer from another party also fell through. Finally, Berwick and Parker sold the Campbellville property. They counterclaimed for damages for abuse of process and slander of title, but did not press their claim on appeal.

The principal ground on which Mrs. Petranik sought to set aside the sale of the property to Parker and Berwick was that she had not executed a mortgage in favour of Mrs. Dale and had received no consideration for such a mortgage. As indicated above, these allegations were rejected by the trial judge and were not pursued on appeal.

The issue on which the case turned at trial and on appeal was whether Mrs. Dale was entitled to sell the property under power of sale in the mortgage or whether this power was suspended by virtue of the judgment signed by the assistant registrar in the foreclosure action. At trial Moorhouse J., relying on a judgment of Farwell J. in Stevens v. Theatres, Limited[5], which has been followed in DeBeck v. Canada Permanent Loan and Savings Co.[6] and Marshall et al. v. Miles[7], held that after Mrs. Dale had obtained judgment nisi for foreclosure, she could not exercise a power of sale without leave of the court. The trial judge declared that the deed from Dale to Parker and Berwick was invalid, directed that Dale or others may proceed with the reference directed by the judgment nisi and ordered that Mrs. Petranik be given notice of the reference. He made certain other declarations with respect to the interest of Parker and Berwick in the moneys they paid on the invalid sale and gave direction as to how accounts were to be taken at the reference. He

[Page 982]

dismissed both counterclaims without costs. On an appeal taken by Parker and Berwick, the Court of Appeal reversed the trial judgment and held that the sale was valid. In reasoning which I adopt, Arnup J.A. held that since the judgment nisi in the foreclosure action did not confer any rights on Mrs. Petranik, it did not operate to suspend Mrs. Dale’s power of sale under the mortgage.

I agree with Arnup J.A. that, as a general principle, a mortgagee can pursue all the remedies available to him, concurrently or in succession. See Falconbridge, The law of Mortgages, supra, at pp. 687-88. There are exceptions to this principle, including that specified in what is now s. 40 of The Mortgages Act, R.S.O. 1970, c. 279, which provides that once a demand for payment or a notice of intention to exercise a power of sale has been given in accordance with a term of the mortgage, no other proceedings can be taken by a mortgagee without leave of the court before the time limited for payment or sale has expired. A complementary exception was formulated by Farwell J. in Stevens v. Theatres, Limited, supra. In that case a mortgagee had brought foreclosure proceedings and a judgment nisi had directed that accounts be taken and that the property be reconveyed to the mortgagor on payment of what was found owing. Without proceeding to accounts, the mortgagee sold the property under power of sale in the mortgage. Farwell J. held that the mortgagee was not entitled to sell since the judgment nisi, which directed reconveyance on payment, operated for the benefit of the mortgagor as well as the mortgagee. In these circumstances, the mortgagee could not get rid of his action mero motu after judgment and could not vary the form of that judgment by doing an act which would put it out of his power to perform that which the Court had directed him to do as a condition of getting the judgment (at pp. 860-61). As Arnup J.A. points out, the essence of this holding is concisely stated at p. 862 where

[Page 983]

Farwell J. said:

I hold, therefore, that the power of sale cannot be exercised after the judgment nisi without the leave of the Court, because it prejudices the rights given to the mortgagor under the direction to reconvey.

Farwell J. went on to hold that the power of sale is suspended after judgment nisi rather than extinguished and that, accordingly, if the property had been bought by a purchaser for value without notice, he could get a good title under the sale. As Arnup J.A. correctly states, at p. 224, Farwell J. did not suggest that, apart from the terms of the judgment, the mortgagee would be prohibited by law (i.e. in equity) from exercising the power of sale. He was entitled to pursue all his remedies concurrently. The ratio of Stevens v. Theatres, Limited, supra, is accurately stated by Falconbridge, The Law of Mortgages, supra, at p. 888:

... a mortgagee cannot, after the usual order nisi for foreclosure and before the foreclosure is made absolute, exercise his power of sale without the leave of the court, because a sale would prejudice the rights given to the mortgagor by the Court under the direction in the judgment for reconveyance on payment, but the power of sale is suspended only, not extinguished, and a purchaser in good faith without notice may get a good title.

In the case at bar, the purchasers, through their solicitor, had notice of the foreclosure judgment when they purchased the property. Whether they have good title thus depends on whether the sale prejudiced rights conferred on the mortgagor by the judgment.

It is a well-established principle, embodied in the Rules of Practice, that where a mortgagor desires an opportunity to redeem his property after default, a court of equity will exercise its discretion to enable him to do so, unless his conduct has been such that it would be inequitable to grant the relief he claims. In exercising its equitable jurisdiction a court will protect a mortgagor from harsh or

[Page 984]

oppressive action by a mortgagee, and when a court has ordered that a mortgagor be given an opportunity to redeem, a mortgagee will not be allowed to circumvent this relief by selling the property under power of sale in the mortgage. Even where there has been no judgment conferring the right to redeem, a court will prevent a sale where the mortgagor genuinely desires to redeem: Marshall et al. v. Miles, supra. However, as Arnup J.A. points out, as a result of amendments to the Rules of Practice in 1941, a mortgagor in Ontario did not have an automatic right to redeem. On receipt of a writ in a foreclosure action he must file a notice desiring an opportunity to redeem, or, if he fails to file the notice, appeal to the court to exercise its equitable jurisdiction to allow him to redeem. If the mortgagor fails to take either of these steps, and the judgment nisi in the foreclosure action confers on the mortgagor no right to redeem or to obtain a reconveyance on payment of the amounts found owing, the mortgagor is not prejudiced by a sale of the property for a fair price under power of sale prior to a final order of foreclosure.

The only right of the mortgagor which is shortened by the sale is that accorded by Rule 491 (formerly R. 485) which enables the defendant in a foreclosure action to stay proceedings by paying the amount due for principal, interest and costs before the final order of foreclosure. The length of time available to the mortgagor in which to make such a payment depends on whether anyone with an interest in the equity of redemption claims an opportunity to redeem. As a practical matter, it is highly unlikely that any of the encumbrancers would have claimed this opportunity in this case since the value of the property did not exceed the amounts owing on the prior mortgages. There was no evidence that the sale price of the house, $25,500, was not a fair price in 1962 for a property on the outskirts of a metropolitan area, serviced by a well and septic tank. In any event, it is clear that Mrs. Petranik was not in a position to

[Page 985]

take advantage of Rule 491 and does not allege that she was prevented from doing so.

It is true that the sale under power of sale could have prevented the subsequent encumbrancers from claiming in the reference and exercising a power to redeem. It was not until 1964 that The Mortgages Act, now s. 31 of R.S.O. 1970, c. 279, prevented such prejudice to subsequent encumbrancers by requiring that they be given notice of any sale under power, and not until 1969 that the Rules gave subsequent encumbrancers the same opportunity to redeem as is given to mortgagors. As already noted, however, it seems clear that the subsequent encumbrancers in this case would not have exercised a right to redeem the property, and they have not complained that they were precluded from doing so. Even if their rights were prejudiced, that does not provide grounds for a claim by Mrs. Petranik.

Mrs. Petranik was in default under the mortgages, and the property was completely pledged to or claimed by others. When foreclosure proceedings were instituted, Mrs. Petranik was not able nor did she indicate a desire to redeem the property. The judgment nisi in the foreclosure action effectively foreclosed her equity of redemption and directed a reference with respect to the interests of subsequent encumbrancers. Without proceeding with this reference, the second mortgagee sold the property under power of sale for a fair price which was sufficient to pay out the first mortgage, costs incurred and half of the second mortgage. The second mortgagee has not sued for the remainder owing except by way of counterclaim in this action which was not forcefully pursued. Looking at the situation as it existed in 1962 when this cause of action arose, it is difficult to see how Mrs. Petranik has been prejudiced. The property has now appreciated greatly and Mrs. Petranik may now be in a position to redeem, but there are no grounds to justify setting aside the sale which took place in 1962. The mortgagee was entitled to pursue alternative remedies. The fact that she had obtained judgment nisi in a foreclosure action did

[Page 986]

not preclude her from exercising her power of sale under the mortgage since the sale did not prejudice any rights asserted by or accorded to Mrs. Petranik in the foreclosure proceeding.

I agree completely with the reasons delivered in the Court of Appeal. I would dismiss the appeal with costs.

RITCHIE J. (dissenting)—Like my brother Judson, I agree with the reasons for judgment delivered by Mr. Justice Arnup on behalf of the Court of Appeal for Ontario and would dismiss this appeal with costs.

DICKSON J.—I would allow this appeal. In my view, Mrs. Petranik’s equity of redemption in the subject property was not extinguished by either the foreclosure proceedings commenced by Mrs. Dale but not completed, or by the purported exercise of the power of sale contained in the mortgage. An equity of redemption is a right of property. Holds-worth (A History of English Law, vol. VI, at p. 663) says:

We have seen that the relief given by equity to the mortgagor originally depended on principles similar to those which underlay the relief given in cases of the breach of a condition, and in cases of penalties; but that, the regularity with which this relief was given, had altered its basis, and caused it to depend, not upon the existence of any supposed hardship, but upon a right belonging as of course to a mortgagor. The result had been to make the mortgagor’s equity to redeem a right of property. He had an equitable estate in the land; and, subject to the legal rights of the mortgagee, was, in equity, regarded as its owner.

In Casborne v. Scarfe[8] at p. 604-5, Lord Hardwicke said:

First, an equity of redemption has always been considered as an estate in the land, for it may be devised, granted, or entailed with remainders, and such entail and remainders may be barred by a fine and recovery, and therefore cannot be considered as a mere right only but such an estate whereof there may be seisin; the

[Page 987]

person therefore intitled to the equity of redemption is considered as the owner of the land, and a mortgage in fee is considered as personal assets.

In Burgess v. Wheats[9], at p. 225, Lord Mansfield said:

In the eye of this court Lord Hardwicke thought the equity of redemption is the fee simple of the land.

In Heath v. Pugh[10], at p. 360, Lord Chancellor Selborne said that it was sufficient to quote the above passage on the point, and in Tarn v. Turner[11], at p. 460, Mr. Justice Kekewich said:

The Court having decided that the mortgagor has that right to redeem, construes it as really an estate in the land. It is not a legal estate, but what is termed an equitable estate—as much an interest in the land as the real fee simple. It is a fee simple subject to a charge, and is vulgarly styled in legal language the equity of redemption.

An equity of redemption is an equitable estate, which can be sold or quit claimed, and which cannot be clogged or fettered.

In the case at bar, Mrs. Dale commenced a foreclosure action for the purpose of extinguishing the interest which, as owner of the equity of redemption, Mrs. Petranik held in the lands mortgaged to Mrs. Dale. Mrs. Dale issued a specially endorsed writ against Mrs. Petranik in the usual form of a writ of foreclosure. The prayer for relief stated that the plaintiff’s claim was on the mortgage and continued with notice of a claim of entitlement to immediate possession and a claim for $5,000 principal money and interest. The prayer for relief also gave notice 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

[Page 988]

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.

Rule 465 (formerly Rule 460A) of the Ontario Annual Practice 1962 provided:

465. 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 is entitled to four days’ notice of the taking of the account of the amount due to the plaintiff and has six calendar months from the time of the taking of the account to redeem the mortgaged premises.

Rule 472 (1) and (2) (formerly Rule 467 (1) and (2)) then goes on to provide:

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.

Form 104, referred to above, is of particular interest. It reads:

FORM 104

Form of Judgment on Praecipe for Immediate

Foreclosure or Sale and Orders for Immediate Payment

and Delivery of Possession

(Rule 472)

[Page 989]

Upon reading the writ of summons issued in this action, and an 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 (Where judgment is for foreclosure after ‘adjudged’, add: ‘that the said defendant do stand absolutely debarred and foreclosed of and from all right, title and equity of redemption of, in and to the mortgaged premises’, where judgment is for sale, then after the word ‘adjudged’, add ‘that the said premises be sold, with the approbation of the Master, at…………………………….’).

2. (If judgment is for foreclosure omit this clause.) And it is further ordered and adjudged that the purchasers do pay their purchase money into Court to the credit of this action and that the same when so paid in be applied in payment of what is found to be due to the said plaintiff for principal money, interest and costs as computed and taxed by the said Master, and that the balance do abide the further order of the Court.

3. (Where judgment is for immediate payment, add: And it is further ordered and adjudged that the defendant……………………….do forthwith pay to the plaintiff the sum of………………………...being the amount due to him at the date hereof for principal money, interest and costs.)

4. (Where judgment is for recovery of possession, add: And it is further ordered and adjudged that the defendant………………….do forthwith deliver to the plaintiff……………………………..or to whom he may appoint, possession of the mortgaged premises, or of such part thereof as may be in the possession of the said defendant.)

Mrs. Petranik failed to appear and failed to give a notice that she desired an opportunity to redeem the mortgaged premises. Judgment was signed directing a reference and ordering Mrs. Petranik to deliver up possession of the property. A draft judgment was presented in the following form:

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

[Page 990]

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.

At the time of signing the judgment, the paragraph numbered ^“2^” was struck out and the remaining paragraphs renumbered ^“I^” and ^“II^”.

The first thing to observe about the judgment is that it is not a judgment for immediate foreclosure. Form 104 states that where judgment is for immediate foreclosure the order shall state ^“that the said defendant do stand absolutely debarred and foreclosed of and from all right, title and equity of redemption of, in and to the mortgaged premises^”. The form of the judgment which was entered contains no such language. Paragraph II of the judgment as entered directs the delivery of possession but in no way affects the equity of redemption. The taking of possession by a mortgagee does not extinguish the right of the mortgagor to redeem the mortgaged premises. If the judgment as signed had contained the paragraph numbered ^“2^” in the draft, the case would without doubt fall within Stevens v. Theatres, Limited[12], but I do not think the question whether Mrs. Petranik retains an equity of redemption in the subject property depends upon the presence or absence of the expunged paragraph in the judgment entered. The crucial issue in this appeal is whether the estate or interest owned by Mrs. Petranik in the mortgaged land was extinguished and if so, when and in what manner. The judgment

[Page 991]

which was entered did not, nor did it purport to, extinguish that interest. Neither was that interest extinguished by Mrs. Petranik’s failure to appear or her failure to give a notice that she desired an opportunity to redeem the mortgaged premises. The passage of Rule 460A and the amendment of Rule 467 (the forerunner of Rule 472), effected a major change in foreclosure practice and procedure in Ontario by authorizing the signing of final judgment for immediate foreclosure unless the defendant filed a memorandum stating that he wished to redeem the property in question. This altered the earlier practice which required the plaintiff to sign interlocutory, not final, judgment. That is the effect of the change. I do not think it can be said that Mrs. Petranik’s failure to file such a memorandum extinguished her equity of redemption. The Rule does not say that such is the effect and I very much doubt that ownership of an estate in land can be swept away by a rule of practice. Rules of practice do not prevail over equitable estates. Counsel for the respondent Mrs. Dale, early in his argument submitted that the effect of the amendment to the Rules was to extinguish the right of the mortgagor to redeem upon failure to file a request for an opportunity to redeem. Before his argument concluded, however, he had altered his position and conceded that an attenuated right of redemption continued. I think the concession is correct. The judgment was not an order absolute. An equity of redemption is so intense that even after an order absolute the court on occasion has given the mortgagor the right to redeem: Campbell v. Holyland[13].

The Rules gave Mrs. Dale the right to enter judgment immediately for final order of foreclosure upon failure of Mrs. Petranik to appear or to give notice. Mrs. Dale did not avail herself of the opportunity to enter final judgment against Mrs. Petranik. She obtained an order for a reference because, no doubt, there were subsequent encumbrances, but whatever may have been her reason, Mrs. Dale obtained a judgment which left unextinguished Mrs. Petranik’s equitable estate in the

[Page 992]

land. Mrs. Dale did not proceed with the reference before the Master; instead, she sold the property to Mr. Parker and Mr. Berwick, purporting to act under the power of sale contained in the mortgage. So far as giving notice of exercising power of sale to Mrs. Petranik, the trial judge, Moorhouse J., had this to say:

The sale was carried out with little if any notice, it being now alleged Helga [Mrs. Petranik] had abandoned the property, sale was purported to be made without notice.

It is contended that Mrs. Dale was entitled to pursue all remedies available to her, concurrently or in succession. Whether this is so in the present case depends, I think, upon the effect to be given to paragraph ^“I^” of the judgment entered on behalf of Mrs. Dale which, it will be recalled, reads:

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.

The form of judgment entered on behalf of Mrs. Dale should be read against the form appearing in Marriott, Practice in Mortgage Actions in Ontario (2nd. ed.) (1955) at p. 322 which I would like to set out in full:

FORM 20

(Form 96, C.R.)

Form of Judgment on Praecipe for Foreclosure with

Reference as to Encumbrancers, etc., where the Original

Defendants do not File a Notice D.O.R., and Orders

for Immediate Payment and Delivery of Possession

(Court and Cause)

……day the…….day of……19…….

Upon reading the writ of summons issued in this action, and the statement of claim (if any), and an affidavit of service of the said writ on the defendant, and no appearance having been entered, (or, and the defendant having made default in the delivery of the defence) 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

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and proceedings had for redemption or foreclosure and that for these purposes this cause be referred to the Master at………………..

2. (Where judgment is for immediate payment add:) AND IT IS FURTHER ORDERED AND ADJUDGED that the defendant…………...do forthwith pay to the plaintiff the sum of $...................being the amount due to him for principal money, interest and costs at the date hereof; and upon payment of the amount due to the plaintiff that (subject to the provisions of section 2 of The Mortgages Act) the plaintiff do asign (sic) and convey the mortgaged premises and deliver up all documents relating thereto.

2. (Or where judgment is for the amount found due by the Master substitute this paragraph for the one above:) 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 him for principal money, interest and costs at the date of the said report and upon payment of the amount due to him 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 the documents relating thereto.

3. (Where judgment is for recovery of possession add:) AND IT IS FURTHER ORDERED AND ADJUDGED that the defendant do forthwith deliver to the plaintiff, or to whom he 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.

Judgment signed this………day of……...19…..

REGISTRAR

The following points might be noted particularly (i) that the form of judgment in the instant case adopted, practically verbatim, the language of the recital and of paragraphs ^“1^” and ^“3^” of Form 20; (ii) that form 20 is a Form of Judgment for Foreclosure; (iii) that it is not a judgment for immediate foreclosure but in the nature of a judgment nisi; (iv) that the judgment entered on behalf of Mrs. Dale does not include paragraph ^“2^” of Form 20 ordering immediate payment.

Marriott, supra, says at p. 76:

In a combined action for foreclosure, possession and payment, it should be kept in mind that in reality there

[Page 994]

are three actions and the judgment when entered gives three remedies. If no notice D.O.R. [desire opportunity to redeem] is filed in effect three judgments are obtained, one for immediate foreclosure, one for possession and another for payment.

Where a notice D.O.R. is filed and the defendant is given three months to redeem, or a reference is required as to encumbrancers, the foreclosure action is not concluded and the right to redeem is still outstanding until a final order is obtained. However, as the other two actions have been completed and the plaintiff has the right to pursue his remedies thereon without regard to the foreclosure action he may at once obtain an execution on the judgment for payment and issue a writ of possession and place them in the Sheriffs hands: Euclid Avenue Trusts Co. v. Hohs (1911) 24 O.L.R. 447 at 452.

[The emphasis is mine.]

The effect of the judgment taken out by Mrs. Dale on March 23, 1962 was (i) to leave outstanding Mrs. Petranik’s right of redemption until a final order of foreclosure could be obtained; (ii) not to take judgment for immediate payment; (iii) to obtain the right of immediate possession.

It is contended on behalf of Mrs. Dale that the omission from the judgment of the order for immediate payment (which embodied an express obligation to reconvey on payment) served to distinguish this case from Stevens v. Theatres, Ltd., supra, and that in consequence Mrs. Dale was free to disregard the judgment which had been obtained at her behest from the Supreme Court of Ontario ordering a reference to the Master, and free to sell the mortgaged lands by private sale without notice to Mrs. Petranik. With respect, I think that that is taking too narrow a view of what was said by Mr. Justice Farwell in the Stevens case. I do not regard Stevens as a technical rule. Once the court has given judgment in foreclosure proceedings the mortgagee’s power of sale is suspended pending implementation of that judgment. Although there is language in Stevens which might suggest that the suspension of the exercise of the power of sale depended upon an obligation to reconvey being expressly set forth in the judgment nisi, there is other language which can be read

[Page 995]

more broadly and as being apposite in the case at bar. I have in mind, for example, the following:

When the parties have once taken the judgment of the Court neither party, in my opinion, is entitled without the leave of the Court to put it out of his own power, by any act of his own, to obey the judgment of the Court.

Whatever may be the reach of the Stevens decision, I am in no doubt that when a mortgagee seeks the aid of the court in the enforcement of a remedy against a mortgagor and engages the court system to the extent of obtaining a judgment of the nature of that obtained by Mrs. Dale, the mortgagee must carry out that judgment or obtain leave of the court to do otherwise. Having resorted to the Queen’s justice, he can not resort to his own.

I conclude by reiterating that 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 (Megarry and Wade, The Law of Real Property (3rd ed.) at p. 885, and Cheshire’s Modern Real Property (10th ed.) at p. 568) and that equity has always jealously guarded the mortgagor’s right to redeem.

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.

Appeal allowed with costs, JUDSON and RITCHIE JJ. dissenting.

Solicitors for the appellant: Black, Osborne, Black & Bassel, Toronto.

Solicitor for the respondents, Parker and Berwick: George T. Walsh, Toronto.

Solicitor for the respondent, Dale: G.L. Howell, Toronto.