The Ontario Superior Court’s recent decision in 2642948 Ontario Inc. v. Jonny’s Antiques Ltd., 2025 ONSC 2059, provides valuable guidance on a number of issues, and in particular a mortgagee’s self-help remedies following default; and that the borrower cannot rely on mortgage payment modifications unless they are documented in writing. For transactional real estate lawyers, this case serves as a cautionary tale about informal payment arrangements and a practical primer on the “peaceable possession” requirement when exercising power of sale.
The Deal That Went Sideways
In 2018, the parties structured a share purchase transaction with vendor take-back financing: an 11-month mortgage for $385,000 at 2.5% interest, with monthly payments of $802.08 and a maturity date of July 10, 2019. The mortgage incorporated Ontario’s standard charge terms and was registered against commercial property at 10 Shakespeare Street in Shakespeare, Ontario.
When the mortgage matured in July 2019, the borrower couldn’t refinance. After demand letters from the lender’s lawyer, the parties met in February 2020. The borrower explained his antiques business was struggling and transitioning from retail to online auctions. He proposed continuing to make interest-only payments of $806 monthly while attempting to refinance or sell to his wife. The lender accepted a cheque for three months’ interest and agreed to forego penalties.
For three years, the borrower made quarterly interest payments but never paid down the principal. The lender took no enforcement action during this period, later testifying she gave the borrower “a break” during COVID-19 because he claimed there was “no business.”
The Breaking Point
In July 2023, the lender’s lawyer sent another demand letter requiring full payment by October 10, 2023. When no payment came, the lender served a Notice of Sale Under Mortgage and Notice of Intent to Enforce Security under the Bankruptcy and Insolvency Act in December 2023. The registered mail was returned unclaimed.
After multiple failed service attempts, the lender hired a bailiff who changed the locks on April 12, 2024, finding the property apparently vacant with no resistance. The borrower subsequently broke into the property multiple times, leading to police involvement and his arrest.
The borrower then brought an urgent ex parte motion for a Certificate of Pending Litigation (CPL) and declaratory relief that he remained in possession. Justice Cook granted the CPL on May 14, 2024. The lender moved to set aside this order and declare itself in possession.
The Court’s Analysis: Two Critical Issues
- Setting Aside the CPL: The Duty of Full and Frank Disclosure
Justice ten Cate found the borrower failed to make full and frank disclosure on the ex parte motion, as required by Rule 39.01(6). Critically, he:
- Misrepresented the timing of the alleged oral agreement, claiming it was made in 2019 (one year before the actual February 2020 meeting)
- Failed to disclose demand letters from the lender’s lawyer, including the July 2023 letter demanding payment by October 2023
- Did not reveal he had received the Notice of Sale and BIA Notice by February 2024, well before the May motion
The test isn’t whether the CPL would have been issued with full disclosure, but whether the omitted facts “might have had an impact on the original granting of the order.” The Court found these omissions misled Justice Cook on material facts, particularly regarding whether there was an oral agreement to delay principal repayment indefinitely—a finding fundamental to the CPL decision.
The Court also weighed the prejudice to each party. While the borrower would lose the property and need to relocate his business, the lender had already waited over five years for principal repayment and faced losing a sale agreement with a May 9, 2025 closing date that couldn’t be extended further.
- Peaceable Possession: The Mortgagee’s Self-Help Remedy
The Court confirmed that Ontario mortgagees exercising power of sale can take possession without court order, but must do so “peaceably.” Drawing on the Court of Appeal’s analysis in Zapfe Holdings Inv. v. 1923159 Ontario Inc., 2023 ONCA 190, and Hume v. 11534599 Canada Corp., 2022 ONCA 575, Justice ten Cate outlined the key principles:
- Taking peaceable possession refers to the manner of taking possession
- At minimum, it means taking possession without violence or threat of violence
- The inquiry is fact-specific, considering factors including:
- Whether the property was vacant or unoccupied
- Whether there was physical or verbal resistance
- Whether the property was residential
- Whether changing locks constitutes peaceable conduct depends on circumstances
The Court distinguished Zapfe, where the mortgagee knew there would be serious resistance and the property was occupied by commercial tenants. Here, the registered mail was returned unclaimed, the process server found no one on multiple attempts, and the bailiff encountered no resistance when changing locks.
Importantly, the Court noted that Hume distinguished between residential and non-residential properties, suggesting residential properties require a court order for possession. Here, the borrower admitted the property (though containing residential space) wasn’t used as a residence and that he lived elsewhere in Stratford.
Practical Takeaways for Transactional Lawyers
Document Everything in Writing: The borrower’s claim of an oral agreement to make interest-only payments indefinitely failed because Standard Charge Term 19 requires mortgage amendments to be in writing, as does the Statute of Frauds. When clients request payment modifications, insist on written amendments signed by all parties.
Know the Standard Charge Terms: The incorporated standard charge terms granted the mortgagee powerful self-help remedies, including the right to “enter into and take possession of the land” and “hold, use, occupy, possess and enjoy the land without the let, suit, hindrance, interruption or denial” of the mortgagor (SCT paragraph 10). Transactional lawyers should understand these remedies when negotiating and documenting mortgage transactions.
Accepting Partial Payments Isn’t Modification: The lender’s acceptance of interest-only payments for three years didn’t modify the mortgage terms or waive default rights. However, this creates risk, so ensure clients understand their rights and document any forbearance agreements with clear terms and reservation of rights.
Service Requirements Matter: Proper service of statutory notices is essential before exercising power of sale. While the borrower claimed he didn’t receive notices, evidence showed his lawyer forwarded the BIA Notice to his accountant in February 2024, establishing actual notice.
Peaceable Possession for Commercial Properties: For non-residential properties that appear vacant with no resistance, mortgagees can change locks without court order. But document everything: confirmation of vacancy, lack of resistance, evidence of proper notices, and contemporaneous records of the possession-taking.
