Simon's Megalomaniacal Legal Resources

Equity - Equitable Mortgages

. Greenspan v. Van Clieaf

In Greenspan v. Van Clieaf (Ont CA, 2023) the Court of Appeal considered equitable mortgages:

(3) General principles that apply to equitable mortgages

[43] Before turning to the analysis, it is helpful to discuss the general legal principles that apply to equitable mortgages.

[44] In Elias Markets Ltd., Re, (2006) 2006 CanLII 31904 (ON CA), 274 D.L.R. (4th) 166 (Ont. C.A.), at para. 63, this court stated that an equitable mortgage is distinct from a legal mortgage. The court further stated, at para. 65, that an equitable mortgage is meant to enforce “a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the common law”.

[45] In Emmott v. Edmonds, 2010 ONSC 4185, at para. 64, Brown J., as he then was, summarized the principles that apply to an equitable mortgage as follows, citing Elias Market Ltd., at paras. 65-66:

(i) An equitable mortgage is a contract which creates in equity a charge on the property, but does not pass the legal estate to the mortgagee;

(ii) The concept of an equitable mortgage seeks to enforce a common intention of the mortgagor and mortgagee to secure property for either a past debt or future advances, where that common intention is unenforceable under the strict demands of the law;

(iii) An equitable mortgage can be created in several ways, including by the fact that the mortgagor has not executed an instrument sufficient to transfer the legal estate. For example, the mortgagor may have signed a document in the form of a legal mortgage, but for some reason of want of formality the document is not sufficient to transfer the legal estate. Or, an equitable mortgage may result from an agreement in writing duly signed to execute a legal mortgage.

[46] Once the court is satisfied that a party has established the existence of an equitable mortgage, the equitable mortgage creates a charge in equity on the property which is enforceable as if it was a conventional mortgage under the equitable jurisdiction of the court: Elias Markets Ltd., at para. 66; Walter M. Traub, Falconbridge on Mortgages, 5th Ed. (Thomson Reuters Canada Ltd.) at ss. 5:1. By contrast, a writ of execution, such as the writ of seizure and sale in this case, is not a charge and it would not take precedence over an equitable mortgage. Rather, an execution creditor is subject to the same charges, liens and equities as to which the land was subject in the hands of the debtor: 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd., 2020 ONCA 250, at para. 37; Trang v. Nguyen, 2011 ONSC 7076, at paras. 25 and 27, aff’d 2012 ONCA 885, 114 O.R. (3d) 686; see also Jellett v. Wilkie (1896), 1896 CanLII 49 (SCC), 26 S.C.R. 282 and Anne Warner LaForest, Anger and Honsberger Law of Real Property, 3rd ed. (Thomson Reuters Canada Ltd.) at ss. 34:24.

[47] Given that an equitable mortgage derives from an agreement, see: Elias Markets Ltd., at para. 66, determining whether there is an equitable mortgage is a matter of contractual interpretation. The normal principles of contractual interpretation therefore apply. The court is to determine the intent of the parties, based on the words in the contract used in their ordinary and grammatical meaning, consistent with the surrounding circumstances reasonably known to the parties at the time the contract was formed: see Creston Moly Corp. v. Sattva Capital Corp., at para. 47. While the surrounding circumstances are relevant to interpreting the terms of a contract, they cannot be used to overwhelm the meaning of the words in the contract or to create what amounts to a new agreement: see Sattva, at para. 57.

[48] In Shewchuk v. Blackmont Capital Inc., 2016 ONCA 912, 404 D.L.R. (4th) 512, at para. 41, Strathy C.J.O. held that the surrounding circumstances or factual matrix do not include the parties’ conduct following the formation of the contract:

In my view, subsequent conduct must be distinguished from the factual matrix. In Sattva, the Supreme Court stated at para. 58 that the factual matrix “consist[s] only of objective evidence of the background facts at the time of the execution of the contract, that is, knowledge that was or reasonably ought to have been within the knowledge of both parties at or before the date of contracting” (citation omitted and emphasis added). Thus, the scope of the factual matrix is temporarily limited to evidence of facts known to the contracting parties contemporaneously with the execution of the contract. It follows that subsequent conduct, or evidence of the behaviour of the parties after the execution of the contract, is not part of the factual matrix.

[49] The court explained in Shewchuk, at paras. 42-45, that relying on subsequent conduct as part of the factual matrix poses inherent risks with respect to the reliability of the evidence.

[50] For example, “the parties’ behaviour in performing their contract may change over time. Using their subsequent conduct as evidence of their intentions at the time of execution could permit the interpretation of the contract to fluctuate over time”: Shewchuk, at para. 43. In addition, the subsequent conduct itself may be ambiguous: see Shewchuk, at para. 44. Finally, “over-reliance on subsequent conduct may reward self-serving conduct whereby a party deliberately conducts itself in a way that would lend support to its preferred interpretation of the contract”: Shewchuk, at para. 45.

[51] In Shewchuk, at para. 46, this court further held that, given the risks inherent in relying on evidence of conduct following the formation of a contract, such evidence “should be admitted only if the contract remains ambiguous after considering its text and its factual matrix”. Accordingly, subsequent conduct may be relevant to resolving an ambiguity in an agreement. However, absent an ambiguity, subsequent conduct is not relevant to understanding the factual matrix or surrounding circumstances of the agreement.

. Bank of Montreal v. Georgakopoulos

In Bank of Montreal v. Georgakopoulos (Ont CA, 2021) the Court of Appeal considered the elements of 'equitable mortgages':

[14] We also find no reversible error in the motion judge’s conclusion that there was no genuine issue requiring a trial as to whether to grant a declaration of an equitable mortgage. She adverted to the correct legal test for granting such relief as set out by this court in Elias Markets Ltd. (Re) (2006), 2006 CanLII 31904 (ON CA), 274 D.L.R. (4th) 166 (Ont. C.A.), at paras. 63-65. It was open to her on the Bank’s evidence to infer a common intention that advances would be secured against real property, and to consider the Toronto Property as coming within that common intention, given the prior dealings about mortgage financing for a new property and Peter’s use of the funds drawn from the Bank to pay down a mortgage on the newly acquired Toronto Property. As the motion judge noted, the appellants had provided no “coherent evidence” in response.