Supreme Court of Canada
Isman v. Sinnott, [1920] S.C.R. 1
Date: 1920-06-21
Charles Isman (Plaintiff) Appellant;
and
John Sinnott (Defendant) Respondent.
1920: May 6, 1920: June 21.
Present: Sir Louis Davies C.J. and Idington, Duff, Anglin, Brodeur and Mignault JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN.
Mortgage—Mortgagee holding first and third mortgages—Foreclosure of first mortgage and sale of land—Recovery under covenant on third mortgage—Collateral security not discharged.
The appellant, having purchased a property from the respondent, transferred to him, as security for the balance of the purchase price, a first and a third mortgage due by one Yandt upon another property; and, as collateral security, he also gave a mortgage on the property bought, payable at dates corresponding with the respective due dates of the above two morgtages. In course of time, the respondent obtained foreclosure under the first mortgage and sold the land. The appellant then claimed a discharge of the collateral mortgage.
Held that, notwithstanding the foreclosure of the first mortgage and the sale of the foreclosed property, the respondent could still recover under the appellant's covenant for payment contained in the third mortgage and the appellant was not entitled to the discharge of the collateral mortgage until the payment of the third mortgage.
Judgment of the Court of Appeal (12 Sask. L.R. 445; [1919] 3 W.W.R. 719) varied.
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APPEAL from the judgment of the Court of Appeal for Saskatchewan reversing the judgment of the trial judge and dismissing the appellant's action.
The material facts of the case are fully stated in the above head-note and in the judgments now reported.
Aug. Lemieux K.C. and V. R. Smith for the appellant.
C. H. Locke for the respondent.
The Chief Justice.—I concur with my brother Anglin.
Idington J.—The appellant bought, on the 16th April, 1914, property in Kamsack, Saskatchewan, for $60,000, which consideration was made up largely of other properties taken in part exchange—with which we are not concerned.
$8,150 of the consideration was made up of the balance due on two mortgages, a first for $7,000 and a third for $2,150, made by one Yandt on other property.
But to secure the due payment thereof to the extent of $8,150, the appellant was to give a mortgage on the property he was buying from respondent, payable according to or corresponding with the respective due dates of said two mortgages.
Said mortgages were duly assigned to respondent and the promised collateral mortgage of 8,150 was duly given. In course of time Yandt made default and respondent took proceedings upon the first of said mortgages for sale and purchase. Said proceedings ended in a final order of foreclosure which vested
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the property in respondent and had as an incidental, necessary result, according to the system of land titles in force, the barring of the charge upon the land which had been created by the third mortgage.
The respondent thereafter sold the property thus vested in him for less than the amount which was found to be due under and by virtue of the said first mortgage.
All these proceedings were brought under the notice of appellant and he was expressly given the opportunity of redeeming said mortgage on payment of the sum due and which his collateral mortgage to respondent stood as a guarantee for, but he did nothing either towards making such payment or objecting to the said sale of the property.
Later on he conceived the happy thought that he was released entirely by virtue of said purchase and sale from all liability in respect of either mortgage and instituted this suit to have it declared that the said first and third mortgages had been fully paid and satisfied, and that the said collateral mortgage he had given to secure the due payment was duly paid and satisfied, and for an order directing the respondent to discharge the latter.
The appellant succeeded at the trial by reason of the learned trial judge holding erroneously, as I respectfully submit, that the later sale of the foreclosed property by respondent discharged the mortgagor's covenant.
The Court of Appeal set that judgment aside and dismissed the action.
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I so fully agree with the main reasoning of the learned judges in that court upon which they reach that result, that I need not repeat the same here, or trouble explaining minor differences I entertain as to one or two expressions therein that in no way affect the result reached.
The historical development of the equitable doctrines upon which our judgment in the Mutual Life Assurance Co. v. Douglas case was founded, in no way justifies such contentions as relied upon by appellant herein.
And whatever possible difficulties might have arisen upon a like case in England where the doctrine of tacking prevails, or even in Ontario or where by reason of the procedure in the Master's office requiring, and often getting, proof made of subsequent encumbrances there is no room for doubt or difficulty under the system prevailing in Saskatchewan as explained by appellant's counsel and assented to by respondents.
In other words under the old system of pursuing the remedy of foreclosure the respondent might have been induced to offer proof not only of the amount due under his first mortgage but also that under his subsequent mortgage and thereby given arguable ground for the contention that he was claiming foreclosure of both mortgages and when he got his final order of foreclosure stood bound by the usual rule relative thereto.
It is, however, to be observed that the mortgage under the "Land Titles Act" is only a charge on the land and does not vest, as in England and Ontario, any title in the land and that each is independent of the other and dependent upon the terms of said Act.
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I have examined all the cases cited in the appellant's factum on this branch of the argument, in the hope of finding something analogous to that thus presented, to have been dealt with by the courts either in England or Ontario calling for the application of the principles relied upon, but only to meet with disappointments.
The case of Walker v. Jones, presents a series of complicated facts which in the ultimate result might have developed such a case as presented herein, or somewhat resembling the same.
But all that was involved therein to be decided was the validity of an interim injunction.
The court was particularly careful to avoid determining anything involved, or likely to be, in the possible ultimate result.
The case of Dyson v. Morris, is, so far as it goes, helpful to respondent rather than appellant.
The case of Rudge v. Richens, effectually disposes of the contention sometimes set up that a party cannot sell part of his security under a power of sale and proceed for the balance, and is also as helpful in principle to respondent as appellant.
All the other cases relied upon in this connection are each in the last analysis but the application of the elementary principle that after foreclosure the mortgagor followed upon his covenant or something analogous thereto is entitled to say to the mortgagee, give me back my property and here is your money and default that claim he is no longer liable.
The appellant seeks to apply that to a case of two different mortgages never consolidated or used jointly in the foreclosure proceedings and having no connection
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either with each other or with securing the same debt but in the ultimate result as a necessity of getting a final order conformable with the Lands Titles Act," wipes out the charge made by the third mortgage.
If the argument is good for anything then on the issue of that order and its registration and without waiting for a sale by the mortgagee, the mortgagor is discharged from liability on his covenant in the later mortgage.
That is not the true application of the old well-known principle relied upon, but an extension of it by a metaphysical process of reasoning for which there is no precedent.
There are precedents cited by the respondent which shew how little foundation there is for extending the principle in that way.
See, especially, the case of Worthington v. Abbott.
The statute in Alberta which was in question in the Douglas. Case preserved, by the use of the word "foreclosure," much of the law incidental thereto, when used in the way it is therein.
And in the mortgage therein in question the parties specifically contracted for observance of Ontario law so far as possible.
At the close of the argument herein I had the impression that possibly the appellant was entitled to relief to the extent of such effect as might be given to the ordinary application of the principles of foreclosure in respect of that part of the indebtedness covered by the first mortgage.
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An examination of the pleadings and facts including the nature of the transactions upon which the collateral mortgage was founded, renders that impossible.
No such case is made by the appellant's pleading.
And without presuming to express any definite opinion I would suggest that the equitable doctrine that "he who seeks equity in a court of equity must do equity," might be found a rather formidable obstacle in appellant's way for even such measure of relief.
I think the appeal should be dismissed with costs.
Duff J.—I concur with Anglin J.
Anglin J.—I was at first inclined to the view that, inasmuch as the defendant had by his own acts in foreclosing the first mortgage and subsequently selling the Redvers Hotel property put it out of his power, on payment of the third mortgage, to reconvey that property to the mortgagor, subject to the first and second mortgages, he had relinquished his right to recover on the mortgagor's covenant in the third mortgage and that that mortgage as well as the first should therefore be deemed satisfied and paid for the purpose of entitling the mortgagor to the discharge of the collateral mortgage on the Kamsack Hotel, which he claims. But on further consideration I think that position cannot be maintained.
As Mr. Locke pointed out in his admirable argument after the foreclosure of the first mortgage all that the mortgagor could claim on payment of the amount of the third mortgage would have been a release of his covenant in that mortgage. By the foreclosure brought about by the mortgagor's own default any equitable interest of the respondent as third mortgagee as well as the mortgagor's own
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interest in the land had been foreclosed. There was nothing left to a reconveyance of which the mortgagor would be entitled on payment of the amount of the third mortgage. But that foreclosure did not extinguish the mortgagor's liability on his covenant in the third mortgage any more than it did his liability on his covenant in the first mortgage. It was the subsequent sale that prevented the mortgagee from reconveying the mortgaged property to the mortgagor on payment of the amount due on the first mortgage and thus precluded recovery on the covenant in that mortgage. If it did not actually extinguish the debt, that was practically the result. But it was not the sale that prevented the mortgagor from obtaining anything which, but for it, he might have required the mortgagee to transfer to him on payment of the third mortgage. Any right he had to a reconveyance had already been effectually barred by the foreclosure of the first mortgage.
The theory on which an action by the mortgagee on the covenant is restrained after foreclosure and sale under the mortgage in which the covenant is contained proceeds is therefore not applicable. That theory I had occasion to consider fully in the recent case of Sayre v. The Securities Trust Co.. The distinction between the effect of foreclosure of the first mortgage followed by sale on the mortgagor's liability on his covenant in that mortgage and its effect on his liability on the covenant in the third mortgage is no doubt subtle yet I think it is substantial. The mortgagor's position under the third mortgage was of course affected by the foreclosure. But it was not the foreclosure which had the practical effect of
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extinguishing his liability on the covenant under the first mortgage. It was the subsequent sale; and that, as already pointed out, had no effect whatever on the mortgagor's rights or position under the third mortgage.
Moreover, the proviso for redemption of the Kamsack Hotel is that the mortgagor is to be entitled to a discharge of it on payment of the two mortgages on the Redvers Hotel to which it is collateral. Whatever may be said as to the debt under the first mortgage by reason of the plaintiff having taken the property in satisfaction thereof, there is no ground for maintaining that the third mortgage has been paid.
However, I incline to the view that, having foreclosed the first mortgage on the Redvers Hotel and sold that property thereunder, the mortgagee took it in satisfaction of the entire debt due on that mortgage, that the amount thereof must therefore be deemed to have been fully paid and satisfied and that the mortgagor is entitled on the accounting with the mortgagee to credit for that amount and not merely for what was realized by the mortgagee on the sale. On the third mortgage covenant, however, the mortgagee is still entitled to recover the sum actually due and owing in respect of the debt by it secured and on payment of that amount the plaintiff will be entitled to a discharge of the Kamsack Hotel property from the collateral second mortgage upon it.
In lieu of a judgment dismissing the plaintiff's action, therefore, judgment should in my opinion be entered declaring that, on payment to the defendant of the amount due under the third mortgage on the Redvers Hotel property, the mortgage held by him on the Kamsack Hotel property will be satisfied and the plaintiff will be entitled to a discharge of it.
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Brodeur J.—I would agree with the Court of Appeal that the foreclosure proceedings on a first mortgage would not prevent the mortgagee, if he is the creditor of a third mortgage, from claiming on the covenant on this third mortgage if even he has bought the property on those foreclosure proceedings and has since disposed of it.
But at the same time there is no doubt that if the appellant could not succeed with regard to the third mortgage his indebtedness has disappeared as far as the first mortgage is concerned and he should succeed to the extent of the latter. This point, however, does not seem to have been strongly pressed in the courts below, though it has been mentioned.
The action should not be dismissed in toto but a judgment should be entered declaring that on payment of the third mortgage the plaintiff will be entitled to a discharge of the mortgage held by the defendant on the Redvers Hotel property.
There should be no costs on this appeal.
Mignault J.—By the agreement of sale of certain hotel premises between the respondent (vendor) and the appellant (purchaser), what was termed a collateral mortgage on the hotel property was given by the appellant to the respondent, it being stipulated that this mortgage should be discharged when a first and third mortgage on another hotel property for $7,000 and $2,150 respectively, due to the appellant by one Yandt, and transferred by him to the respondent in part payment of the price, should be fully paid by Yandt.
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Yandt not having paid either mortgage, the respondent took foreclosure proceedings against him on the first mortgage after having vainly tried to bring the property to sale under a power of sale, and obtained a final order of foreclosure, subsequent to which he sold the property for $4,000.
The appellant now claims that he is entitled to a discharge of the collateral mortgage under the above mentioned stipulation of the agreement of sale.
The first objection to the appellant's contention is that Yandt has not fully paid the first and third mortgages due by him to the appellant and by the latter transferred to the respondent, and therefore the appellant is not entitled to a discharge of the collateral mortgage.
The second objection is that granting that the respondent could not sue Yandt on the covenant in the first mortgage without offering to reconvey him the mortgaged property, which he is not in position to do, his inability to reconvey does not stand in his way should he sue on the personal covenant contained in the third mortgage, for Yandt having lost his whole equitable right in the property by the final order of foreclosure on the first mortgage, cannot demand reconveyance as a condition of an action on the covenant in the third mortgage.
I therefore think the appeal fails, and for the reasons fully stated by my brother Anglin I agree in his disposal of the matter.
Appeal dismissed with costs.
Solicitors for the appellant: McPhee, Smith & O'Regan.
Solicitors for the respondent: Patrick, Doherty, Killam & Walton.
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