Legal Blog

Assignment

There are two types of assignment of debt: legal and equitable. An equitable assignment can be loosely defined as any assignment that cannot be categorized as a legal assignment. A legal assignment is set out in section 53 in the Conveyancing and Law of Property Act. The key prerequisite to any legal assignment is that written notice of the assignment be given to the debtor.

The case of Lee v. Korea Exchange Bank of Canada (1999), 44 O.R. (3d) 366 (SCJ) discussed this concept in a mortgage context.

Power of Sale

A mortgagee issued a notice of sale in January 1984. It assigned the mortgage to an assignee in May. The assignee entered into an agreement to sell the property and completed the sale in August. Neither the mortgagee nor the assignee gave notice of the assignment to the mortgagor. The assignee did not issue a new notice of sale.

All of the statutory declarations completing the sale were sworn as if the assignee did not exist. The solicitor for the mortgagee was the deponent in a statutory declaration in which he referred to the original notice of sale and stated that to the best of his knowledge and belief, the sale complied with the Mortgages Act. An officer of the mortgagee deposed that monies were still owing on the mortgage debt.

Problems

The 1984 purchasers attempted to sell the property in 1988. The transaction fell through because the new purchasers requisitioned proof of the issuance of a notice of sale issued by the assignee. We gather that no litigation arose out of that aborted transaction.

The 1984 purchasers brought an application seeking an order that they had good title to the property. The respondent to the application was the new mortgagee of the property. Obviously, the respondent was quite content that the application be granted and did not attend the hearing of the application.

Decision

Section 30 of the Mortgages Act requires that a mortgagee shall not exercise a power of sale unless an appropriate notice exercising the power has been given to the mortgagor.

The applicants relied upon section 35 of the Mortgages Act. This states that the title of a purchaser is not liable to be impeached if a notice of sale has been issued in professed compliance with the Act. Of course, any person prejudiced as a result of the non-compliance, would still have remedies against the mortgagee issuing the improper notice.

The judge noted that the purpose of section 30 was to allow the mortgagor the ability to redeem the property. He also noted that if the mortgagor did not know who was the owner of the mortgage debt, the mortgagor would not know whom to contact to redeem. The judge therefore held that a basic right of the mortgagor had been breached as a result of the failure of the parties to notify the mortgagor of the assignment of the mortgage debt. That basic right was so important that section 35 would not save the transaction.

Notwithstanding that there was no opposition to the application, the applicants were unsuccessful.

Do you think, perhaps, that the 1984 purchasers might be a wee bit unhappy with the solicitors who represented them in the purchase of the property?

A Little Effort

     An assignee does not have to issue a new notice of sale. It can rely upon the assignor’s notice if either the assignor or assignee notifies the mortgagor in writing of the assignment. This notification results in a legal assignment of the debt and the assignee can then step into the assignor’s shoes. Unfortunately, neither the assignor nor the assignee, in the Lee case, gave the requisite notice.

The sale papers in support of the sale under the power of sale would recite the details of the assignment. Normally, both in Registry and Land Titles, the sale papers do not refer to notice of the assignment. As a matter of caution, particularly in Registry, they should.