Real Property - Mortgages (2). First National Financial GP Corporation v. Golden
In First National Financial GP Corporation v. Golden (Ont CA, 2022) the Court of Appeal commented on the contractual status of mortgages:
 It is well settled that a mortgage is a contract and that, “subject to any statutory provisions, the rights and obligations of the parties must be found within the terms of the contract”: Re Belyon Properties Ltd. and Kelcey, 1968 CanLII 290 (ON CA),  2 O.R. 257 (C.A.), at p. 260.. Hume v. 11534599 Canada Corp.
 Accordingly, a mortgage contract is to be construed in accordance with the well-established principles of contractual interpretation. Those relevant to this appeal are reproduced in the following excerpt from the succinct summary by this court per Winkler C.J.O. in Salah v. Timothy’s Coffees of the World Inc., 2010 ONCA 673, 268 O.A.C. 279, at para. 16:
The basic principles of commercial contractual interpretation may be summarized as follows. When interpreting a contract, the court aims to determine the intentions of the parties in accordance with the language used in the written document and presumes that the parties have intended what they have said. The court construes the contract as a whole, in a manner that gives meaning to all of its terms, and avoids an interpretation that would render one or more of its terms ineffective. … The court should interpret the contract so as to accord with sound commercial principles and good business sense, and avoid commercial absurdity. … [Emphasis added; citations omitted.]
 No statutory provisions apply here. It is common ground that s. 17 of the Mortgages Act, R.S.O. 1990, c. M.40, which allows a mortgagor to cure a default “made in the payment of any principal money secured by a mortgage” by paying three months’ interest on principal monies in arrears, is not at play in this case. Also inapplicable, given that Golden Dragon is a corporate mortgagor, is s. 18 of the Mortgages Act, which provides a residential mortgagor with a right to redeem after five years, with only three months’ interest as a prepayment charge.
In Hume v. 11534599 Canada Corp. (Ont CA, 2022) the Court of Appeal considered whether a mortgagee took 'peaceable' possession of a property after a fire, vacancy by the mortgagor and no notice to them:
(2) The application judge erred in finding that the appellant did not take peaceable possession of the property
 The application judge found that, given the respondents’ default, the appellant was entitled to take possession of the property without notice. However, she noted the common law requirement that the appellant could only do so “peaceably”. The application judge reviewed some of the jurisprudence in which there was a question about whether possession was “peaceable”, and also considered how that term has been used in the criminal law context. As referred to above, she found that the appellant did not take peaceable possession because the possession was “not seriously challenged by others”. Specifically, she found that the respondents did not acquiesce to the appellant taking possession nor had they vacated the property.
 In my view, the application judge erred in relying on the meaning of “peaceable possession” in the criminal law context, which led to her erroneous finding that the appellant did not take peaceable possession of the property.
 As held by the application judge, the terms of the mortgage agreement, specifically paragraph 10, did not require the appellant to give the respondents notice that it intended to take possession of the property. The respondents do not take issue with this finding, which is consistent with the Mortgages Act and with the case law in this area. Where a mortgagor has defaulted on a mortgage, absent a provision in the mortgage agreement requiring notice, a mortgagee is not required to give notice to the mortgagor before taking possession of the property: see Royal Trust Corp. of Canada v. 880185 Ontario Ltd. (2005), 2005 CanLII 13910 (ON CA), 198 O.A.C. 235, at para. 33.
 However, the manner in which the mortgagee can take possession of the property upon default is circumscribed by the mortgage agreement, the Mortgages Act and the common law. As noted above, paragraph 10 of the mortgage agreement entitles the appellant to take “quiet” possession of the property upon default. This term is consistent with s. 7(a)(iv) of the Mortgages Act, which provides that mortgage agreements are to include an implied covenant, unless the parties agree otherwise, “that, on default, the mortgagee shall have quiet possession of the land, free from all encumbrances”. Neither paragraph 10 of the mortgage agreement nor s. 7(a)(iv) of the Mortgages Act sets out the manner in which the appellant was entitled to take quiet possession of the property. Accordingly, it is necessary to turn to the common law on this issue, where the case law establishes that a mortgagee entitled to take possession of a property must do so “peaceably”. In 880185, at para. 33, this court held:
When a mortgage contains the usual provision to the effect that the mortgagee is entitled to quiet possession upon default in payment – as this one does – a mortgagee is entitled to take possession of the mortgaged premises immediately upon default, provided that it does so peaceably, and it may exercise that right when it chooses. [Emphasis added.] Therefore, the issue for the application judge was whether the appellant took possession of the property in a peaceable manner. In concluding that the appellant did not do so, she relied on this court’s interpretation of “peaceable possession” in the criminal law context. Specifically, she relied on the court’s interpretation of what was once s. 41(1) of the Criminal Code, R.S.C. 1985, c. C-46, as discussed in R. v. George (2000), 2000 CanLII 5727 (ON CA), 49 O.R. (3d) 144 (C.A.), leave to appeal dismissed,  S.C.C.A. No. 343. Section 41(1) of the Criminal Code is no longer in force, but it provided that a person in “peaceable possession” of a dwelling could use reasonable force to prevent anyone from trespassing on their property. In George, at paras. 41-42, the court adopted an interpretation of “peaceable possession” from the Court of Appeal of Alberta in R. v. Born with a Tooth, 1992 ABCA 244, 131 A.R. 193, at paras. 29-30, to the effect that “peaceable possession” means possession that is “not seriously challenged by others” and that is “unlikely to lead to violence”.
 Based on the definition of “peaceable possession” in George, the application judge in this case held that, in order to decide whether the appellant took peaceable possession of the property, she had to determine whether “the [respondents] acquiesced to the [appellant] taking possession and did not by adverse suit seek to recover the possession of the Property”. On the basis of this approach, the application judge found that the appellant did not take peaceable possession of the property because the respondents had not acquiesced to the appellant taking possession of the property nor had they vacated the property. In making this finding, the application judge relied on the fact that the respondents’ lawyer took immediate steps to challenge the taking of possession, that the respondents had left belongings at the property and locked the doors and that the respondents had insurance proceeds available to repair the property. She also found that the appellant changing the locks showed that it expected that the respondents would resist the taking of possession.
 In my view, it was a legal error for the application judge to rely on the interpretation of “peaceable possession” in s. 41(1) of the Criminal Code to determine the meaning of “peaceable possession” in the mortgage enforcement context. Words must be interpreted in their proper context. The requirement for “peaceable possession” under s. 41(1) of the Criminal Code as a precondition to the use of reasonable force is a very different inquiry than the issue of whether a mortgagee has taken “peaceable possession” of the property of a defaulting mortgagor. In George, the inquiry focused on whether the accused’s possession of the property was accepted by others, which would thereby justify the accused protecting the property with reasonable force. In the mortgage enforcement context, “peaceable possession” does not refer to a mortgagee’s entitlement to possession, but rather to the manner in which a mortgagee who has a legal entitlement to possession of a property actually takes possession of that property. There may be some overlap in the meaning of “peaceable possession” in both contexts, but the interpretation of “peaceable possession” in the criminal law context cannot properly inform what “peaceable possession” means in the context of mortgage enforcement.
 In fairness to the application judge, there is little case law interpreting the meaning of “peaceable possession” in the mortgage enforcement context, and some of the authorities on point do not appear to have been brought to her attention. One can speculate that the reason for the limited case law in this area is, while not necessarily required to do so in all cases, prudent mortgagees generally apply to the court for a writ of possession before taking possession of a property after an event of default: see Royal Trust Corp. of Canada v. Gupta,  O.J. No. 347 (Gen. Div.), at para. 37. Obtaining a writ of possession confirms the mortgagee’s legal entitlement to take possession and ensures that the sheriff’s office is available to assist with the taking of possession: see Sunrise North Senior Living Ltd. v. The Sheriff (Regional Municipality of York), 2020 ONSC 469, 443 D.L.R. (4th) 458, at para. 71, citing Central Guaranty Trust Co. v. McRae (1993), 1993 CanLII 8542 (ON SC), 13 O.R. (3d) 295 (Gen. Div.), at p. 298.
 In any event, in order to determine the meaning of peaceable possession for the purpose of mortgage enforcement, it is necessary to turn to the limited case law on the issue and to consider the underlying purpose of requiring that, where a mortgagee is legally entitled to possession of a property, the mortgagee can only enforce that right in a peaceable manner.
 It appears that there are only two decisions from this court dealing with this issue.
 In 880185, which is referred to above, after the mortgagor defaulted on a mortgage, the mortgagee took possession of an apartment building by serving notices of attornment on the tenants, changing the locks on the laundry machine moneyboxes, taking over management of the building and undertaking building maintenance. In that context, this court confirmed that the mortgagee was entitled to take possession. However, the issue before the court was not whether the taking of possession was peaceable, but whether there had in fact been a default and whether the mortgagee had sent the proper notice of default. Therefore, while the decision confirms that a mortgagee can take peaceable possession upon default, it does not assist in defining what “peaceable possession” means in the context of mortgage enforcement.
 In Lee v. Guettler (1975), 1975 CanLII 639 (ON CA), 10 O.R. (2d) 257 (C.A.), after default on a mortgage, the mortgagee served the mortgagor with a notice of sale and then, before the notice period expired, commenced an action for possession and obtained a default judgment. It is unclear whether the mortgagee actually took possession of the property. The narrow question on appeal was whether the mortgagee had served the notice of sale pursuant to statute or contract, and whether the statutory prohibition on taking possession of the property before the expiration of that notice period applied in either case. When describing the mortgagee’s contractual right to quiet possession of the property upon default, the court explained, at p. 261:
Under the second provision the mortgagee could take possession on default. If the mortgagor does not surrender possession voluntarily, then an action for possession is necessary. Without contravening [the statutory prohibition], this action could be brought … either before the notice of sale has been given, or after the time has elapsed under the Notice for payment or for exercise of the power of sale. [Emphasis added.] The court in Lee concluded that, irrespective of whether the manner of possession was or would have been proper, possession could not have been lawful until after the notice period expired: at p. 261. As a result, the disposition of the appeal did not turn on the meaning of peaceable possession.
 It appears that there are no other appellate decisions in Ontario dealing with this issue. Taken together, these two decisions do not shed much light on the meaning of “peaceable possession”. Although the court in 880185 discussed the need for possession to be taken “peaceably” and the court in Lee identified voluntary surrender by the mortgagor as one situation in which possession would be peaceable, these comments are properly characterized as obiter dicta in light of the issues that were decided by the court. Consequently, neither case is of direct assistance.
 There are a few lower court decisions dealing with this issue. In combination, they suggest that whether a mortgagee has taken peaceable possession of a property is a fact-driven inquiry that depends on the circumstances.
 In Lusk v. Perrin (1920), 19 O.W.N. 58 (H.C.), which may be the earliest Ontario jurisprudence on point, the mortgagor defaulted on the mortgage and left the premises. When he returned a month later, the mortgagee had taken possession of the premises. The court held that the mortgagee was permitted to enter peaceably into the home without needing a writ of possession because the lands were vacant: Lusk, at p. 60.
 More recently, in Gupta, referenced above, a decision that was not provided to the application judge, the mortgagee took possession of a rooming house without applying to the court for a writ of possession. As in 880185, the mortgagee did not take over the rental rooms, but only the common areas relevant to the management of the rooming house. In that context, the court considered whether the mortgagee was entitled to take possession without first applying to the court for a writ of possession. The court held that, as long as the mortgage terms provide for possession upon default without notice and the mortgagee exercises its right of possession in a peaceable manner, no court order is required.
 In its discussion of peaceable possession, the court stated that a distinction should be drawn between residential and non-residential properties, suggesting that a mortgagee could only take possession of a property occupied as a residence by applying to the court for a writ of possession: see Gupta, at paras. 37-40. In support of this distinction, the court pointed to the Ontario Law Reform Commission’s 1987 Report on the Law of Mortgages, which the court said resulted in the Mortgages Act being “amended to protect mortgagors of a ‘single-family unit’ from being dispossessed of their home by the lender”: at para. 37. However, while the Mortgages Act was amended after the 1987 report to provide increased protections, the targets of those protections are residential tenants living in mortgaged properties, not the mortgagors themselves: see Part IV of the Mortgages Act, particularly s. 48(1). Consequently, the court’s reliance in Gupta on the 1987 report to suggest that the Mortgages Act precludes a mortgagee from taking possession of a single-family unit without a writ of possession in all cases is misplaced. In any event, in distinguishing residential properties from non‑residential properties, the court stated that, where a mortgagor occupies a property “in the sense of actually occupying the property or part of the property as a residence”, changing the locks and dispossessing the occupants would not constitute peaceable possession: at para. 39.
 In Gupta, despite the discussion of the distinction between properties occupied as a residence and other properties, the court ultimately found that the mortgagee took peaceable possession of the property in that case. As in 880185, given that the mortgagee only changed the locks in the common areas of the rooming house and did not dispossess the individual lodgers, the taking of possession was found to be peaceable.
 In Toronto Dominion Bank v. Clarry, 2019 ONSC 5076, the mortgagee took possession of a residential property and changed the locks. The court ultimately held that the possession was peaceable. The property was found unoccupied; had been disconnected from heating, electricity and water; and had been deconstructed to the wood studs of the home: at paras. 8-10. The property was uninhabited and uninhabitable, and had been in that state for seven months: at paras. 10-11. In light of the “clear evidence of vacant possession”, the court held that the mortgagee’s possession had been peaceable: at paras. 53-54.
 Besides the case law referred to above, Walter Traub in Falconbridge on Mortgages, loose-leaf, 5th ed. (Toronto: Thomson Reuters Canada Ltd., 2022), at § 22:6, without citing any cases, describes peaceable possession in the context of mortgage enforcement in the following terms:
Where the property is occupied by the borrower, the mortgagee cannot oust the borrower from the property or use physical force to obtain possession of the property. Where, however, the mortgagor has abandoned the property, the mortgagee may merely move in and change the locks. The mortgagee is permitted by law to use a moderate amount of force to take possession, such as breaking locks or breaking doors or windows where the property is vacant. A review of the limited authorities on the issue suggests that what “peaceable” means depends on the circumstances of the case. At a minimum, taking peaceable possession means taking possession of a property without violence or the threat of violence; in other words, without engaging in behaviour that is contrary to the Criminal Code. Such conduct is self-evidently not peaceable. The meaning of peaceable possession may also depend on whether the property is occupied for residential purposes. In the case of residential properties that are occupied, the requirement that possession be taken peaceably may require something more than possession being taken without violence or the threat of violence. Otherwise, mortgagees could change the locks on a residence while the occupants are temporarily away which, while not involving the actual use or threat of violence, dispossesses the owners or occupants of their habitation and personal possessions without giving them an opportunity to make arrangements to move to another location. While such actions may not be violent, they are likely not peaceable.
 However, the issue of what it means to take peaceable possession where a residence is occupied does not need to be resolved in this case given the factual circumstances. Here, as found by the application judge, the residence was left uninhabitable after the fire, and therefore the respondents were not living in the residence at the time the appellant took possession. When the appellant inspected the property following the default, there was no sign that it was occupied and there is no evidence that the respondents had notified the appellant of the fire or provided any contact information. The appellant was therefore faced with the prospect that its investment was at risk. In these circumstances, changing the locks and taking possession of the property was peaceable. There was no physical or verbal resistance to the taking of possession at the time the appellant took possession. There was also no indication that the appellant was dispossessing the respondents of their home or that anyone else was occupying the property at the time.
 While it may have been preferable for the appellant to try to communicate with the respondents before taking possession, it was not required to do so. There is also no doubt that it is generally preferable for a mortgagor to obtain a writ of possession before taking possession of a property, especially in the case of residential properties. However, in the unique circumstances of this case, where the property was uninhabited and uninhabitable, the application judge made an error in her interpretation of what it means for possession to be “peaceable”, and in applying that meaning to the facts of this case. She erred in focusing on whether the respondents acquiesced to the appellant taking possession or whether the respondents intended to vacate the property. Instead, she should have focused on the circumstances of the property and the manner in which the appellant took possession.
 Accordingly, contrary to the application judge’s finding, in my view, the appellant took peaceable possession of the property in this case. What flows from this finding is addressed below.