Judgment Creditors Beware: The Challenges Of Collecting From A Beneficial Landowner

• Published date: 15 July 2020
• Subject Matter: Finance and Banking, Real Estate and Construction, Charges, Mortgages, Indemnities, Construction & Planning, Real Estate
• Law Firm: Gowling WLG
• Author: Ms Susan Rosen

In the case of 1842752 Ontario Inc. v. Fortress Wismer 3-2011 Ltd.¹ (the "Fortress Case"), the Ontario Court of Appeal held that a judgment creditor is not entitled to enforce a writ of seizure and sale against a registered owner that holds land in trust for a judgment debtor, nor to priority over arm's length construction financing.

Pace Developments (The Mark) Ltd. ("Pace Mark") was the registered owner of certain lands under the Land Titles Act² pursuant to an unregistered trust agreement. In the unregistered trust agreement Fortress Wismer 3-2011 Ltd. ("Fortress Wismer") and two other corporate entities were named as the beneficial owners of the lands.

In 2016, Firm Capital Mortgage Fund Inc. ("Firm Capital") and MarshallZehr Group Inc. secured construction financing charges against the lands naming Pace Mark as the chargor.

In 2017, 1842752 Ontario Inc. (the "Judgment Creditor") obtained a judgment against Fortress Wismer in the amount $100,000.00 plus interest and costs. In 2018 the Judgment Creditor filed a writ of seizure and sale with the sheriff having jurisdiction over the lands, directing the sheriff to sell, among other things, the lands beneficially owned by Fortress Wismer. The Judgment Creditor provided Firm Capital with notice of its writ of seizure and sale and asserted that any subsequent advances secured by Firm Capital's charge would be subordinate to its writ.

The Judgment Creditor applied for declarations that (i) its writ of seizure and sale against Fortress Wismer applied against or should bind Pace Mark, the registered owner of the lands; (ii) its writ of seizure and sale could be executed against Pace Mark; and (iii) any advances made to Pace Mark from Firm Capital following the date that its writ of seizure was filed ranked subordinate to its interest.

The application judge held that the Judgment Creditor was not entitled to enforce a writ of seizure and sale against Pace Mark or enjoy priority over the arm's length construction financing from Firm Capital. While the application judge acknowledged that the Execution Act³ authorized the sheriff to whom a writ of execution is delivered to seize and sell the lands of the execution debtor "including any lands whereof any other person is seized or possession in trust", the application judge noted that that the Execution Act is a procedural statute that does not confer substantive rights but rather provides mechanisms for the collection of judgment debts. The application judge...