Real Property – LAW 317 – Curran
Final Outline Spring 2011 – Asif Abdulla
Table of Contents
Introduction and Context ............................................................................................................................................. 4
Real Estate Market and Business of Law ............................................................................................................................... 4
Common Causes of Loss in Residential Real Estate Transactions: ........................................................................................... 4
Legal Profession Act ..................................................................................................................................................................................... 4
Law Society Rules .......................................................................................................................................................................................... 4
Professional Conduct Handbook ............................................................................................................................................................. 4
Regulatory Context ....................................................................................................................................................................... 4
Aboriginal Title ............................................................................................................................................................................................... 4
Torrens System: ............................................................................................................................................................................................. 5
Definitions: ....................................................................................................................................................................................................... 5
Marketing the Property ................................................................................................................................................ 6
Regulatory Framework ............................................................................................................................................................... 6
Real Estate Services Act (RESA) .............................................................................................................................................................. 6
Real Estate Licencees ................................................................................................................................................................... 6
Agent’s Authority:.......................................................................................................................................................................................... 6
Duties .................................................................................................................................................................................................................. 7
DeJesus v. Sharif (BCCA 2010) – Fiduciary Principles – Impact of a Limited Dual Agency Agreement ............................................. 8
Price v. Malais (BCSC 1982) – Realtor’s Duties to Conduct Adequate Searches ......................................................................................... 8
Baillie v. Charman (BCCA 1992) – Realtor’s Breach of fiduciary duty – failure to disclose profits ..................................................... 8
Bango v. Holt (BCSC 1971) – Fraudulent misrepresentation made by Vendor ........................................................................................... 8
Financing the Purchase – Mortgages ........................................................................................................................ 9
Approach: .......................................................................................................................................................................................................... 9
Introduction to Mortgages ......................................................................................................................................................... 9
Historically / Nature of a Mortgage: ...................................................................................................................................................... 9
Land Title Act .................................................................................................................................................................................................. 9
Elements of a Mortgage ............................................................................................................................................................... 9
Common Elements: ....................................................................................................................................................................................... 9
Legal Mortgages ...........................................................................................................................................................................................10
Richmond Savings Credit Union v. Nijjer (2000 BCSC) – Courts unwilling to take narrow reading of LTA Requirements
where there is Agreement Between the Parties .................................................................................................................................................... 10
Equitable Mortgages...................................................................................................................................................................................11
Royal Bank of Canada v. Mesa Estates Ltd (BCCA 1985) – Equitable Mortgages require intent ..................................................... 11
Kreick v. Wansbrough (SCC 1973) – Loan must be made in conjunction with security, as a term of the K ................................. 12
Blackaby v. Rabson (BCCA 1994) – No equitable mortgage – K terms are clear as to their effect .................................................. 12
Unexpressed Terms / Implied Covenants .......................................................................................................................... 12
Power of Sale – Foreclosure ....................................................................................................................................................................12
Land Title Act ................................................................................................................................................................................................12
Statutory Protections ................................................................................................................................................................. 12
Definitions: .....................................................................................................................................................................................................12
Federal Legislation ......................................................................................................................................................................................13
Kilgoran Hotels v. Samek (SCC 1967) – Not blended payments where interest vs principle is easily calculable ....................... 13
Reliant Capital Ltd v. Silverdale Developments (BCCA 2006) – s.8 – only protects against interest increases that are levied
as a result of default, not those that are based on some other agreed upon factor (timing) ............................................................. 13
Degelder Construction Co v. Dancorp Developments Ltd (SCC 1998) – Interpretation of s. 347 CCC ............................................. 14
Provincial Legislation.................................................................................................................................................................................15
Enforcement of Mortgages ....................................................................................................................................................... 15
Assignment / Assumption........................................................................................................................................................................15
Priorities ..........................................................................................................................................................................................................16
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Gill v. Bucholtz (2009 BCCA) – Interests less than indefeasible title are not protected through bona fide purchase for new
value ....................................................................................................................................................................................................................................... 16
Foreclosure.....................................................................................................................................................................................................16
Conflicts of Interest..................................................................................................................................................................... 17
Mortgage Fraud ............................................................................................................................................................................ 17
Homewood Mortgage v. Lee (2008 BCSC) – failure to verify identity resulted in unenforceable mortgage ................................ 17
Pre-Closing and Closing Problems .......................................................................................................................... 18
Title .................................................................................................................................................................................................. 18
Vendor’s Obligations ..................................................................................................................................................................................18
Norfolk v. Aikens (BCCA 1989) – Must be RWA to complete; Must agree to closing procedure ........................................................ 19
Seguss v. Fawcus (BCCA 1993) – V must at least be ABLE to be R/W/A to complete ........................................................................... 19
What Constitutes Title Default? .............................................................................................................................................................20
Chen v. Hsu (BCSC 1997) – Test for Minor Defect and When an Encumbrance is Actually Clear ..................................................... 20
Condition of Property ................................................................................................................................................................ 20
Perell – Size Matters ...................................................................................................................................................................................20
Kuhirtt v. Lamb (1991 ON Gen) – no damages where purchaser could see what they were getting .............................................. 20
Misrepresentations..................................................................................................................................................................... 21
Time is of the Essence ................................................................................................................................................................ 21
Key Points: ......................................................................................................................................................................................................21
Clause 12 Standard Form K: ....................................................................................................................................................................21
Section 31 – Law and Equity Act: ..........................................................................................................................................................21
Shaw Industries Ltd v. Greenland Enterprises Ltd (BCCA 1991) – ToE ceased to be in force – not reasserted ........................... 21
Salama Enterprises v. Grewal (BCCA 1992) – ToE must be honoured unless it would be unjust/inequitable ............................ 22
Ambassador Industries v. Kastens (BCSC 2001) – Explicit re-assertment of ToE is required ............................................................ 22
Sorensen v. Carriage Lane Fine Homes (1998 BCSC) – Explicit reassertment not required for mere extension ........................ 22
The Collapsing Deal ...................................................................................................................................................... 24
Approach: ........................................................................................................................................................................................................24
Remedies for Failure to Complete ......................................................................................................................................... 24
1. Retain/Return Deposit .........................................................................................................................................................................24
2. Specific Performance (plus additional damages / abatement)............................................................................................24
Serebrennikov v. Sawyer’s Landing Investments (2010 BCSC) – How to prove Specific Performance ........................................... 25
Tropiano v. Stonevalley Estates (1997 ON GD) ..................................................................................................................................................... 25
3. Damages......................................................................................................................................................................................................25
Andsell v. Crowther (1984 BCCA) – Damages in lieu of SP = Common Law Damages (basically) ................................................... 26
Mavertic v. Bowman (BCCA 1993) – Damages should be assessed at the time of the breach unless compelling reason to
look to another time for assessment ......................................................................................................................................................................... 26
Semelhago v. Paramadevan (1996 SCC) – Specific performance requires uniqueness and lack of readily available
substitute; Damages here were calculated at the date of trial! ..................................................................................................................... 26
4. Vendor’s/Purchaser’s Lien..................................................................................................................................................................27
5. Rescission ...................................................................................................................................................................................................27
Cherris Estate v. Bosa Development (BCCA 2001) – Uninhabitable property = substantially differet = EiS ................................ 27
Curtin v. Blewett (BCSC 1999) – Duties under the PDS ..................................................................................................................................... 27
Negligent Misrepresentation – Suing in Contract and Tort .......................................................................................... 28
Test for Negligent Misrepresentation (Hedley Berne) ..................................................................................................................28
Aldred v. Colbeck (BCSC 2010) – Application of Test for Negligent Misrepresentation ....................................................................... 28
Gronau v. Schlamp Investments (ManQB 1974) – Latent defects actively concealed = fraudulent misrep .................................. 29
Post-Closing Problems................................................................................................................................................. 30
Warranty and Merger ................................................................................................................................................................ 30
Homeowner Protection Act BC ..............................................................................................................................................................30
Clause 18 – Standard Form Contract – Entire Agreement Clause ...........................................................................................30
Fraser-Reid v. Droumtsekas (SCC 1979) – Removes the doctrine of Merger ............................................................................................ 30
Parole Evidence Rule..................................................................................................................................................................................31
Rescission ....................................................................................................................................................................................... 31
General Rule: .................................................................................................................................................................................................31
Approach: ........................................................................................................................................................................................................31
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Redican v.Nesbitt (SCC 1923) – Fraud or error in substantialibus rebuts presumption of caveat emptor .................................. 31
Hyrsky v. Smith (ONHC 1969) – A mistake in quantity must be so substantial to change subject matter - EiS.......................... 31
Allen v. McCutcheon (1979 BCSC) – Fraud-misreps and intentional concealment/inducement - rescission ............................... 32
Roberts v. Montex Development Corp (BCSC 1979) – Warranty breached – gives rise to damages post closing ...................... 32
Damages – When to Assess....................................................................................................................................................... 32
Damages Assessed at the Time of Breach..........................................................................................................................................32
Damages Assessed at Date of Judgment .............................................................................................................................................33
Duty to Mitigate and Deposit Taken into Account in Damages ................................................................................................33
Hargreaves v. Brar (BCCA 2010) – Outlines duty to Mitigate | Deposit accounted for in damages ................................................ 33
Closing / Completion .................................................................................................................................................... 34
Undertakings................................................................................................................................................................................. 34
What are Undertakings? ...........................................................................................................................................................................34
Purpose: ...........................................................................................................................................................................................................34
Who Can Give and Release Undertakings? ........................................................................................................................................34
Professional Responsibility: ....................................................................................................................................................................34
Clause 13/14 - Standard Form Contract ............................................................................................................................................34
Implied Undertakings ................................................................................................................................................................................35
Breach of an Undertaking.........................................................................................................................................................................35
Guidelines for Giving Undertakings: ....................................................................................................................................................35
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Introduction and Context
Real Estate Market and Business of Law
-
High number of transactions; boiler plat; common attempts to get out of Ks
Common Causes of Loss in Residential Real Estate Transactions:
- Communications – failures to listen, ask, explain
o Clients are often unaware of terminology and implications
- Oversights – sloppy practices or mistakes
o Problems with precedent letters, drafting errors; poor follow up with searches, etc
- Un manageable risk – no loss prevention steps can avoid these risks
o Real estate fraud
- Legal Issues – Failures in managing the legal issues
o Improper interpretation
- Engagement Management – failures in managing expectations
- No Paper Trail – no confirmation in writing
Legal Profession Act
- Self-governing profession
- Establishes the law society of BC and sets out what I can do
o Maintains an insurance fund – all practicing lawyers much have insurance
Law Society Rules
- Set out how to become a lawyer
- Discipline procedures; lays out how the society is governed
Professional Conduct Handbook
- Outlines how lawyers are supposed to behave
- Chapter 12: Supervision of employees
o Lawyers can have employees, but it’s the lawyer’s responsibility to maintain authority over the files
o Lawyer is responsible for all business entrusted to the employees
o Proper training must be given to employees
o Rule 9: legal assistants cannot take instructions from clients or give legal advice
 They may draft docs (Rule 8)
o Rule 10: Lawyers acting as realtors and lawyers – lawyers as marketers – must personally show prop
- Appendix 3: Allows to act for opposing parties in real estate transactions
o Generally this would not be allowed elsewhere in Law – this is an exception
o Parties are not seen as adverse, would be difficult to find representation in certain cases
Regulatory Context
Aboriginal Title
- Unique legal context in BC; Crown asserts ownership over about 95% of the land available
- Delgamuukw: Unique, proprietary interest held collectively – akin to ownership
o Seen as a burden on Crown title and is only alienable to the Crown
o Provincial Crown cannot extinguish
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Where recognized, confers exclusive use and occupation
Use or ownership that predates colonization were never extinguished, not recognized by any specific
statute, but are constitutionally protected under s. 35
Uukw: registration of AB title rejected at the LTO because it lacked the marketable characteristics required LTA
Skeetchestn: Refused a certificate of pending litigation because AB rights are not marketable as per the LTA
o
o
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Torrens System:
- Purpose: creates certainty and transparencies
- Past defects or the chain of transactions are not relevant to the current transfer
- Land Titles Act – contains the basic principles of the Torrens system
o Creates a title system
- Strata Property Act – provides for parcels for common ownership of areas; governance structure, etc
- Family Relations Act – enables claims against title
- Fraudulent Conveyance Act and Fraudulent Preference Act
o Duties under these Acts, where if there is a sense that client is disposing of property to avoid a
judgment or for other fraudulent purposes, defraud creditors, then as a lawyer, cannot continue to act
on their behalf
Definitions:
Condition: Fundamental term of the contract; breach allows damaged party to sue
- Price, the property itself, the state of the property, etc
Conveyance: Transfer of property from one person to another
Covenant: Promise to do or not to do something – usually restrictive covenant
- Runs with the land, remains registered on title, so it binds successors on title
- CL only recognizes restrictive covenants; LTA s. 219 – statutory covenants positive or negative – govt bodies
Easement: Gives particular right to do a certain thing with someone’s property particularly for that purpose
- Generally things like access, utility or sewage, entry for repairs, etc
- Registered on title and run with the property – like covenants
Licencee: Real Estate Agent – person who is licenced under the Real Estate Services Act
Lien: Encumbrance on a property in security for performance of payment or debt
- Informs parties that there are outstanding financial dealings against the property
Misrepresentation: Untrue statement of a material fact; or lack of information amounting to a misrepresentation
Mortgage: Security for payment of a debt – particular instrument by which we secure a debt on land
- Charge on the title – when debt is redeemed, the charge is dropped; registered on title of property
Repudiate: Behaviour by one party that amounts to rejection of their obligations under the contract
- Allows other party to treat the K as if it is at an end
Tender: Ready, willing and able to complete the conveyance
Time is of the Essence: Agreement between parties that they will adhere to the time lines within the K
Title: Proof of ownership – registered with the LTO – all public information
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Undertakings: Personal promise, in capacity as a lawyer to do something
- Must be in writing and in expressed in unambiguous terms
Warranties and Representations: Do not go to the root of the agreement, they express some lesser obligation
- Breach usually gives rise to an action in damages, but not to rescind or repudiate the K
Marketing the Property
Regulatory Framework
Real Estate Services Act (RESA)
-
Section 1: Definitions
o Real Estate Services – three different types of service: renal property management, strata
management, and trading services (we are concerned with trading services)
o Trading Services – advising on price, making representations about the trade, showing real estate,
receiving deposit money, etc
-
Section 2: RESA applies to every person who provides real estate services, whether or not paid
-
Section 3: You must be licenced in order to provide real estate services
-
Section 4: Cannot request remuneration for these services unless licenced under the RESA
-
Section 35: Statutory Duties of Licencees
o (1) Professional misconduct – contravention of the RESA or RESA Rules
o (2) Conduct unbecoming – acting contrary to the best interests of the public..bring real estate industry
into disrepute
-
Section 56: Provides for professional sanctions
Real Estate Licencees
Agent’s Authority:
- Agent is recognized as having a fiduciary relationship with their Principle
o Special relationship in Law, where someone is relying on your particular skills – trust/vulnerability
- Heightened duties and responsibilities
o 1. Duty to disclose all relevant information
o 2. Duty not to be in conflict of interest with the Principle
o 3. High standard of professional conduct – protects the integrity of the profession
Listing Licencee:
- Engages with the Vendor and provides them with advice, then the house is listed for sale
- Vendor is the principle
- May also owe principle-like duties to the Purchaser where they are involved in advising purchaser
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Selling Licencee:
- This is the agent that actually sells the property; may not have an existing relationship with the Vendor
- Presumption that the selling licencee’s principle is the Purchaser
- May also have a principle-like relationship with the Vendor where circumstance warrant it
GR: It is not who they are; it comes down to the nature of the interaction between the parties
- Has there been any reliance or trust that would give rise to a fiduciary duty?
Dual Agency:
- Allowed due to MLS accessibility, this is an increasing phenomenon
- Raises conflict of interest issues
- Facilitates speedy transactions; often when a licencee is specialized in a particular field of real estate
- Limited Dual Agency Agreement
o Agreement must be signed by both V/P that they consent to the dual agency and waive the conflict
o Limits the CL/Statutory duties to the licencee for full disclosure, to the extent that it allows the single
licencee to act for both parties; Signed as an addendum to a standard purchase and sale agreement
o See Dejesus Case Below
Duties
Real Estate Services Act Rules (RESA Rules)
Rule 3-3: Duty to act in the best interests of the client and to follow their instructions etc.
Rule 3-4: Duty to act honestly and with reasonable care and skill
Rule 5-1(1-2) to 5-13: Duties for written agreements and disclosure to clients
- Rule 5-1(1-2): Requirement for written service agreement with client
- Rule 5-4: must deliver written offer
- Rule 5-5: Licencee is prohibited from inducing a party to breach a K with intention of entering another
Rule 6-1: Payment to unlicenced person is prohibited
Duties in Contract and Tort:
- Obey Instruction of Principle: Glasner v. Royal LaPage (1992 BCSC)
o Extends to instructions that are reasonable and lawful, if licencee disagrees, then stop acting for them
- Exercise Care and Skill – Reasonable care/skill of a real estate agent within the market (Nixon v. Eden 98BCSC)
o Property valuation – must be within a reasonable range (Nixon)
o Verifying material facts – falls on both licencees
o Marketing Material – duty of reasonable care and skill
o Preparation of the Purchase and Sale Contract – must be a reasonably enforceable contract
 Price v. Malais – below
Fiduciary Duty:
- Gives rise to additional duties and receive greater scrutiny from the courts
- Presumptively there is a fiduciary duty between the licencee and his/her principle
o Must look to the nature of the interaction
- Onus is on the licencee to prove that fiduciary duty has been met (Ocean City Realty)
- There are fiduciary duties if there is trust and advice-type relationship – Knock Estatesa
- Cannot act for two principles without consent from both (Dejesus)
- Cannot put own interests in conflict with the principle’s interests (Baillie)
- Duty is not just the info that MIGHT affect value/conflicts, it’s a duty to disclose ALL information that would
reasonably influence the decision of the principle
o Everything known by the licencee about the material facts of the property
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DeJesus v. Sharif (BCCA 2010) – Fiduciary Principles – Impact of a Limited Dual Agency Agreement
-
D owned property and was also a licenced agent; P has previously purchased from D on another property
P entered into K to purchase D’s property where D is the dual-agent
P paid higher than FMV and found out later; limited dual agency agreement was signed as an addendum after
the formation of the purchase and sale contract
Issue:
1. What is the appropriate test for fiduciary relationships in real estate transactions?
a. Presumption that licencee has a fiduciary duty to principle; In order to rebut this presumption, D
must demonstrate that the relationship was not one of trust and confidence
2. Was there actually a fiduciary relationship in this case?
a. YES – P relied and palced trust in D – specifically based on previous sale with D
b. This was breached when the FMV of the unit was not disclosed to P
3. Is the fiduciary relationship limited by the limited dual agency agreement?
a. Generally, the agreement would suffice where there is a buyer/seller and one agent
b. Here, there is an interest in the property by the agent as well as he is the seller
c. Agent must also prove: that they did not in fact take advantage of the special relationship; that the
transaction in all respects was far; they disclosed fully their interest in the property to the principle;
and principles had been advised to obtain independent advice regarding the transaction
d. Full and fair disclosure was required – not given here
e. Furthermore, the agreement was signed after the negotiations for purchase price
4. Is P barred from obtaining equitable remedies for coming to the court with unclean hands?
a. If the equitable relieve can be established without reliance on the misconduct, then equitable
recovery is generally not barred – wrong-doing here was not linked to the remedy claimed
5. What damages should be awarded to P for the breach of D’s fiduciary duty?
a. The difference between the FMV at the time of purchase and the price paid is awarded to D
Price v. Malais (BCSC 1982) – Realtor’s Duties to Conduct Adequate Searches
- P bought property from D through an Agent; After purchase, P found easements and wanted to repudiate
Issue: Is the A liable for damages associated to the lost sale?
Held: YES, Agent is liable because he was on notice of the high potential for easements
Baillie v. Charman (BCCA 1992) – Realtor’s Breach of fiduciary duty – failure to disclose profits
- P was selling a house with a listing agent D; D submitted an offer as an agent for a prospective buyer
- Buyer 1 did not want it anymore and wanted one of D’s other listed properties instead
- D told P that there was another buyer instead of B1; B2 bought it for less; B2 was D’s company
- D bought the property and then sold it for more
Issue:
1. Was D in a fiduciary relationships with P?
a. YES – fiduciary relationship exists – rust and confidence
2. Did D breach his duties to P?
a. YES – Where profit is made as a result of relationship, beneficiary must account for profits
b. Strict principle, does not require proof of loss or fraud
Bango v. Holt (BCSC 1971) – Fraudulent misrepresentation made by Vendor
- D had property sold to P as a “potential duplex”; There was actually a registered oath to leave it as a single
- P relied on the representation; licencee did not check the accuracy of the listing
Held:
- D was aware that the info should have been passed to P and that it had not been done so by his Agent
o Guilty of fraudulent misrepresentation
- D’s Agent listed the property as a duplex and didn’t take care to perform searches
o Both agents fell below the standard of care of a reasonable realtor in the marketplace
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Financing the Purchase – Mortgages
Approach:
1. Is the lending arrangement a legal mortgage?
2. If not, does it amount to an equitable mortgage?
a. Is there a clear intent for an equitable mortgage – factors in Mesa Estates
i. Is there default provisions; transfer of title provisions; some form of registrable
future mortgage?
Introduction to Mortgages
-
Conveyance or interest in land that secures a debt; Interest in land is security for the payment of the debt
Mortgage is an agreement between the parties about how the debt will be administered
The person who owns the property GIVES the mortgage to the bank in return for the principle amount
Historically / Nature of a Mortgage:
- Historically, the mortgage was seen as actually giving away the title of the land
- Mortgage was construed plainly on its terms – like contract law – on default, title would go to mortgagee
Right to Redeem – became an important principle in equity – endures past default
- Title-shift/foreclosure remains subject to mortgagor’s right to redeem
o Cannot agree to contract out of right to redeem
Land Title Act
Section 1 – Definitions
- Charge on Land: state of interest on land that is less than fee-simple; encumbrance includes a mortgage
Section 231 – Effect of a mortgage
- (1) Subject to other sections of the LTA, mortgage is charged as an interest on the title
- (2) Retains all equitable and legal principles from the historical nature of a mortgage
- (3) SS. (1) and (2) do not operate to change the CL rights associated to mortgages
o Uncertainty on what this means for BC mortgages and how they are placed on title
o Always subject to right to redemption
Section 176 LTA: Rules regarding Duplicate indefeasible title
Section 189 LTA: Duplicate indefeasible title must be returned to the Registrar prior to transfer
Elements of a Mortgage
Common Elements:
Redemption:
- Even where mortgagor fails to make payment, there is still the ability to redeem the mortgage for a certain
amount of time – cannot be contracted away; Must pay the difference of the amount owing and the FMV
Collateral Advantage:
- Bonus needed to be paid for the privilege of obtaining a loan – above the interest rate – cannot be inequitable
Clog on Equity:
- Mortgage terms cannot be a clog on equity – cannot prevent you from paying it out – cannot be contracted out
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Right of First Refusal:
- Gives the holder a right to be the priority purchaser where an offer is made on the property
Release of liability:
- Property Law Act ss.20-24 – detail when a mortgagor is no longer liable to the mortgagee
o S. 23: When property is sold, purchaser obtains a transferred mortgage, V is released after 3 months
after the mortgage term expires
o S. 24: Original borrower, upon sale, can request the mortgagee to release them from liability – lender
cannot refuse without reasonable grounds to do so
Legal Mortgages
- So long as The Land Title Act provisions are adhered to, there is a legal mortgage
o Agreement between the parties is all that is required to satisfy the LTA requirements (Nijjer)
Land Titles Act – Division 5 – Mortgages:
Section 224: “Terms” includes covenants, conditions, representations, warranties, grants and assignments
Section 225: Mortgage is to be described in two parts:
- Part 1 – prescribed by the director of Land Titles
o Legal descriptions, registered right on title, nuts and bolts of the mortgage
- Part 2 – prescribed by the Mortgagee or Lender
o All other terms – requirement to maintain property in substantially the same shape; payment schedule;
implied standard mortgage terms or explicit mortgage terms; rights of inspection to the bank
o Determines what actions can be taken upon default; discharge of mortgage once paid off
Section 228: Mortgages cannot be registered at the LTO if they do not conform to requirements of the LTA
Richmond Savings Credit Union v. Nijjer (2000 BCSC) – Courts unwilling to take narrow reading of LTA
Requirements where there is Agreement Between the Parties
-
P holds a mortgage on D’s property and it is registered with the LTO; mortgage has the right to foreclose
Allows D to withdraw up to a max amount against a promise to repay at repayment terms that were attached in
a schedule – interest/repayment ratio could be different at different repayment dates
- There is a second mortgage on the property by G;
- D defaulted and P obtained foreclosure on the property; G challenging the proper registration of P’s charge
Issue: Whether P’s mortgage had priority over G’s, and who has the right to proceeds of the foreclosure
Held: P has priority over G – registration was satisfactory to the LTA
Reasons:
- It is anticipated that payment can be accommodated in part 1 of the mortgage, but it may also be detailed
within a schedule – which was done here
- S. 225(3)(d) – provides that terms required by the regulation be included in Part 1 of the mortgage
o This mortgage is re-advanceable and acts as continuing security for future advances, therefore specific
repayment amounts can not be contemplated in advance
o It clearly states that repayment terms will be contemplated with each future advance
o There was clear agreement on these terms between the parties
o To enter interest figures with respect to the initial advance would be misleading as a different interest
rate would be applied to subsequent advances
- S. 225(5) – Requires Part 2 of the mortgage to consist of all other terms of the mortgage
o Terms of the credit line agreements do not form part of the mortgage, those credit line agreements are
the obligations which are secured by the mortgage
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Nothing in the Act prohibits a mortgage from securing more than one loan
It is outside the public domain to know exactly how much is owed at any given time – depends on
payments amounts, frequency, lump sum payments, etc
The objective of notice was met by the information provided in parts 1 and 2 – although the specific amount
loaned was not on the paperwork, one could easily acquire whatever info was needed
o
o
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Equitable Mortgages
- Is a charge on the property, but does not pass the legal estate over to the mortgagee
o Eg. Second mortgage doesn’t have the right to foreclose, but they do have an equitable right against the
property to retrieve their loan amount
Equitable Mortgages – courts are more willing to look at the substance of a transaction not just the written form
- Led to the modern notion of a mortgage being an interest on the land
- Section 4 Law and Equity Act – Rules of equity prevail over the laws of the Common Law
- Section 33 Land Title Act – Equitable mortgages are not registrable
Created historically in 3 ways:
1. The mortgage created is equitable or future (2nd or 3rd mortgage) – legal title can only be conveyed once,
but infinite equitable mortgages can be made
2. Instrument is insufficient to form a legal mortgage, but in law/equity a mortgage should be recognized due
to the behaviour of the parties
3. Deposit the duplicate indefeasible title – LTO enables an owner to receive a copy of their indefeasible title:
a. S. 189 – Where owner wants to transfer property, the duplicate must be returned to the LTO
b. S. 195 – If you want to register a property for sale, duplicate must be returned to LTO
c. Therefore, you can lodge the duplicate with a lending party to ‘tie it up’ as security for the loan
d. Cannot be registered in BC, but doesn’t mean that it cannot be enforced
e. See requirements in Mesa Estates to find an equitable mortgage from deposited duplicate
Royal Bank of Canada v. Mesa Estates Ltd (BCCA 1985) – Equitable Mortgages require intent
-
P had a loan to D that P wished to label an equitable mortgage because there were 2 other prior interests to P
D delivered two document to P’s bank of duplicate certificates of title
o First – agrees that P may hold the docs until obligations were fulfilled
o Second – agrees that P may hold the docs as security until obligations fulfilled
Issue: Whether an equitable mortgage was created in the dealings between P and D?
Held: No established equitable mortgage – total absence of indicia of intent for EM of the parties
Reasons:
- Aside from the deposit of docs, there is no evidence of an intention to enter a lodging agreement
- No suggestion that D would have to transfer upon default; no suggestion of registrable form of mortgage; no
clear words of pledge or mortgage; no words around seizure or foreclosure
- When duplicate indefeasible title is deposited with a bank, it is usually for one of three purposes:
o 1. For safekeeping; 2. As security for an undertaking not to sell or mortgage the land until obligation to
bank is discharged; 3 To charge the land in favour of the bank by way of equitable mortgage
o Determination is dependent on intention of the parties.
Comments:
- Deposit of duplicate title does tie up the property, but to find EM, more proof is required to demonstrate intent
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Kreick v. Wansbrough (SCC 1973) – Loan must be made in conjunction with security, as a term of the K
-
P makes unsecured loans to D; Parties enter into K for sale for one piece of D’s land with option for D to
repurchase for a particular amount owing by a particular date
- If this right is not exercised, P agreed to pay the difference between the amount owing and the land’s worth
- Date for repurchase passed – P claims that this is a mortgage with the right to redeem
Issue: Is there an equitable mortgage where D has the ability to buy back the property to satisfy debt?
Held: The agreement should take effect according to its terms – this is not a mortgage
Reasons:
- Must look to the entire surrounding circumstances of the agreement
- Loans and K for sale were made at different times, not all in the same transaction such that land was security
- K for sale came after the loans and was not a term of the loans – cannot be considered together
o NOTE: together the do look like a mortgage though
Blackaby v. Rabson (BCCA 1994) – No equitable mortgage – K terms are clear as to their effect
-
P owns house with two mortgages; defaults and is about to fall into foreclosure
D offers to bail P out and provides a refinancing agreement; P executes sale to D for 80k with one year option
for P to buy the property back for 88k and a one-year lease to P for 1000/month; D is now the mortgagor
- D grants extension for P to repurchase, for which P pays consideration; 4 years later, option/lease expire
- P receives notice that he can only repurchase at FMV, lease payments continue
- P claims that this was an equitable mortgage which grants him the ability to redeem beyond option date
Held: Documents are held to their terms; there is no demonstration of equitable mortgage here; P non-credible
Unexpressed Terms / Implied Covenants
Power of Sale – Foreclosure
- There is an implied power of sale or foreclosure in a mortgage
- Mortgagee has an equitable right to apply to the court for foreclosure, as well as their right to compel the
mortgagor to exercise their right to redeem
Land Title Act
- Mortgage must comply with s.225 (above)
Statutory Protections
-
Geared at protecting the mortgagor from unconscionable provisions
Definitions:
- Interest: price paid for the use of borrowing money – usually calculated annually/semi-annually
o Simple interest: calculated over the term of the loan without any compounding
o Compounding interest: majority of mortgages: interest is added to the amount subject to interest
- Nominal Rate: the amount that is written on the face of the mortgage
- Effective Annual Rate: the amount that is actually paid after fees, penalties, bonuses, compounding, etc
12
Federal Legislation
GR: Where the interest rate is clear, then courts do not consider payments blended, and the protection afforded by
s. 6 Interest Act can be avoided (Kilgoran Hotels)
Interest Act:
Section 6
– There is no interest recoverable unless the mortgage shows the amount of principle, the rate of interest and
how the interest is to be calculated (yearly / half-yearly)
– Applies to certain types of loan agreements: 1. Sinking fund plan; 2. Loan repayable on allowance of
stipulated repayments; 3. Where payment of principle and interest are blended (Kilgoran Hotels)
Section 7
- There is no amount recoverable other than those amounts described in the loan documentation
Section 8
- When mortgage goes into arrears, cannot charge a greater interest rate than was paid on the principle
o Must be an increase actually based on default and not some other factor (Reliant Capital Ltd)
Section 9
- Any interest that exceeds the required payment can be recovered back by the mortgagor
Section 10
- After 5 years, the mortgagor must be allowed to pay out the mortgage by paying out the principle and three
months of the interest with notice to the lender (not really a concern anymore)
Kilgoran Hotels v. Samek (SCC 1967) – Not blended payments where interest vs principle is easily calculable
- 315k loan given with quarterly payments of 7,002; 6.2% interest calculated quarterly – about 5k interest
Issue:
- Whether the payments here were based on a blended payment?
- If so, does this rate comply with s. 6? (quarterly vs. yearly or half yearly)
Held:
- Payments are not concealed, they are clearly stated – not a blended payment – simple to differentiate between
principle and interest component of payments
Reasons:
- Rate of interest clear and agreed upon within the loan docs; calculation could not be any simpler
- S.6 Interest Act protects mortgagor from having concealed from him the true rate of interest
o S. 6 is read down such that blended payments do not include payments that can be separated simply
into what is principle and what is interest
Comments:
- Post Kilgoran – courts have only found blended rates where there is inconsistency in mortgage docs
o Generally, where the interest rate is clear, then the courts do not consider payments blended
Reliant Capital Ltd v. Silverdale Developments (BCCA 2006) – s.8 – only protects against interest increases
that are levied as a result of default, not those that are based on some other agreed upon factor (timing)
- Commercial loan for construction project – required pre-sale of units to keep cash-flow positive
- 13 month mortgage, first 12 months – 14%; last month – 20%
- D defaults on payments and is charged an increased interest rate; D claims it is contrary to s.8 Interest Act
Issue: Was the structure of the loan actually punitive and therefore attract s. 8 protection?
Held: NO – the rate is set based on time periods, not the fact that D goes into default – valid and enforceable
Reasons:
13
-
Purpose of s. 8 is to protect commercial borrowers against abusive lending practices while recognizing
freedom to contract commercially
- The rate was specifically tailored to address the risk of the lender that is significantly increased at the
completion phase of building projects
Takeaway:
- If the rate is based on time, and not on whether or not there is default, then the increase is valid
Bank Act s. 450
- Requires banks to disclose to non-commercial borrowers the cost of borrowing
Criminal Code s.347
- Took two distinct offences and put them together in s.347
- Criminal Rate of Interest Offences:
o 1. To charge a criminal rate of interest
o 2. To collect payments at the criminal rate of interest
- Defined as a rate of more than 60% - calculated in accordance with CAAP
o Broad defn of interest, not just the stated amount but the effective rate after all inclusions
Degelder Construction Co v. Dancorp Developments Ltd (SCC 1998) – Interpretation of s. 347 CCC
-
Commercial mortgage to builder; demolition and rebuild was required; additional funding needed by D
D received a mortgage that PERMITED a payment schedule that had a criminal interest rate (>60%)
o The term was 11 months, but the loan was not actually repaid for 3 years
- D challenged validity of the second mortgage – if it had been paid off in time it would have contravened CCC
o However, the actual rate was 20% because it was stretched out over so long
Issue:
- For the purposes of s.347(1)(b), should the calculation of the effective annual rate of interest be based on the
contractual term of the loan or the period during which credit was actually outstanding?
Held:
- The appropriate time frame for calculating the rate of interest is the period during which credit is actually
outstanding – so no criminal interest charged here
Reasons:
- Effective Annual Rate is tied to the time the credit was extended
- S. 347(1)(a) is violated where credit agreement expressly imposes an annual interest rate >60%
o Question: at what rate of interest does the agreement REQUIRE?
- S. 347(1)(b) is violated where actual payment is received at a criminal rate (>60%)
o Question: at what rate of interest has a payment ACTUALLY BEEN RECEIVED?
- Interpretation of s. 347:
o 1. (1)(a) should be narrowly construed -Determined as of the time the transaction is entered into. If K
permits the payment of interest at the criminal rate but does not require it, there is no violation, but
(1)(b) may be engaged
o 2. (1)(b) should be broadly construed – determined as of the time payment is received. The effective
annual rate of the interest arising from a payment is calculated over the period during which credit is
actually owing
o 3. There is no violation of (1)(b) where payment at criminal rate arises from voluntary act of debtor
alone – Nelson v. CTC Mortgage: because the debtor chose to pay early, they ended up paying a
criminal rate of interest and then claimed s.347 – held that legal contract cannot be deemed illegal
based on voluntary act of the debtor
- Here: 1. Is not at issue (but only permits, does not require); 2. The correct measure is the period by which the
debt is actually repaid – so here that results in a non-criminal interest rate; 3. Doesn’t apply, the voluntary
delay in payment actually absolved liability to the lender
14
Provincial Legislation
Business Practices and Consumer Protection Act Part 5
- Applies to the service of providing credit; does not apply to business transactions – this is for residential
Unconscionable Transactions
- Section 9(1) – supplier cannot carry out unconscionable consumer transactions
- Section 9(2) – where unconscionability is alleged, the burden of proof is on the lender
- Section 8 – Looks to what the lender knew or ought to have known
o Relation to other similar transactions; language; reasonable prospect of repayment; harsh terms
- Section 5 – Deceptive practice – oral, written, etc statements that are used to deceive
o Bain v. Empire Life Insurance (BCSC 2004) – deceptive act or practice test used to reverse the
particular subject in the lending agreement in that case
o Looks to representation that has the effect of deceiving or misleading a consumer
Disclosure
- Section 66 and 67 – Must make written disclosure within 2 business days of the mortgage
Mortgage Fraud Protection
- Where all money is paid out on a mortgage, the lender must discharge the mortgage within 30 days
- Section 75 – creditor cannot impose any default charges on a borrower, other than reasonable court ordered
costs for foreclosure or directly related to the cost of collecting a mortgage
Relief Under the Act
- Section 10 – Additional powers to the courts – allows the courts to reopen mortgage and take account of
transactions; reopen any transaction and relieve borrower any obligation above the prime rate; can order
borrower to pay excess; can set aside the agreement
Mortgage Brokers Act Part 2
- Applies to some types of mortgage transactions and requires some disclosure and conflict of interest disclosure
statements
- If a mortgage broker has an interest in the property, their interest must be disclosed to the lender
Enforcement of Mortgages
Assignment / Assumption
- Lender can transfer interest to another organization or individual – caused the sub-prime crisis in the US
o Mortgages were traded as a bundle like stocks and bonds – their value would inflate as the land was
rising in value – spiraled out of control and the land was actually worth much less
Recall: Property Law Act ss.20-24 above:
- Deals with how the equity of redemption is seen in law when a mortgage is assigned or assumed
o Previously the original mortgagee could still call in the loan after assigning it
o S.23(1) – the original mortgagor ceases to be liable under the mortgage, 3 months after term expires
Law and Equity Act – s. 36
- Notice has to be given to the debtor that the mortgage is being assigned
15
Land Title Act
- Section 209 – Requires transfer to be of a prescribed form; and allows new mortgage to have all the rights that
the transferor had
- Section 27 – Mortgage transfer is subject to the existing equities and state of account between the mortgagee
and the mortgagor – cannot collect more than what is owed
- Section 22 – Can’t have an interest in land unless it is registered – title passes at the time of registration
Priorities
- Section 28 LTA – Multiple charges on title are prioritized by the date/time of registration – subject to contrary
intention in the documents
Gill v. Bucholtz (2009 BCCA) – Interests less than indefeasible title are not protected through bona fide
purchase for new value
-
Innocent parties: G1 – original owner; Mortgagee 1 and Mortgagee 2
3P and G2 forge the signature of G1 and transfers the property to G2 – G2 is not a bona fide purchaser
G2 then grants mortgage to M1 for 40K – then G1 finds out about fraud and puts a caveat on title
G2 tries to grant second mortgage to M2, but refused because of the caveat on title; M2 then went on to satisfy
themselves that G2 was the bona fide owner and granted the advance
- No question that property is to be returned to G1 because G2 is not a bona fide purchaser for value
Issue:
- Are M1 and M2’s interests (less than indefeasible title) to be stricken from the title, or are they to be treated as
would a bona fide purchaser for indefeasible title?
Held:
- G1’s title is restored AND M1/M2 are both cancelled and charges removed from G1’s title
Reasons:
- LTA s.23(3)(i) – indefeasibility of title is conclusive evidence at law/equity that person on title is the
registered owner and entitled to title in f/s, SUBJECT to fraud
- LTA s.25.1(1) – if you acquire interest in land through a void instrument, then you don’t acquire that interest
o (2) Even though void, a transferee for value in f/s with no knowledge does take the interest
- So anything less than f/s interest does not remain through a void acquisition
- LTA s.26 – registration deems the holder entitled, but registration doesn’t verify that it is a valid interest
Takeaway Points:
1. Genuine f/s holder can recover interest against indefeasible title holders who obtain title out of fraud
2. Act does not give lesser interest holders the same quality as indefeasible titles
a. They do get a rebuttable presumption that they are entitled to the interest, but rebuttable
3. Nemo dat quad non habet – Cannot give what you don’t have
4. Torrens system does not provide absolute protection based on registration
Comments:
- This will likely increase the use of Title Insurance in BC
o Torrens system was throughout to limit the need for title insurance, but now coverage throughout the
transaction is required to protect against this type of occurrence
Foreclosure
- Collecting on a mortgage that has gone into arrears
- Foreclosure is more particular than a simple debt-collection – there is a right to redeem
- Attempting to get a particular date by which the mortgagor must exercise their right to redeem and an order to
sell the unit if this right is not exercised
- Must be an accounting of the amount due under the mortgage and various specific orders
16
Conflicts of Interest
-
Mortgagee and mortgagor are represented by the same lawyer – this may be problematic
Bank may require services that are outside of the lawyer’s abilities/expertise
o Not to determine what is ‘adequate’ insurance
o No way to know/guarantee certain things that the bank may attempt to impose
Banks cannot impose undertakings on a lawyer
o These are professional agreements between lawyers in order to facilitate transactions from a legal
perspective; clients also cannot impose undertakings on a lawyer
Chapter 6: Rule 10 and Appendix 3 of the Professional Conduct Handbook
- Lawyer who agrees to act in real property transfers for two or more parties bust adhere to conditions
Rule 3: Determines what a “simple transaction” is – looks to price, payment method and encumbrances
Rule 5: Commercial transactions are NOT simple transactions
Rule 6: Conflicts have to be disclosed in writing and permission is required from each party
Rule 7: Must not act for any foreclosure proceedings, unless the mortgagor is not made party to the proceedings,
or the lawyer acted for one of the parties only for the purpose of obtaining signatures/discharging title
Mortgage Fraud
Takeaway: Verifying the identity of the clients is the main consideration in the protection against fraud!
Recall: Gill – fraudster forged signature of a f/s owner and transferred property to himself
- Land Survey Authority protects themselves from this type of fraud by shifting the responsibility to the lawyers
Martin Werick – BC Lawyer fraudster – raised Law Society Fees for everyone…bastard.
- MW is a lawyer who works for the Vanview Group (shitty developers); VG would sell property to a ‘friend’ or
‘associate’ – it would grant a mortgage, then they would sell it to an innocent third party, who’s payment should
cover the mortgage of the ‘friend’;
o Instead of paying out the mortgage, MW gives it directly to the VG group
o Innocent party ends up with a mortgage that should have been discharged
- MW would also register fraudulent discharges of the mortgage
- MW found guilty and did 7 years and resigned from the bar; 52M passed through the trust account
- Law society introduced rules requiring the notification within 5 days of application for discharge; also,
notification is required if not completed within 60 days
Homewood Mortgage v. Lee (2008 BCSC) – failure to verify identity resulted in unenforceable mortgage
-
Lee is aging and incapable of managing affairs; Homewood receives application from mortgage broker on an
unencumbered home; The mortgage was granted, but the application was a forgery
Held:
- Court relies on overwhelming evidence that Lee did not sign or authorize the mortgage docs; further, she did
not receive any of the money secured by the mortgage
- There was no effort made by Homewood to ascertain the identification was correct
- Mortgage is null and unenforceable against Lee and the property – bank is out 700k for no due diligence
17
Pre-Closing and Closing Problems
-
Secure financing; fulfill conditions; home inspection; completion docs
Closing day – pre-closure search of title; file the transfer; register the mortgage; post-closure title search;
payout proceeds; discharge the mortgage
Approach:
1. Vendor must deliver “marketable title”, clear of encumbrances (Clause 9 and 11)
a. An encumbrance is only clear when it is actually cancelled in the register (Chen)
b. Whether an encumbrance interferes with the use/enjoyment of the property, determines
whether the encumbrance is trifling or major (Chen / Price)
2. If assistance is needed from the other party to effect closing, then agreement on closing procedures
must be obtained well before the closing date (Norfolk)
a. Contemporaneous obligations require notice to other party; neither party need complete
their obligation until the other shows that they are RWA to perform theirs (Seguss / Shaw)
3. (Norfolk) Where one party breaches the K, the non-breaching party has an option:
a. They may accept the breach – K comes to an end and damages are measured, OR
b. They may affirm the K (reject the breach) – obligations of each party continue
i. Where seeking specific performance, claimant must be R/W/A to complete
Title
Vendor’s Obligations
Duty to Deliver Good Title:
- “Marketable Title”: title that can at all times, in all circumstances, be forced upon an unwilling purchaser
o Financial encumbrances, liens, registrations under FRA, uncertainty of quality – all non marketable
Clear Encumbrances
- Clause 9 of the standard form contract of purchase and sale
o Requires that title be clear except for some standard encumbrances for the city/queen/utils/etc
- Clause 11 – parties will do everything in their power to deliver all documents required to give effect to the K in
registrable form where necessary
Property Law Act
- Section 3 – Either party may apply to the supreme court to decide on transfer issues
- Section 4 – Vender must deliver registrable title
- Section 5 – Transferor must deliver registrable title
- Section 6 – Transferor/Vendor to register own title
- Section 7 – Transferor to provide registrable discription
- Section 37 – provides a cause of action for Purchasers who suffer damages or loss due to a vendor who cannot
perform due to defect in title
Land Titles Act
- Section 23 – Indefeasible title is conclusive evidence at law – entitled to estate in f/s
o 10 listed encumbrances that are excepted from the indefeasible title
- Section 20 – Instrument dealing with land has no effect unless registered with LTO, except against person
making it (K is good between the two parties, but not to the rest of the world)
- Section 27 – Requires that notice of encumbrances is given
- Section 29 – Notice of unregistered interests
- Section 26 – Just because instrument is registered, does not mean that it’s enforceable
- Section 185 – Transfer must be in the form approved by the Minister – Form A
- Section 186 – Wording in the covenants are incorporated into the transfer
18
Law and Equity Act
- Section 31 – terms that are not subject to ToE clause, are to receive equitable principles
Norfolk v. Aikens (BCCA 1989) – Must be RWA to complete; Must agree to closing procedure
-
Standard K signed 4 months before closing; subject to financing and free/clear title
Deposit to be increased by 8000 upon removal of subject-to for financing
V informs P that they can no longer close because of CL husband pending litigation on the property
P claims damages against V; V confirms they have revoked their offer for financing
o On closing, P delivered transfer docs and accepted V’s breach, reserving right to claim damages
- On closing date, V provides docs necessary to effect the transaction; V did not register discharge of mortgage
o P stated they were ready to close, but V did not have clear title (technical difficulties)
o Purchaser was also not ready, willing or able to close on that date
Issue:
- Whether the P can obtain specific performance of the K where they are not ready, willing able to complete
Held:
- P was not RWA to complete on either the contemplated date or the date in question; therefore P was in default
and cannot succeed in specific performance
- V was also not RWA to complete, so the deposit is returned
Reasons:
- V had never agreed upon the mechanism by which the parties would close, and was under no obligation to
follow the procedure laid out by P’s lawyer
- On completion date, V did not have clear title, they had produced discharge but not registered it
- If assistance is needed from other party for closing, then agreement on that process must be received well
before the closing date
- If specific performance is sought, the claimant must be ready, willing and able to complete – P not ready here
- Upon one party’s repudiation, the other party has the choice to either:
o 1. Accept the breach – k comes to an end and is left to a measure of K damages
o 2. Reject the breach (affirm the K) – both parties’ obligations continue
 If one party is RWA to complete and the other is not, then notice can be given to that other party
to complete before the expiry of a certain amount of time (reasonable) – if not, then in default
Seguss v. Fawcus (BCCA 1993) – V must at least be ABLE to be R/W/A to complete
-
D agreed to purchase P’s property – deposit paid; P did not communicate the fact that closing money was
needed in order to clear title
- On closing, P’s solicitor was unable to remove charge on title; D was also unable to pay at that time
- D’s lawyer performed title search, found it to be unclear and then repudiated K – stated clock was stopped
- P discharged the mortgage and notified D that title was free and clear later that same day
Issue: Was D in breach of K by failing to pay the balance of the purchase price?
Held:
- D is in breach of K because P became RWA to complete within the business day on the closing date
Reasons:
- Where V requires purchaser’s price to clear title, they must notify the purchasers of that fact
o Obligation to provide clear title here is contemporaneous to the obligation to pay
- Gross v. Cottier (1992 BC): where covenants are mutually dependant and are expected to be carried out
contemporaneously, neither party need actually perform their obligations unless the other side shows its
ability or willingness to perform its part of the bargain
- D cannot stop the clock and truncate the closing date to the morning of the date in question
o P had until the end of the closing of business day – not in default; D couldn’t pay, so is in default
19
What Constitutes Title Default?
- Good title is marketable title – one that can be forced upon an unwilling purchaser
Recall:
- Norfolk – Change the way licencees disclosed the manner in which a property is closed
o Title was not clear, but purchaser didn’t pay – both not RWA – return deposit
- Seguss – Mutually dependent obligations are expected to be carried out contemporaneously
o Vendor RWA to close, P did not pay – default
- Price – Purchaser wanted to build a pool, easements existed that prevent that
o Easement was a serious defect in title – would interfere with purchaser’s enjoyment of property
- Chen – Restrictive covenant on title
Chen v. Hsu (BCSC 1997) – Test for Minor Defect and When an Encumbrance is Actually Clear
- D agreed to purchase P’s property; Covenant to have title free and clear of encumbrances
- Restrictive covenant was registered by CPR against the property – required authorization to build
- P made efforts to clear title – got a letter saying it should be no problem to clear, but did not actually do it
- D did not accept the P’s undertaking to remove encumbrance – did not complete
Issue: Was the restrictive covenant nothing more than a minor defect on title?
Held: No – the defect was not minor and therefore Vendor is in breach
Reasons:
- Norfolk: Title is clear of encumbrance when the Registrar has endorsed the register with note of cancellation
- Test for minor defect: Whether an encumbrance interferes with the owner’s use and enjoyment of the property
Condition of Property
GR: For size to matter, there must be an actual material deficiency that constitutes title defect
- Depends on the purchaser’s plans; how the property is priced (by sqft?); qualifying terms (approximately)
- Is the purchaser getting something that they did not bargain for?
Perell – Size Matters
- Four common grounds for repudiation:
o 1. Non-satisfaction of a condition precedent
o 2. Where the vendor has breached a fundamental condition of the agreement
o 3. Where the vendor cannot deliver good title
o 4. Where the vendor or licencee has made a false representation and purchaser can rescind the K
- These are linked to four common statements in the k for purchase and sale
o 1. Conditions precedent
o 2. Promises – fundamental conditions
o 3. Vendor’s commitment to convey good title
o 4. Representations and warranties
- Size matters especially where the unit price is based on price per square footage
NOTE: fundamental conditions – go to the heart of the k; representations/warranties go to the quality of the
property – but are less than a promise
Kuhirtt v. Lamb (1991 ON Gen) – no damages where purchaser could see what they were getting
-
Depth of property was inaccurate, but clearly marked by hedges that the purchaser could see upon inspection
Despite the inaccuracy in size representation, purchaser could see what they were contracting for
20
Misrepresentations
-
Representations are usually statements about the property that are not fundamental promises or conditions
Often lend themselves to damages rather than right to repudiate the contract
Equity provides remedies for certain misrepresentations where four criteria are met:
1. False statement is made
2. Statement must be material – has the ability to induce a person to enter the contract
3. Statement has to have actually induced the party to enter the contract
4. Objection must be made before closing of the contract, UNLESS there is fraud or error in substantialibus
Fraud: Rescission available both pre and post-closing
Innocent: Recession is generally not granted, unless it ends up being an error in substantialibus
Error in Substantialibus: Rescission available both pre and post-closing
Time is of the Essence
Key Points:
1. Failure to comply with ToE constitutes a breach and allows enforcement of remedies for the other party,
EXCEPT where it would be unjust or inequitable to rely on the clause (Salama)
2. ToE can be waived by behaviour or by words, and then the obligations becomes that parties fulfill
obligations within a reasonable amount of time (Whittal)
3. If times for the K is extended, then the extension should explicitly recognize that the extension incorporates
ToE or an extension of the original ToE clause (Ambassador)
a. BUT: Mere extensions do not waive ToE without some other unjust/inequitable reason (Sorenson)
4. If neither party is ready, willing and able to complete, then time ceases to be of the essence, even though
expressed in the K (Norfolk)
a. ToE does not apply where both parties are not RWA to complete; however, it can be re-asserted
where one party does become RWA and gives notice to the other party
NOTE: recall that in some scenarios, balance of cash payment and clearing of good title are concurrent conditions
- Must look to the rules of Seguss to determine if there has been a breach of ToE
Clause 12 Standard Form K:
- Provides explicit language that Time is of the essence, and if it is not adhered to with regards to the purchase
price being paid to the seller on time, the buyer’s deposit will be forfeited to seller
Section 31 – Law and Equity Act:
- Explicitly allows courts to apply equitable principles when dealing with ToE clauses
Shaw Industries Ltd v. Greenland Enterprises Ltd (BCCA 1991) – ToE ceased to be in force – not reasserted
-
Both parties in no hurry to close the deal; V had not yet discharged mortgage; P sent docs to V’s law and
suggest payment of the purchase price on undertaking that the mortgage would be discharged
- V refused to complete transaction when they received docs on Monday instead of close date of Friday
- P is suing for specific performance of the K; Trial found for the V, now P appeals
Held: Specific performance granted to the P – ToE ceased to be in force, V couldn’t rely on it
Reasons:
21
-
V had not cleared title and unable to complete on the closing day, they were already in breach before letter
V did not give notice to P that the funds were required to clear the title
P was also in breach, since P in BC has the obligation to prepare the transfer papers in time for closing
So both in breach, ToE ceased to be in force, and neither party reasserted it
Letter from P did not reassert ToE because it was still asserting the old closing date – no new date given
Salama Enterprises v. Grewal (BCCA 1992) – ToE must be honoured unless it would be unjust/inequitable
-
P had to acquire a particular property in order to create access to the property in question before they would
purchase it from V; The k for purchase and sale was contingent on subdivision of the land requiring access
- P requested extension of one month; and then a further extension of one week; both agreed upon by V
- P asked for another extension and V declined; P sued for specific performance
Held:
- ToE unless it is unjust or inequitable to enforce the effect of it
- Ruling for P – specific performance granted because here it is unfair/inequitable for V to rely on ToE
Reasons:
- P and V agreed to seek subdivision but P agreed to do most of the work associated to obtaining it
o Obligation did remain on both parties though
- V’s refusal to allow extension in effect blocked P’s ability to perform the obligation that is on both parties
o Therefore, it is unjust/inequitable to allow V to rely on ToE
- Generally, a breach of ToE gives rise to the right to remedies, EXCEPT where it is unjust/inequitable to do so
- Here, it is unfair to rely on ToE when the party’s behaviour makes it impossible for the other to complete
Ambassador Industries v. Kastens (BCSC 2001) – Explicit re-assertment of ToE is required
-
V selling home where their new home is not ready yet, so they require extension on the closing date from P
ToE clause exists and another clause that requires P to allow extensions where required for V’s new place
K is extended with no fixed closing date; Later V fixed closing date to May 3, and “all other conditions and
clauses remain the same”
- On closing day, V’s solicitor signs and sends docs to P, but they were not delivered until the next day
- P refused to complete the next day, relying on ToE; sends letter to V electing to terminate K on V’s breach
o V replied that P must be RWA to complete, and that V is going through with the K
Issue: Is the delayed delivery of docs enough to constitute a breach of ToE?
Held: ToE was waived, and therefore could not be relied upon – delivery was sufficient, K lives on
Reasons:
- Notice given by P to V was insufficient to re-assert ToE because it was delivered after V had any ability to speed
up the transaction – it was the next day – no reasonable time given to V
- Generic clause stating that all conditions/terms remain active was insufficient to reassert ToE
o Extension requires explicit statement that ToE is re-asserted!
Comments:
- Basically the court is exercising its equitable right to allow a 12h delay in delivery of closing docs
- Courts will look to the circumstances as a whole to determine if it is fair and equitable to rely on ToE
Sorensen v. Carriage Lane Fine Homes (1998 BCSC) – Explicit reassertment not required for mere extension
-
K had a ToE clause and also allowed P to move in earlier if they paid down the balance owing early, but K
would not complete until V was able to discharge the mortgage
- Due to an anti-conversion by-law, V could not convert rental unit to strata unit w/out approval from the city
- Permit was not obtained; K was extended a few times, during which time 13 builder’s liens are placed on title
- P decides to move in; V gives notice for another extension to remove the liens, P repudiates
- P sues for return of deposit and damages for fixture upgrades and moving expenses; V claims deposit
Issue: Was V’s failure to provide clear title after the extensions a breach of ToE?
Held: Ruling for P – return of deposit and fixture upgrade costs; no award for inspection/moving fees
22
Reasons:
- A mere extension does not waive ToE, but the circumstances must be looked at to see if there is any unjust or
inequitable reason as to why ToE should not be honoured
- P was RWA to complete, and V was in breach of the agreed upon extensions on closing
o P was able to elect to accept the breach or affirm the K
Comments:
- Adds grey area regarding whether or not explicit reassertment of ToE clause is required on extension
Case
Norfolk
Behaviour
Neither party r/w/a to complete
Ratio
No ToE
Shaw
Parties behaving casually
No ToE
Salama
V refuses to give P an extension of
1 day, relying on ToE (Note,
subdivision is necessary in this
case, and failure to obtain is of no
fault to the P)
Extensions agreed upon, but no
fixed closing date for a certain
amount of time; Then after agreed
upon, there was late delivery by
the V of closing documents by one
day (at no fault of the V)
Extensions by V (agreed to by P)
and then 13 liens against title; P
then says no more extensions
V cannot
rely on ToE
– unjust or
inequitable
Ambassador
Sorenson
Why?
Must be RWA; where one becomes RWA, notice can
be given to the other party to re-assert ToE
Either party could have given notice that ToE, but no
right to repudiate unless notice is given with a new
date and the other party breaches that date
P is not RWA to complete; V’s conduct is preventing
the P from being able to complete, which in this case
is also making V unable to complete (obligation is
linked) – unjust/inequitable
No ToE
Because there was no fixed date for some time, the
conduct waived ToE and it was not explicitly
reasserted, therefore cannot be relied upon now
YES ToE
The V does not have clear title, so they are unable to
uphold their obligations under the K; P is RWA to
complete;
Mere extensions do not limit ToE without any unjust
or inequitable reason
23
The Collapsing Deal
Approach:
1. (Semelhago) Where one party breaches their obligations under the K, the non breaching option may
elect between:
a. Accepting the breach (terminate K), which gives rise to damages, OR
i. If breach is accepted, cannot swap claim to specific performance later;
ii. Includes difference in price and out of pocket expenses;
b. Affirming the contract (not-accept breach), which gives rise to specific performance
i. Claim for SP can be seen as an election to affirm the contract (Semelhago);
ii. Claim for specific performance can always be converted to a claim for damages;
iii. Gives rise to specific performance + damages; damages in lieu of SP; Abatement + SP;
2. Tender: In order to affirm K, the non-breaching party must be RWA to complete (Norfolk)
a. P must just show they are RWA, no need to actually deliver on obligations
3. The right to elect at a future date can be asserted at the time of the breach (Norfolk)
4. Anticipatory breach/repudiation is acceptable where other party clearly indicates intention to
breach; Notice is required, and without notice, obligations are maintained (
Remedies for Failure to Complete
1. Retain/Return Deposit
- Details are not covered on the exam
2. Specific Performance (plus additional damages / abatement)
Requirement for Specific Performance:
- Proof is required that the property is in fact unique; a substitute would not be readily available (Semelhago)
o Onus is on the party seeking SP to prove uniqueness; (Steps to prove SP: Serebrennikov)
- In order to claim SP, breaching party must be RWA to complete throughout the time from the breach to the
time of trial; Breaching party has the opportunity to fulfill obligations at anytime leading up to judgment
NOTE: SP cannot be granted where the property is sold to an innocent 3P for value; so non-breaching party must file a
notice of pending litigation to prevent this from occurring – See Vender’s/Purchaser’s Lien below
Section 24 – Law and Equity Act – Relief Against Penalties and Forfeitures
- In granting relief against penalties and forfeitures, the court may provide costs, expenses, damages,
compensation and any other means that the court sees fit
Specific Performance + Damages / Abatement
-
Additional damages that can be claimed with SP usually includes closing costs, moving costs and any other fees
that resulted from the breach, that would not ordinarily have been spent if the K had been fulfilled
-
Abatement (the lowering of the remaining purchase price) can be ordered in addition to SP where it is required
to reflect the cost in diminution in value of the property, or cost of curing a defect
o Abatement will not be awarded if it causes undue hardship to the vendor (Serebrennikov)
24
Serebrennikov v. Sawyer’s Landing Investments (2010 BCSC) – How to prove Specific Performance
-
P bought home in new subdivision, chose design and worked with builder to customize it; Builder delays a
number of times; Did not lay the proper foundation and customizations were not being followed
- Neither party cancels the contract – ToE is waived through their respective actions, and no new notice of ToE
- P purchased another home in the same block (a little smaller and some other differences) – paid 70k more
o Delays again, P sues V for the original property with abatement (143k) for customizations; and
damages in the amount of 60k for the other relevant costs
Issue: What are the factors that create uniqueness with respect to a particular purchaser?
Held: Court unwilling to enforce SP and abatement; limited damages
Reasons:
- Semelhago: There must be uniqueness to enforce claim for SP – no readily available substitute
- John E Dodge Holdings v. 805062 ON Ltd (2001 ONSC)
o Onus lies on the party seeking remedy to prove uniqueness + no readily avail substitute
o Must show that damages would be inappropriate;
o Subject to mitigation (ie. P searched for a new property; V relisted for a new buyer)
- 696966 BC v. 686967 BC (2007 BCSC) - Must consider 3 questions:
o 1. Is there evidence that the land is especially suitable for the purchaser? – Specific connection
o 2. Is there evidence that a suitable substitute is not readily available?
o 3. Are damages comparatively inadequate to do justice?
- Here, P bought in the same block – similar enough despite minor differences (similar location/size/rooms)
o Second home was an acceptable substitute; No evidence that damages wouldn’t be sufficient
- Abatement – do not get the cost of curing the defect where renovations would be 30% of the purchase price
Comments:
- Generally SP has been denied in new subdivisions on similar homes;
- Uniqueness must be related to specific features of the home – more difficult where part of new subdivision
Tropiano v. Stonevalley Estates (1997 ON GD)
-
Specific performance awarded for the uniqueness of the lot itself, but not for the house built on the lot, for lack
of uniqueness there. So damages awarded for the value of the house
3. Damages
General Principle: To put contracting parties in the position they would be in if K had been completed
(Semelhago)
Section 37 – Property Law Act – Damages for Loss of Bargain Due to Defective Title
- Court may award damages against a party that cannot perform a contract due to title defect
Damages in Addition to Specific Performance
- Out of pocket expenses; discretionary and recoverable only in limited circumstances
- Breaching party’s conduct must be the direct cause of these damages
Damages in Lieu of Specific Performance
- Where SP is appropriate, the non-breaching party is entitled to elect for damages in lieu there of (Semelhago)
- Awarded in 2 circumstances:
o 1. To P who would otherwise be entitled to SP, but cannot due to circumstances outside of his control
o 2. Where court believes that damages would be more appropriate than SP
- Quantum: Based on the difference between the contract price and the land value at the date of trial
25
-
Assessment: Semelhago – claim for SP simply postpones the consequences of the breach, so damages may be
assessed at the time of trial in these circumstances (value had increased since the date of breach)
o Assess at time of the breach unless there is some compelling reason for another time (Mavertic)
Common Law Damages
- Damages flowing from the contract itself
- Traditionally based on the difference in K price and the value of the land at the date of contract breach
- Basically the same as damages in lieu of SP (Andsell)
Andsell v. Crowther (1984 BCCA) – Damages in lieu of SP = Common Law Damages (basically)
-
There is no distinction between CL damages and damages in lieu of SP, and there is no fixed rule for which to
use, therefore court is to assess the damages based on their own discretion given the circumstances of the case
Mavertic v. Bowman (BCCA 1993) – Damages should be assessed at the time of the breach unless compelling
reason to look to another time for assessment
- K for home for 237k; on closing it’s worth 215k; but time of trial is worth 244k
- P failed to complete (due to avoidance of the failing market); V suing for damages/SP; property not relisted
- At trial, V elects to seek damages; Trial judge assessed damages at the time of breach – 22k for V
Issue: What is the appropriate moment in which to assess damages?
Held: Ruling upheld – damages assessed at the time of the breach
Reasons:
- Richter v. Simpson (1982 BCSC) – fundamental principle in assessing damages, is that P is to be placed in the
same position as if the K had been performed, BUT not entitled to damages that could have been avoided; As
damages are generally assessed at the date of breach, the court is not always bound to that method, they may
choose the date that is most appropriate in the circumstances
- General Rule: Damages are assessed at the date of the breach unless there is a compelling reason to look at a
different date for assessment
o Here, the increased price at the date of trial is not a compelling enough reason
Comments:
- It seems as though P is “punished” for attempting to play the system, even though it’s a bonus for V; here it was
a reasonable amount, so court was willing to do allow the win-fall
Semelhago v. Paramadevan (1996 SCC) – Specific performance requires uniqueness and lack of readily
available substitute; Damages here were calculated at the date of trial!
-
V reneged on K and transferred property to his wife’s name; P looking for SP, but opted to receive damages in
lieu of SP – gap of 4 years between the breach and the trial date
- Property has since increased in value, BUT so did P’s house that would have been sold (by a similar increase)
- Trial found damages of the difference in V’s house; C reduced award to amount actually differed
Issue: What principles to apply to the assessment of damages in lieu of specific performance?
Held: Damages calculated at the date of trial
Reasons:
- General principle: to put contracting parties in the position they would be if K had been completed
- Where SP is appropriate, a party who is entitled to SP is entitled to elect for damages in lieu there of
- Where V renegs in anticipation of performance, the innocent party has two options:
o 1. Accept the breach and treat the K as being at an end – both parties are relieved of obligations
 Injured party may seek damages
o 2. Decline to accept the breach – K continues and neither party is relieved of obligations
 A Claim for specific performance can be seen as exercising option 2
- It is not inappropriate to assess damages from the date of trial (to account for increased value of a unique
property); P has been able to perform since the date of breach, and the claim for SP simply postpones the
26
-
consequences of the breach, so damages should be assessed at the date of trial
Here, SP was allowed because both parties accepted it, but it was not a situation that would have warranted SP
o In future cases: under similar circumstances, allowing claim in SP will depend on whether or not the
property is unique, to the extent that a substitute is not readily available
General Rule for SP: Must prove Uniqueness AND that a substitute is not readily available
4. Vendor’s/Purchaser’s Lien
- Equitable principle that sits atop the title
- Where there is a problem with the K, the purchaser should register a certificate of pending litigation asap to
ensure that it’s not sold
- Vendor can place an equitable lien on the property where they have not been paid balance of purchase price
NOTE: SP cannot be granted where the property is sold to an innocent 3P for value; so non-breaching party must file a
notice of pending litigation to prevent this from occurring
5. Rescission
General Principle: Seeks to put parties back in the position they were in before the K was made
- Note the difference from Damages – where purpose is to put the parties in the position as if K was completed
- Rescission is available both pre and post-closing
o Pre-Closing: for negligent and fraudulent misrepresentations; or and error in substantialibus
o Post-Closing: for fraudulent misrepresentation or error in substantialibus
Error in Substantialibus (EiS)
- Where the purchaser ends up with something that they did not bargain for – goes to the root of the K
- Implies that there was no meeting of the minds – the quality, or something else was so fundamentally different
from what was understood, that there can be no agreement between the parties
- Gronau – EiS found where major repairs were needed and were concealed by V (also Fraud Misrep)
- Hyrsky – EiS found for an error in quantity that was so substantial that it changed the subject matter
Cherris Estate v. Bosa Development (BCCA 2001) – Uninhabitable property = substantially differet = EiS
-
P purchased a penthouse unit in Vancouver; temperature was consistently found to be 30-40 degrees inside
Court found this to be uninhabitable and was thus substantially different from what P believed it would be
o Even though no fraud, there is an error in substantialibus, and rescission is therefore available
Property Disclosure Statement (PDS)
- The PDS is often used to determine if there were any misrepresentations made by the V
Curtin v. Blewett (BCSC 1999) – Duties under the PDS
-
On PDS, V answered “NO” to awareness of insects or rodents; V had a previous infestation but had it
professionally serviced with a 10 year warranty; subsequent inspections found the house to be clean
P learned of previous infestation and had an inspection done – found termites
P brings action for rescission or damages on the basis of fraudulent misrepresentation or breach of warranty
27
Issue: When filling out the PDS, was V being called upon to disclose past-issues as well?
Held: Insufficient evidence to show that V was aware of infestation, duties of the PDS were met
Reasons:
- Arsenault v. Peterson (1996 BCSC): The PDS does not require a guarantee of the state of affairs, just requires
that V answer honestly about whether they are aware of any issues
- The K was conditional on a house inspection which was waived by P – took the risk upon themselves
- To make out a claim in fraudulent misrepresentation: Ross:
o Representation by D; Representation must in fact be false; D knew that the representation was false or
made it recklessly; P was induced to enter the K by the representation; Damages were suffered
- V’s statement was not false – there was no infestation that they were aware of
Negligent Misrepresentation – Suing in Contract and Tort
Recall: Rescission is available for fraudulent misrepresentations at anytime; for negligent or innocent
misrepresentations, rescission is only available pre-closing (unless it amounts to error in substantialibus)
Test for Negligent Misrepresentation (Hedley Berne)
- 1. Must Establish a duty of care based on a special relationship between the parties
- 2. That there was a breach of the duty of care
o Standard is that of a reasonable person
o Was there an untrue statement negligently made that would reasonably be relied upon by P?
- 3. P must have reasonably relied on the representation
- 4. Damages resulted from the reliance
Aldred v. Colbeck (BCSC 2010) – Application of Test for Negligent Misrepresentation
-
Discovered oil tank with high clean up cost; A sold the property at a loss, but had originally purchased it from C
D owned the home for 2 years and purchased it subject to satisfactory building inspection
o Inspection found oil tank and recommended that the soil be tested; D purchased and did nothing about
the storage tank until D sold place to P; Retained a contractor who did a quick one-day job
o D told P that there was no need for inspection because it was just done and recommendations followed
- P believed that tank was removed; court also accepts that D did represented that the tank was decommissioned
- When P tried to sell property, contamination is found and deal falls through – bill of 203k
Issue: Was there a negligent misrepresentation made by D regarding the Oil Tank?
Held: D is liable for a negligent misrepresentation (no quantum of damages in this case)
Reasons:
- 1. Duty of care on a special relationship? YES – vendor/purchaser – V knows about property, P doesn’t
- 2. Was there an untrue/misleading representation made? YES – representation was misleading
- 3. Did D act negligently in making the representation? YES
o V represented that the tank was decommissioned, but also that there was no damage and that no
further action was required – this was incorrect
o Look to the actions of D to determine if he acted negligently:
 Followed advice of the fire department; retained cheap contractor; actions were insufficient to
meet the standard of a reasonable person – common sense dictates that work was not done
 Further, recommendations in the inspection report were not followed – test the soil
- 4. Did P rely on the representation? YES – relied on the representation to purchase the unit
- 5. Are there damages associated to the reliance? YES – huge clean up fees
NOTE:
- Also discusses BC legislation for strict liability on past owners for environmental issues – indicates that P could
go after D and D could go after previous owner, etc.
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Gronau v. Schlamp Investments (ManQB 1974) – Latent defects actively concealed = fraudulent misrep
-
P wanted to purchase a small investment property; V did not allow inspection until offer made; P inspected the
outside and common areas and made an offer based on licencee advice
- After the offer, P was shown two suites in the property – at advice of licencee, deal closed
- Later, P discovered serious crack running from the basement to the roof; Engineer report brought to P’s
attention – V had got advice that structural work was required; V performed patch up job to conceal defect
- P claims rescissions; V claims that P took the risk on themselves as they had the opportunity to inspect
Issue: Does the concealed crack in foundation give rise to the ability to rescind the K?
Held: P may rescind the contract – fraudulent misrepresentation and error in substantialibus
Reasons:
- D knew this was a serious/expensive problem and tried to conceal it
- Patent defects – those that are discoverable upon inspection yourself; Caveat emptor applies
o Water stains, cracked windows, etc;
- Latent defects – cannot be revealed by visible inspection alone – vendor must draw defects to P’s attention
where they know of them
o Problems with ventilation, piping, heating, foundations, etc
o If V actively conceals latent defects, then caveat emptor does not apply and P can claim rescission
against the fraudulent misrepresentation
- Also there is an error in substantialibus here – P received something completely different from what he
thought he was receiving
29
Post-Closing Problems
Warranty and Merger
General Rule: Rescission is not available for a breach of warranty, the case law sometimes seems that way,
but basically the courts are finding that the breach led to an error in substantialibus
- A breach of warranty generally gives rise to damages (eg. Fraiser-Reid; Roberts)
Warranty: When V knows something that P does not, and P relies on the V for that knowledge (Fraser-Reid)
Implied Warranty: Historically there is an implied warranty as to the fitness of the home if the K was signed
before the home was finished being built
Express Warranty: Written into the K specifically – generally induce the purchaser to enter into the K (eg. PDS)
Homeowner Protection Act BC
- Requires that all new homes have an approved home owner insurance from an approved provider that covers:
o 1. Defects for material labour – 3 years
o 2. Building envelope defects – 5 years
o 3. Structural defects – 10 years
Clause 18 – Standard Form Contract – Entire Agreement Clause
- No representations or warranties exist outside of the K, and the written representations and warranties will
survive the closing of the contract
o Expressly does away with merger
Fraser-Reid v. Droumtsekas (SCC 1979) – Removes the doctrine of Merger
- P buying from V builder; 6 months later there’s serious flooding due to lack of drain tiles on exterior
- K required that V disclose any municipal/provincial permits and whether the work was done for them
- Trial judge found no express warranty that the house would not leak
Issue: Was there an implied/express warranty about the quality of the house?
Held:
- There was an express warranty to carry out permit requirements and disclose any variance to P
o This was akin to a condition of the sales contract
o V has knowledge that P does not have and it is relied upon by P – there is a warranty
- ‘Merger’ no longer exists – must look to the express intention of the parties that the warranties/reps were
meant to merge at closing, otherwise they survive for a reasonable period after closing
- V must install the appropriate drainage tiles to meet obligations
Reasons:
- No implied warranty because the house was already completed when K was signed – (if not, HPA above)
- No warranties as to the workmanship/quality of the construction – that has not been legislated by parliament
- Where V has knowledge that P does not, and P relies on that knowledge, there is a warranty
o K term required disclosure of permit and infractions; P cannot know about the permits and if they’ve
been adhered to, relies on V for that information
o Assurance of compliance with statutory duty was serious enough to be a condition
- Merger – if the parties didn’t intend statements to merge at closing/before closing, then they do not merge
o There must be evidence of actual intent to merge terms at closing
o Here, there was no intention that P intended to abandon rights acquired by K
- Warranty for permit disclosure endures post-closing and is unaffected by general limit of warranty/rep clause
30
Parole Evidence Rule
- Traditionally, evidence outside of the K has not been relied upon
- Presumption is not as strong with unsophisticated parties
Generally: Verbal exchanges may give rise to a claim where V knows the truth and P relies on it AND the K
does not specifically exclude it (general exclusion of other representations/warranties is not enough)
- In some cases, sales brochures and PDS can be used to find warranties
Rescission
(Also see Rescission in Pre-Closing Remedies)
General Rule:
Generally, caveat emptor applies absent any express warranty in the K post-closing
- Unless there is fraud or error in substantialibus, then rescission is available (Redican)
In order to rescind the K after closing, there must be either fraud or error in substantialibus
- Fraud: Intention to induce the purchaser is the hallmark of fraud – intentional misrepresentations
o Eg. Allen; Gronau
- EiS: Where P receives something completely different than what was bargained for; where what was received
cannot be used for what P thought it could be used for
o Eg. Cherris Estates; Hyrsky
- Warranties: There is some confusion around the place of warranties post-closing: Whether a warranty is a
contractual condition that gives rise to damages and rescission OR whether a warranty may amount to EiS and
warrant rescission, remains in question from the case law
o But Generally: Warranty breaches only give rise to damages post-closing. Eg. Roberts; Fraser-Reid
Approach:
- Post-closing, there is no issue of election; the circumstances of the case determine rescission vs. damages
o Generally damages are by default the appropriate remedy, it must be shown why rescission is available
post-closing (or why specific performance is available pre-closing)
Redican v.Nesbitt (SCC 1923) – Fraud or error in substantialibus rebuts presumption of caveat emptor
- P makes an offer to purchase a lease on a cottage; sale is conducted in a loose and unbusiness-like manner
- Variety of incorrect statements of what the cottage actually was – terms unclear, cottage misdiscribed
- P did not inspect cottage until after they had signed lease – they were disappointed
- No electricity and did not have 5 bedrooms as was expected – P stopped payment for the lease
Held:
- New trial ordered to properly assess the statements made by V’s agent
o SCC could not determine if the statements were innocent, negligent or fraudulent
Reasons:
- Caveat emptor applies – P must protect themselves using express conditions or warranties in the K
o Rule does not apply where there is error in substantialibus or fraud
Hyrsky v. Smith (ONHC 1969) – A mistake in quantity must be so substantial to change subject matter - EiS
-
P buys land without title search; P explicitly told V that this was for an investment, but hadn’t told V that P
wanted to subdivide the property
- 4 years after conveyance, P learnt that V did not have title to half the property; P claims rescission
Held:
31
- No basis for rescission on fraud or any conditions of the K
- The Title defect is an error in substantialibus, so rescission is available
Reasons:
- A mistake as to the quantity has to be so substantial that it changes the quality of the subject matter
- Even though P did not perform a title search, the defect was fundamental to the K
Note: P does not get their costs as a result of not carrying out their duties to search title diligently
Allen v. McCutcheon (1979 BCSC) – Fraud-misreps and intentional concealment/inducement - rescission
- V was a builder who renovated shacks; P purchased the lease and was subject to right of way through land
Held:
- Latent defects were fraudulently concealed and relied upon by P
- This was a reasonable period of time to claim rescission (2 years); P dealt with discovery reasonably
Reasons:
- Several fraudulent misrepresentations made by V:
o Defective foundation, electricity, septic tanks etc were not disclosed
o Power line right of way through property was different than was represented
- Latent defects that P could not have found out about without V’s knowledge
- Material misrepresentation that induced P to acquire the leasehold interest – P would not have bought
- Caveat emptor does not apply when latent defects are actively concealed by the V
- Concealment of right of way was made recklessly to induce P to buy
Roberts v. Montex Development Corp (BCSC 1979) – Warranty breached – gives rise to damages post closing
- Sale of condo; P is particularly concerned with sound proofing; Sales brochure said maximum sound proofing
- Sales brochure was not included in the K, and the K has the usual clause 18 (limiting reps/warranties)
- Problems with sound; P sues for fraudulent and negligent misrepresentation
Held:
- Was a factual statement that the V held as true, that was relied upon by P to their detriment
- P entitled to damages to breach of contract and tort
Damages – When to Assess
Generally: Damages are assessed at the date of the breach; BUT the court may chose a different date for
assessment where it feels there are circumstances that demonstrate its appropriateness (Mavertic)
Damages Assessed at the Time of Breach
- Generally calculated by looking at the K price against the date of the breach
- Courts regard the entire circumstances to determine which date would be most fair to the parties
Recall Mavertic v. Bowman (BCCA 1993) from the Collapsing Deal above:
- Property value went down at the date of closing and at trial it was up higher than the purchase price
- D argued that there were not damages for failing to go through with the K because it’s worth more now
- Court assessed damages at the date of closing, where there was a drop, so P had to pay damages
o Put V in a better situation – win-fall – but may have been the court’s way of discouraging people from
attempting to back out of deals where the market is dropping
- Court did state that the date of assessment can be shifted from the breaching date where the court has
compelling reasons given the circumstances to assess damages from a more appropriate date
32
Damages Assessed at Date of Judgment
- Generally calculated by looking at the K price and the time of trial
Recall Semelhago v. Paramadevan (SCC 1996) from the Collapsing Deal above:
- V breached on sale to P; rising market, price kept going up, but so did the price on P’s current home
- V argued that there were no damages because P’s house continued to gain in value also
- Damages assessed at the time of trial – award included the rising market despite win-fall to P
- Court wants a purchaser who has been wronged to enter the market and gain the rising value
- Here, the court sends a message that V’s can’t get out of Ks easily in a rising market
- Makes specific mention of the flexibility in the common law
Duty to Mitigate and Deposit Taken into Account in Damages
Hargreaves v. Brar (BCCA 2010) – Outlines duty to Mitigate | Deposit accounted for in damages
-
Sale of property in 2008 during recession – huge drop in prices; K is for 845 to complete Nov 13
P breaches K because didn’t sell her property; V was then unable to buy their property
V solid the property in question for 670k one month later – now sues for 170k difference in price
Parties agreed on certain legal issues:
o Baud Copr NV v Brook (SCC 1978) – Non-breaching party must take all reasonable steps to mitigate
losses flowing from that breach
o Davidson v. Miller (2003 BCSC) – Onus is on defendant to prove failure to mitigate; Must prove that
after defendant’s breach, plaintiff failed to do some act that could reasonably have been done and
would have mitigated loss
- Tiral held that V did not mitigate the loss – because sold to quickly below appraised FMV; could have sought
financing and did not accept P’s second offer for a higher amount
Issue: To what extent does the V have to mitigate losses?
Held: Allows the appeal for the amount claimed minus the deposit – finding for plaintiff V
Reasons:
- Rejects Trial approach – Judge required that D prove that P had alternative options; V’s actions were
overlooked – they were reasonable within a falling real estate market
- Mitigation was carried out appropriately: V did seek interim financing; she was 71 year old lady
- In the circumstances, units were dropping fast and the common practice was to sell below FMV
33
Closing / Completion
Undertakings
-
Enable complex transactions to occur based on lawyer’s integrity and professional standing
What are Undertakings?
- Professional promise to do something based on a lawyer’s status in the legal profession
- Sanctity of undertakings are a cornerstone of the legal profession
- Used to simplify cumbersome and complex transactions in Real Estate
- Does not require explicit use of the word “undertaking” to exists
Purpose:
- To deal with matters of process – settle immediate logistics of exchange of docs, etc
- To agree on how to return parties to the originally position if transaction fails
Who Can Give and Release Undertakings?
- Only lawyers or notaries can give undertakings; staff can be found to have given undertaking on their behalf
- Can only be released by the person to whom it has been given
- Professional standards handbook: lawyers must report other lawyers who have breached obligations under
their undertakings
Professional Responsibility:
Professional Conduct Handbook Chapter 11
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Rule 7 – Lawyer must not give an undertaking that cannot be fulfilled; must fulfill every undertaking; and must
scrupulously honour any trust condition once accepted
Rule 7.1 – Undertakings/trusts should be written/confirmed in writing and unambiguous in their terms
Rule 8 – Lawyer who withdraws or authorizes the withdrawal of funds from a trust account by cheque,
undertakes that the cheque will be paid and is capable of being certified
Rule 8.1 – Where lawyer acting for purchaser accepts money in trust and receives registrable conveyance from
V, then the lawyer is deemed to have undertaken to pay the purchase money to the V on completion
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Rule 9 – Conditional udnertakings should be stated clearly in the undertaking itself
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Rule 10 – Lawyer must not impose on other lawyers impossible, impractical or manifestly unfair conditions
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Rule 11 – If unable/unwilling to honour a trust condition, the subject of the trust condition must be
immediately returned to the person imposing the trust condition
Clause 13/14 - Standard Form Contract
- Purport to get undertakings for the purpose of closing the contract
- Clause 13 – Buyer Financing – undertaking used to transfer the purchase money
- Clause 14 – Clearing Title – Payment can be made on undertaking to clear title before transferred
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Implied Undertakings
- Particular actions will sometimes imply an undertaking on the part of the lawyer
- Recall Rule 8 above – Trust cheques – if lawyer withdraws…
- Recall Rule 8.1 above – Real Estate Transactions – if purchase money accepted…
Breach of an Undertaking
- Action may be launched to require lawyer to carry out the undertaking; or damages can be sough if the breach
gives rise to damages
Guidelines for Giving Undertakings:
- Never give an undertaking to do something beyond your absolute control at the time it is given
- Try not to give undertakings wherever possible
- Get irrevocable client instructions
- Do not give open-ended undertakings
- Do not impose conditions after undertakings are settled
- Confirm oral undertakings in writing
- Take care with undertakings imposed by others
- Gives self-determining undertakings
- Draft undertakings precisely
- Do not impose undertakings that modify or conflict with the contract
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