Property CAN – Winter 2024 Chris Wiebe Table of Contents Sources of Rights ................................................................................................................................................................... 5 Inter Vivos or Testamentary ............................................................................................................................................... 6 Contract or Transfer ............................................................................................................................................................ 6 Law or Equity ..................................................................................................................................................................... 7 Delivery of Goods .................................................................................................................................................................. 7 Gifts..................................................................................................................................................................................... 7 Re Stoneham.................................................................................................................................................................... 8 Thomas v the Times Book Co. Ltd................................................................................................................................... 9 Langer v McTavish Bros Ltd ......................................................................................................................................... 10 Re Cole .......................................................................................................................................................................... 10 Nicholls Estate v Nicholls Estate .................................................................................................................................. 11 Hatch v Mackedie.......................................................................................................................................................... 12 Day v Harris ................................................................................................................................................................. 13 Transfer of Land ................................................................................................................................................................. 14 Transfer vs Creation of Property Interest .......................................................................................................................... 14 Deeds................................................................................................................................................................................. 15 Escrow............................................................................................................................................................................... 16 Carson v Wilson ............................................................................................................................................................ 16 Butt v Humber ............................................................................................................................................................... 17 Registration ....................................................................................................................................................................... 19 Land Title Act ................................................................................................................................................................ 19 Property Law Act .......................................................................................................................................................... 20 Law and Equity Act ....................................................................................................................................................... 20 Trusts ................................................................................................................................................................................... 21 Elements of a Trust ........................................................................................................................................................... 22 Constructive Trusts ........................................................................................................................................................... 23 Duties of Trustee ............................................................................................................................................................... 23 Creating Trusts .................................................................................................................................................................. 24 Express Trusts ................................................................................................................................................................... 24 Certainty of Intention ........................................................................................................................................................ 24 Paul v Constance .......................................................................................................................................................... 25 Ontario Hydro-Electric Power Commision v Brown .................................................................................................... 26 Mussoorie Bank Ltd v Raynor ....................................................................................................................................... 27 Certainty of Subject Matter ............................................................................................................................................... 27 Re Beardmore Trusts .................................................................................................................................................... 28 Hunter v Moss ............................................................................................................................................................... 28 Boyce v Boyce ............................................................................................................................................................... 29 Certainty of Objects .......................................................................................................................................................... 30 McPhail v Doulton ........................................................................................................................................................ 30 Constituting the Trust ....................................................................................................................................................... 31 T Choithram International SA v Lalibai Thakurdas Pagarani ..................................................................................... 32 Watt v Watt Estate ......................................................................................................................................................... 33 Incomplete Gifts in Constructive Trusts ........................................................................................................................... 34 Mascall v Mascall ......................................................................................................................................................... 34 Wills and Estates ................................................................................................................................................................. 35 Components of a Will ....................................................................................................................................................... 36 Wills, Estates, and Succession Act ................................................................................................................................ 37 Tataryn v Tataryn.......................................................................................................................................................... 39 Donatio Mortis Causa....................................................................................................................................................... 40 Cain v Moon .................................................................................................................................................................. 41 Re Bayoff Estate ............................................................................................................................................................ 41 Sorensen (Estate) v Sorensen ........................................................................................................................................ 42 Dyck v Shingle Estate .................................................................................................................................................... 43 Sen v Headley ................................................................................................................................................................ 43 Weaver Estate v Weaver ............................................................................................................................................... 44 Land Contracts.................................................................................................................................................................... 45 Formalities ........................................................................................................................................................................ 45 Land Contracts in BC........................................................................................................................................................ 46 Law & Equity Act .......................................................................................................................................................... 46 Failure to Comply ............................................................................................................................................................. 47 Part Performance of a Contract ......................................................................................................................................... 47 Thompson v Guarantee Trust Co .................................................................................................................................. 48 Maddison v Alderson .................................................................................................................................................... 48 Starlite Variety Stores v Cloverlawn Investments ......................................................................................................... 49 Land Title Act, s.20 ....................................................................................................................................................... 50 Specific Performance ........................................................................................................................................................ 50 Semelhago v Paramadevan ........................................................................................................................................... 51 Raymond v Anderson .................................................................................................................................................... 52 Holden v Tanase............................................................................................................................................................ 53 Chaulk v Fairway Construction Ltd.............................................................................................................................. 54 Constructive Trusts? ......................................................................................................................................................... 55 1244034 Alberta Ltd v Walton Int Group Inc ............................................................................................................... 56 Options to Purchase .......................................................................................................................................................... 56 Mountford v Scott .......................................................................................................................................................... 57 Right of First Refusal ........................................................................................................................................................ 57 Pritchard v Briggs......................................................................................................................................................... 58 Proprietary Estoppel........................................................................................................................................................... 59 Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd; Old & Campbell Ltd v LVT Co ..................................... 60 Inwards v Baker ............................................................................................................................................................ 60 Crabb v Arun District Council (ADC) .......................................................................................................................... 61 Stiles v Tod Mountain Development Ltd ....................................................................................................................... 62 Yaxley v Gotts ............................................................................................................................................................... 63 Thorner v Major ............................................................................................................................................................ 65 Walton Stores v Maher.................................................................................................................................................. 65 Contract vs Proprietary Estoppel ...................................................................................................................................... 66 Cowper-Smith v Morgan ............................................................................................................................................... 66 Sale of Goods ....................................................................................................................................................................... 69 Hearns v. Rizzolo .......................................................................................................................................................... 70 Ter Neuzen v Korn ........................................................................................................................................................ 71 PST Energy Shipping LLC v. OW Bunker Malta Ltd .................................................................................................... 71 Sale of Goods Act .......................................................................................................................................................... 72 Re Goldcorp Exchange Ltd ........................................................................................................................................... 73 Re Kenron Homes Ltd ................................................................................................................................................... 75 Wardar’s (Import & Export) Co Ltd v W Norwood & Sons Ltd ................................................................................... 75 Priorities at Common Law ................................................................................................................................................. 76 Competing Rights ............................................................................................................................................................. 76 Nemo dat quod non habet ................................................................................................................................................. 77 Northern Counties of England Fire Insurance Co v Whipp.......................................................................................... 78 Exceptions to Nemo Dat Quod Non Habet: ...................................................................................................................... 79 Money ............................................................................................................................................................................... 79 Agents ............................................................................................................................................................................... 80 Farquharson Brothers & Co v King ............................................................................................................................. 80 Estoppel............................................................................................................................................................................. 81 Peoples Bank of Halifax v Estey ................................................................................................................................... 81 Leonard v Ielasi ............................................................................................................................................................ 82 Buyer or Seller in Possession ............................................................................................................................................ 82 Voidable Title ................................................................................................................................................................... 83 Car & Universal Finance v Caldwell ........................................................................................................................... 83 Manning v Algard Estate .............................................................................................................................................. 84 Holat v Wettlaufer ......................................................................................................................................................... 85 Market Overt ..................................................................................................................................................................... 86 Westcoast Leasing v Westcoast Communications ......................................................................................................... 87 Priorities in Equity .............................................................................................................................................................. 87 Bona Fide Purchase........................................................................................................................................................... 88 Three Kinds of Notice for BFP ..................................................................................................................................... 89 Midland Bank Trust Co Ltd v Green ............................................................................................................................. 90 R Griggs Group Ltd v Evans (No 2).............................................................................................................................. 90 Independent Trustee Services Ltd v GP Noble Trustees Ltd ......................................................................................... 92 Pilcher v Rawlins .......................................................................................................................................................... 92 Joseph v Lyons .............................................................................................................................................................. 93 MacArthur v Hastings ................................................................................................................................................... 94 Competing Equitable Rights ............................................................................................................................................. 95 First in Time .................................................................................................................................................................. 95 Rice v Rice..................................................................................................................................................................... 95 Responsibility for the Mistake ....................................................................................................................................... 96 Nature and Hierarchy of the Older Right ..................................................................................................................... 96 Mere Equities ................................................................................................................................................................ 97 When Resolving Priority Disputes .................................................................................................................................... 97 Land Registration ............................................................................................................................................................... 98 United Trust v Dominion Stores.................................................................................................................................. 100 Land Title Act .............................................................................................................................................................. 100 Hackworth v Baker...................................................................................................................................................... 104 Vancouver City Savings Credit Union v Serving for Success Consulting................................................................... 105 Institutional Mortgage Capital et al v Plaza 500 Hotels et al .................................................................................... 105 Pros and Cons of Title by Registration ........................................................................................................................... 106 Indefeasibility: Immediate vs Deferred ....................................................................................................................... 106 Hermanson v Schmidt et al ......................................................................................................................................... 108 Void Instruments ............................................................................................................................................................. 109 Gill v Butcholtz............................................................................................................................................................ 109 Caveats ............................................................................................................................................................................ 111 Union Bank of Canada v Phillips Boulter-Waugh ...................................................................................................... 111 Scotia Mortgage Corp v Ludwig ................................................................................................................................. 112 Caveats in LTA ............................................................................................................................................................ 113 Fixtures ............................................................................................................................................................................... 114 Stack v T Eaton Co ...................................................................................................................................................... 115 Zellstoff Celgar Ltd v British Columbia ...................................................................................................................... 116 Berlin Interior Hardware Co v Colonial Investment .................................................................................................. 117 Degree of Annexation ..................................................................................................................................................... 117 Object of Annexation ...................................................................................................................................................... 118 Lasalle Recreations v Canadian Camdex Investments ............................................................................................... 118 Personal Property Security Act s36 ............................................................................................................................ 119 Tenants’ Fixtures ............................................................................................................................................................ 119 Scott v Filipovic .......................................................................................................................................................... 119 Melluish (Inspector of Taxes) v BMI (No 3) ............................................................................................................... 121 Specification, Accession, and Mixtures ........................................................................................................................... 121 Jones v De Marchant .................................................................................................................................................. 121 Specification ................................................................................................................................................................... 122 Associated Alloys Pty Ltd v Metropolitan Engineering and Fabrication Pty Ltd....................................................... 123 Accession ........................................................................................................................................................................ 124 McKeown v Cavalier Yachts ....................................................................................................................................... 124 Firestone Tire & Rubber Co of Canada v Industrial Acceptance Corp ..................................................................... 125 Ilford-Riverton Airways Ltd v Aero Trades (Western) Ltd ......................................................................................... 126 Mixtures .......................................................................................................................................................................... 126 Indian Oil v Greenstone Shipping ............................................................................................................................... 128 Spencer v Union Marine Insurance Co Ltd ................................................................................................................ 129 McDonald v Lane ........................................................................................................................................................ 130 Big Top Hereford Pty Ltd v Thomas ........................................................................................................................... 130 Hill v Reglon Pty Ltd................................................................................................................................................... 130 Personal Property Security Act ....................................................................................................................................... 131 Types of Forms of Security............................................................................................................................................. 131 PPSA – Personal Property Security Act ..................................................................................................................... 132 Re Giffen ..................................................................................................................................................................... 134 SOURCES OF RIGHTS All rights impose obligations on the other party Property rights arise By Consent o Contracts o Bailments o Deeds o Gifts o Express trusts o Wills By Commission of Wrongs o Breach of Contract o Torts o Breach of Trust (by trustee, lawyer, etc.) o Breach of Fiduciary Duty (by CEO, lawyer, realtor, investment advisor) o Breach of Confidence (leaking KFC’s secret spice mix, employment contract includes an NDA, noncompete clauses, etc.) Largely deals with intangible property o Breach of Statutory Duty (speeding, polluting, assault, failing to file tax returns, etc.) By Unjust Enrichment: One party gains a benefit to property or rights in an unjust manner o Mistake (oopsie whoopsie, I left in a Strategic Transactions clause) o Duress (robbery is not a gift) o Undue Influence (parents over children, guardians of the elderly, people in authority, trustees over beneficiaries, etc.) o Failure of Consideration (no fresh consideration, no contract; channel your inner Maharaj) o Overpaid Tax (Province charges more on taxes than they are owed, etc.) Via other events o Statutes – can give or revoke rights o Judgments – courts do the same as above o Detrimental reliance (estoppel) o Physical changes to things Specification Fixtures (something physically attached to the property) Mixtures Creation of New Right Grant of Lease Grant of Mortgage Finding or Theft Bailment Transfer of Existing Right Assignment by Tenant Assignment by Mortgagee Sale or Gift of Realty Sale of Gift of Personalty* *Personal property Two steps to create or transfer property rights 1. Intention to create or transfer that right 2. Action to give effect to that intention Two examples: Gift of a book Loan of a book Gifts can become loans, and loans can become gifts, depending on intent Inter Vivos or Testamentary Inter Vivos = during life Testamentary = takes effect on death o Normally occurs by will Unlikely that any one person knows everything that you have, so generally a good idea to specify what you have and what you’d like to do with it. o Intestate succession [i.e., no valid will OR the will does not include all property [which is why your will should include a ‘catch-all’ clause] o Informal testamentary gifts Death can have proprietary consequences that are not testamentary o death of a joint tenant – creates right of survivorship o death of a life tenant – remainder person rights take effect in possession Contract or Transfer Most transfers are pursuant to contract Contract ≠ Transfer o Contract is the promise to transfer the property o Transfer is the performance of that promise o Sale of land requires transfer title to land but not actually hand over land [although used to deliver seisin via clump of dirt from that land] o Sale of goods via delivery of goods or legal title to goods Gift or pursuant to contract Law or Equity Creation of a legal right requires greater formality than creation of an equitable right. Compare: o Grant of legal leasehold estate (Law) o Effect of contract to grant a lease (Equity) o Grant of legal fee simple estate (Law) o Declaration of trust of fee simple estate (Equity) Legal rights are generally stronger than equitable rights. Compare: o Theft of painting o Transfer of painting in breach of trust DELIVERY OF GOODS 4 methods of transferring property rights Via delivery Via document Via contract Via registration 5 kinds of assets 1) Cash: Tangibles, usually delivered, title passes very easily 2) Documents: Tangibles, usually delivered 3) Goods: Tangibles, normally transferred by delivery, can be transferred by deed but not common 4) Land: Normally transferred by deeds and registration, legal title transferred when register is changed 5) Intangibles: Cannot be delivered and are transferred by document or registration Creation/Transfer by Consent There are two steps necessary to create or transfer property rights o Intention to create/transfer the right o Action to give effect to that intention o Two general examples Gift of a book Loan of a book Delivery Change of possession: A gives up possession to B (yes, it’s as simple as it sounds) Occurs whether purchase, loan, or gift Not always required, though some jurisdictions still insist on delivery for completion of transfer (Re Cole vs Langer v McTavish) o If donee has possession when the donor intends to give the property, the gift is complete. o Transferor must give up possession in some capacity o Symbolic delivery is possible if the goods are bulky, a deed can be used to make a gift of goods if delivery is impractical (Rawlingson v. Mort) (Re Stoneham) Gifts I. II. The donor intends to give; the donee intends to receive the gift The donee obtains possession (or there is execution of a deed): Delivery required o Gifts =/= sale. Contractual sale, the vendor is bound to deliver the goods, while a donee of a gift may revoke the gift at any point prior to delivery Intention and subsequent action can occur in any order but must coincide. One without the other will make the gift invalid (Re Stoneham; Thomas v. The Times Book Co) o If donee has no intent to receive (“I don’t want this; thanks, but no thanks”), the gift is not valid Actual physical delivery is unnecessary where the chattels of necessity remained in place before and after the gift (Langer v. McTavish Bros) o BC Law says physical delivery is not necessary when items remain in the same place – this case does not address the issue of shared possession, however. (Langer v. McTavish Bros) In the UK and Alberta, shared possession does not constitute an action to give effect to intention (Re Cole) (Nichols Estate v. Nichols Estate) In Re Cole, it is not enough for the donee to obtain possession; the donor must also give up possession Intention of the recipient is irrelevant; one must prove the objective intent of the transferor, as determined by their words and conduct (Day v. Harris) o A donor can give a gift to someone who has not accepted and it will be valid so long as the donee has had an opportunity to reject it and does not do so (Day v. Harris) o If intention is objectively determined to be bailment; there is no gift An unfulfilled gift will be treated as complete if the donee becomes an executor under the Will of the donor (testator) (Strong v. Bird) So long as the intent to make the gift continues until death, by administering the estate, the donee receives control over the donor’s property and can perfect the gift. That constitutes delivery of the gift (Strong v. Bird) Re Stoneham Lawrence J for the British Court of Chancery - 1918 Facts Grandson had full possession of his grandfather’s furniture for two years before grandfather said he could keep it as his own Grandfather died, and a proprietary dispute arose Issues Who owns the furniture? Is it the grandsons or does it belong to the grandfather’s estate? (Grandson) Was this a valid gift? Rules A gift requires intention to give, intention to receive, and delivery of the property Analysis Items should remain with the grandson o Valid gift because there was delivery (change in possession which is regarded as an action giving effect to the grandfather’s intention) o Grandfather (donor; bailor) has given up possession to grandson (donee; bailee) o Grandfather intended to give the furniture as a gift when he said grandson could keep the furniture The gift is complete “where chattels have been delivered to the donee before the gift as bailee or in any other capacity, so long as they are actually in his possession at the time of the gift to the knowledge of the donor” Requires clear proof that the transfer was finally a perfected gift by chattel owner relinquishing all ownership interest by making a gift to person who has possession of chattels Possession and intention can occur in any order, just need to coincide for a valid and complete gift Grandson already had possession as bailee, intention to give coincided with possession, so gift was complete Conclusion Court ruled in favour of the grandson; he had a valid gift. Class/Lecture Bailor relinquishes right to recover goods when it is converted from a loan/bailment to a gift. Notes (Optional) Thomas v the Times Book Co. Ltd. Judge for the Court - 1966 Facts Famous author & playwright Dylan Thomas lost a manuscript commissioned by BBC in 1943, finished “Under Milk Wood” in October 1953. o Play included portions he handwrote & parts he edited by hand, which he lost at one of many pubs he was drinking at in Soho before leaving UK for US. o Cleverdon was the BBC producer, who pushed for 7 yrs to get it done, had a copy made for BBC. Per DT’s request, C delivered 3 copies of the play to him at airport. Thomas to Cleverdon: “If you can find it [original hand-edited version], you can keep it.” Cleverdon found it 2 days later at one of the pubs DT suggested. Thomas died Nov 1953. Cleverdon sold it in 1961 for £1620 to Cox who sell to TBC for £2000 Mrs. Caitlin Thomas (widow & administratrix of estate) sued to recover possession from TBC & denied the gift, claiming C was just a bailee. Defendants joined Cox who join Cleverdon. C claimed it was a gift to him, so he could sell, which made Cox & TBC= BFPWONs Onus on the defendants to prove gift & court to view with suspicion. Defendants won; gift upheld as C’s finding manuscript the previous gift by gaining possession Issues Was the manuscript gifted to Cleverdon? (Yes) Who should obtain possession of the manuscript? (Defendant) Does Thomas’ death terminate the gift? (No) Rules A gift must include both intention and delivery, which must coincide Taking possession with original owner’s consent (giving up possession) counts as delivery Widow’s Claim: Analysis o She is the administratrix and beneficiary of his estate (he died intestate) o As a result, onus is on the defendants to prove a gift was made, not on the plaintiff (widow) to prove there was a gift o She claims that Cleverdon was merely a bailee holding the item until she, with a better title gets back Cleverdon’s Claim: o His claim is that it was a valid gift to him which he is allowed to sell Defendants’ Claim: o They purchased the manuscript from Cleverdon without knowing of potential dispute o Claim is based on the valid sale to them o Nemo dat principle Court found a valid gift was created because Cleverdon had possession of the item (delivery and action) when the intention of the gift was created o Phrase “you can keep it” was determined to be a manifestation of the intention to gift the manuscript to Cleverdon o Because Mr. Thomas had told Mr. Cleverdon where he might find the manuscript, and as Mr. Cleverdon succeeded in finding it from one of those locations within two days, there was effective delivery Defendant proved necessary intention and delivery – thus, were able to keep the manuscript Conclusion The defendants won Class/Lecture What if Thomas died before manuscript found? Notes o Cleverdon would not have been able to keep the manuscript and sell it because the (Optional) intention to give as a gift would not have coincided with the delivery or possession of the manuscript o Widow would have won the dispute with a superior claim Langer v McTavish Bros Ltd Martin JA for the BC Court of Appeal – 1932 Facts Mr. Langer negotiating purchase of house and $10,000 for furniture from Mrs. West in Vancouver in 1926 but deferred completion until his wife approved house & contents. Mr. L to wife before complete purchase of house & furnishings. She said she liked furnishings, so he said, “This [furniture] is all yours.” o Corroborated by Mrs. West (real estate agent) and another witness. He completed purchase of house and furniture. He later needed money, so he sold furniture to Mrs. Langer for $2500 in 1931, who paid him. Creditors (McTavish Bros) seized all furniture. Mrs. L claimed ownership because of Mr. L’s gift. Who owned the furniture? Mrs. L won at BCSC Issues Was there a valid gift of furniture? Rules Actual delivery is unnecessary where the chattels of necessity remained in place before and after the gift; physical delivery is not always required where delivery is impossible or purely artificial (such as moving furniture out of and back into a home). Analysis If he actually had to delivery, they would have to take the furniture out of the house and put it right back for physical delivery – absurd o The statement was sufficient to gift the furniture; assuming delivery would be absurd seeing as they lived in the same home o Intent was proved by the real estate agent who heard the “this is all yours” o Wife never had sole possession separate from her husband, this case says that is fine but they don’t directly address the shared possession dilemma o Nemo dat – can’t sell what is not yours, gift had been completed to the wife thus creditors cannot take Macdonald CJBC dissent as rejected Mrs. L’s claim as she was never in possession of the original furniture as not delivered to her “Physical delivery, dependent upon circumstances, the nature of the chattel and the relationship of the parties may be, as part of the evidence, a necessary element to establish a completed gift.” Rely on Stoneham v Stoneham, Cochrane v. Moore, etc. that physical delivery not always required, especially where it would be impossible or purely artificial, e.g., move all furniture outside than bring back inside — Macdonald JA McPhillips allow appeal as wives regarded as femme sole since Married Women’s Property Act RSBC 1924, so she could receive or buy property on her own (she wasn’t just subsumed in her husband’s property ownership) Martin JA agree with Macdonald JA to allow appeal 3-1 for wife Conclusion Mrs. L won on appeal Class/Lecture Delivery of title can take the place of physical delivery for goods that are too Notes large/impractical to physically deliver. (Optional) Re Cole Judge for the British Court of Appeal - 1964 Facts July 1945: husband bought & furnished mansion for £20,000+ Dec 1945: when wife arrived, husband said, “It’s all yours.” 1961: husband went bankrupt; furniture claimed by trustee in bankruptcy. Wife sold furniture in 1962, but trustee challenged & lost at trial. Cross J ruled that it was a completed gift in 1945 Who owned the furniture? CA reversed 3-0 & HL denied leave to appeal Both Harman LJ & Pennycuick LJ found no precedent for Husband’s statement to constitute delivery to confirm gift & is suspicion untrue. NB Langer not cited Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) If there is no delivery, then one must be deed or instrument convey property in writing (Irons v Smallpiece 1819) Which spouse owned the furniture? Where two persons have a common establishment so that the possession appear to be in both, possession is held to be in the legal owner, in this case, the husband. Intention and action of the intention (delivery) is necessary for a valid gift Must prove an act of delivery, change of possession, and a giving up of possession by the donor There was no proof that there was intent to give o Therefore, the wife did not own the furniture and had no entitlement to sell o He didn’t deliver anything to her, and she didn’t accept anything It was NOT a completed gift, even if he had an intention to give and she had shared possession, the husband never gave up his possession Didn’t cite Langer/have binding equivalent in case law o Must have a deed to prove “delivery” of title Question remains: If you require the donor to give up possession how does one make a gift of items which are shared possession for the duration of the intention to give as a gift? o Cole says an action is required to give effect to that possession—giving up possession/delivery o Langer says physical delivery is not required Husband’s gift invalid; wife did not have right to sell The gift was invalid; the wife’s action fails Langer accepted because: evidence of purchase, wife a valid purchaser, evidence of funds transferred between bank accounts Cole failed because: no proof of gift, evidence of transfer, and seems like a scam to defeat trustees bankruptcy. She never mentioned transfer of furniture at any point prior to bankruptcy. TLDR: DOCUMENT EVERYTHING Nicholls Estate v Nicholls Estate McDermid JA for the Alberta Court of Appeal - 1972 Facts Mr N paid to rent safety deposit box 621 in wife’s name & he used power of attorney (POA) from her to access box & place valuables inside. He leased # 687 in his name; wife had POA permitting access but she never used it, though all securities inside were hers. All securities in his box were in her name Mr N died & Mrs N was incapacitated, dying two years later. Executors of each deceased’s estate argued over which spouse owned the valuables. Queens U was aresiduary legatee of Mr Nicholls CA reversed decision; no gift to wife re securities in box in her name because although box was in her name, he had possession during his life & contents were in his name Issues Which estate gets possession of the valuables in the safety deposit box? (His) Was there a valid gift of the items in the safety deposit box from him to her? (No) Rules “Actual delivery is not mere evidence of the gift but is part of the gift itself.” Donor must give up possession to give effect to the intention Delivery is a core component of the gift process, not just an incidental effect There was no gift to the wife regarding the securities because although they were in her name, the Analysis husband had possession during his life and the box was in his name They had shared possession Shared possession in this case is not enough to constitute delivery or a transfer of possession When he died, she obtained this transfer of possession but the intention had ended Intention to give was present when he was alive but there was no action to give effect to that intention because shared possession does not count according to these judges Conclusion Class/Lecture Notes (Optional) Intention and action never coincide The husband’s estate won on appeal; there was no valid gift to the wife’s estate. No delivery = no gift Hatch v Mackedie Hunter J for the BC Supreme Court - 1998 Facts Father owned 5 valuable (Archibald Thorburn) wildlife paintings (worth between $30,000$35,000 each) Graeme Mackedie (son) claimed each painting was taken off wall and presented to him as birthday gifts over 5 years (1969 to 1973), with his mother writing “Happy Birthday Graeme” & the year on the back of painting (with his full name) before rehanging them on the wall Daughters were there, but do not remember gifts Father died in 1997 at age 84 with paintings still in the family home. He made no mention of them in his will. His solicitor confirmed that father instructed for a codicil re some furniture, but said to exclude the five paintings as they had been gifted to Graeme (demonstrates intent) Executors sue to clarify ownership of paintings; they were pretty sure it was a gift, but wanted to be sure. Issues Did the father gift the paintings to his son? Rules There must be clear evidence that a gift was intended and that there was delivery of the item in question or a deed (in place of delivery). Gifts that remain in the possession of the donor after they have been “given” are still valid; the donor simply becomes a bailee. Physical delivery is unnecessary as an idle or purely artifact act where chattels remain in the same place before and after the gift and both the donor and donee live in that place. Father become bailee after gifting the paintings, son was bailor Analysis The acts of the father and mother demonstrate that, while the father has possession of the paintings, they were validly gifted to the son “If I am wrong in concluding that physical delivery took place then I am satisfied that in all the circumstances it is not necessary given the factual circumstances including the ‘writings’ on the back of the paintings and the deceased’s statement to his solicitor ...” o No doubt father intended to give, but intention alone is not enough, does not complete a gift o Further evidence of intention included the writing on the back of the painting, telling solicitor. However this is not enough—still need action to give effect to intention Evidence of delivery includes taking the paintings down from the wall and wrapping them as gifts “After careful consideration I am satisfied that the presentation of the paintings as birthday gifts, and wrapped as such, constitutes delivery even though they remained in the possession of the father.” “If I am wrong in concluding that physical delivery took place then I am satisfied that in all the circumstances it is not necessary given the factual circumstances including the ‘writings’ on the back of the paintings and the deceased’s statement to his solicitor ...” Presentation of the paintings as gifts and taking them down off the wall constitutes delivery even though they remained in possession of the father There was a valid gift. Conclusion Court ruled in favour of Mackedie; the paintings were a valid gift. Class/Lecture Notes (Optional) Day v Harris Lloyd LJ for the British Court of Appeal - 2014 Facts Sir Malcolm Arnold, famous composer (and Oscar winner), sold his house, moved into a smaller flat & downsized He sent boxes (including his musical manuscripts) delivered unannounced to his daughter’s house in 1976 Rather than explain boxes to daughter, sends postcard to son (who lives separate from sister). He sent a postcard to his son in Cambridge: o All the books, pictures, sculptures etc. are for you and Katherine to share and keep, or sell if you like! Dad She put the boxes in the attic. Bottles of wine that they drink and other things, including the manuscripts. Sir Malcolm died 30 years later in 2006 Issues Were the manuscripts a gift, or merely a bailment? Do the manuscripts still belong to the father’s estate? “If the governing intention is that of a single party, the deliverer of the goods, the issue depends on Rules the intention of that party, and again not his subjective intention but rather his intention objectively ascertained from his words and conduct.” Intention of the recipient is irrelevant; one must prove the objective intention of the transferor, determined by their words and conduct You don’t have to intend to be the recipient of a gift for the gift to be complete A gift doesn’t require acceptance, but that you have an opportunity to reject the gift Analysis A chattel may be given by one of three methods: o A deed or gift o Declaration of trust o Delivery; though something must demonstrate delivery as a gift (can be informal) Daughter has possession, transfer of possession is not an issue (Issue in Cole, Langer, Nichols). Issue here is on father’s intention: Did he intend to make a gift and what was included? Intended to make a gift, “etc.” meant “everything else in the box, including the manuscripts.” Not just a bailment. If the governing intention is that of a single party, the deliverer of the goods, the issue depends on the intention of that party and again not his subjective intention but rather his intention objectively ascertained from his words and conduct. o Doesn’t matter secret intentions, what intention has been manifested? What appears to be intended is enough, a gift it shall be. It’s about the intention of the person making the gift. Is acceptance required to complete the gift? Chambers thinks gift is complete if you have transfer + possession to done with intention to give. o Can’t make you keep the gift, could give it back, but at that moment gift is complete even if recipient is unaware. Doesn’t matter that Katherine doesn’t know if it’s a bailment or gift The manuscripts were a valid gift because the postcard showed that the gifts were intended by the father Since there was delivery and the daughter didn’t reject it and if the dad’s intention objectively assessed was to make a gift, then ownership passed by way of delivery Transfer of possession is not the issue in this case, what was of issue was the intention of the father to give the items as a gift “A chattel may be given by one of three methods: a deed of gift, a declaration of trust or delivery. If there is a deed or a declaration of trust, whatever issues of interpretation may arise, there will be some words, probably relatively informal, from which the intention of the party or parties can be found. With delivery, something is needed to show the basis of the delivery to be a gift, but this may be relatively informal as in Re Cole… (though in that case the Court of Appeal disagreed with Cross J and held that there had been no delivery).” “If the governing intention is that of a single party, the deliverer of the goods, the issue depends on the intention of that party, and again not his subjective intention but rather his intention objectively ascertained from his words and conduct.” “The recipient can refuse to take it, or if it arrives without prior arrangement he can reject it or send it back when he becomes aware of it. But otherwise his intention is not relevant.” Conclusion Class/Lecture Notes (Optional) The manuscripts were a gift, belonging to the son and daughter Examples of complete gifts: Gift requirement Intention Nicholls: Delivery and intention need to come together, can’t wait for delivery to be satisfied and then assume intention if someone is dead; they can’t intend it at that time. Incomplete gift. Harris: Need to assess intention objectively from words and conduct, “etc.” meant everything in the box, possession also satisfied. cComplete gift. Gift requirement Delivery Re Stoneham: Don’t need separate act of delivery if donee is already in sole possession, satisfies delivery requirement. Complete gift. Langer: Co-possession satisfies requirement for delivery in BC. Complete gift. Re Cole: Co-possession does not satisfy requirement for delivery in UK. Incomplete gift. Hatch: Physical delivery is unnecessary for chattels such as paintings if they are remaining in a place the donor and donee both live. Complete gift. TRANSFER OF LAND Transfer vs Creation of Property Interest Transfer of existing interest Transfer fee simple estate Assign lease Assign mortgage Creation of new interest Crown grants new fee simple Grant new lease Grant new mortgage Common Law Delivery Deed Registration Equity Contract Declaration of Trust Legal vs. Equitable Transfer of Land by Law: Transfer of land can occur as a gift or a contract. Issues discussed apply to both. Historically, land was transferred by delivery. Simple, effective, not that efficient. Equitable contracts are enforceable even without delivery (i.e., Amazon deliveries snatched by porch-robbers) Delivery Pre-1677 Statute of Frauds Feoffment (fee-UFF-ment): Transfer of title to freehold estate by feoffor to feoffee (limited to males only at the time) Required a ceremony called the livery of seisin, where feoffor handed over a clump of sod or a branch to the feoffee (corporeal hereditament: Physical and inheritable) Writing Requirement Post-1677 Charter of Feoffment: Document signed under seal by transferor or their agent (not by recipient), still accompanied by livery of seisin. Statute of Frauds, 1677: o “All Leases Estates Interests of Freehold or Termes of yeares or any uncertaine Interest of in to or out of any Messuages [physical house or building] Mannours Lands Tenements or Hereditaments made or created by Livery and Seisin onely or by Parole and not putt in Writeing and signed by the parties soe makeing or creating the same or their Agents thereunto lawfully authorized by Writeing, shall have the force and effect of Leases or Estates at Will onely and shall not either in Law or Equity be deemed or taken to have any other or greater force or effect” o If the transfer is not in writing, the recipient’s interest in the land is limited to that of a lease or estate at will. (still limited to adult males) Canada has two different kinds of registration systems: Note: Registration is effective even with forged documents. In title registration it won’t be forged, because it is confirmed by the state. In deed registration, there is no protection against forged documents. Canada has two different kinds of land registration systems 1. Deed registration Only system in PEI, Newfoundland and Labrador. Property rights are created or transferred by document. Land is normally created or transferred by deed. Registration is then used to protect the property rights created by the deed. The document causes the transfer, document does the work, even if there is a flaw it could go through. There is also the Nemo Dat problem How do you know I had title in the first place? Have to investigate entire chain of if each person’s title was valid. One limitation: registration does not confirm that the deed is valid or that the grantor had good title to being with (doesn’t address forgery). 2. Title registration Only system in BC, Alberta, Saskatchewan and the territories. Property rights created or transferred by registration, even if the document is a forgery. Registration is the event that causes title to pass (when it is accepted by registrar). The registration of a document is the normal way to create or transfer title to land (Land Title Act RSBC 1996). Alleviates problem of deed registration because title is acquired by registration and not by deed. Title is whatever is on the register and the state guarantees that. Also solved Nemo Dat problem, if registrar says its valid you can trust that, guaranteed by state. Deeds Real Property Act 1845 in England required the use of a “deed”, livery of seisin no longer necessary Adoption in Canada o 1758: New Brunswick (deed) (Property Act, RSNB 1973, c P-19, s 11) o 1758: Nova Scotia (conveyance) (Conveyancing Act, RSNS 1989, c 97,) s.9: “‘conveyance’ means an instrument which expresses an intention to convey thereby a property right” s.9: “A conveyance that identifies the parties and property, and specifies the property right to be conveyed, and which is validly executed, is effective to convey that property right.” –There are 3 key elements Party Property Rights to be conveyed s.10: “Feoffment and livery of seisin are abolished.” o 1763 in PEI (Real Property Act, RSPEI 1988, c R-3) s.5: “A feoffment shall be void at law, unless evidenced by deed; and a partition and an exchange of any tenements or hereditaments, and a lease required by law to be in writing, of any tenements or hereditaments, shall be void at law unless made by deed.” o 1792 in Ontario (Conveyancing and Law of Property Act, RSO 1990, c C.34, s 3) o 1832 in Newfoundland (Registration of Deeds Act, 2009, SN&L, c. R-10.01) English Real Property Act not a foundational law in these 5 colonies, but was adopted later (1858 in BC, 1870 for rest of Canada, except for our special snowflake, Québec) in newer provinces. A Deed is the key document traditionally sued to confirm transfer of title from one party to the other. Deed Requirements: the deed must be 1) signed, 2) sealed, and 3) delivered. Escrow Escrow is the written formal deed or other document delivered by the grantor to a 3rd party to hold the document until performance of a contingency or condition [e.g., payment of purchase price or deposit], and when done, the document is delivered by the 3rd party on behalf of the grantor to the grantee BUT until the required act of 3rd party has occurred, grantor can rescind or destroy the deed, thereby terminating the transaction and transfer of title. o Deed given to third party to hold until a required action occurs. i.e., once a payment is made, that is sufficient delivery, taking place when the transferee’s action occurs. Legal title to land is transferred by registration: either deed registration or title registration (Land Title Act) Transfer of land must be in writing (Property Law Act) Title registration: legal title is transferred only when the appropriate document is registered. It is the registration that grants title, not the document itself (BC, AB, SK, Territories) (Land Title Act) Under title registration, a person who obtains a registered estate for value has good title even if registration is based on a flawed or forged document (Chambers) Property rights are created upon registration The document does not cause title to pass, registration of that document causes the title to pass Transfer of existing interest: Transfer of a fee simple, assignment of a lease, assignment of mortgage Creation of new interest: Crown grants new fee simple, fee simple holder grants new lease, grant new mortgage Generally requires more formality to transfer an existing right then it does to create a new one Carson v Wilson Schroeder JA for the Ontario Court of Appeal – 1961 Conditions to deliver a deed to 3rd party to hold in escrow Facts John Timothy Wilson owned land and held mortgages on other land. He executed deeds to grant the land and assign the mortgages to several different people. He handed the deeds to his solicitor, HK Campbell, with instructions to deliver them to the named grantees and assignees after his death. Wilson continued to manage the land and collect rent, interest, and principal until he died. Trial judge found the deeds were binding on W’s executors, but Court of Appeal overturned, as W did not intend that the deeds should have immediate effect or were delivered in escrow. They were testamentary dispositions that failed for noncompliance with the Wills Act Issues Were the grants and assignments made by the deceased to be good and valid gifts inter vivos? Rules Analysis Conclusion Class/Lecture Notes (Optional) Inter vivos gifts fail for lack of delivery Intent of the grantor can be inferred from actions or declarations at the time of delivery. A deed can be executed and transferred to a 3rd party to hold in escrow pending certain conditions. Delivery will occur when the conditions are met, the third party is holding the deed on behalf of the grantor until the condition is met, and on behalf of the grantee once the condition is met. A controlling fact of delivery is the intention of the grantor. An assignment of a leasehold interest by deed has never been legally delivered to the assignee either absolutely or by deed or as an escrow is therefore inoperative. If a grantor dies without having parted with his control over an instrument, it will not have been granted during his lifetime, and after his decease there is no one with the power to effect delivery. There can be no doubt that the deceased entertained the desire to benefit the various grantees or assignees named in these instruments, but it is plainly evident that his desire was to vest an interest in them at his death and not before. He has attempted to do that which was legally impossible and the purported gifts must fail for want of compliance with the attestation requirements of the Wills Act. A deed signed by the grantor and held to be delivered on his death is not validly delivered as an escrow. The purported gifts fail as gifts inter vivos since the execution of the deeds of grant/assignment was defective and cannot take effect as the grantor’s deed. “It is, as a rule, essential to the validity of a deed that there should be a delivery of the instrument: If the grantor clearly manifests his intention that the deed shall presently become operative and effectual; if he by words or conduct expressly or impliedly acknowledges his intention to be immediately and unconditionally bound by its provisions that will constitute a sufficient delivery in law. The controlling factor is the intention of the grantor which may be inferred from his acts or declarations at the time of delivery…” — Schroeder JA “So long as it is in the hands of a depositary, subject to recall by the grantor at any time, that right of ownership, dominion and control remains vested in the grantor and the grantee has no right to it and he can acquire none, nor does any right, title or interest in the property pass to him. It makes no difference whether the instrument is in the hands of a third person or in the grantor’s desk since, in either case, he can destroy it at his pleasure.” The purported gifts fail as gifts inter vivos since the execution of the deeds of grant or assignment was defective for want of delivery and cannot take effect as the grantor’s deed. Nor, for the reasons stated are they capable of taking effect as escrows Carson’s appeal allowed Purchaser pays the money in advance, prior to receiving the deed. For the vendor, the contract is done, treated as a completed transaction, even if the deed was lost in the mail. Butt v Humber Goodridge J for the Newfoundland Supreme Court – 1976 Transferring legal title to land in Newfoundland Facts Humber was the owner of a house He signed a document that declared that he transferred his title to that house to his stepdaughter while they were both living in it. He was illiterate. o This was a gift, not contract Ms. Butt sued stepfather while living with him; she sought order requiring his departure (she sued to evict him). Parties used to be part of a larger family unit living at this address. Mr. Humber was married to mother of the plaintiff. Following death of his wife, Mr. Humber made a will leaving the property to the plaintiff, which she was aware of. She also believed she would receive larger welfare payments if she were legal owner of the property and asked defendant to transfer title to her and he agreed. Issues Rules Analysis o Document is not sealed, there is no consideration. H counterclaims for same order, as he is rightful possessor. H built new house on old site. B expanded house. H revised his will when his wife died to give house to B. H can’t read & sign doc prepared by Hiscock J.P. that sell to B but no consideration nor seal. o “I, Adam Humber, of Deer Lake being the rightful owner of a piece or parcel of land situate at High St., Deer Lake and registered at the Registry of Deeds April. 6, 1972 Vol. 1286 Folio 9-10. Do hereby sell, set over, assign and transfer all right and title of such land to my foster daughter, Mary Flora Butt to have and to hold the said land and dwelling house to her use, her heir’s and assigns forever.” o No consideration, second doc expresses past consideration, neither doc is sealed Who rightfully owns the property? How may title to land be transferred inter vivos in Newfoundland, and has such a transfer taken place in this matter? Court introduced new method of valid conveyance in Newfoundland: o Does doc signed by grantor purport to transfer present interest in land? o Delivery of doc to grantee o Delivery of possession to grantee IF they are not already in possession o Being sealed and having consideration is NOT required Three ways to transfer legal title in Newfoundland o Deed o Livery of seisin o Signed document if the recipient is in possession (what happened here) Document was not a deed because it was not under seal. “The validity of a deed at CL depending entirely upon whether or not he has sealed (to seal a deed a seal must not be affixed to it, but there must be prima facie evidence that there was intention to seal it) and delivered (doesn’t need to be delivered to anybody, sufficient to do an act/say some words that indicate the document is intended to operate from that moment) it.” Now also requires signing (the maker of the deed must either sign or make his mark on the same). o There is no seal and no action by Mr. Humber that would amount to sealing it. Transfer is not by way of deed. o There was no livery of seisin in which the stepdaughter was given vacant possession by symbolic delivery. There was transfer of legal title by a signed document, the receiver was in possession of the house. Where an instrument duly signed by the granter, purporting to convey a present interest in land to the grantee, delivered to the grantee, accompanied by delivery of possession (vacant or otherwise) to the grantee if he/she is not already in possession, the interest which is purported to be thereby conveyed passes to the grantee notwithstanding that the instrument is not sealed and was not executed for good or valuable consideration. Miss Butt can take possession, but she should continue to allow Mr. Humber to live there. Legal title to land in the province can be transferred by deed, by livery of seisin or by a signed document if the recipient is in possession (3 ways to transfer legal title to land in Newfoundland). o Newfoundland has preserved a lot of things that have been long extinguished in the UK. There are 3 methods of valid conveyance in N&L: o 1. Deed – must be sealed & delivered at common law – signed & delivered but NOT sealed here so N/A o 2. “Instrument under hand” is signed & purport to transfer title NOT sealed but in equity may be valid conveyance IF it had valid present (NOT past) consideration. Here is past care for him only so it is N/A o 3. Livery of seisin (plus signed document) but no transfer of possession as both remain & no feoffment (ceremony) BUT Conclusion Class/Lecture Notes (Optional) Court introduced 4th method (questioning full value of a seal): o Does doc signed by grantor purport to transfer present interest in land? o Delivery of doc to grantee o Delivery of possession to grantee IF not already in possession o Being sealed and consideration NOT required Rejected H’s claim of non est factum as Hiscock read out both docs to Mr. Humber. Hiscock was neutral party, and Judge found him reliable, but deplored Justice of the Peace’s involvement, who was also not a lawyer] Judgment (reluctantly) in favour of Ms. Butt This new 4th option is the problem in Carson v Wilson (1961 in ON) as there were no deeds to transfer until Wilson died. It was considered de facto testamentary but it was not done via a will Non est factum: “Not my document” Registration Provides security for home/property owner; lets you prove that you own the thing you say you own. Deed Registration o Property rights created or transferred by document itself o Registering the document helps protect its priority o Registration does not confirm that the deed is valid, nor that grantor had valid title to convey (i.e., nemo dat quod non habet) can apply (someone could buy/sell the deed to something that they don’t actually own, at which point the buyer could effectively have paid for a nothingburger; reference any heist/con artist/caper flick) Title Registration o Property rights created or transferred by registration o Even if document is a forgery; registered documents are presumed to be valid unless otherwise disproved in court (under a non est factum argument) PEI and NL: Only have deed registration BC, AB, SK, Territories: Only have Torrens title registration MB, ON, NC, NS: Have both systems Land Title Act RSBC - 1996 Rules Unregistered instrument does not pass an estate 20 (1) Except as against the person making it, an instrument purporting to transfer, charge, deal with or affect land or an estate or interest in land does not operate to pass an estate or interest, either at law or in equity, in the land unless the instrument is registered in compliance with this Act (3) Subsection (1) does not apply to a lease or agreement for lease for a term not exceeding 3 years if there is actual occupation under the lease or agreement Executing a document to transfer of land to someone does not pass the title—only registration does 3+ year lease requires registry with the LTO Operation of instrument as from time of registration 22 “An instrument purporting to transfer, charge, deal with or affect land or an estate or interest in land passes the estate or interest, either at law or in equity, created or covered by the instrument at the time of its registration, irrespective of the date of its execution.” Instrument only takes effect at the time of its registration Leases Up to Three Years Writing is not required for leases up to 3 years if: (Law and Equity Act) o The tenant is in possession; and o The rent is at least 2/3 of the market value Strongly advised that “Sweetheart deals” or other such discounts of less than 2/3 market value (maybe it’s a friends and family discount, or you promise to act as a grounds caretaker or something) be in writing Statute of Frauds 1677 in Alta, Sask, PEI, NL, and territories Statute of Frauds, RSO 1990, c S.19, s 3 (ON) Statute of Frauds, RSNS 1989, c 442, s 3 (NS) Law and Equity Act, RSBC 1996, c 253, s 59 (what we’ll likely be citing) No exception needed in Man and NB (they abolished the Statute of Frauds 1677) a. In BC, the exception for leases up to three years does not depend on the value of the rent being paid: (Land Title Act, c 250, s 1) Property Law Act RSBC - 1996 Rules Transfer of land by instrument 15 (1) Land may be transferred in freehold only by an instrument expressed to transfer the land, but it is not necessary to use the word grant or any other term of art. … (3) This section is subject to the Land Title Act. Can’t do it by delivery Does not require a deed Registration necessary to transfer legal title — (Land Title Act) Class/Lecture Notes Execution without seal 16 (1) An instrument purporting to transfer, charge or otherwise deal with land or to transfer, release or otherwise deal with a charge need not be executed under seal. Transfer only needs to be signed and delivered; does not need to be sealed. Law and Equity Act RSBC – 1996 Rules s.25: Writing is required for a contract respecting land s.59: The contract need NOT be made in writing, but something in writing, signed by the party against whom the contract is enforced, is required to provide an “indication that it has been made and a reasonable indication of the subject matter”. s.59(1) “In this section, "disposition" does not include (a) the creation, assignment or renunciation of an interest under a trust, or (b) a testamentary disposition.” (2) 59(1) 59 N/A to contracts or grants re leases of 3 yrs or less (3) “A contract respecting land or a disposition of land is not enforceable unless” (a) …’in writing signed by the party to be charged or by that party's agent…” (b) “the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with that alleged has been made, or” (c) “the person alleging the contract or disposition has, in reasonable reliance on it, so changed the person's position that an inequitable result, having regard to both parties' interests, can be avoided only by enforcing the contract or disposition.”… 60(1) “For all purposes of the law of British Columbia, a married person has a legal personality that is independent, separate and distinct from that of his or her spouse Enforceability of Contracts (2) This section does not apply to: (a) A contract to grant a lease of land for a term of 3 years or less, or (b) A grant of a lease of land for a term of 3 years or less. (3) A contract respecting land, or a disposition of land is not enforceable unless (a) there is, in a writing signed by the party to be charged or by that party’s agent, both an indication that it has been made and a reasonable indication of the subject matter, (b) the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with that alleged has been made (oral contract ok if part performance), or the person alleging the contract or disposition has, in reasonable reliance on it, so changed the person’s position that an inequitable result, having regard to both parties’ interests, can be avoided only by enforcing the contract or disposition. TRUSTS Trust exists when a person (trustee) holds rights over true assets (subject matter) and is required by equity to use that right for the benefit of another person (beneficiary) or purpose (the objects). Any assignable rights in rem or in personam can be held in trust. Personal rights cannot be held in trust (right to vote, driver’s licence, etc.) Express Trusts arise because the settlor chose to create it, they expressed an intention that a trust should arise and did what was necessary to give effect to their intention. o They require certainty of intention, subject matter (property) and the objects (beneficiaries/purposes). Can arise by operation of law (rules of equity). These arise because someone has something and law says someone else should have benefit of the thing the first person has. Must hold in trust for second person. Constructive Trusts arise by operation of law (equity) without intention to create a trust, but are imposed on the assets’ owner to compel them to use those assets for the benefit of someone else. This is a real trust (the “constructive” bit refers to the declaration of the trust) If one joint tenant murders the other, a trust is imposed on them to prevent them from profiting from their crime. The murder becomes the sole legal owner as a surviving joint tenant but then is compelled to hold legal title in trust for the victim’s estate as an equal tenant in common. If someone in a fiduciary position receives a bribe or makes an unauthorized secret profit, they will hold that asset on constructive trust for their principal. o Constructive trusts can respond to forms of wrongdoing and strip people of wrongful gains, but most have nothing to do with wrongdoing. They more commonly arise to fulfill expectations or to perfect intentions to benefit others. If a donor provides a donee with the documents needed to complete a gift of land or company shares by registration, the donor will hold the subject-matter of the gift on constructive trust for the donee. A court of equity would not compel the donor to complete the gift, but the donee does not need the Court’s help because they have the power to complete the gift without the donor’s help (Rule in Re Rose which concerned gift of company shares). Rule in Re Rose was applied to a gift of land in Mascall v Mascall. Resulting Trusts arise by operation of law (equity) without intention to create a trust, but are imposed on the owner of assets to compel them to use the assets for the benefit of someone else. This occurs where the law says that someone has to give something back to someone else who bought or owns it. o Can arise when someone received an asset gratuitously and it is presumed/proven that the transaction was not a gift. Arises in “gratuitous transfer” (wrong person got the thing without value, needs to give it back) Used when someone receives assets at another person’s expense. They can be compelled to return the assets to the rightful beneficiaries; (Cowper-Smith v Morgan) o Can also arise when someone receives assets as an express trustee, but the express trust fails or comes to an end and leaves them with an unexpected surplus. o Resulting = give back. o Note: In both these situations, someone has received assets at another person’s expense, they were not meant to keep those assets as a gift and the resulting trust compels them to give the assets back to that other person. Statutory Trusts arise because a statute says the asset holder must to x with the assets in trust. Not terribly relevant Common uses of Trusts o Pension Funds o Charities o Corporate Finance o Mortgage Lending o Ownership of Family Home o Lawyers’ Accounts o Bailment vs Trust In bare bailment, there is no payment. Bailment with money is like mechanic, jewelry. Transfer of possession for purpose or custody. Bailment don’t get legal title. With a trust, you get title. Elements of a Trust Settlor: Creator of a trust (may also be either beneficiary or trustee, but not required). Has no further connection with the trust they create. HOW A SETTLOR CAN BECOME A BENEFICIARY: A settlor can become a beneficiary if they transfer assets to the trustee to hold in trust for them. o Legal title of items is transferred from settlor to trustee and the settlor acquires an equitable interest in them as the beneficiary of the trust. The settlor in this situation continues to be the “beneficial owner” of the assets because they enjoyed all the benefits of ownership as the legal owner before the trust was created and still enjoy those benefits as a trust beneficiary. o The equitable rights they have under trust are new rights that did not exist before the trust was created. Equity only gets involved once the trust is created before that they held legal title for their own benefit. HOW A SETTLOR CAN BECOME A TRUSTEE: By declaring that they hold assets in trust for a beneficiary. o The settlor continues to hold legal title but is no longer allowed to use them for their own benefit, legal title has not changed but the settlor has given up their beneficial ownership of those assets. o The beneficiary acquired a new equitable interest in those assets when the trust was created A trust relationship requires at least 2 different people: a trustee can also be a beneficiary, but it can exist with only one trustee and one beneficiary – based on the principle you can’t hold yourself accountable Beneficiary principle: a trust cannot exist unless there is a beneficiary to enforce it – exception is a trust for charitable purposes Trustee: Person receiving ownership rights of the true assets under the terms of the trust. (Cannot be sole trustee and sole beneficiary). Person/Entity who undertakes to perform the trust Holds full legal title to the trust subject, but are bound by terms of the trust. Has ability to sell/give away, lease/lend, receive proceeds from income/sale, and sue others for wrongful interference with these assets. o HOWEVER, may not use these rights for their own benefit (except to reimburse themselves for expenses incurred in the legitimate trust expenses); o MUST use rights/powers for benefit of the beneficiaries. Subject Matter of the Trust: The right/property held by the trustee; can be any enforceable right or thing, tangible or intangible. For example, if a trustee holds a fee simple estate in trust: Almost all rights can be held in trust apart from rights that are personal to the holder, such as right to vote, driver’s license, license to practice etc. o i.e., if I hold a house in trust for you, the subject is the fee simple not the house itself Trustee’s subject matter: legal right to the land Beneficiary’s subject matter: Equitable right is the trustee’s legal right to the land Beneficiary: Equitable owners of the trust asset (person who benefits). Must be legal persons, but don’t need to have legal capacity (trusts often created for infants or people who can’t manage their own affairs (SA v. Metro Vancouver Housing Corp) Can be a specific person (my grandson, Bobby), or a class of persons (my grandchildren) A potential future beneficiary is not a beneficiary, and has no rights under the trust. Beneficial title can be transferred or sold. Beneficiary Rights o Obtain benefits from trust o Expect trustees to avoid risk o Monitor trust performance Objects of the Trust: The purpose of the trust Trusts for Legal ‘Persons’: Objects are beneficiaries, enforced by beneficiaries o i.e., a group of people pooling money for lottery tickets Trusts for Charitable Purposes: o Have no beneficiaries o Purpose = the object; only exception to standard rules o These trusts enforced by AG Canada on behalf of Crown (qua parens patriae) o Charitable purposes: (1) for relief of poverty; (2) advancement of education (3) advancement of religion; or (4) other purposes beneficial to the community Constructive Trusts A trust that is not fully finished, but the intent to make a trust is implied through dealings of the parties. Duties of Trustee Duty to obey the terms of the trust and the rules of equity to apply to the trust o Strictly liable for losses caused by failure to obey the trust, even if they acted honestly and reasonably Duty to account to the beneficiaries regularly for how assets being administered & invested o Must keep accurate records, have accounts ready for inspection, and make accounts accessible to beneficiary Duty to take reasonable care to preserve trust assets from loss and enhance it as a prudent person would o E.g., Avoid risky investments; file tax returns; etc. Fiduciary duty to exercise powers given under the trust solely for proper purposes o Taking irrelevant factors into account or failing to take relevant factors into account when making a decision o Failing to exercise discretion and simply following orders o Having personal interests or other duties that conflict with the duties to the beneficiaries unless those conflicts are authorized o Making unauthorized profits from the office Creating Trusts Trusts are created, whether inter vivos or testamentary, by 1. Intention of the Settlor (the legal entity who creates an Express Trust) a. Express trusts: trusts created where the settlor creates the trust and the trustee undertakes to perform the trust (certainty regarding intent, subject matter, and the object) b. Settlor can make themselves into a Trustee, sacrificing beneficial ownership for the sake of another 2. Operation of law a. Constructive trusts: imposed by the court in certain circumstances to prevent injustice b. Resulting trust: arise from implied intention i. Used when someone receives assets at another person’s expense they can be compelled to return the assets to the rightful beneficiaries; (Cowper-Smith v Morgan) c. Modern discretionary trusts: interests of the beneficiaries are not defined, and the distribution of the trust assets is left entirely to the trustee’s discretion i. Advantages: the trustees are better able to deal with the changing circumstances and the beneficiaries do not have interests in the trust assets that can be taxed or taken to creditors o Note: trusts need not to involve a contract o If the trust assets are transferred to the beneficiary, then the trust simply dissolves. 3. Statute a. Statutory trusts: set out in statute i. Ex: insurance agent holding insurance in trust ii. Reserve lands’ revenue held by Crown qua trustee; business that charge GST, PST, excise taxes (alcohol, fuel, cigarettes). Taxes aren’t paid to Crown directly; they’re paid to the service provider; thus, the taxes are held in trust for the Crown. Trustee must keep trust assets separate from their own accounts. Express Trusts A valid express trust requires: 3 Certainties o Certainty of Intention Doesn’t matter who the trustee is, but the settlor must intend to make someone a trustee, even themselves. o Certainty of Subject Matter What, specifically, is the property that the trustee is responsible for? Without trust property (or knowing what it is), the trustee has no function o Certainty of Objects Who are the beneficiaries of the trust? Trustee needs to know who they are acting for the benefit of for the trust to function. That the Trust is properly Constituted Meets formalities if the trust is o Inter vivos, whether orally (but certainties need to be clear) or in writing o Testamentary trust: Most provinces’ and territories’ succession acts require testamentary trusts to be in writing, and signed by both testator and witnesses. Must comply with WESA in BC. Certainty of Intention “Trust” is not a magic word in and of itself Not essential = trust Not sufficient = trust Use of the word “trust” usually gives evidence that the legal concept of a trust is intended, unless clear by context and phrasing that it means something else (i.e., ‘I trust Mary will carry out my wishes’) The key is: Did the settlor intend to create a trust relationship by Declaring themselves a trustee? Appointing another person as trustee and transferring property to that person qua Trustee? Did settlor intend to create a trust relationship? Yes, if: Trustee hods title to asset AND Trustee is required to use the trust property for the Beneficiary’s benefit Paul v Constance Scarman LJ for the British Court of Appeal - 1977 Facts Constance separated from wife in 1965 & moved into Paul’s house in 1967 They set up a house together and appeared to live as man and wife until the deceased’s death C was injured at work 1969 & received compensation in 1973. He discussed with the plaintiff what to do with this money and they mutually decided on a bank account. o They went together to open the bank account. Bank account was put only in deceased’s name since they weren’t married. o He authorized the plaintiff to draw on the account, “it’s as much yours as mine” C died in 1974. He died intestate and his wife was entitled to the entire estate (as they had never actually divorced). o The plaintiff claimed his statements to her amounted to a declaration of express trust for the two of them and therefore she was entitled to have the money. C’s wife as administratrix of estate. She claimed the money. P sued. Ms P won at trial; Mrs C appealed Issues Who is entitled to the money in bank account? Rules Trusts can arise out of a number of circumstances, even out of implicit intent to benefit another party (even without using words “trust”, “trustee”, etc.) To create an express trust, there must be clear evidence from what is said or done to display an intention to create a trust Trusts are not limited to legal documents drafted by lawyers; can be rather informal Analysis The words of a trust must be so used that on the whole they ought to be construed as imperative, it doesn’t have to include the actual word “trust” but they must give confidence that there is a trust intended. If he was holding it in trust when he died then his wife as administratrix would also be holding it in trust. Both Paul and Constance were beneficiaries. They are equal beneficiaries (common) she’s Intending to separate beneficial ownership from legal ownership. She only claimed half, got what she claimed. People are often very unaware of the subtleties of equity in their own situations. What needs to be considered is the various things that were said and done by the plaintiff and the deceased: When they discussed the bank account, he would say to her: “what’s yours is mine”. o Both depositing into joint account. o Her being able to withdraw money. o The declaration of “what’s yours is mine” conveys clearly a declaration that the existing fund was as much the plaintiff’s as his own. Jones v Lock (1865) J = ironmonger returned home from a trip & was chastised by wife as he had no present for their new baby. o He put £900 cheque in baby’s hand. Wife screamed (rightfully so) fearing baby might destroy cheque. o J says, “it’s his & he can do what he wants with it” but relented & took cheque back. o J died before cashing/depositing it. o Conclusion Class/Lecture Notes (Optional) Held as an invalid gift [child could not cash cheque; turning right to gift into money] & and invalid trust [planned to see his solicitor to convey legally for son] & court will not intervene to complete what a person failed to do. Milroy v Lord (1862) – Turner LJ made clear that are several ways to complete valid gift o by intention to give & delivery to donee OR o via written doc to transfer title OR o via declaration of trust by owner of property o BUT court will not perfect an imperfect gift by readily viewing it as a declaration of trust Richards v Delbridge – NOT required to use magic words o e.g., ‘I declare myself to hold this property as trustee,’ but the trustor/settlor must do or say something equivalent to it C said, several times, that the estate was ‘as much yours as mine’ & discussed plans to invest, that C had made himself trustee of 1/2 for her & other ½ for his son Therefore, Ms Paul gets her ½, while his ½ goes to his estate, and thus, to Mrs. C Ms Paul gets her ½, while his ½ goes to his estate, and thus, to Mrs. C Ontario Hydro-Electric Power Commision v Brown Morden JA for the Ontario Court of Appeal - 1959 Facts Brown is a collection agent for Ontario Hydro Money he collected was stolen from his safe B argued he wasn’t liable as the money wasn’t lost through any fault of his own, and that he was merely the bailee for Ontario Hydro. Issues Was there a trust? Was there a bailment? Was it a debtor-creditor relationship? Rules Nature and terms of the relationship affect whether someone is a trustee or a debtor An agent is a trustee of monies he received from or for his principal where he is specifically instructed to keep such monies separate from that of his own If a person is not bound to keep the money separate but can mix it with a larger pool and when called upon returns an equivalent amount of money = not a trustee Analysis Nature of relationship is key; if Brown is a debtor, then B owes Ontario Hydro the money; if he is a trustee then he is only liable if negligent; if bailee then not liable unless negligent “In the case at bar there is no evidence that it was a term of the debtor’s employment that he should keep the moneys he collected separate from his own… An agent has been held to be a trustee of moneys he has received from or for his principal where he is specifically instructed to keep such moneys separate… the result is the same where the agent is to hold the money and invest it or manage it for his principal… in contrast, where the sole duty of the agent with respect to the money is to pay it to his principal, the relationship between the parties is that of debtor and creditor. In a situation like this, his sole duty is to pay it to his principle so the relationship between him and the company is that of a debtor and creditor. Since B is debtor for the money collected, less his commission to be deducted, & then to transmit rest to OHEPC, he is liable to repay lost money, less his commission He had a duty to pay sum of money, not a particular pot of money. In every situation where an agent collects money, he is not a bailee or a trustee of the bills or a trustee of the money in his possession Conclusion Brown’s appeal dismissed Class/Lecture Notes (Optional) Pay attention to the words and language used Mussoorie Bank Ltd v Raynor Judge for the Court - 1882 Facts “I give to my dearly beloved wife, Mary Anne Raynor, the whole of my property, … feeling confident that she will act justly to our children in dividing the same when no longer required by her.” Issue Is this a polite command or mere request? Rule Precatory words are wishes/hopes/desire, demonstrating intent to create a gift, not a trust. Analysis Historically, Courts interpreted these as intention to create a trust, a wish was just seen as a polite command. This is a turning point, ruled as just a gift. Is he intending to create a life interest with her deciding how to divide it among her kids upon her death OR is it just a gift to her? This is just a gift. The statement was a mere request, not a polite command. Conclusion Gift, not a trust. Precatory Words Language used where people talk about their wishes and their hopes for the future; not binding o Precatory words are not legally binding; the beneficiary can use the gift however they would like, not being bound by the intent/desire of the trustor o Based on historical use, where wishy-washy phrasing words like “I am confident that you will do this” meant “you will do this”, rather than preserving discretion, as we would interpret it nowadays o Look for difference between nicely framed commands and precatory words Precatory words include phrases like ‘I wish that’; ‘In the hope that’; I have confidence that’; etc. o Not common nowadays; courts prefer to avoid wishy washy language; just say what you mean, and use clear mandatory language. Mussoorie Bank Ltd v Raynor (1882) 7 App Cas 321 (JCPC). Husband died in 1839 with a will that said: o “I give to my dearly beloved wife, Mary Anne Raynor, the whole of my property, … feeling confident that she will act justly to our children in dividing the same when no longer required by her.” o Polite command or mere request? She treated the property as her own. In her 1868 will, she allotted shares to son, and the houses to son, daughter, & step-daughter. Bank loaned money to her, secured by these shares. She died in 1875 & Bank sued her estate & won. Son sued to set aside as shares were his, but lost. He appealed & won. Bank appealed, lost & appealed again to JCPC & won. Wife fully owned all estate as precatory words did NOT create a trust obligation; they merely expressed a wish for her to consider. The shares were security for the loan. Certainty of Subject Matter Is property ascertained, or ascertainable? Is the subject matter properly described? (“diamond ring goes to first daughter to get married”; which diamond ring is it if there are multiple?) e.g., testamentary trust of half of the residue of an estate o Testamentary trust takes effect on death o Executors have duties to Gather in estate assets Pay creditors Fulfill specific devises, bequests, legacies Executor identifies and transfers property to trustee, who manages it according to testamentary trust Transfer ½ of residue to trustees Re Beardmore Trusts Judge for the Court - Date A husband and wife separated, and the husband declared a trust for his wife and daughters. Facts Subject matter was “an amount, sum or other assets equal to three-fifths of the husband’s net estate” when he died Is this a valid subject matter of an inter vivos trust? Issues Subject matter cannot be uncertain to be a valid trust Rules Trust was found to be void for two reasons: Analysis o 1. It was testamentary, it would only become effective on the husband’s death and did not comply with formalities required to make a valid will. o 2. The subject matter was uncertain. It would because certain when the husband died, it could have been valid as a testamentary trust but could not take effect as an inter vivos trust because it was impossible to ID subject matter while the husband was still alive. It is too uncertain to be a valid inter vivos trust Not a valid trust Conclusion Class/Lecture Notes (Optional) Hunter v Moss Dillon LJ for the British Court of Appeal - 1994 Facts M owned 950 shares in Moss Electrical Co., having taken it over from his father. The company issued 1000 shares, all of the same class He had a manager Hunter, who he wants to give as a bonus (gift) 50 shares of the company. Rather than transfer legal title, Moss declared he held 50 of those shares in trust for Hunter as a trustee of those 50 shares. M declared himself trustee of 50 shares for Hunter (who was the Finance Director of company), but did not specify which shares Then they had a falling out Defence argued that they cannot have a valid trust unless they identify specifically which 50 shares hunter would get Issues Is this valid trust? If so, which 50 shares? Rules Segregation of subject matter is not always necessary when the trust concerns intangible and/or identical property Intangibles are different than goods; a trust that is a part of a whole is valid Analysis They are all the same so long as Moss respects the responsibility as trustee, and they don’t cash in and take the money for themselves These were all intangible: Nature of the share – not an asset it’s just a proportion of the company you own With intangible, identical property, it is not necessary to segregate the trust and non-trust sections. o A trust of 50 out of 950 company shares is valid. A trust of 50 wine bottles out of 950 is invalid unless those 50 bottles were set aside and specifically identified. Even if they are all the same wine, vintage etc. because there wouldn’t be certainty of subject matter unless the 50 specific bottles were identified. Conclusion Class/Lecture Notes (Optional) Wouldn’t be valid if they were like bottles of wine and weren’t separated (each bottle is different and identifiable), or like gold bullion (Bar # x to bar #y; all bars are marked) Court says they didn’t have to specifically identify the shares as long as they clearly identified that 50 shares were being held in trust they didn’t have to individually list them Different from purchasers of wine bottles (Re London Wine Co) or gold bars (Gold Corp Exchange Ltd [1975] 1 AC 74, as no items assigned to buyers so = creditors that get $0 or goods as secured creditors get all assets What are shares of the company? Company is 1 thing/person. There is only 1 company, if it issued 1000 shares, ownership of 50 shares is not 50 different bits of the company, it is ownership of 5% of the company. Kind of like co-ownership of the company. o Same would be true of a bank account: A trust of 50 shares in a company out of 950 shares is no different from a trust of $50 in the bank w an account balance of $950 The inter vivos trust was valid. It would not matter which 50 shares if all shares were equal, but if there were different classes of shares, it would certainly matter The trust was valid, as there was certainty in subject matter Allocation Among Beneficiaries Trust must provide direction or a mechanism for allocating division of identified assets clearly among the beneficiaries, especially where there are multiple beneficiaries. If there is >1 beneficiary, subject matter must not only be ID’ed but must be allocated among beneficiaries. o To A and B, in equal shares (or based on need, etc.) o To A for life, with the remainder to B o Among the beneficiaries as the trustee sees fit (common when trustee is surviving spouse/family member), where the trustee has power to decide who gets what, if anything. The most common way to do this is by giving the trustees the discretion to decide how to distribute the income and capital among beneficiaries. A trust can fail if the settlor does not either allocate the assets among the beneficiaries or provide a mechanism for doing so. Boyce v Boyce Judge for the Court – 1849 Facts Testamentary trust of 4 houses for widow for life and then o 1 house to daughter Maria as she chooses from the 4 o Maria died before father & never selected her preferred house (mechanism failed) o Other three houses were to go to other daughter, Charlotte Issues What would Charlotte receive? Was the trust valid? Rules If the mechanism for allocating property among beneficiaries is unclear, or otherwise invalid, there is no certainty of subject matter, and the trust fails. A trust can fail if the settlor does not either allocate the assets among the beneficiaries or provide a mechanism for doing so. Certainty of subject matter requires that the assets that are supposed to be held in trust must be identified when the trust is created or ascertainable/identifiable during the trust Analysis Maria died before choosing and so the trust was deemed to be uncertain (mechanism for allocating assets among beneficiaries died with Maria. o Court says Charlotte gets none as the trust fails Mechanism for allocation was Maria’s choice, therefore no allocation among beneficiaries Trust failed, as it was impossible to know which house Maria would select, thereby determining which houses Charlotte would receive. Charlotte gets nothing; trust failed. If the trust fails, the would-be trust subject matter reverts to the estate in intestacy. If certainty of subject matter is lacking and the trust will be declared invalid if the assets that are supposed to be held in trust cannot be identified when the trust is created or ascertainable during the trust o Conclusion Class/Lecture Notes (Optional) Certainty of Objects I. II. III. IV. Trusts for persons or other legal entities a. List Certainty: Requires a finite and complete list of beneficiaries needed for the trustee to perform the trust; no list, no valid trust. i. If it is fixed by the terms of the trust (e.g. equally among family members) then the trustees must make a complete list of those beneficiaries in order to perform the trust. If it is impossible to compile a complete list, the trust will fail. The trustee tells the settlor how to distribute. 1. E.g. distribute trust equally among my friends. Problem, who are my friends? Trust will fail if trustees can’t make a list. There needs to be list certainty. b. Criteria Certainty: Trustees have discretion to distribute assets; they don’t need a complete list, but must make sure that anyone benefiting from the trust falls within the settlor’s general criteria c. Why does it matter? i. Trustee needs to know who benefits (and so do the beneficiary, to see if they get anything) and whose benefits they are operating for. They want to know what their job is. Trustees to report to beneficiaries; if no beneficiaries clearly identified, how are they supposed to do this? ii. Beneficiaries enforce the trust by observing he trust to ensure that the trust is properly adhered to. Can’t do that if no one knows who they are. iii. Necessary for legal system perspective for above reasons. Trusts for charitable purposes. Must be beneficial to public and fit the legal definition of a charity; only valid if they are established for: a. Relief of poverty b. Advancement of education c. Advancement of religion d. Other purposes beneficial to the public Fixed Trust (List Certainty) a. Trust is explicit and very clearly defined (“this specific property to my friend, John Doe”) b. E.g., “equally among my friends” c. Must provide a list of friends, or clear criteria to identify who those friends are, to have certainty Discretionary trust or power (Criteria Certainty) a. E.g., to the three most deserving students at TRU b. For certainty to be met: What does “most deserving” mean? i. If financial: have students submit tax returns to ID most financially dire; if academic: student with highest overall class scores. Generally, this would fail, as “most deserving” is too uncertain without the trustor providing clear definitions/criteria. McPhail v Doulton Wilberforce LJ for the House of Lords – 1971 Establishes rules for list and criteria certainty Facts Baden created a trust for the employees of his company, the trustees had the discretion to distribute the income from the trust as they saw fit among the current and former employees and officers of the company and their relatives and dependents. (discretionary trust) Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Baden created non-charitable inter vivos discretionary trust connected to a company: o “The trustees shall apply the net income of the fund in making at their absolute discretion grants to or for the benefit of any of the officers and employees or exofficers or ex-employees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit” Baden died in 1960 and his executors began litigation, claiming that the trust was invalid because it lacked certainty of objects: it was impossible to make a list of all relatives and dependents, If the executors were successful, it would be a resulting trust for Baden’s estate and his estate would keep all the money Is the trust valid? What kind of trust was it? If trustees have discretion to distribute assets among beneficiaries, they don’t need a complete list. If the trustees can be sure anyone receiving benefit from the trust falls within the settlors criteria for being a beneficiary the trust will be valid Trusts are valid if it can be said with certainty that any given individual is or is not a member of a given class There’s no need to list all beneficiaries because criteria certainty was all that was required Preceding common law: in this kind of a case, you’d need a complete and detailed list of who the beneficiaries are. There is no need to list all the beneficiaries (list certainty) because there was sufficient criteria certainty o Doesn’t have to capture all members of the class, as the trustees had complete discretion on what to allot to whom. Anyone who had a common ancestor was determined to be in the criteria “the trust is valid if it can be said with certainty that any given individual is or is not a member of the class” “The trustees shall apply the net income of the fund in making at their absolute discretion grants to or for the benefit of any of the officers and employees or ex-officers or exemployees of the company or to any relatives or dependants of any such persons in such amounts at such times and on such conditions (if any) as they think fit” – discretionary trust The discretionary trust was valid, having sufficient certainty of criteria Leading House of Lords case Altered prior law that had required complete list of beneficiaries even for trusts that grant full discretionary power to trustees to choose among class (IRC v Broadway Cottages, [1955] Ch. 20) House of Lords in McPhail send back to Court of Appeal to apply new rule = Re Baden’s Deed Trusts (No. 2) [1972] 2 All E R 1304, which applied, as the trust empowered trustees to exercise their discretionary power of selection to choose who among the large class will benefit Took 5 court appearances for this one to stick Now trusts are vague enough that you can make a trust for anyone anywhere in the world. Constituting the Trust Final step to say, “the trust is operational”: The actual transfer of trust assets to trustees as “trust property” Not the same as formalities for declaration of trust Formalities may be required for the transfer of certain property o Real estate o Corporate shares Constitution is not an issue when settlors declare themselves to be trustees o Settlor already has legal title and possession of the property; they just revoke their beneficial ownership Constitution is not an issue for testamentary trusts o Settlor is dead, so it’s not their property anymore; up to the executor to deal with it according to the terms of the trust Constitution may be an issue for inter vivos trusts when the settlor is not a trustee o Now you have to actually transfer the property. Not a problem, so long as it gets done; trustee is obligated to transfer the property, and if the settlor hasn’t transferred the property to the trustee, they can’t fulfill their obligations T Choithram International SA v Lalibai Thakurdas Pagarani Browne-Wilkinson LJ for the UK Privy Council - 2001 Facts February 1992: T C Pagarani executed foundation trust deed as settlor, with 7 trustees, including TCP Pagarani knew he was dying from cancer. Flew from Dubai to London TCP said, with several people by his bedside: “I now give all my wealth to the trust” o His assets mostly in BVI & Isle of Jersey as they were key tax havens March 1992: TCP died of cancer b4 execute transfer docs He had two families (two wives). Members of his family say his oral declaration of gift was not enough to transfer all his assets to the foundation. His family was already well taken care of in his will; they just wanted more. Gifts were made to trustees to hold in trust. Family argued that the trust wasn’t constituted, so there was no trust and they should get the money Issues Was the trust constituted? Rules A perfect gift can only be made (a) by a transfer of the gifted asset to the donee, accompanied by an intention in the donor to make a gift; or (b) by the donor declaring himself to be a trustee of the gifted property for the donee Gift on trust can be implied through the nature of the words. There is no distinction between the case where the donor declares himself to be the sole trustee for a donee or a purpose and the case where he declares himself to be one of the trustees for that donee or purpose Analysis There are two ways to make a perfect gift: o Transfer the gifted asset to done with intention by the donor to make a gift o Donor declaring themselves a trustee of the gifted property for the done. If neither of the above, it is an incomplete and imperfect gift. Equity will not strive officiously to defeat a gift. The Privy Council said the trust was constituted because the settlor was one of the trustees. TCP used the second method to make a perfect gift. “The foundation has no legal existence apart from the trust declared by the foundation trust deed. Therefore the words ‘I give to the foundation’ can only mean ‘I give to the trustees of the foundation trust deed to be held by them on the trusts of foundation trust deed’. Although the words are apparently words of outright gift they are essentially words of gift on trust.” “There can in principle be no distinction between the case where the donor declares himself to be sole trustee … and the case where he declares himself to be one of the trustees” If Pagarani wasn’t himself a trustee, the three certainties would exist, but the trust would not have been constituted (he would have had to transfer his assets to trustees, which you can’t do when you’re dead). Trust was fully constituted as an inter vivos trust, as he has transferred to the trustees (of which he is one), and he held the title. It was a self-declaration of trust. Trustees can administer the property; constitution occurred when he made statement on his deathbed. Conclusion Foundation’s appeal allowed; Pagarani’s family’s action failed. Class/Lecture Notes (Optional) Transfer vs Trust There is a temptation to save an incomplete gift as a self-declaration of a trust Intention to transfer =/= intention to be a trustee o Property held in trust at time of death passes outside of the will Maitland, Equity and the Forms of Action at Common Law (Cambridge 1909), at p 74: o “The two intentions are very different — the giver means to get rid of his rights, the man who is intending to make himself a trustee intends to retain his rights but to come under an onerous obligation. The latter intention is far rarer than the former.” Watt v Watt Estate Lyon JA for the Manitoba Court of Appeal - 1988 Facts RJ Watt owned a boat & gave set of keys to Shirley Watt (= friend & employee) and wrote and signed letter: o “I … do hereby declare that … the boat … is now owned jointly by myself … and Mrs Shirley Watt … PS. If the boat is sold while under this joint ownership, moneys realized will be divided evenly.” Shirley’s lawyer wrote to R Watt’s widow that the boat belonged to Shirley o The widow denied this claim Shirley brought action against the estate for possession and title of the boat. Intention of Gift: The agreement. Delivery of the Gift: Giving of the key, access at any time. Trial judge decided the boat was a complete gift in joint tenancy; Mrs. Watt got everything, under survivorship. Issues Was the boat a gift or a trust? Does Mrs. Watt have joint tenancy, tenancy in common, or nothing? Rules It is possible for courts to find a declaration of trust if the criteria for a gift have not been met. Analysis Conclusion Couldn’t be gift: no delivery (despite having set of keys, other people had sets of keys as well) There was no valid gift because the document stated that Watt and the plaintiff held the boat jointly There was, however, a trust to which Shirley was entitled to one half interest in the boat There was sufficient evidence to show that the document was authentic, and that the deceased had the clear intention, due to their dual use of the boat and close friendship, to give Shirley ½ interest Since Richard did not give Shirley the only set of keys to the boat, this doesn’t constitute a gift outright The letter features the word “jointly” showing that Richard wasn’t relinquishing all his interest in the boat In giving Shirley the keys and the document, Richard was creating a one-half interest in the boat, to be held in trust by him. In other words, Shirley was given equitable title to one-half of the boat; upon Richard's death, Jean Watt became the trustee for Shirley's interest in the boat. Since Richard did not give Shirley the only set of keys to the boat, this does not constitute a gift outright. Moreover, the letter features the word "jointly", thereby demonstrating that Richard was not relinquishing all his interest in the boat. The interest is tenancy in Common; reversed trial decision & Mrs. Watt given ½ share of boat Class/Lecture Notes (Optional) Incomplete Gifts in Constructive Trusts Donor intends to make a gift, not to become a trustee Transfer of legal title requires registration (company shares or land) so if docs are signed but NOT registered then is temptation to see donor as trustee. o Maitland: “the two intentions are very different – the giver means to get rid of his rights, the man who intends to make himself a trustee intends to retain his rights but to come under an onerous obligation.” o Trusts are less common than gifts Donee has NOT received docs needed for registration or has received them but not yet registered. Donor becomes constructive trustee for donee. Why? o Until the property is properly registered, the donor has the responsibility of a trustee, as the process of transfer has already begun (and it wouldn’t be fair for trustees to cancel the trust partway through completion) Constructive trusts arise to complete the gift where the donee has the power to complete the gift without the donor’s help. Mascall v Mascall Browne-Wilkinson LJ for the British Court of Appeal - 1984 Facts Father bought a house in 1976 for his daughter, but she declined, so he gave it to his son, who treated it as his own (paid bills, etc). Father executed registrable transfer of land in son’s name in 1981 & gave him land certificate. Transfer sent by son to Stamp Office (SO) re tax payment on transfer before registration, but father and son got into a tussle, and Stamp Office sent transfer to father’s solicitors (by mistake). Father sued to invalidate transfer (no longer wanting his son to have the house) Trial: father held land on constructive trust for son as he had executed title transfer doc & sent it to SO. He did all he could to make transfer effective even though an error by SO meant title not transferred at Law BUT passed in Equity, so father could not revoke the gift as he was a constructive trustee Issues Was the property transfer a gift, or a gift in trust? Has there been a sufficient transfer of land to the son? Rules Settlor can vest a gift in the donee or trustee for the donee by either 1) transferring the gifted property itself, or 2) declaring himself a trustee of the property for the benefit of the donee A gift is complete as soon as the donee has everything within their control to enable them to complete their title Analysis The plaintiff did everything in his power to transfer the house: handed over land certificate, intended to do it, executed the transfer, all the defendant had to do was submit transfer for stamping and ask the Land Registry to register his title “Gifts can be made by a donor either direct to the donee or to a trustee for donees. In either case the property, the subject matter of the gift, has to be vested in the donee or the trustee for the donee. The settlor can achieve that broadly in two different ways. First, he can transfer the gifted property itself. Secondly, he can declare himself a trustee of the gifted property for the benefit of the donee.” “In the present case, a declaration of trust of that kind by the plaintiff for the benefit of the defendant simply does not arise. The only question is: Has there been a sufficient transfer of the land to the son?” “The basic principle underlying all the cases is that equity will not come to the aid of a volunteer. Therefore, if a donee needs to get an order from a court of equity in order to complete his title, he will not get it. If, on the other hand, the donee has under his control Conclusion Class/Lecture Notes (Optional) everything necessary to constitute his title completely without any further assistance from the donor, the donee needs no assistance from equity and the gift is complete.” “It is on that principle, which is laid down in Re Rose, that in equity it is held that a gift is complete as soon as the settlor or donor has done everything that the donor has to do, that is to say, as soon as the donee has within his control all those things necessary to enable him, the donee, to complete his title.” Father’s appeal dismissed; son had legal title, and had done everything necessary to complete title. If you’re a volunteer and have no right to the property, you can’t ask court of equity to come and give you the rights to that property. WILLS AND ESTATES Testamentary vs Inter Vivos A will is a document containing instructions for dealing with and disposing of a deceased’s estate. It is the sum total instructions that have legal affect after someone dies, usually (preferably) contained in a single document, but can be found in multiple documents (amendments and codicils). Most wills appoint executors to administer the estate, tell them how to dispose of it and give instructions for disposal of the body. Wills only take effect on death, can be revoked prior to death. Beneficiaries named in a will do not acquire ANY rights while the testator is alive. They only have hope of receiving a gift when the testator dies. o If the will is valid: beneficiary acquires a personal right when the testator dies and if there are sufficient assets in the estate, a property right when the estate is distributed. o If all/part of a testamentary gift must be used to pay creditors of the estate, the gift abates and the beneficiary might receive less or nothing at all. Testamentum is Latin for a will o Testamentary: any gift that takes effect on death. Testamentary disposition takes effect on death of “will-maker” (in BC’s Wills, Estates and Succession Act) (testator for men & testatrix for women; common elsewhere, but falling out of common use), whether the gift is in the will or not Death of a joint tenant is not itself testamentary [although JT’s death triggers their own will & ends their interest in JT’s property] End of a life estate is not testamentary (no transfer at death; estate reverts to donor) Terms Testator/Testatrix/Will-Maker: The person who makes the will Personal representative (BC) o Executor/Executrix: Person appointed by the will to handle the deceased’s affairs and represent the estate o Administrator/Administratrix: Person assigned to represent the estate in cases of intestacy Beneficiary: Person to whom property is bequeathed under the will Estate: All property owned by the deceased. Does not include non-transferable rights (license to practice law) Intestacy: When someone dies without a will. Can be whole (no will at all) or partial (will fails to dispose of all assets) Devise: Real property (realty/house) Bequest: Testamentary gift of personal property (personalty/chattel) Legacy: Testamentary gift of money. Typically intended for subsequent generations/charitable donations Residue of the Estate: The remainder of the estate not specifically given away in the will. Ought to have some sort of residue clause to dispose of this, or end up partially intestate Three Ways a Will can Fail: Abate: Money (drawn from global collection of assets) used to pay off taxes or estate’s debts. May liquidate identified gifts if not enough money to cover debts otherwise. o Law provides rules for the order in which the estate’s assets will be used to pay off creditors (WESA, s.50) Adeem: Testator no longer owns it upon death; property that has been identified in the will as part of a bequest that has been removed/recalled/taken away or was never owned by the deceased i.e., car leased by the deceased) Lapse: Where a beneficiary predeceases the will-maker o Most wills make alternative gifts to deal with this issue (WESA, s.46) Components of a Will All transferrable property can be given away by will - WESA, s 162 o A gift of personal property is called a bequest or legacy, while a gift of real property is called a devise. o Anything not specifically given away in the will is called the residuary estate or residue. o ss 19-35 and 44 of WESA provide for the distribution of assets upon a total or partial intestacy, which occurs if any part of the estate is not disposed of by will When a person dies, their assets will be transferred to their executor if one is appointed; if there is no executor, the court will appoint an administrator, who performs the same functions o Also happens if dies intestate or the administrator can’t do it Wills contain instructions by the person who makes it (testator) about what to do with their estate after death Normally signed by testator with 2 witnesses who do not benefit from it (reduces possibility of fraud); witnesses sign affidavits of execution o If a gift is made to a witness, the will is valid, but the gift may be void (WESA, ss 37, 40, 43). o After testator dies, the will and affidavits of execution will be submitted to the court to probate the will, which is confirmation that its valid Most testamentary gifts are made by will, but it is possible to make them in other ways If a will does not make adequate provisions to support the spouse or children, the court may, at its discretion, order the provision that they think to be equitable (Tataryn v. Tataryn Estate 1994 SCC; WESA 60) Holograph will A will made without witnesses, written entirely in the testator’s own handwriting and signed by the testator o Done by people who suddenly realize they need a will, and/or they can’t afford a lawyer o Less common nowadays, since anyone can buy a “make a will” kit, and send copies to others BC and PEI don’t allow holograph wills, but a court in BC can declare any document or record valid even if it doesn’t comply with the usual formalities Alberta’s Wills and Succession Act, SA 2010, c W-12.2, s. 16 o s.16. A will may be made by a writing that is wholly in the testator’s own handwriting and signed by the testator without the presence or signature of a witness or any other formality. Intestate = no valid will or no will If a person dies without a valid will, they died wholly intestate if a person has a valid will upon death but fails to dispose of their entire estate, they are partially intestate Typically, estate is divided between spouse and children; if there are none, it goes to other relatives listed in order of priority: descendants, parents, siblings, grandparents, and so on, and if there are no relatives, then it goes to the Crown A Will only takes effect upon death and can be revoked before then. Beneficiaries do not get any rights while the testator is alive Custody of the Body The executor has a right to custody of the body of the deceased and the duty to dispose of it properly o If there is no executor or administrator, the task falls on the spouse, the parents, or the next of kin, in that order (Mason v. Mason 2018 NBCA) “In provinces that have not legislated otherwise, the common law obliges either the executor, the administrator, the surviving spouse, the parents or the next of kin, in that order, as the case may be, to properly dispose of the remains of a deceased person. To that end, a right of custody and possession is recognized until the obligation has been fulfilled.” – Richards JA, Mason v Mason, 2018 NBCA 20 Wills, Estates, and Succession Act SBC 2009, c 13 Rules ss.1-2 Definitions (What is a Spouse? What is a Lineal Descendant?) s. 1(1) "descendant" means all lineal descendants through all generations; When a person is a spouse under this Act 2(1) Unless subsection (2) applies, 2 persons are spouses of each other for the purposes of this Act if they were both alive immediately before a relevant time and o (a) they were married to each other, or o (b) they had lived with each other in a marriage-like relationship for at least 2 years. 2(2) Two persons cease being spouses of each other for the purposes of this Act if, o (a) in the case of a marriage, an event occurs that causes an interest in family property, as defined in Part 5 [Property Division] of the Family Law Act, to arise, or o (b) in the case of a marriage-like relationship, one or both persons terminate the relationship. 2(2.1) For the purposes of this Act, spouses are not considered to have separated if, within one year after separation, o (a) they begin to live together again and the primary purpose for doing so is to reconcile, and o (b) they continue to live together for one or more periods, totalling at least 90 days (doesn’t have to be consecutive). 2(3) A relevant time for the purposes of subsection (1) is the date of death of one of the persons unless this Act specifies another time as the relevant time. s.3 Effect of Adoption 3(0.1) In this section, "pre-adoption parent" means a person who, before the adoption of a child, was the child's parent (biological parent, or possibly the prior foster parents). (1) Subject to this section, if the relationship of parent and child arising from the adoption of a child must be established at any generation in order to determine succession under this Act, the relationship is to be determined in accordance with the Adoption Act respecting the effect of adoption. (allows court to declare the child was officially adopted by the folks in question) (2) Subject to subsection (3), if a child is adopted, o (a) the child is not entitled to the estate of the child's pre-adoption parent except through the will of the pre-adoption parent (doesn’t inherent under intestacy), and o (b) a pre-adoption parent of the child is not entitled to the estate of the child except through the will of the child (same as above, but reversed; no intestacy estate). (3) Adoption of a child by the spouse of a pre-adoption parent does not terminate the relationship of parent and child between the child and the pre-adoption parent for purposes of succession under this Act. s.102 Vesting of property on death (Transferring property) 102(1) On the death of a person, the deceased person’s estate vests in the court if o (a) the estate is an intestate estate, or o (b) an executor is not named in the deceased person’s will. 102(2) The estate of a deceased person vests in the person’s personal representative when the personal representative assumes or is appointed to that office. s. 36 Who can make a will (Capacity) 36(1) A person who is 16 years of age or older and who is mentally capable of doing so may make a will 36(2) A will made by a person under 16 years of age is not valid s.37 How to make a valid will (Formality) 37(1) To be valid, a will must be o (a) in writing, o (b) signed at its end by the will-maker, or the signature at the end must be acknowledged by the will-maker as his or hers, in the presence of 2 or more witnesses present at the same time, and o (c) signed by 2 or more of the witnesses in the presence of the will-maker. 37(2) A will that does not comply with subsection (1) is invalid unless o (a) the court orders it to be effective as a will under section 58 [court order curing deficiencies], o (b) it is a will recognized as valid under section 80 [re “validity of wills made in accordance with other laws” re where will was made, will-maker is domiciled or ordinarily resident, is a citizen, complies with the law of BC but will made outside BC, where property is situated, will made on board vessel or aircraft], or o (c) it is valid under another provision of this Act [e.g., member of military on active service, s. 38]. s.58 Court order curing deficiencies (Informal Wills) 58(1) In this section, “record” includes data that o (a) is recorded or stored electronically (i.e., a file on one’s computer), o (b) can be read by a person, and o (c) is capable of reproduction in a visible form. 58(2) On application, the court may make an order under subsection (3) if the court determines that a record, document or writing or marking on a will or document represents o (a) the testamentary intentions of a deceased person, … 58(3) Even though the making, revocation, alteration or revival of a will does not comply with this Act, the court may, as the circumstances require, order that a record or document or writing or marking on a will or document be fully effective as though it had been made (a) as the will or part of the will of the deceased person s.38 Will by members of military forces 38(1) A member of the Canadian Forces while placed on active service under the National Defence Act (Canada), or a member of the naval, land or air force of any member of the British Commonwealth of Nations or any ally of Canada while on active service may, regardless of his or her age, make a gift of property by will in writing, signed by the willmaker at its end or by some other person in the presence of and by the direction of the willmaker. 38(2) If the will is signed by the will-maker, there is no need for a witness to be present to witness or to sign the will as a witness. 38(3) If the will is signed by another person, the signature of that other person must be witnessed by the signature of at least one person, who must sign the will in the presence of the will-maker and of that other person s.60 Maintenance from estate (Variation of wills) 60 Despite any law or enactment to the contrary, if a will-maker dies leaving a will that does not, in the court’s opinion, make adequate provision for the proper maintenance and support of the will-maker’s spouse or children, the court may, in a proceeding by or on behalf of the spouse or children, order that the provision that it thinks adequate, just and equitable in the circumstances be made out of the will-maker’s estate for the spouse or children. ss.20-25 Distribution of estate when there is no will (Intestacy) 20 Spouse but no descendants [spouse gets it all] 21 Spouse and descendants [spouse gets furnishings + $ based on precise situation; are there other heirs of surviving spouse or other spouse] 22 Two or more spouses [divide per agreement among spouses or the court will decide] 23 No spouse but descendants or relatives [scenario options] 24 Distribution to descendants 25 Partial intestacy, i.e., some of assets go by gift or will BUT are more assets left over that go via intestacy rules s.44 Residue of an estate (Intestacy) 44. If a will does not give or otherwise dispose of all of the will-maker’s property, the property that is not the subject of a gift or otherwise disposed of in the will o (a) must be distributed to the persons who would be entitled if that property were an intestate estate, and o (b) if there is no person who would be entitled under paragraph (a), passes to the government and is subject to the Escheat Act, RSBC 1996, c. 210. s.102 Vesting Property on Death 102(1): On the death of a person, the deceased person’s estate vests in the court if o (a) the estate is an intestate estate, or o (b) an executor is not named in the deceased person’s will 102(2): Estate of a deceased person vests in the person’s personal representative when the personal representative assumes or is appointed to that office o Class/Lecture Notes (Optional) WESA applies only if deceased resident in BC, OR if estate is situated in BC [s. 101(b) & (c)] Alberta’s Wills and Succession Act, SA 2010, c W-12.2: Holograph wills o s.16 A will may be made by a writing that is wholly the testator’s own handwriting and signed by the testator without the presence or signature of a witness or any other formality o Holograph wills are not a thing in BC or PEI Will-maker must make adequate, just, and equitable provision to support spouse and children before distributing any other bequests/gifts. Tataryn v Tataryn McLachlin J for the Supreme Court of Canada – 1994 Established generosity for family Facts Alexander Tataryn, resident of BC, survived by his widow, Mary, & two adult sons: John and Edward AT’s estate valued at $315,265, including matrimonial home, rental property next door, and $122,630 in the bank o His will stated: “I HAVE PURPOSELY excluded my son, JOHN” Mary given a life interest in family home and the benefit of a discretionary trust (Edward is the trustee) Edward is given everything else Mary and john apply to the Court under the Adequate Provision for Families Act. Issues Is John entitled to a portion of his dad’s estate under s.60 of WESA? Rules 2 Norms to be addressed when executing a will: o Legal obligations: obligations which the law would impose on a person during his or her life were the question of provision for the claimant to arise o Moral obligations: norms found in society’s reasonable expectations of what a judicious person would do in the circumstances, by reference to contemporary community standards Equitable provision doesn’t take away freedom of testation; it merely limits it. It is limited by the need to provide for children and spouse in a way that is adequate, just and equitable. Analysis “The Act [Wills Variation Act, RSBC 1979 - NOW in Division 6 of WESA] did not remove the right of the legal owner of property to dispose of it upon death. Rather, it limited that Conclusion Class/Lecture Notes (Optional) right. The absolute testamentary autonomy of the 19th century was required to yield to the interests of spouses and children to the extent, and only to the extent, that this was necessary to provide the latter with what was “adequate, just and equitable in the circumstances.” “… two sorts of norms are available and both must be addressed. The first are the obligations which the law would impose on a person during his or her life were the question of provision for the claimant to arise. These might be described as legal obligations. The second type of norms are found in society’s reasonable expectations of what a judicious person would do in the circumstances, by reference to contemporary community standards. These might be called moral obligations …” Legal Obligations: During life, was the person liable/obligated to care for/support the spouse/child(ren)? If so, such obligation is imposed on the will Moral Obligations: What would be reasonably expected by community standards of a person during life towards spouse/child(ren)? If so, such obligation is imposed on the will Mary received: o the matrimonial home o a life interest in rental property o the residue of the estate Edward received: o $10,000 o 2/3 of the rental property (subject to Mary’s life estate) John received: o $10,000 o 1/3 of the rental property (subject to Mary’s life estate); Court ordered John get $10,000, and 1/3 of the rental property based on moral obligations under s.60 of WESA John wins; he is entitled to a portion of his father’s estate. “Adequate Provision” for families in Alberta WSA, SA 2010, c W-12.2, s.72(b) o family member” means, in respect of a deceased, … o (iii) a child of the deceased who is under the age of 18 years at the time of the deceased’s death, including a child who is in the womb at that time and is later born alive, o (iv) a child of the deceased who is at least 18 years of age at the time of the deceased’s death and unable to earn a livelihood by reason of mental or physical disability, o (v) a child of the deceased who, at the time of the deceased’s death, o (A) is at least 18 but under 22 years of age, and o (B) is unable to withdraw from his or her parents’ charge because he or she is a full-time student Basically, the Court completely rewrote their estate plan. Gave more to Edward than John. You can still have a favourite in the will, you just can’t give the other one nothing. Donatio Mortis Causa Gift made in serious contemplation of death (very rare) Requires delivery to donee Does not have to conform with the formalities of a valid will The donee receives control (sometimes called dominion) over the thing during the donor’s life, but the gift is not complete until the donor dies. While the donor lives, they are free to revoke the gift. Gift is conditional on a death that actually occurs o Recovering from a stroke, but getting killed by a bus makes the DMC inapplicable, but there are some cases where it is upheld, based on the circumstances) o It is not always easy to tell whether a gift is conditional on death or made absolutely. In the absence of evidence to the contrary, it is assumed that gifts made in the shadow of impending death are conditional upon it, even if the donor has no hope of recovery and will die in the near future: Wilkes v Allington [1931] 2 Ch 104. o The donatio mortis causa is conditional even in that situation because the donee might die before the donor. They can be viewed as conditional gifts inter vivos, where the condition is the donor’s death rather than some other event such as the donee’s marriage The transfer of control before death distinguishes them from other testamentary gifts. If there are not enough assets in the donor’s estate to pay its debts, a donatio mortis causa can be recalled and used for that purpose. Canadian cases have held that ownership of land cannot be the subject of a donatio mortis causa: see Sorensen (Estate) v Sorensen o Allowed in England, Sen v Headly A donatio mortis causa must be a gift of personal property (Danicki v. Danicki, ONSC) If donatio mortis causa contradicts a term in the will, the donor clearly didn’t intend the DMC; Will prevails. Cain v Moon Three necessary elements for donatio mortis causa: o 1) the gift or donation must have been made in contemplation, though not necessarily in expectation, of death (ex. Illness/risky behavior) commercial air travel is not an extraordinary risk (Snitzler v. Snitzler, ONSC) A gift can still be granted even if the donor dies from another cause (Wilkes v. Allington) o 2) there must have been delivery to the donee of the subject-matter of the gift; and It is sufficient if the donee obtains control over the subject matter; a transfer of possession is not required o 3) the gift must be made under such circumstances as shew that the thing is to revert to the donor in case he should recover o See Wilkes v Allington for a donatio mortis causa that works. Re Bayoff Estate Krueger J for the Saskatchewan Queen’s Bench- 2000 If someone intends to make an inter vivos gift but fails to complete it during their life, it can be completed if the intended donee is appointed as the donor’s personal representative and thereby acquires legal title to the intended gift Facts Peter Bayoff, dentist for 55 yrs, mostly in Meadow Lake, SK had terminal cancer On Sept 25, 1997 he made a will appointing Antoinette Simard [his long-time companion after his divorce] as his executor with a number of small bequests & residue to be divided equally among his daughter, niece & Ms. Simard After executing will in presence of witnesses, o He gave Ms. Simard the key to his safety deposit box and said “everything there is yours” o he instructed lawyer to produce paper authorizing her to access the box but not on bank form so paper declined Ms. Simard was not allowed to access box because authorization was not on the bank’s form (gotta love that red tape bureaucracy) Peter died on Oct. 1, 1997 Ms. Simard, now with the proper bureaucratic form, opened box on Oct 2, 1997 & found: o 16 coins; o 6 savings bonds (totaling $70,000); o 2 duplicate certificates of title for 2 parcels of land in Saskatchewan; & o combination to his safe Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Total estate = $739,182.65. Ms. Simard apply by consent of all residuary beneficiaries for summary court order & agreed realty covered by will Was this a valid donation mortis causa of the coins and bonds? Was this a valid gift inter vivos? 3 essential elements that must be present for a transfer of property to be classified as a donatio mortis causa: o a) Impending death from an existing peril o b) Delivery of the subject matter of gift to donee o c) The gift is only to take effect upon death and will revert to the donor should he/she recover 3 essential elements for inter vivos gift (Scarborough, Carswell, 1996) o a) An intention to give by donor o b) Acceptance of the gift by donee o c) A sufficient act of delivery completed Rule in Strong v Bird: An unfulfilled gift will be treated as complete if the donee becomes an executor under the will of the donor, so long as the intent to make the gift continues until death, by administering the estate, the donee receives control over the donor’s property and can perfect the gift. That constitutes delivery of the gift To be effective, donatio mortis causa requires: o 1. impending death from existing peril o 2. delivery of subject matter of gift, or means to get it to donee o 3. clear that gift only effective upon death & will revert to donor if s/he recovers Inter vivos gifts require: o 1. Intention to give by donor (he said he wanted to give her the contents of the box) o 2. Acceptance of gift by donee (she took the keys) o 3. Sufficient act of delivery completed (giving the keys counts as delivery) Rule in Strong v Bird (1874) 80 All E.R. 230 o Incomplete gift perfected IF donee appointed estate’s executor, as was here, & once they assume role, they have legal title to the estate’s property (it counts as delivery) An unfulfilled gift will be treated as complete if the donee becomes an executor under the Will of the donor. See Strong v. Bird (1874) 80 All E.R. 230. So long as the intent to make the gift continues until death, by administering the estate, the donee receives control over the donor’s property and can perfect the gift. That constitutes delivery of the gift. Failed part 3 of donation mortis causa requirement because he intended to give her the contents of the box prior to his death But he did give her a valid inter vivos gift; there was only sufficient delivery because she was his executrix – the inter vivos gift was only perfected once she became the executrix of his estate and was able to retrieve the contents of the box There was no valid donatio mortis causa, but there was a valid inter vivos gift. Watt v Watt Estate wasn’t really a DMC situation; court actually misapplied the rule from that one in evidence for this case. If donee becomes executor, they get possession of all legal property, and have effectively received delivery of the gifted property through the execution of the will. Sorensen (Estate) v Sorensen McDermid JA for the Alberta Court of Appeal – 1977 Real property cannot be subject to a donatio mortis causa Facts Issues Can you make a donatio mortis causa of real property and land? Rules Donatio mortis causa only applies to personal property; real property requires written deed/transfer to be legitimate. Analysis Conclusion Class/Lecture Notes (Optional) “… real property cannot be the subject of a donatio mortis causa. That it cannot appears to be a historical anomaly, and it has been questioned why it cannot, but I have found no case in Canada or England where it has been held that land could be given mortis causa …” No. No you cannot Dyck v Shingle Estate Haddad JA for the Alberta Court of Appeal - 1984 Facts Issues Rules Donatio mortis causa requires delivery; hard to do that re real property without a proper instrument of transfer. Analysis “The issue of delivery provides a bar to a mortis causa gift of land. The roots of the principle are historical. As land in earlier times presented a difficulty of delivery transfer was accomplished by the method of feoffment with livery of seisin. This consisted of a formal ceremony whereby the donor presented the donee with a clump of dirt to symbolize transfer and delivery. That formality was replaced in modern times with a deed of conveyance. In Alberta passing title is accomplished by the use of an instrument of transfer with delivery of a duplicate certificate of title followed by registration.” — Haddad JA Conclusion Class/Lecture Notes (Optional) Sen v Headley Nourse LJ for the British Court of Appeal – 1991 Not the law in Canada Facts Mr. Vivian “Bob” Hewett died intestate in 1986 o divorced in 1977 o sister in South Africa, nephew in Vancouver, niece in Brighton, England o unregistered freehold house in London close friends with Mrs. Margaret Sen since 1954 In hospital, 3 days before his death: o “The house is yours, Margaret. You have the keys. They are in your bag. The deeds are in the steel box.” Title has not transferred, but gives her control. Gave her control over the ownership of the fee simple estate because the land was unregistered and the title deeds would be needed in order to transfer or mortgage it. Issues Was there a valid donatio mortis causa? Rules Donatio Mortis Causa less preferable than an implied constructive trust. Analysis The entire concept of donatio mortis causa, but anomalies do not justify anomalous exceptions. Court compared this to a donatio mortis causa of a bank account by giving a document needed to access the account. In neither case the document transfers ownership or possession but the transfer of control is sufficient for a donatio mortis causa. “Let it be agreed that the doctrine is anomalous. Anomalies do not justify anomalous exceptions. If due account is taken of the present state of the law in regard to mortgages and Conclusion Class/Lecture Notes (Optional) choses in action, it is apparent that to make a distinction in the case of land would be to make just such an exception. A donatio mortis causa of land is neither more nor less anomalous than any other. Every such gift is a circumvention of the Wills Act 1837. Why should the additional statutory formalities for the creation and transmission of interests in land be regarded as some larger obstacle? The only step which has to be taken is to extend the application of the implied or constructive trust arising on the donor’s death from the conditional to the absolute estate.” o NOT ADOPTED IN CANADA re TRANSFER OF LAND by donatio mortis causa Donatio mortis causa can apply for transfer of land in the UK only Weaver Estate v Weaver JA for the BC Court of Appeal - 2022 Facts Separated husband (legally married in 1993 & separated in 2005) cannot qualify as a “spouse” under WESA to qualify for spousal share of his deceased spouse’s estate on intestacy or to bring wills variation claims. Wife never brought claim, but administrator of her estate filed Notice of Family Claim (NOFC) seeking division of husband’s assets & debts. He filed to strike claim. Wife’s estate won at trial Issues Does the divorced husband qualify as a “spouse” under WESA? Rules There is a two-year limitation period (under FLA) for a former spouse to file claim for “undivided half interest in all family property” and half of all debts starting from o (1) date of divorce or o (2) order that the marriage is a nullity Analysis Neither WESA nor Family Law Act (FLA) preclude claim from a deceased spouse against assets of surviving spouse. FLA sets 2 year limitation period for a spouse to file claim for “undivided half interest in all family property” & 1/2 all debts from (1) date of divorce or (2) order that marriage a nullity; but case may continue for the spouse that dies, although BCCA suggests that one would likely need sue within 2 years of death; NB: Acts in # other provinces expressly don’t allow this, but BC does o Conclusion Class/Lecture Notes (Optional) Weaver estate’s appeal allowed; husband doesn’t count as a spouse under WESA Problem would’ve been resolved if they had gotten divorced (would have forced division of property beforehand), had the marriage annulled (same outcome), or stuck together (would’ve transferred to spouse on death) Secret trusts (testamentary): Occurs when the testator arranges with a will beneficiary that they will use all or some of the assets they receive from the testator’s estate for the benefit of someone else A trust is fully secret if it appears, from the terms of the will, that the gift to the will beneficiary is for their own benefit; the trust is half-secret if the will indicates that the gift is made on trust but does not reveal the identity of the trust beneficiaries For a fully secret trust, the secret trustee must agree to the arrangement before the testator dies; for a half-secret trust, that arrangement must be in place by the time the will is made Don’t need same formalities as a testamentary trust different from an ordinary express trust that doesn’t require previous arrangement re Boyes: testator Boyes left all his property to his friend Carritt and appointed him executor of the estate o Boyes brother challenged the grant of probate to Carritt o when Coyes signed the will he asked Carritt to act as trustee to provide for a certain lady and child he didn’t wish to appear in the will and Carritt agreed but didn’t get any further instructions before he died o secret trust failed because communication of terms didn’t happen in time 2 different ways to create a testamentary trust: o 1) the term of the trust can be expressed in a will or a document that complies with the formalities of making a testamentary disposition If so there is no need for a previous undertaking for anyone to perform the trust o 2) the trust can be created informally if the intended trustee undertakes to the testator that they will perform the trust Mutual Wills: When spouses make wills together on same terms, they are reciprocal wills; when spouses contract to not change their wills, they are mutual wills Once the first party dies or loses mental capacity the survivor is bound to the contract Survivor breaches if they die and their estate isn’t distributed according to the terms of the mutual will o Executor or administrator will hold estate on constructive trust for the beneficiaries University of Manitoba v Saunderson Estate: husband and wife made mutual wills in which everything went to survivor and otherwise to university of Manitoba to fund bursaries o She died in 1985 but her will wasn’t probate because her significant assets were owned jointly with her husband, and he changed his will that year and died in 1994 o New beneficiaries argued he wasn’t bound by the mutual will contract because he didn’t get any benefits from her will he got all the assets as surviving joint tenant o Rejected by BC court of appeal, no requirement that the survivor benefits from the other party’s will o Constructive trust was imposed to give effect to their agreement LAND CONTRACTS Land Contract: Contract to grant or transfer an interest in land, such as a contract to sell a house or grant a mortgage A contractual license to use land is not regarded as a land contract (ex. Profits, easements, etc.) A contract is a source of (creates) rights; property is a kind (type) of right The essential terms of a land contract must be in writing and signed and it can give rise to equitable interests in land if it is specifically enforceable o BC still has writing requirements for land contracts, but notably not for trusts of land (Law and Equity Act, c 25, s 59) o If the writing requirement is not met, the contract is simply unenforceable, not void; unenforceable contracts can be used as a defence (Firth v. Alliance Investments) Formalities The requirements for contract for that kind of property Two steps to create/transfer real property rights (NOT APPLICABLE for sale of goods) o Intention to create/transfer o Action to give effect to that intention May require a particular form Document in writing, signatures, witnesses Deed, and formal governmental registration to prove title Proof of transaction may also require evidence in a particular form (i.e., confirming signatures of key parties and witnesses) Formalities are necessary because o Caution: The law is cautious to implement a party’s true intentions (do you really want to do this?) o Certainty: The law wants absolute certainty when it comes to land transfers (if there’s a disagreement later on, the contract clarifies parties’ intents) o Publicity: The law wants it to be public, as was essential with transfer of seisin (creates a public record) o Preventing Fraud: The law wants to prevent any risk of fraud (set procedures reduces risk of fraud) o Formalities are Important in o Testamentary Gifts: Cannot ask the dead person what happened…they’re dead. We need a written record o Interests in Land: Land has incredible value (have you seen the housing market in BC??) Plenty of property rights are non-possessory o Assignments: While one can make informal promises, collecting a debt based on those promises requires a level of formality (assigning debt requires formality) o Guarantees: When the guarantor promises to pay a debt if the debtor doesn’t pay, they are treated specially. Formalities provide consideration for the guarantee. Land Contracts in BC “[N]o Action shall be brought ... to charge any person … upon any Contract or Sale of Lands Tenements or Hereditaments or any Interest in or concerning them … unless the Agreement upon which such Action shall be brought or some Memorandum or Note thereof shall be in Writing and signed by the party to be charged therewith or some other person thereinto by him lawfully authorized” – Statute of Frauds, 1677 o Still applies in Alberta, Saskatchewan, PEI, Newfoundland and Labrador, and the 3 territories Similar provisions in BC, Ontario and Nova Scotia o Law and Equity Act, RSBC 1996, c 25, s 59 o Statute of Frauds, RSO 1990, c S.19, s 4 o Statute of Frauds, RSNS 1989, c 442, s 7 Abolished in Manitoba and New Brunswick Law & Equity Act RSBC 1996, c 25 Analysis s 59 Enforceability of contracts (1) In this section, "disposition" does not include o (a) the creation, assignment or renunciation of an interest under a trust, or o (b) a testamentary disposition. (2) This section does not apply to [short leases] o (a) a contract to grant a lease of land for a term of 3 years or less, o (b) a grant of a lease of land for a term of 3 years or less, or o (c) a guarantee or indemnity arising by operation of law or imposed by statute. (3) A contract respecting land or a disposition of land is not enforceable unless o (a) there is, in a writing signed by the party to be charged or by that party’s agent, both an indication that it has been made and a reasonable indication of the subject matter, o (b) the party to be charged has done an act, or acquiesced in an act of the party alleging the contract or disposition, that indicates that a contract or disposition not inconsistent with that alleged has been made, or o (c) the person alleging the contract or disposition has, in reasonable reliance on it, so changed the person’s position that an inequitable result, having regard to both parties’ interests, can be avoided only by enforcing the contract or disposition. Class/Lecture Notes (Optional) Disposition = transfer of land Will and/or trust does not, in and of itself, dispose of the land; they merely instruct the administrator/executor of the estate to transfer the will. Short Leases: o Relies on Residential (or Commercial) Tenancy Act for remedy, Not Law and Equity Act. Section 59 isn’t only about contracts, it’s about dispositions. Testamentary disposition (transfer) governed by law estates and succession act. In BC you can make a trust of land orally without anything in writing. Don’t need a contract itself, just need some writing that said yes we signed the contract etc signed by defendant or defendant’s agent. This is the statute of frauds’ modern language. 3(b) gives statutory basis for part performance, big exception to Statute of Frauds. 3(c) is concerned with detrimental reliance. Concerning dispositions: This section is talking about two different things: contracts and dispositions. Not sure what would be an unenforceable disposition? Either the disposition occurred, or it didn’t you’re the owner or you’re not. Odd to Chambers why it’s here/what you’re trying to solve. Doesn’t apply to trusts/trusts in land. They’re talking about the possibility of an oral gift of land, still doesn’t make sense, if you gift a house, other person moves in, no way they are the registered owner of the fee simple estate, would be a trust, not part of s. 59, still doesn’t make sense what disposition is referring it. Failure to Comply Contract becomes unenforceable, BUT IS NOT VOIDED In BC a contract respecting land or a disposition of land is not enforceable unless: There is, in writing signed by the party to be charged or by that party’s agent, both an indication that it has been made and a reasonable indication of the subject matter. The party to be charged has done an act/acquiesced in an act of the party alleging the contract or disposition that indicates a contract or disposition not inconsistence with that alleged has been made. The person alleging the contract or disposition has in reasonable reliance on it changed the person’s position so that an inequitable result, having regard to both parties’ interest can be avoided only by enforcing the contract or disposition. Contract can be used as a defence o Frith v Alliance Investment Co (1914) 49 SCR 384 o F bought lots from AIC in Calgary but then hired AIC as realtor to resell lots for him. AIC unsuccessful but offer to buy the lots. F seek specific performance of contract by AIC to sell lots to him. SCA, ABCA & SCC all deny specific performance claim. Although contract to resell was too ambiguous to be enforceable, it was effective to prove earlier contract rescinded & unenforceable. Contract can be enforced if there is Part Performance. Part Performance of a Contract Contract can be enforced if there has been part performance Oral Contracts: Different than the effect of a trust of land o The contract is unenforceable, trust is unproveable. o A contract cannot be enforced but can still have legal consequences, but a trust cannot be proved and does not exist as far as the court is concerned. o An oral contract can be raised as a defence to a claim even though the parties could not bring a claim to enforce the contract. Oral contracts can be enforced based on part performance in Canada, despite otherwise requiring writing and witnesses. Part performance can impose obligation to fulfill terms of the contract. o Part performance can also amount to detrimental reliance on the contract, which can provide another justification to enforce it. o Detrimental reliance on a land contract can give rise to an equitable interest in the land on the basis of proprietary estoppel. Part performance requires unequivocal tie between performance and the land in question o Anything that can be clearly demonstrated (without ulterior motive) to be a detriment to them Two justifications for part performance: o (1) Sufficient evidence that the contract exists: Performance provides proof/evidence that the contract exists and you feel satisfied that the contract exists by the actions taken by the parties to enforce it, don’t need to worry about fraud, satisfied that the contract exists. o (2) Detrimental reliance: You relied on it to fulfill the contract. Thompson v Guarantee Trust Co Judge for the Supreme Court of Canada – 1974 Part performance enough to affirm oral contract Dick Copithorne owned a farm in Saskatchewan. Facts Gus Thompson started working for him as farm labourer in 1922, stayed until Dick died intestate in 1970. He relied on an unenforceable land contract. Thompson was paid for the first two years, but Copithorne had health/financial problems and couldn’t afford to pay him. Thompson worked for 48 years (46 of them without pay) In this time, Thompson worked tirelessly to do everything around the farm and home, including care for Copithorne. Became more than a farmhand, skilled farmer and manager in the sense of decision-making concerning crops/sales/purchases etc. Gus Thompson continued to work on the reliance that Dick promised to leave him the farm when he died. Copithorne never actually made a will Thompson eventually took it over, managed the farm, made substantial improvements. T sued for part performance of oral contract. Thompson won at trial, but lost on appeal Did the work Gus do constitute part performance of the contract? YES Issues To take a case out of s.4 of the Statute of Frauds and hold that an oral contract should be upheld Rules due to part performance, the party arguing for part performance must prove their acts were unequivocally referable to the lands in question. The acts completed were unequivocally referable to a contract in reference to the lands at Analysis question and that farm has been the property of the deceased, the appellant was no more mere farm hired man and had not been since 1924. All the actions Thompson did over the years renovating, fixing it, making it a better place are all referable to the promise he alleged existed Thompson was about to enforce the oral contract and obtain title to the farm This qualified for sufficient acts of part performance. Thompson go what he was looking for. Conclusion Class/Lecture Notes (Optional) Maddison v Alderson Judge for the House of Lords- 1883 Part performance must be sufficiently connected to the contract Thomas Alderson owned a farm in Yorkshire. Facts Maddison was his housekeeper and worked for him until he died intestate in 1877. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) He ran into financial difficulties, so she worked without pay for the last 20 years of his life in reliance on his promise to give her a life estate of the farm. He signed a will giving her that life estate, but it was invalid because it had not been properly witnessed. She was relying on an invalid will giving her a life estate. Does her reliance on the invalid will count as part performance? The acts relied on as part performance must be unequivocally and in their own nature referable to some such agreement as that alleged House of Lords held that the oral contract could not be enforced because the acts of part performance were not sufficiently connected with the contract. The acts of part performance were not sufficiently connected, she was doing something not expressly stipulated in the will but from a different oral agreement. Maddison’s appeal dismissed House of Lords’ position reflects the older views on part performance. Starlite Variety Stores v Cloverlawn Investments Arnup JA for the Ontario Court of Appeal – 1978 Facts Cloverlawn agreed to lease retail space to Starlite Cloverlawn renovated space according to plans provided by Starlite Starlite ordered new signs and shelving for the store no written contract or lease Cloverlawn accepted a better rental offer from Mac’s Convenience Stores Ltd Cloverlawn argued (1) no lease executed; (2) Statute of Frauds breached; no written component Starlite argue (1) there was a valid lease since C cashed deposit cheque + all actions re renovations to meet its needs, signs ordered, etc. show a valid lease; (2) was oral agreement which contained terms & no actual signature required by SoF; (3) was acceptance of lease by C’s conduct; & (4) was part performance that exclude SoF as o (i) acts of part performance could only be referable to contract alleged; o (ii) would be a fraud for C to take advantage of contract not in writing; o (iii) contract referenced must be such that its nature is enforceable by court; & o (iv) must be proper parol evidence of contract which is let in by acts of part performance Issues Was the part performance sufficient to constitute a valid oral contract, bypassing Statute of Frauds requirement for written contracts? Rules Part performance can flow from either party as evidence that a contract exists – parties wouldn’t have acted this way unless there was a contract Four elements necessary for part performance to displace Statute of Frauds o (i) acts of part performance must reference alleged contract; o (ii) would be a fraud for one party to take advantage of contract not in writing; o (iii) contract referenced must be such that its nature is enforceable by court; & o (iv) must be proper parol evidence of contract, which is let in by acts of part performance Part performance can be evidence of intention to enter into contract Analysis Degelman v Guaranty Trust 1954 CanLII 2 (SCC) also upheld part performance as able to cure the lack of formalities AND displace Statute of Frauds; it applies as all four elements have been met. Cloverlawn would not have renovated space according to Starlight’s plans had they not though they were in a contract and Starlight would not have ordered shelving had they not renovated and had they not thought they were in a contract Conclusion Class/Lecture Notes (Optional) Together these are sufficient acts of part performance to suggest there was a contract However, it is impossible to order specific performance because a third party (Mac’s) was now involved – damages in lieu awarded Impossible to order specific performance as C had a new tenant; so instead awarded $20,000 damages & returned $790 deposit Starlite wins; part performance was sufficient to create a valid oral contract. Starlite did not receive specific performance, so was awarded damages. Oral contract alone not enough, but oral + acts of part performance from both parties constitute a valid contract. Where Registration is Required Land Title Act, s.20 RSBC 1996, c 250 s.20 Unregistered instrument does not pass estate Analysis (1) Except as against the person making it, an instrument purporting to transfer, charge, deal with or affect land or an estate or interest in land does not operate to pass an estate or interest, either at law or in equity, in the land in compliance with this Act. (2) An instrument [in (1) confers on any holder right to register that instrument] (3) Subsection (1) does not apply to a lease or agreement for lease for a term not exceeding 3 years if there is actual occupation under the lease or agreement. s.22 Operation of instrument as from time of registration – Registration Required An instrument purporting to transfer, charge, deal with or affect land or an estate or interest in land passes the estate or interest, either at law or in equity, created or covered by the instrument at the time of its registration, irrespective of the date of its execution. Class/Lecture Notes (Optional) Always a slight gap between when the deal is done and docs are executed, but before the land is registered Specific Performance Enforcing Contracts Damages for Breach of Contract (common law remedy): Baseline remedy o as substitute for specific performance: provides monetary equivalent of the performance. Rather than doing the thing, just pay what doing the thing was worth o as compensation for loss Injunction restraining breach of contract (equitable remedy): Usually occurs where the promise is not to do something Specific Performance (equitable remedy): Usually available where the promise is to do something o e.g., person seeking equity must do equity, must come to equity with clean hands, equity will not assist a volunteer, etc. o Used where damages are otherwise inadequate to fully to cover breach The remedy for a land contract is different than other contracts, courts will often order performance of an obligation to grant or transfer an interest in land. Specific Performance: Contracts for the sale of land may be specifically enforceable, in which the purchaser can compel the vendor to transfer title and does not have to settle for damages for non-performance Specific performance of a contract is justified when an award of damages will fail to achieve its purpose, which is to put the plaintiff in the position they would have been in if the contract had been performed o o Discretionary equitable remedy (court decides if it applies or not) Works similarly to a restrictive covenant (injunction compels performance, covenant is property right to land). Buyer can compel seller to transfer land and has a property right to the land. o Judges must no longer presume the inadequacy of damages as remedy (Semelhago v. Paramadevan) For specific performance of a contract to buy land, it is now necessary for the purchaser to prove that they have a good personal reason for wanting that land and that no similar land is available – (Raymond v. Anderson) (Semelhago v. Paramadevan) o Specific performance should be granted for a sale of real property if the property is unique to the extent that awarding damages would be inadequate (Raymond v. Anderson) o The prospective purchaser bears the burden of adducing evidence that the subject property is especially suited (unique) to the purchaser and that a comparable property is not readily available (Raymond v. Anderson) If it’s specifically enforceable, then you have an equitable interest in the land but if you don’t have specific performance, then you do not have an equitable interest in the land Your property right to the land depends on the availability of specific performance Equitable Interests in Land Compare restrictive covenants o Injunction compels performance of contract o Covenant is property right to land Specifically enforceable contract of sale o Buyer can compel seller to transfer land IF buyer completed its part of contract o Buyer has existing property right to land b4 transfer effective Semelhago v Paramadevan Sopinka J for the Supreme Court of Canda – 1996 Introduced damages as alternative to Specific Performance if Property isn’t Unique Facts P agreed to buy a house under construction for $205K, sale to close on Oct 1986. Purchasers would pay $75K with a $130K mortgage, before selling their old house S breached contract of sale; house value increased; it was worth $325K by the time the trial occurred. P sought damages in lieu of specific performance and was awarded $120K. S appealed damages, arguing P got windfall, as the value of the new house rose, while old house value rose $110K. ONCA reduced damages via 6 month’s mortgage costs, with interest on $75K & closing costs. P appealed and lost, as there was a dispute between OHC & OCA re damages the date when the property was assessed [at date of breach, or trial, or judgement] Issues Is Paramadevan entitled to the higher property value? Where a vendor reneges part-performance, the purchaser may: Rules 1) Accept the repudiation and walk away, 2) Accept repudiation and sue for damages 3) Insist on part performance until completion Analysis “It cannot be assumed that damages for breach of contract for the purchase and sale of real estate will be an inadequate remedy in all cases. … Specific performance should, therefore, not be granted as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available.” Judges must no longer presume the inadequacy of damages as a remedy Damages in lieu of specific performance are calculated at the date of the trial, not the date the contract was breached. Conclusion Class/Lecture Notes (Optional) Where Vendor reneges pre-performance, Purchaser may: o (1) accept repudiation & walk away OR o (2) accept repudiation & sue for damages OR o (3) insist on performance so contract remain in existence & obligations of both continue with Vendor & Purchaser obligated to complete & Vendor completing ends specific performance remedy If Purchaser refuse repudiation & seek fulfilment & Vendor refuses, then Purchaser’s claim for specific performance also revives contract to the extent it’s still alive & to allow Vendor to convey the property to avoid lawsuit. As such, specific performance demand postpones date of contract breach until the date of trial Was generally assumed all land contracts were specifically enforceable prior to this case (damages not adequate because no two parcels of land are the same – not anymore) Damages measured at day of trial, massively different at day of breach It is best to assess damages for unique objects at the time of judgement As such, Paramadevan gets the increase in value as damages (120k) was sufficient Because specific performance was impossible and it was not unique Obiter dictum by Sopinka J [within his majority judgement] o “It cannot be assumed that damages for breach of contract for the purchase and sale of real estate will be an inadequate remedy in all cases. [he refers to subdivisions with each house the same] … Specific performance should, therefore, not be granted as a matter of course absent evidence that the property is unique to the extent that its substitute would not be readily available.” Critiqued by many as is major departure from centuries old law that saw land as irreplaceable & unique & may carry special meaning for a new owner, but it is still open to the litigant to prove that this piece of property has unique value to the party to obtain specific performance Paramadevan wins Major repercussions: Now in Canada, in order to get specific performance of the contract to buy land, it is necessary for the purchaser to prove that they have a good personal reason for wanting that land and that no similar land is available. o This was said without considering the proprietary effects of specific performance. Every CL jurisdiction outside Canada still assumes when it comes to land, damages are not adequate, no two parcels of land are the same. o You cannot go into the market and get the exact same thing. Raymond v Anderson Caldwell JA for the Saskatchewan Court of Appeal – 2011 Purchaser rights are not contingent on characteristics of the right holder Facts Contract to sell farmland to eldest son Barry by parents who hold ¼ section as TIC. Trial J found contract valid and awarded damages for breach but son appealed as he wanted specific performance. Parents deceased, so their estate was the defendant in the action. Alfred, Barry, Barbara and Allen all are registered owners, as tenants in common of a onequarter undivided interest in land. The land includes: Barbara and Alfred’s home quarter, which has a house/barn/outbuildings, Alan’s house and veterinary clinic and Barry and his wife’s house and farming/cattle operations. Alan’s son currently lives in Barbara and Alfred’s house. Action arose out of broader dispute between Raymond brothers as to their succession to farm land owned by parents prior to death of their parents. Parents estates affirm there is a valid and enforceable agreement for sale of land between Barry and his parents. Issues Rules Analysis Is the proper remedy in this case damages or specific performance? Specific performance should be granted for a sale of real property if the property is unique to the extent that awarding damages would be inadequate The prospective purchaser bears the burden of adducing evidence that the subject property is especially suited to the purchaser and that a comparable property is not readily available Barry attested that the interest in land was unique because: o a) Barry already has an undivided one-quarter interest in the property o b) The land was a historical yard-site o c) Barry has an emotional attachment to the land because he farmed out of the yardsite as did his father and grandfather o d) Barry farmed out of the yard-site with his son Vincent prior to Vincent being accidentally killed o e) There are no reasonable yard-sites located in proximity to Barry’s home, o f) Replacement values as to the buildings on the land would make it economically unfeasible to build these facilities on his own property at his age and stage of farming and o g) Purchasing land not located within the vicinity of the primary cattle and farming operation would not be a financially viable option for Barry. CA referenced Semelhago but noted that Sopinka did NOT make a new law; merely reminded us that specific performance depends upon presumed inadequacy of money as full remedy “…the prospective purchaser bears the burden of adducing evidence that the subject property is specially suited to the purchaser and that a comparable substitute property is not readily available. … The judge, in turn, must conduct a critical inquiry on the evidence as to the nature and function of the subject property in relation to the prospective purchaser… the overall question the judge must answer is whether the justice of the matter calls for an award of specific performance because damages would be inadequate.” Court note many special attachments for Barry with land & reverse damages to award specific performance Judge made two errors: (a) the judge failed to assess whether the Land was specifically suited to Barry; and o No critical inquiry was pursued. (b) the judge failed to assess whether a comparable substitute property was readily available Conclusion Class/Lecture Notes (Optional) Specific performance should be ordered to require the transfer of the parent’s interests to Barry The appropriate remedy is specific performance Sopinka’s decision in Semelhago only reiterated underlying assumptions of property; money can’t buy everything. Some things are not truly replaceable with a dollar amount Created huge uncertainty around specific performance. Created purchaser’s rights contingent personal characteristics of the right holder. Holden v Tanase Judge for the Queen’s Bench - 2002 Facts Contract of sale of residential property near Commonwealth Stadium, Edmonton with larger lot than normal in area. Holden is a huge CFL fan (Edmonton Eskimos) & loved the location. Vendor did major renovations including basement, thinking it would be ideal to lease to help with mortgage. o Two blocks from football stadium in Edmonton o Buyer “is a ‘huge football fan’ and it is important to him that he has a place within walking distance of the stadium” o Lot 50 feet wide, most in area 33 feet wide o Basement finished Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Realtor gave detailed opinion property unique Vendor refuse to complete sale Vendor argued they did not understand contract as they were Romanian, living in Canada only since 1982, but he had bought & sold 3 prior houses, imported cars from TO for resale in Edmonton, abandoned use of interpreter at trial on p. 4 of contract; clear to all that he fully understood English, etc. Can Holden rely on specific performance? Your rights to the land depend upon whether you have something unique that makes the land special to you No special attachment to home by Vendor, as he was only there for 6 yrs, no kids born there, his wife moved to Saskatchewan years before & he replaced her with new woman. Not a unique property to him Location ideal for Holden, as Holden was a huge fan of the Edmonton Eskimos; it was unique to him. Decree of specific performance granted, not monetary damages The court ordered specific performance; Holden wins Chaulk v Fairway Construction Ltd Gushue JA for the Newfoundland and Labrador Court of Appeal - 1977 Facts Purchaser sought specific performance re agreement to buy 3 duplexes vs Vendor agreed to build & sell 5 duplexes. V deliver # 1&2 that Purchaser immediately resold at profit, so Vendor refused to build other 3, repudiate contract claiming Purchaser failed to give proof of financing in place. Nfld SC award spec perf. CA allow appeal in part & award damages. Vendor could not complain re financing not proven as it was never raised re sale of #1&2 & was no problem then & no facts changed between the buildings. No evidence either believed financing would be an issue. Issues Are damages adequate? Rules Analysis “The question here is whether damages would have afforded … an adequate remedy, and I have no doubt that they could, and would, have. There was nothing whatever unique or irreplaceable about the houses and lots bargained for. They were merely subdivision lots with houses, all of the same general design, built on them … It would be quite different if we were dealing with a house or houses which were of a particular architectural design, or were situated in a particularly desirable location, but this was certainly not the case.” Vendor’s reasons for noncompletion hold no water, and are discarded Chaulk can’t claim specific performance, since he’d already flipped the two completed homes (nothing unique about them to him). Therefore, monetary damages are possible Conclusion Chaulk wins monetary damages Class/Lecture Notes (Optional) “What distinguishes a property right is not just that they are only contingently ours, but that they might just as well be someone else’s. … The contingency of our connection to particular items of property is such that, in theory, there is nothing special about my ownership of a particular car — the relationship the next owner will have to it is essentially identical.” – JE Penner (The Idea of Property in Law, 1997) Property is intrinsically the owner’s; not linked to any attributes of the owner. Your car is your car, it doesn’t matter what type of a person you are or if you like a certain food. Not saying people can’t have personal attachment to things, but things you have aren’t tied to your personality. For specific performance, you must prove that the connection you have with the property is unique and personal to the point where simple monetary compensation is insufficient to cove the loss. o o Constructive Trusts? If you have a right to specific performance, that interest is a constructive trust; you have an equitable interest in the land. That right arises the moment the specifically enforceable contract is made o Canada generally assumes the contract is specifically enforceable One person has legal title, someone else has beneficial ownership/share of beneficial ownership in equity. Why is it a trust? One person has share of beneficial ownership in the house that starts when the contract is made. Why is it constructive? Arises by operation of law. Trust arises when contract is made, arises because of equity, equity is imposing the trust o “By the contract of sale the vendor in the view of a Court of Equity disposes of his right over the estate, and on the execution of the contract he becomes constructively a trustee for the vendee” [until transfer complete] (Shaw v. Foster) o As soon as vendor signs contract of sale, they have become constructive trustee of the property (having legal obligations to the purchaser once contract is executed), with full beneficial ownership only transferring to the purchaser upon registration on title. General principle: If you make a bargain in sale, there is a subsequent trust “A contract for valuable consideration, by which it is agreed to make a present transfer of property, passes at once the beneficial interest, provided the contract is one of which a Court of Equity will decree specific performance. … the vendor becomes a trustee for the vendee; subject, of course, to the contract being one to be specifically performed.” — Lord Westbury LC in Holroyd v Marshall (1862) 10 HLC 191 o Constructive trusts only arise where the contract would be one that leads to specific performance “By the contract of sale the vendor in the view of a Court of Equity disposes of his right over the estate, and on the execution of the contract he becomes constructively a trustee for the vendee” — Lord O’Hagan in Shaw v Foster (1872) LR 5 HL 321 “Neither the seller nor the buyer has unqualified beneficial ownership. Beneficial ownership of the land is in a sense split between the seller and buyer on the provisional assumptions that specific performance is available and that the contract will in due course be completed, if necessary by the Court ordering specific performance. In the meantime, the seller is entitled to enjoyment of the land or its rental income. … If the contract proceeds to completion the equitable interest can be viewed as passing to the buyer in stages, as title is made and accepted and as the purchase price is paid in full.” – Lord Walker, in Jerome v Kelly [2004] UKHL 25 o It is a constructive trust until the land is sold, registered and places the purchaser in possession o Point is, beneficial ownership is divided o Must be a trust because it’s not a security interest, not a restrictive covenant, its only shared beneficial ownership in equity which by definition is a trust o Who is the beneficial owner; the vendor or the purchaser? While we are in the in between period, vendor is still on title as owner, purchaser in process of becoming owner, rights are still with vendor until there is completion o In equity starting to move with purchaser o “Ownership comprises the right to possess, the right to use, the right to manage, the right to the income of the thing, the right to the capital, the right to security, the rights or incidents of transmissibility and absence of term, the prohibition of harmful use, liability to execution, and the incident of residuarity” – Honoré, Ownership (1961) 1244034 Alberta Ltd v Walton Int Group Inc Berger JA for the Alberta Court of Appeal - 2008 Facts Walton Int Group bought parcel of land & sold 151 undivided interests in land, planning to resell land at profit & divide among owners. Any sale required OK by 60% of owners & each had right of 1st refusal on any sales. WIG enter contract of sale with 1244034; but WIG unable complete as 1 of 151 owners exercise right of 1st refusal. 1244034 sought interlocutory injunction to restrain WIG from transferring property & filed caveat on title. WIG filed a motion dismissing caveat. Queen’s Bench motions judge dismissed 1244034 motion & granted WIG’s motion. Court of Appeal denied appeal, relying on Semelhago. 1244034 planned to flip land Issues Rules If the property does not have sufficiently unique characteristics, damages win out over specific performance Analysis “The inquiry by a trial judge is not a mere consideration of the nature and function of the land. The relevant inquiry with respect to whether or not the property is "unique" is whether the evidence of replaceability for the purchasers' purposes is sufficient… In my opinion, the chambers judge's reasoning does not equate with the proposition that the acquisition of property for commercial profit invariably precludes specific performance. Rather, the chambers judge considered whether an award of damages would suffice and concluded that it would… It is axiomatic that if specific performance is not available, there is no interest in the land.” Damages were a sufficient remedy Conclusion Class/Lecture SCC denied leave to appeal Notes Is there something unique about the property that would skew toward specific performance? (Optional) Options to Purchase An option to purchase land: A contractual right to buy the land (must pay money for that right), without obligation to complete the transaction o Not buying the property, but buying the right to buy it ahead of other interested parties Different from contract of sale: If option holder doesn’t want to exercise their option, they don’t have to buy the property at all (they can walk away). o Buyer decides whether or not to buy and the seller is bound by that decision o Seller cannot revoke the option for the duration of the contract o Consideration is not relevant to its validity If the exercise of an option will produce a specifically enforceable contract of sale or lease, then the option is an equitable property right, because the option holder has the power to obtain title Option-holder had the right to compel sale on terms of the contract. If the Vendor refuses to honour it, they are in breach. o There can be options to acquire property rights that are less than full ownership. For example, a five-year lease might contain an option to renew the lease for another five years. o As soon as the option is granted, the moment you acquire the option, you have the power to obtain title at your discretion (Very powerful) An option is an offer which is irrevocable for the duration of its terms. If the other party exercises the option, this constitutes an acceptance of the offer. This gives rise to a binding contract of sale (Mountford v. Scott) o No consideration, no offer leading to specific performance (i.e., the consideration in Mountford was the promise to buy the property for £10,000, not the £1) An option is an equitable interest in land, which arises as soon as the option is agreed upon (London and Southwest Railway Co. v. Gomm) An option holder can acquire legal title if exercising the option gives rise to a specifically enforceable contract (Canadian Long Island Petroleum) Mountford v Scott Russel & Cairns LLJ for the Court of Appeal – 1975 Option to purchase Facts Scott granted to Mountford a 6-month option to purchase house for £10,000 in Dec 1971. o Consideration for option = £1. In Jan 1972, Scott withdrew offer. Mountford exercised option in March but Scott refuse to sell so Pl. sues for specific performance of option Scott argued option was unenforceable he was not given adequate consideration for option Issues Is there still a binding contract for an option to purchase with minimal or insufficient consideration? Is the proper remedy damages or specific performance? Rules An option is an offer which is irrevocable for the duration of its terms. If the other party exercises the option, this constitutes an acceptance of the offer. This gives rise to a binding contract of sale An option is an ordinary offer, coupled with a promise not to withdraw that offer during the period of the option Analysis “The court will never lend its assistance to enforce the specific execution of contracts which are voluntary, or where no consideration emanates from the party seeking performance, even though they may have the legal consideration of a seal ...” CA decided that the adequacy of consideration is NOT RELEVANT to VALIDITY of option so £1 was OK (even though purchase consideration was £10,000). Scott’s attempt to withdraw invalid. An option is valid for the duration of its term as a binding contract, so Mountford can still exercise it. o An option creates an equitable interest in land over which it is exercisable. The plaintiffs acquired an equitable interest in the defendant’s land at the moment when the option agreement came to be signed and that such interest will be enforced subject only to the exercise of the option Once option exercised it created binding contract of sale, which also create an equitable interest in land over which the option is exercisable. Court of Appeal awarded specific performance Conclusion Scott’s appeal dismissed Class/Lecture Notes (Optional) Right of First Refusal Right of First Refusal/Pre-Emption/Presumptive Right = The owner will not sell the land until they first offer it to the right-holder on those terms – it is an equitable interest in land (S.9 of Property Law Act) The right of first refusal is not an offer in itself and imposes no obligation on the owner to sell the land, only if that he chooses to sell, the holder of the right of first refusal is entitled to receive the first offer (Pritchard v. Briggs) o If I choose to sell, I will give you first dibs on buying it According to Chambers, it is similar to a restrictive covenant: all you have is a right to stop the owner from doing something (here, selling to someone else) Difference between Right of First Refusal and an Option = Right of first refusal is different because the person who has this right cannot compel the land owner to sell but with an option, you can compel the landowner to sell o Does not include the right to compel sale Pritchard v Briggs Goff LJ for the Court of Appeal – 1980 Difference between an option and right of first refusal Facts Vendor had given right of first refusal, then went and sold it to someone else. The cad. Issues Does a right of first refusal create an interest in land? Rules The person holding a right of first refusal cannot compel a right to sell; it creates an equitable interest in the land, not an equitable right in the land. “A right of pre-emption gives no present right, even contingent, to call for a conveyance of the legal estate.” The right of first refusal is not an offer in itself and imposes no obligation on the owner to sell the land, only if that he chooses to sell, the holder of the right of first refusal is entitled to receive the first offer Right of first refusal confers no immediate right on the prospective purchaser – it imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving the holder of right refusal the opportunity of purchasing in preference to any other buyer Analysis “a right of pre-emption [= 1st option to buy or ROFR] gives no present right, even contingent, to call for a conveyance of the legal estate.” The grantor of a right to first refusal is free to sell or not, as long as they don’t sell to anyone else, and he can withdraw his offer at any time prior to acceptance. “Speaking generally, the giving of an option to purchase land prima facie implies that the giver of the option is to be taken as making a continuing offer to sell the land, which may at any moment be converted into a contract by the optionee notifying his acceptance of that offer. The agreement to give the option imposes a positive obligation on the prospective vendor to keep the offer open during the agreed period so that it remains available for acceptance by the optionee at any moment within that period. It has more than a mere contractual operation and confers upon the optionee an equitable interest in the land, the subject of the agreement: see, for example, per Williams J in Sharp v Union Trustee Co of Australia Ltd (1944) 69 CLR 539, 558. But an agreement to give ‘the first refusal’ or ‘a right of pre-emption’ confers no immediate right upon the prospective purchaser. It imposes a negative obligation on the possible vendor requiring him to refrain from selling the land to any other person without giving to the holder of the right of first refusal the opportunity of purchasing in preference to any other buyer. It is not an offer and in itself it imposes no obligation on the owner of the land to sell the same. He may do so or not as he wishes. But if he does decide to sell, then the holder of the right of first refusal has the right to receive the first offer, which he also may accept or not as he wishes. The right is merely contractual and no equitable interest in the land is created by the agreement.” Conclusion Class/Lecture Notes (Optional) Only triggered when owner decides to sell; this is especially common for shareholders so as to acquire new shares issued by company Property Law Act, RSBC 1996, c 377, s 9 = Right of first refusal o s. 9 A right of first refusal to land, also known as a right of refusal or right of pre-emption, created before or after this section comes into force is an equitable interest in land. Don’t confuse with Right of First Offer (ROFO), which merely requires owner exclusively to engage in good faith negotiations with ROFO holder before approaching others PROPRIETARY ESTOPPEL To succeed in a proprietary estoppel claim one must (interest in the land can arise when one): 1. Prove that they had a reasonable expectation of acquiring an interest in the other party’s land, 2. Through his or her conduct the defendant had, by some means, provided encouragement to the plaintiffs; (Taylor Fashion) and 3. The plaintiffs acted in reliance on that belief to their detriment. 4. In addition, it must be shown that to allow the defendant to enforce his or her legal rights the result would be unjust, inequitable or unconscionable What is Proprietary Estoppel? Trying to get a court order to stop someone from doing something related to property How is it different from regular contract? Proprietary Estoppel is not itself a contract; it is a remedy sought in relation to a contractual breach (related to property) How is it different from other types of estoppel? Estoppel in Common Law: Party stopped from asserting facts o If one party represents to another a fact is true, and the other party arranges their affairs in reliance on that fact then in subsequent litigation between them, the party who made the representation may be estopped from denying it is true if that would cause a detriment to the other party. o Can affect legal rights between parties if what is claimed is an essential element of a claim or defence Promissory Estoppel in Equity: Party stopped from asserting rights (Shield) o A promise not to enforce a contractual right o Where there’s no consideration given for a promise, therefore there is no variation of contract o A waiver of a right; a defence or a shield Proprietary Estoppel in Equity: Creates property rights (Sword) How does it generate property rights? Proprietary estoppel can create property rights – can use it as a sword rather than only as a shield (Unlike Promissory Estoppel) B has a reasonable expectation of acquiring an interest in A’s land B relies on promise(s) made by A to the detriment of B Detrimental reliance may generate for B a legal interest in A’s land in equity Detrimental reliance generates rights beyond mere estoppel o Question remains: How much detrimental reliance is necessary? Case by case basis—sort of a thing where it’s a point of no return and damages will not suffice (Taylor Fashion v. Liverpool) Estoppel is a rule of evidence Equitable interest can become enforceable when an expectation is created and then relied on to the other parties detriment and does not depend on actual agreement (Crabb v. Arun District) o An expressed promise is not required for an expectation to arise (Thorner v. Major) “An equity arises when the claimant reasonably relies to his detriment on the expectation that he will enjoy a right or benefit over property, whether or not the party responsible for that expectation owns an interest in the property at the time of the claimant’s reliance.” (Cowper-Smith v. Morgan) o If both parties reasonably expect that the defendant will acquire the land in the future, then the plaintiff can acquire an interest in that land if and when that occurs (Cowper-Smith v. Morgan) Most far-reaching form of estoppel because it can operate as an independent source of equitable property rights (can cite any of these cases below) Taylors Fashions Ltd v Liverpool Victoria Trustees Co Ltd; Old & Campbell Ltd v LVT Co Oliver J for the Queen’s Bench- 1982 Facts Taylors’ had an initial lease for 28 years with an option to renew for 14 years from O&C. O&C later sell building to LVT & became its tenant. Both TFL & O&C seek to have leases renewed. All parties thought leases benefit from right under Land Charges Act 1972 to renew, but were mistaken, as the leases were not registered. Both TFL and O&C renovated premises due to expected renewal, with TFL’s more extensive (installed a lift to the 2nd floor) as they believed they had a 2nd term of 14 years. o LVT NOT required to renew lease. Both parties sued LVT for specific performance relying on estoppel to compel renewal. LVT argued it was merely a case of simple mistake by all parties. Issues Was this a case of common mistake, or can the plaintiffs rely on proprietary estoppel? Rules Proprietary estoppel is focused on real property, where damages alone will not suffice, and the plaintiffs want to exercise the rights they relied on. Analysis “The inquiry which I have to make... is simply whether, in all the circumstances of this case, it was unconscionable for the defendants to seek to take advantage of the mistake which, at the material time, everybody shared, and, in approaching that, I must consider the cases of the two plaintiffs separately because it may be that quite different considerations apply to each.” “If under an expectation created or encouraged by B that A shall have a certain interest in land, thereafter, on the faith of such expectation and with the knowledge of B and without objection by him, acts to his detriment in connection with such land, a Court of Equity will compel B to give effect to such expectation.” LVT encouraged O&C to spend money on renos with belief 14-year term available LVT never fostered same belief by TFL that had a right to renewal (right to renewal was included under privity of contract with O&C, not with LVT) Conclusion O&C won; TFL lost Class/Lecture Proprietary estoppel applies when damages will not suffice and you want your rights as you Notes relied on them, interested in real property (Optional) If a party creates and encourages an expectation in land that the other party (with the first’s knowledge) acts to their detriment on that expectation without the first party’s objection, the Court of Equity will demand that the first party give the second what they though they were supposed to get. Inwards v Baker Denning MR for the Court of Appeal - 1965 Facts Papa Baker owned six acres of land. Son Jack wanted to buy his own land and build a house in the area, but pops suggested son save money by building a bigger house on pop’s land Son agreed and built bungalow on father’s land in 1931 Papa Baker died 1951 with a 1922 will [executed before the land was bought and Jack’s house built] making Ms. Inwards (his common law partner) executor of estate, o Will left land & most assets to her & their children with only £400 to Jack. o She appointed her 2 kids as co-trustees with her and they sued to evict Jack in 1963. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) o She died but her kids continued the lawsuit. Her kids won at trial as Jack was a mere licensee; there was no contract or promise from father that son could stay there forever Did Baker have an equitable interest giving rise to a proprietary estoppel claim, such that the trustees could not remove him from the land? “If there is no binding contract to grant any particular interest to the licensee, the court can look at the circumstances and see whether there is an equity arising out of the expenditure of money. All that is necessary is that the licensee should, at the request or with the encouragement of the landlord, have spent the money in the expectation of being allowed to stay there. If so, the court will not allow that expectation to be defeated where it would be inequitable so to do.” A licensee may, under equity, continue to reside on property if they, at the request/encouragement of the landlord, spent money in expectation of being allowed to live there, even if there is no binding contract. This is a contextual analysis The father allowed an expectation to be created in the son’s mind that this bungalow was to be his home which bound his father in equity to not be able to remove him o The purchaser is also bound by equity—the equity arises from the expenditure of money by a person in actual occupation of land when he is led to believe that, as a result of that expenditure, he will be allowed to remain to there o It was to be his home for his life In this case, there was no binding contract to grant any particular interest to the licensee. In these circumstances, the Court can look at the situation and see if there is equity rising out of the expenditure of money. License is usually a right in personam, would otherwise be a trespass. Problem is, the arrangement he made is with his dad. If this truly is a license and his dad was estopped from invoking it, why would any other strangers? Even in unregistered system, you are fixed with notice of anyone in occupation. The son is stuck with any rights he would have if he had proprietary interest in the land. “So in this case, even though there is no binding contract to grant any particular interest to the licensee, nevertheless the court can look at the circumstances and see whether there is an equity arising out of the expenditure of money. All that is necessary is that the licensee should, at the request or with the encouragement of the landlord, have spent the money in the expectation of being allowed to stay there. If so, the court will not allow that expectation to be defeated where it would be inequitable so to do… It is for the court to say in what way the equity can be satisfied. I am quite clear in this case it can be satisfied by holding that the defendant can remain there as long as he desires to as his home.” [still as licensee not owner] Jack neither owns the land, nor the house on it, but at least he can live in it as a licensee. Proprietary estoppel prevents the landowner from kicking him off (the license was openended, with no clear end point) The trustees, as the successors in title of the father, are bound by Baker’s equitable right and cannot remove him from the land (Baker can remain as a licensee but Inwards still owner) Crabb v Arun District Council (ADC) Denning MR for the Court of Appeal – 1976 Proprietary estoppel protects a right of way Facts Crabb was negotiating with ADC for a Right of Way and reached an agreement. BUT they did NOT execute a formal contract. ADC built an expensive fence with gate at proposed access point for C C subdivided his land, and sold part of land, retaining part that was only accessible via gate and Right of Way (Otherwise landlocked) Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) ADC denied access, removed gate and installed a wall, insisting on large payment for access (gotta love municipal extortion) C sued in proprietary estoppel. Crabb entitled to the easement under proprietary estoppel? Is this just a gratuitous promise? Short of an actual promise, if he, by his words or conduct, so behaves as to lead another to believe that he will not insist on his strict legal rights – knowing or intending that the other will act on that belief – and he does so act, that again will raise an equity in favour of the other: and it is for a Court of Equity to say in what way the equity may be satisfied. Proprietary estoppel does not depend on agreement but on words or conduct that led another to act to their detriment (knowing that they would act on their expectations). A gratuitous promise can be binding without consideration by asking: o 1. “is there an equity established?” o 2. “what is the extent of the equity if one is established?” o 3. “what is the relief appropriate to satisfy the equity?” With no contract, can a merely gratuitous promise be binding with no consideration? The parties hadn’t contracted; they were anticipating a contract Scarman LJ: 3-part test that court must answer: o 1. “is there an equity established?” (Yes, C sold his land while relying on the council’s agreement) o 2. “what is the extent of the equity if one is established?” (Could the council change its mind, remove the gate, and erect a wall?) o 3. “what is the relief appropriate to satisfy the equity?” ( “The Court therefore cannot find any equity established unless it is prepared to go as far as to say that it would be unconscionable and unjust to allow the defendants to set up their undoubted rights against the claim being made by the plaintiff.” – Scarman LJ “Short of an actual promise, if he, by his words or conduct, so behaves as to lead another to believe that he will not insist on his strict legal rights – knowing or intending that the other will act on that belief – and he does so act, that again will raise an equity in favour of the other: and it is for a Court of Equity to say in what way the equity may be satisfied. The cases show that this equity does not depend on agreement but on words or conduct.” o Did Crabb lead the council to believe that he would not insist on strict legal rights? o Did the council understand that Crabb was absolutely relying on the right of way as a binding promise to have the gate in place in perpetuity? o Did whoever C was dealing with have the authority to bind the municipal government? Crabb would have to believe that the person he was dealing with had the authority to bind the council. Normally, one must pay for a right of way; Crabb “paid” by suffering loss of having the land be inaccessible for years (X years of extortion, and get your next right of way free!) Crabb relied on expectation, acquired an interest in the council’s land and has suffered a detriment because of this reliance (landlocked himself when he sold the adjacent property) Council ordered to provide him with an easement of right of way, to be enforceable not just against the Council, but all others as well. Did the words or conduct suggest to the parties that they had committed not to change the situation? Stiles v Tod Mountain Development Ltd Judge for the BC Supreme Court- 1992 Facts Highland Development purchase ski resort on Tod Mountain (now Sun Peaks) & advertised proposed subdivision of land Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Stiles paid $4,000 in Oct 1971 to Highland for lot 7; got building permit for 956 sq ft cabin and paid contractor $30,000 to build home Highland sold land to Tod Mountain Recreations (TMR) which went into receivership; TMD Ltd bought land. TMD recognize S’s rights but BC Govt rejected subdivision, so S did NOT have fee simple & couldn’t register his lot, as the subdivision did not exist. S never had any confirmed realty interest All subsequent owners recognized that he had paid up, but because he didn’t register the title, he couldn’t convey the land itself. Stiles could only sell the right to the land, provided the landowner recognizes that he had a right to possession. o Did Stiles have a recognizable interest in the land? Proprietary estoppel can grant a licence to occupy land, if the landowners have to pay the licensee Court cannot give title to S, as there is no title to give Stiles had a licence, which is only a right in personam. o However, the license granted in this case was a right to possession of the land, enforceable against subsequent owners, so it must have actually been an estate. BCSC decided that S acquired “an irrevocable unregistrable contractual licence to occupy a portion of that land” by right of proprietary estoppel binding on TMD as it had notice of S’s rights o S’s detrimental reliance on TMD to continue to respect the rights, as per Inwards v Baker, granted an irrevocable licence to occupy, which was binding on successors of landowner. Specific performance impossible. TMD must offer new lot if they want to end licence and contribute to cost of Stiles’ move Stiles had an irrevocable, unregistrable, contractual license to occupy the land that he had expected to acquire by estoppel. Problems with the decision: His deal was with the previous, previous owner, not current owner. Land was sold twice. The plaintiff must have a right in rem. There’s no chance the current owner made any representations to him. Leads to another problem, this goes to registration system. They have indefeasible title free from any adverse claims. There’s no exception for this kind of claim that the plaintiff has. Doesn’t make sense, if it’s a right in personam, doesn’t have a right to be there anymore. If he has a right in rem, it would be defeated by land title system. o If it’s a pure personal right to be there: not enforceable. o If it’s a right in rem: would be defeated by land registration system. o He’s occupying this piece of land that’s not a lot. Land hasn’t even been subdivided, would usually just grant damages in this type of situation. Judge says if company wants that land have to pay plaintiff to move his house somewhere. If estoppel arises (makes sense), he’d have an estate, a life estate. He’d still lose because of registration rules Stiles’ action won. Yaxley v Gotts Walker LJ for the Court of Appeal- 2000 Facts Yaxley (Y), a self-employed builder, seeking money from Brownie Gotts (BG) to buy house and convert it into 6 flats as rental properties. BG instead bought building under a “gentleman’s agreement” that Y would reno house at Y’s expense, Y to get 2 units for free, and be a managing agent re leasing/sale of other four units Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) BG’s son Alan (AG) bought house, while Y created units & collected rent for BG whom he believes is owner. BG refuses to convey the 2 units, denies there ever was agreement, and AG banned Y from property Y argue BG was oral contract, which triggered proprietary estoppel. AG & BG argue if there was an oral contract, was void as it did not comply with formalities of Law of Property Act 1989. No writing, no contract for land Trial judge find credible evidence of oral contract & declared it to be a 99-year lease for Y for the 2 units. AG & BG appealed Has an equitable interest in the property arisen? It must be shown that to allow the defendant to enforce his or her legal rights the result would be unjust, inequitable, or unconscionable Proprietary estoppel has evolved to generating the exact same thing a contract would generate (creating property rights) Proprietary estoppel provided a bypass to avoid writing requirement for registering land title AG knew of BG’s promise that Y get beneficial interest in ground floor yet stand by while Y renovate upper floors at own expense Brownie forced to give Yaxley what he wants because it would be unconscionable to allow him to renounce the oral promise made o Court ruled that Alan was to hold a 99-year constructive trust for Yaxley for the ground floor of the building o “A constructive trust of that sort is closely akin to, if not indistinguishable from, proprietary estoppel. Equity enforces it because it would be unconscionable for the other party to disregard the claimant's rights” o Yaxley is getting exactly what was promised, what he would have received if they actually had a contract “In my view the provision that nothing in Section 2 of the 1989 Act is to affect the creation or operation of resulting, implied or constructive trusts effectively excludes from the operation of the section cases in which an interest in land might equally well be claimed by relying on constructive trust or proprietary estoppel… That, to my mind, is the case here... It would be unconscionable to allow either Alan or Brownie Gotts to resile from the representations made by Brownie Gotts and adopted by Alan Gotts. For my part I would hold that the plaintiff established facts on which a court of equity would find that Alan Gotts held the property subject to a constructive trust in favour of the plaintiff for an interest in the ground floor and that that interest should be satisfied by the grant of a 99 year lease. I consider the judge was entitled to reach the same conclusion by finding a proprietary estoppel in favour of the plaintiff. I, too, would dismiss the appeal.” ---- Beldam LJ Walker LJ agreed by saying “that the plaintiff was entitled to a long leasehold interest under a constructive trust.” o “…the species of constructive trust based on 'common intention' is established by what Lord Bridge in Rosset called an "agreement, arrangement or understanding" actually reached between the parties, and relied on and acted on by the claimant. A constructive trust of that sort is closely akin to, if not indistinguishable from, proprietary estoppel. Equity enforces it because it would be unconscionable for the other party to disregard the claimant's rights. Section 2(5) expressly saves the creation and operation of a constructive trust.” -- Walker LJ Gotts’ appeal dismissed; denied leave to appeal to House of Lords. Thorner v Major Hoffman LJ for the House of Lords - 2009 Facts D Thorner worked on P Thorner (his cousin)’s farm for 30 yrs unpaid, and on his parents’ farm [where he was both housed & paid] with PT’s promise that DT would inherit his farm and included the promise in his will. PT destroyed the will, as he angry at the other beneficiaries and did not replace it. PT died intestate. DT claimed proprietary estoppel and won at all levels, even though size of farm varied over the years Issues Did PT’s words and actions reasonably convey to DT an assurance that PT intended Dt to inherit the land? Rules “it is a necessary element of proprietary estoppel that the assurances given to the claimant should relate to identified property owned or perhaps about to be owned by the defendant” Analysis Lord Scott: proprietary estoppel (PE) only used where promisee believes will acquire promisor’s land, but he favours constructive trust. Claim elements include o (1) clear assurance o (2) reasonable reliance on promise & o (3) substantial detriment Lord Walker: Proprietary Estoppel requires o (1) promise/representation by Def. that claimant has or will acquire some right in D’s land; o (2) reasonable reliance on promise/representation; o (3) detriment suffered by reliance. “In my opinion it is a necessary element of proprietary estoppel that the assurances given to the claimant … should relate to identified property owned (or, perhaps, about to be owned) by the defendant.” DT worked unpaid for 30 years; if that’s not detrimental reliance, I don’t know what is. Conclusion D Thorner’s appeal allowed Class/Lecture Notes (Optional) Walton Stores v Maher Mason CJ for the High Court of Australia - 1988 Facts Maher did extensive work with reasonable expectation that prospective tenant would take lease. Walton stores had its eye on another property and informs its lawyer to go slow in case they can get a better deal elsewhere. Walton stores requested new property so Maher started constructing it but then Walton stores refused to execute lease. Maher sued and won on the basis of proprietary estoppel Issues Can Maher raise a proprietary estoppel for expecting Walton Stores to lease his property? Rules Estoppel can extend to not only an expectation of an interest in someone’s land but also to the party granting an interest in land (a lease) Analysis “it may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party” “There is no logical distinction to be drawn between a change in legal relationships effected by a promise which extinguishes a right and a change in legal relationships effected by a promise which creates one… the doctrine extends to the enforcement of voluntary promises on the footing that a departure from the basic assumptions underlying the Conclusion Class/Lecture Notes (Optional) transaction between the parties must be unconscionable. As failure to fulfil a promise does not of itself amount to unconscionable conduct, mere reliance on an executory promise to do something, resulting in the promisee changing his position or suffering detriment, does not bring promissory estoppel into play. Something more would be required… is may be found, if at all, in the creation or encouragement by the party estopped in the other party of an assumption that a contract will come into existence or a promise will be performed and that the other party relied on that assumption to his detriment to the knowledge of the first party. – Mason CJ & Wilson J Sucks to be Walton Contract vs Proprietary Estoppel What promises are enforceable? o formality (deed) o consideration (contract) o detrimental reliance (estoppel) Promisor must know, or reasonably have known, that the promisee was relying on the promise, and suffered a detriment in doing so. Nature of the promise must be reasonable When does a promise become enforceable? o A contract is enforceable the day the contract is made o When there is detrimental reliance on representations made (and not fulfilled) o When there is consideration and delivery How is it enforced? o Compel the other party to fulfil the promise, and failing that, seeking an alternative remedy o Primary goal: enforce the promise (against the promisor or whoever might stand in the promisor’s shoes) When does the interest arise? Per Contract – requires a clear o (1) Offer, o (2) Acceptance of offer & o (3) Consideration agreed to by all parties [& possible formalities depend on property] Per Proprietary Estoppel – requires a clear o (1) Promise/representation by Defendant that Plaintiff has, or will acquire, some right in Defendant’s land (representation of future intentions); o (2) Defendant knows there is reasonable reliance by Plaintiff on promise/representation & Defendant does not correct that misunderstanding; o (3) Detriment suffered by Plaintiff due to that reliance (Thorner v Major). Cowper-Smith v Morgan McLachlin CJ for the Supreme Court of Canada Court – 2017 Resulting Trust Facts Arthur & Elizabeth married in 1945; had 3 children: Gloria (1946), Max (1951), and Nathan (1954). A died 1992 with E surviving Join Tenant of their house in Victoria. Kids don’t get along E transferred house to herself & daughter Gloria as JTs in 2001 in trust for E for her life with remainder to G. E’s 2002 will appointed G executrix; dividing estate equally among G, M & N. Issues Rules Can proprietary estoppel bind the sister to her promise? Proprietary estoppel can occur when: 1. A representation or assurance is made to the claimant, on the basis of which the claimant expects that he will enjoy some right or benefit over property; 2. The claimant reasonably relies on that expectation by doing or refraining from doing something, and his reliance is reasonable in all the circumstances; and 3. The claimant suffers a detriment as a result of his reasonable reliance, such that it would be unfair or unjust for the party responsible for the representation or assurance to go back on her word Analysis G is the sole owner of the house for her own benefit if the trust agreement is valid (it’s her house, not part of the estate) M moved from UK to Victoria in 2007 to care for E, relying on G’s promise that M can live in house permanently, and could acquire G’s 1/3 share in house when E died. o Both kids expected their mother to leave them equal shares of the home E died in 2010. G (sister) promised M (brother) that he would be able to purchase her eventual interest in their mother’s property, brother reasonably relied on that expectation that he would be able to do so. o The brother suffered as a result of his reliance, it would be unfair and unjust to permit the sister to resile from her promise. o The sister did not have a property interest at the time that her brother relied on the promise but that doesn’t negate her obligation to keep her promise. o Promissory estoppel will attach to the sister’s interest in the property as soon as she receives it. BCSC held in 2017 (1) transfer of house to E & G was done via G’s undue influence so transfer set aside; (2) house held on Resulting Trust (conveyance had occurred, and the house was in her name); (3) M can purchase G’s 1/3 interest at Fair Market Value via proprietary estoppel BCCA upheld, but Max appealed on the remedy (not the judgment) o “While the criteria that define the limits of proprietary estoppel are not unalterable, I see no reason in principle why the cause of action should be expanded to permit a person to acquire an interest in property by reliance upon an assurance by a non-owner that falls short of a contractual obligation.” – Willcock JA o Gloria had no ability to make good on her promise to her brother; at the time, it was her mother’s house, not hers (nemo dat quod non habet) o Can’t rely on a promise where the promisor has no ability to carry out the promise Proprietary estoppel can be used as a cause of action (sword) Proprietary estoppel can operate even if the defendant does not own the land when the plaintiff relies on their promise. If both parties reasonably expect that the defendant will acquire the land in the future, then the plaintiff can acquire an interest in that land if and when that occurs Sister assured her brother that if he moved into the family home to take care of their aging mother, that he would acquire her share of the property after the mother’s death. However, sister is technically making a promise about land that is actually her moms and not hers yet – will be hers when her mom dies. o The promise was an unwritten land contract to grant an option to purchase Grounds for Proprietary Estoppel o 1) The sister assured Max that if he moved back, he would acquire her interest o 2) Max reasonably relied on the promise because he knew that the sister would acquire the interest that she was promising to give away upon the mother’s death— the sister not having a direct property interest at the time her brother relied on the promise does not negate her obligation to keep her promise o Max’s “equity” arose NOT when sister received her 1/3 interest in house via Elizabeth’s will BUT when Gloria’s promise was made, even though she had no interest in home at that time, as she expected to receive an interest in home per will Equity arise IF (1) assurance made to Pl will enjoy a property right; (2) Pl rely & do, or refrain from doing, & was reasonable; (3) Pl suffer a detriment by reliance so unfair or unjust for Def to go against own word “An equity arises when the claimant reasonably relies to his detriment on the expectation that he will enjoy a right or benefit over property, whether or not the party responsible for that expectation owns an interest in the property at the time of the claimant’s reliance…Proprietary estoppel protects the equity, which in turn protects the claimant’s reasonable reliance. Like other estoppels, proprietary estoppel avoids the unfairness or injustice that would result to one party if the other were permitted to break her word and insist on her strict legal rights.” – McLachlin CJ “Where protecting the equity of the case may demand the recognition of ‘new rights and interests . . . in or over land’” (Crabb per Denning MR),… “proprietary estoppel can do what other estoppels cannot — it can found a cause of action… Consensus as to the elements of proprietary estoppel has proved elusive: see Thorner,… as judges have moved away from strict requirements that would constrain their ability to do justice in the circumstances of a particular case… But flexibility must not come at the expense of clarity and predictability.” o That is, proprietary estoppel can be a SWORD Whether reliance is reasonable is key, as if it is not reasonable, then there is no equity, but this for trial judge, who deserves deference absent palpable error McLachlan CJ rejected BCCA majority as it “conflates proprietary estoppel with the equity to which it gives effect… An equity arises when the claimant reasonably relies to his detriment on the expectation that he will enjoy a right or benefit over property, whether or not the party responsible for that expectation owns an interest in the property at the time of the claimant’s reliance. Proprietary estoppel may not protect that equity immediately. It may not protect the equity until considerable time has passed. If the party responsible for the expectation never acquires a sufficient interest in the property, proprietary estoppel may not arise at all; where there is proprietary estoppel, there must be an equity, but not vice versa. When the party responsible for the expectation has or acquires a sufficient interest in the property, however, proprietary estoppel attaches to that interest and protects the equity… Ownership at the time the representation or assurance was relied on is NOT a requirement of a proprietary estoppel claim.” Conclusion Class/Lecture Notes (Optional) 3) Max acted to his detriment by moving away from England and giving up employment income, his lease, his contact with his children, and his social life, operating on assumption that he would get the house Majority made it clear that once requirements for proprietary estoppel are met, the court has considerable discretion to fashion appropriate remedy to provide equitable result, unrestrained by any technical requirements Gloria to divide properly into equal 1/3 shares; Max entitled to purchase G’s shares for fair market value. Cowper-Smith’s appeal allowed McLachlan CJ left open that proprietary estoppel may apply to property other than land, as English courts have allowed re “chattels, insurance policies, intellectual property rights, commercial assets, and other forms of property…” Implications of SCC decision: Max’s “equity” arose NOT when sister received her 1/3 interest in house via will BUT when Gloria’s promise was made, even though she had no interest in the home at that time, as she expected to receive an interest in home per mom’s will Gloria made the promise to Max before she had a legitimate interest in the land; she was going to inevitably receive an interest in the house, and as soon as the promise was made, proprietary estoppel attached to her interest. 7 of 9 JJ broke new ground in directing sister, as trustee of mother’s estate, to transfer her 1/3 interest directly to Max in specie [= ‘in its actual form’ not in cash or otherwise but as the actual “1/3 interest”, which is important, as the siblings only had an interest in the net estate, but not in any particular assets] via specific performance o Can make a promise about property that you will acquire in the future, when you acquire property is when estoppel bites. The estoppel cannot bite until you have the interest. Is Gloria able to promise that Max can live there forever? No, other brother has a 1/3 share, Gloria has no right to say how the property should be used. Option to purchase Gloria’s own share is ok, but not the rest of it. Problem in estoppel cases? There is a massive amount of discretion, leads to excessive litigation. Not quite sure what an equity arising means? Cannot be a right in rem if you don’t have an interest yet. Got to be some type of right in personam. Can’t give you proprietary rights to any place I might buy. When I do buy a place, estoppel could bite, could get an interest in the actual house. Can operate as an independent source of equitable property rights “If under an expectation created or encouraged by B that A shall have a certain interest in land, thereafter, on the faith of such expectation and with the knowledge of B and without objection by him, acts to his detriment in connection with such land, a Court of Equity will compel B to give effect to such expectation.” SALE OF GOODS CONTRACTS A Contracts creating rights in personam, E.g. hoping to be paid on payday enforceable against the university. C Specific contract of sale, purchaser acquires equitable interest, restrictive covenant, causing title of goods to pass by contract OTHER SOURCES B $10000, right in personam. D Event that’s not a contract that gives rise to rights in rem, promissory estoppel, give a book to you by delivery, finding money on the street Contracts as Promise Does not transfer title (E.g. Contract to sell my house to you). Separate act of transfer to perform promise. Specific performance. TYPE OF RIGHT Rights in Personam Rights in Rem Contract as Transfer Sale of goods (contract for sale of goods can cause title to pass, contract can be event that causes sale to pass, different than civil law, contract is performance). Contract can cause title to pass to buyer if this is the parties’ intentions. What are Goods? (Sale of Goods Act, S.1) Goods: All chattels personal other than things in action or money and includes emblements, industrial growing crops and things attached to or forming part of the land which are agreed to be severed before sale or under the contract of sale. Physical objects other than land or money, but things attached to land can be regarded as goods. Specific goods Goods identified and agreed upon at the time a contract of sale is made. Future goods Goods to be manufactured or acquired by the seller after making the contract of sale. Ascertained goods Identified in accordance with the agreement after the time a contract of sale is made. Sale of Goods Act (s.1): In this act “goods” includes... (a) all personal chattels, other than things in action and money, and o Note: Chattels personal = all personal property but not real property (land is not goods) o Note: Things in action = intangible property (intangible property is not goods) o Note: Money = bills and coins not the money in your account (money is not goods) (b) growing crops, whether or not industrial, and things attached to or forming part of the land that are agreed to be severed before sale or under the contract of sale; o Note: Growing crops = allowed to be treated as goods despite being land Specific Goods = “Goods identified and agreed upon at the time a contract of sale is made,” Future Goods = “Goods to be manufactured or acquired by the seller after the making of the contract of sale.” Ascertained Goods = Goods that have been individually recognized and effectively appropriated or set apart after a contract of sale is made What is a Sale of Goods? (Sale of Goods Act, S.6) Sale of Goods = A contract is a sale of goods contract when the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price o Must be for money, cannot be a trade or barter situation, or a peppercorn principle of consideration – What is Not a Sale of Goods? A contract of barter is not a sale of goods because the consideration is not money (, 2012 NSSC 256) o Hearns: exchange of R’s Jeep for H’s Dodge but Jeep subject to loan when with prior owner so no $ A supply of services is not a sale of good (n, [1995] 3 SCR 674) If a buyer consumes goods (i.e., marine fuel) before money is paid, it is not a sale of goods Hearns v. Rizzolo Pickup J for the Nova Scotia Superior Court – 2012 Contract for barter is not a sale of goods Hearns traded his Dodge for Rizzolo’s Jeep Facts Neither party knew the Jeep was subject to a security interest in favour of a finance company Finance company repossessed the Jeep. H paid the security company $10,738 to get it back H sued R for the amount they had to pay Does the Sale of Goods Act apply to a contract of barter? Issues A contract for barter is not a contract of sale of goods; consideration isn’t monetary, so it doesn’t Rules qualify Their contract was a barter for sale not a sale and the implied warranty the buyer would get good Analysis title as stated in the Sale of Goods Act did not apply. Not a transfer of sale for money, transfer of sale for car for another car, Sale of Goods Act doesn’t apply. Sale of Goods act implies a warranty that you’ll get good title, doesn’t apply, also no express warranty, so not promised and not part of the deal. Hearns’ claim dismissed Conclusion Class/Lecture Notes (Optional) Ter Neuzen v Korn Judge for the Supreme Court of Canada – 1995 Supply of services is not a sale of goods Appellant participated in artificial insemination program, Facts Ter Neuzen contracted HIV from infected semen used in an artificial insemination procedure from the final procedure she underwent. She sued her doctor for negligence and for breach of the implied warranty in the Sale of Goods Act that goods are fit for the purpose for which they are bought. Was the AI procedure performed by the respondent primarily a contract for sale of semen, or was Issues it primarily a contract for medical services? SERVICE NOT SALE For the Sale of Goods Acts to apply, a contract must be made primarily for the purpose of selling Rules goods. Selling services =/= selling goods. SCC held they had a contract for medical services, not for sale of semen. Analysis Warranty in Sale of Goods Act did not apply. If sale of goods occurs incidentally in a contract for which the primary purpose is as a contract for services, the Sale of Goods Act won’t apply. The primary reason the appellant went to a gynaecologist was not for the sale of semen but for professional medical services and expertise. • To hold this as primarily a contract for sale of goods would distort the true nature of the agreement between the parties. Ter Neuzen’s appeal dismissed Conclusion Class/Lecture Notes (Optional) PST Energy Shipping LLC v. OW Bunker Malta Ltd Mance LJ for the UK Supreme Court – 2016 If title doesn’t pass, it is not a sale of goods OW Bunker provides fuel for PST Shipping. OWBM went into insolvency Facts Their contract with PST made no express provision for consumption of oil in bunkers while being transported A ship (owned by PST) is supplied with oil they do not own PST availed themselves of the right to burn the fuel in the bunkers to propel the ship. They are entitled to burn fuel (y’know, to move the ship) as they go along, and are willing to pay for fuel burned. The bunkers were totally consumed, without payment ever being made by OWBM to their parent company. Parent company demanded PST pay up for the burned fuel ($416,000) PST claimed no liability to pay for the bunkers Arbitrator found that PST had to pay OWBM. PST lost on appeal at Trial, and again at the Court of Appeal Is this a sale of goods? Issues It is not a sale of goods if the buyer consumes the goods before title passes, or if title doesn’t pass Rules Title never passes to the buyer. Analysis The bunker oil belongs to the vendor up until the moment it is burned and ceases to exist. At that moment, buyer has to pay for what they burned but they never became the owner of the bunker oil. User would own it at this point but it’s already gone No payment was ever tendered by PST. PST simply continued to use the bunkers under the contractual liberty until they were all consumed There was no contract of sale between OWBM and PST PST is simply liable for the price, albeit under a contract sui generis, which is not one of sale. PST has to pay OWBM the agreed price PST’s appeal dismissed Conclusion Class/Lecture Notes (Optional) Most contracts for sale of goods are not specifically enforceable because damages would be an adequate remedy. o Contracts for sale of goods will be specifically enforceable when the goods are hard to obtain. Goods Must be Ascertained Title cannot pass until goods are ascertained So long as you know what the goods are, and the contract is for their sale, you’re good. o But what if the property is unable to be described, as the goods are not yet ascertained “I want to buy the puppies”, but there are no puppies yet; it’s a purchase as to potential future goods. Sale of Goods Act doesn’t like this; too uncertain. Validly Transferring Legal Title to Goods Delivery of Goods o Not just physical delivery, but delivery for purposes of fulfilling a legal contract Legal intention to transfer title [in non-gift situation] via o Deed o Contract Contracts and Property Contracts o Are a source of rights (rights in rem) o May create property Contract as Promise o Does not transfer title Discusses how you are going to transfer title o Need separate act of transfer to perform promise o Specific performance Contract as Transfer o Sale of Goods o Valid contract can cause title to pass to buyer (goods transferred, even if buyer doesn’t yet have the property; i.e., online ordering) o Civil law vs Common law Property o A form of right (rights in personam) o May be created by contract Sale of Goods Act Judge for the Court - Date Facts s.1 Definitions “Goods” includes o (a) all chattels personal, other than things in action [= choses in action] and money, and o (b) growing crops, whether or not industrial, and things attached to or forming part of the land that are agreed to be severed before sale or under the contract of sale; o GOODS DO not include money, intangible property, real property s.6(1) Sale and Agreement to Sell A contract of sale of goods is a contract by which the seller transfers or agrees to transfer the property in goods to the buyer for a money consideration, called the price. s.21 Goods must be Ascertained If there is a contract for the sale of unascertained goods, no property in the goods is transferred to the buyer unless and until the goods are ascertained. o Neither “unascertained” or “ascertained” defined in the Act s.75 Buyer’s Lien (1) If in the usual course of a seller’s business the seller makes an agreement to sell goods and o (a) the buyer pays all or part of the price, o (b) the goods are unascertained or future goods, and o (c) the buyer is acquiring the goods in good faith for use primarily for personal, family or household purposes, then the buyer has the lien described in subsection (2). (2) The lien under subsection (1) is for the amount the buyer has paid towards the purchase price of the goods and is against o (a) all goods (i) that are in or come into the possession of the seller and are held by the seller for sale, (ii) that correspond with the description of or with any sample of the goods under the agreement to sell, and (iii) the property in which has not passed to a different buyer under a different contract of sale, and o (b) any account in a savings institution in which the seller usually deposits the proceeds of sales Class/Lecture Notes (Optional) s.22 Property Passes According to Intent of Parties (1) If there is a contract for the sale of specific or ascertained goods, the property in them is transferred to the buyer at the time the parties to the contract intend it to be transferred. (2) For ascertaining the intention of the parties, regard must be had to the terms of the contract, the conduct of the parties and the circumstances of the case. s.23 Intention of the Parties as to the Passing of the Property in the Goods (Default Rules) (1) Unless a different intention appears, the intention of the parties as to the time at which the property in the goods is to pass to the buyer is governed by the rules set out in this section. (2) If there is an unconditional contract for the sale of specific goods in a deliverable state, the property in the goods passes to the buyer when the contract is made, and it is immaterial whether the time of payment or the time of delivery, or both, are postponed. (7) If there is a contract for the sale of unascertained or future goods by description, the property in the goods passes to the buyer when goods of that description and in a deliverable state are unconditionally appropriated to the contract o (a) by the seller with the assent of the buyer, or o (b) by the buyer with the assent of the seller. Buyer’s liens do not benefit companies buying goods for other people on resale; only applies to direct purchases Re Goldcorp Exchange Ltd Mustill J for the Privy Council - 1994 Facts GE Ltd sold gold, silver, and platinum bullion to approx. 1000 customers in contract stating: o “you agree to buy and sell as with physical bullion, but receive a certificate of ownership rather than the metal. The metal is stored in a vault on your behalf.” o Staff told buyers that GE always maintained sufficient stock to cover all purchases, with right to receive delivery of bullion in 7 days for a fee, o BUT THIS WAS ENTIRELY UNTRUE - GE Ltd became insolvent when the supply of bullion far less than sold Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Customers believed they owned the bullion they had purchased All assets, including gold, under floating charge (charge on all of certain kinds of assets) to Bank of NZ that claim assets Customers sued per contract rights that indicated gold was set aside for them, so it was a trust. Bank argues that they are unsecured creditors. Gold was not allocated to customers by name Did the property in any bullion pass to the customers immediately upon the making of the purchases o (a) simply by virtue of contract of purchase itself, or o (b) by virtue of the written and oral statements made in the brochures and by the company's employees? (Although these were referred to in argument as representations their Lordships believe them to be more in the nature of contractual undertakings, and therefore call them "the collateral promises"). (ii) Did the property in any bullion subsequently acquired by the company pass to the customer upon acquisition? (iii) When the customers paid over the purchase monies under the contract of sale, did they retain a beneficial interest in them by virtue of an express or constructive trust? Without delivery of goods, there is no binding contract; one cannot deliver goods when one cannot identify them (Goods must be ascertainable) Buyers cannot acquire title until it is known what to goods the title relates Goods must be identifiable for a sale of goods to occur We know there’s gold bullion, but not how much, or whose it is. Goldcorp had never allocated the bullion to specific customers when it was purchased. The customers had no proprietary interest in the bullion Two species of unascertained goods o “Generic goods”: General type, but specifically distinct from others that are exactly the same (i.e., gold bar); how to determine which one is which o “Goods sold ex-bulk”: Coming from a specific source, and the seller may own the choice as to what specific good the buyer will receive (i.e., buy a 6oz gold bar, the seller hands the buyer one from a pile; no specific bar specified) “a priori common sense dictates that the buyer cannot acquire title until it is known to what goods the title relates” “defeated, not by some arid legal technicality but by … the very nature of things” Title to specific gold was never transferred to buyers; no gold was ever set aside for them by name in custody of GE Ltd as promised (GEL not trustees for buyers; didn’t have fiduciary duty to buyers). Goldcorp promised they would be set aside, but did not do that Goldcorp’s Receiver’s appeal allowed Remember, contracts don’t care about your feelings. Companies buying goods on behalf of purchasers Sale from Bulk Stock Re London Wine Co (Shippers) Ltd [1986] PCC 121 o London Wine Co went bankrupt o Customers claimed wine bottles, but specific ones were never allocated so Sale of Goods Act did not apply; the goods could not be identified for the buyers. o Sale from bulk requires specific allocation (or title cannot pass) Re Stapylton Fletcher Ltd [1994] 1 WLR 1181 o Customers bought identical bottles of wine to be stored by merchant o Merchant became insolvent o Had title passed to customers? o Amendment to English Sale of Goods Act 1979, s 20A Re Kenron Homes Ltd Vancise J for the Saskatchewan Queen’s Bench – 1982 Buyer’s Lien Facts Kenron was contracted to build and sell 7 “ready to move” homes Builder went bankrupt with 2 homes unfinished and 5 finished, but not delivered Trustee in bankruptcy wasn’t willing to complete the 7 ready-to-move homes Buyers paid $77,766.25 and argued that title passed for 5 homes that were finished OR held in trust for purchasers. Respondent argued the 5 houses are personalty that form part of bankrupt’s estate for creditors, being unascertained property until delivered Issues Do buyers own the homes before they are completed? When did the title transfer from builder to purchaser? (Only once delivered) Rules To determine the intention of the parties as to when title passes, one must examine the contract as a whole and the governing statutory provisions If it is not possible to determine a contrary intention from the examination of the contract, the statute governs Analysis The buyers’ claims were unsuccessful—there was no payment by instalment and inspection— title was clearly going to only pass once the homes were delivered To have gotten the homes, the buyers would have to prove that the homes were already theirs Nowhere in the contract does it state, nor can it be inferred, that property is to pass prior to placing the goods in a deliverable state There being no different intention in the contract, title to the property will pass in accordance with the rules set forth in the Sale of Goods Act, which states that title passes upon delivery There is no ascertainable intention that the property would pass to the owner as it is constructed or manufactured. “In order to ascertain the intention of the parties to the contract as to when title passes one must examine the contract as a whole. If it is not possible to determine a contrary intention from an examination of the contract, the statute governs. It is a question of construction in each and a question of fact in each case.” Homes are “future goods” per SoGA s. 2(1)(g) & title not pass if “unascertained” goods per s. 18 Since there is no special provision in the contract to alter normal terms re when title passes, title passes per provisions of Sale of Goods, 1974 that entails delivery or confirmation ready for collection, which is inapplicable here. If the contract does not express/imply otherwise, the statute applies No intention that the property would pass to the owner as it is constructed or manufactured Conclusion Application dismissed Class/Lecture Notes (Optional) Wardar’s (Import & Export) Co Ltd v W Norwood & Sons Ltd Judge for the British Court of Appeal - 1968 Facts Norwood had 1500 cartons of frozen ox kidneys Norwood agreed to sell 600 cartons to Wardar’s Carrier arrived at 8 a.m. to pick up cartons out on pavement & took 4 hours to load cartons in refrigerated truck then “in soft condition” so refrigeration turned on They took a 1-hour tea break while loading the meat. Truck wasn’t cold enough, and the meat had been sitting out in non-refrigerated conditions for hours before being loaded. Norwood drove to Scotland where he was condemned by medical officer; meat unfit for human consumption Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) When did title pass? When did the property of the goods pass from the sellers to the buyers? Risk passes with the property; unless otherwise agreed, the goods remain at the seller’s risk until the property therein is transferred to the buyer (Sale of Goods Act s.20) Whoever is the owner of the goods would bear the risk of damages that happens to the goods while it is still his property Once the property is transferred to the buyer, the goods are at the buyer’s risk whether delivery has been made or not When the goods at the time of sale are in possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. As soon as the cold storage official acknowledged to the driver that the goods were his, the property passed to the buyers At this time, the goods were appropriated to the contract with the consent of both parties. At this time the goods were still frozen and in merchantable quality. Damage was done after the goods were taken out of the cold store so risk was on the buyers Title passed when the cartons were set aside (allocated and ascertained) with the assent of the buyer which allows title to pass (the buyer’s courier picking them up is basically consenting to the transfer) Appeal is allowed, meat was not in the appellant’s possession when it went bad, buyers are responsible for what happened to it. SoGA (UK) make clear title pass on delivery. Here = when warehouse accept delivery notice from courier hired by buyer & cartons were fine then. Thus, all liability on buyer [though they might have a claim against the courier] Meat was not in the appellant’s possession when it went bad, buyers are responsible for what happened to it. Wardar’s appeal allowed. S. 29(3) When the goods at the time of sale are in possession of a third person, there is no delivery by seller to buyer unless and until such third person acknowledges to the buyer that he holds the goods on his behalf. PRIORITIES AT COMMON LAW Competing Rights Competing Rights = Parties are competing over specific but inconsistent rights to the same property. Their respective property rights are created by separate events other than dealings between claimants • • This section assumes the property rights exist and deals with disputes between inconsistent and incompatible property rights to the same thing Priority rules are used to resolve competing claims to the property I. II. III. Priorities at Common Law Priorities in Equity Land Registration a. Re land b. Re personal property security (PPS) • As a rule of thumb for priority, • Order of creation – older > newer • • Nature of rights – legal > equitable Registration – registered > unregistered ISSUE: Does this person actually have a property right/when did they arise? ISSUE: Are the property rights inconsistent and in conflict with each other? ISSUE: Who has the better right? ISSUE: Is this a legal right or an equitable right? ISSUE: Is the interest registered or not registered (registered is always better) When dealing with registered land, always use priority rules under Land Title Act. When dealing with personal property security, always use the priority rules under the PPSA. (not on the exam – don’t talk about it) otherwise, when … start with ... Frequently, the dispute is, does Pl have a property right, & if so, re this Def? o Tenant of canal co. has exclusive licence to rent boats on canal. Claim as easement benefit H’s land lease? NO, it doesn’t benefit the land, just their business (Hill v Tupper (1863) 2 H&C 121, 159 ER 51) o Can they compel their neighbour to repair the roof? Not when it is a positive covenant; that only applies to predecessor in title (Rhone v Stephens [1994] 2 AC 310 ) o Did they acquire a fee simple estate? N&L unique as it allows signed doc and transfer possession to convey fee simple title, even though there is no deed or livery of seisin (Butt v Humber (1976) 46 APR 92 (Nfld SC)) o Are they the beneficiary of a trust? T intended to create trust for C with no document or formal words of ‘trust’ just ‘money is as much yours as mine’ (Paul v Constance [1977] 1 WLR 527 (CA)) We are now focusing on disputes between people and legal entities that assert property rights to the same thing(s), although not necessarily the same type of property right. WHO HAS THE BETTER RIGHT? o I.e., Right to a can of money found under a pool hall: owner of the building? boy who found the can? Police who took it away from the boy? Or town Treasurer given the $ by police for true owner? Bird v Fort Frances [1949] 2 DLR 791 (Ont) Nemo dat quod non habet Issue: Does Nemo Dat apply? The starting point when dealing with a priority dispute involving a legal property right is the principle of nemo dat quod non habet • • • • • If the older right is legal, the holder of that right will rely on nemo dat – while the holder of the newer right will hope for an exception Nemo Dat = No one can give what they do not have Carelessness by the legal owner is not a reason to negate their property interest or right (Northern Counties v. Whipp) Forgery and theft are not transactions that will cause the owner to lose his property interest (Holat v. Wettlaufer) Act of theft does not destroy ownership title Northern Counties of England Fire Insurance Co v Whipp Fry LJ for the British Court of Appeal - 1884 Facts Crabtree (C) was manager of NCEFI Co (Pl) C mortgaged his land to Pl for $7,000 C stored both land title & mortgage deeds from NCEFI’s safe C needed more money, and when to Whipp (D), saying he’d mortgage his land to her for $3,500 (implying it was a 1st mortgage). Being the second mortgage in reality, the only security is re C’s equity of redemption C removed all documents from the safe except the original mortgage, and gave her the title deeds he stole from the safe. C failed to pay loan to the insurance company Pl began foreclosure on C’s land that would terminate D’s mortgage. Whipp thought she was getting a first legal mortgage, which was actually C’s equity of redemption (land already mortgages, so Whipp couldn’t get a mortgage of anything more than Crabtree had to give) She countered that NCEFI was negligent in its custody of deed & 1st mortgage docs Trial court declared NCEFI’s mortgage postponed in favour Whipp’s equitable mortgage – overturned on appeal Issues What property right did Whipp have? (Equitable mortgage) Was NCEFI Negligent? (Careless, nut not fraudulent) Whose claims was better? Rules Carelessness by the legal owner is not a reason to negate their property interest or right “The Court will not postpone the prior legal estate to the subsequent equitable estate on the ground of any mere carelessness or want of prudence on the part of the legal owner.” Analysis The Court will postpone the prior legal estate to a subsequent equitable estate when: o Where the owner of the legal estate acts fraudulently or was a party to the fraud which led to the creation of the newer equitable interest OR o Where the fraudulent actor was an agent for the owner of the legal estate Whipp had property rights to 2nd mortgage on C’s equity of redemption after 1st mortgage. Negligence would require some duty owed by P to D that was breached by P (NCEFI) but they had no relationship or knowledge of each other whatsoever & no duty on P to keep its docs in some special way in order to protect others from fraud by its manager C Plaintiff, as the older right, has a prima facie priority over the defendant’s equitable mortgage This priority is not postponed due to the plaintiff’s negligence in where he placed his trust Postponement could occur if: The first mortgagee was a direct party to Crabtree’s fraud or Crabtree acted as NCEFI’s agent in negotiating the second mortgage “it is impossible to find any duty undertaken by the plaintiff company to the defendant” Requiring special custody of docs is “as if title deeds were in the eye of the law analogous to fierce dogs or destructive elements” when law may impose obligations on party in control Postponement (i.e., defer normal priority of 1st mortgage in favour of subsequent mortgages or other legal interests) can occur IF … o P the 1st mortgagee (NCEFI) was a direct party to Crabtree’s fraud or Conclusion Class/Lecture Notes (Optional) o C Crabtree acted as NCEFI’s agent in negotiating 2nd mortgage If plaintiff had appointed Crabtree as their agent or been a party to the fraud it would’ve been different but “the Court will not postpone the prior legal estate to the subsequent equitable estate on the ground of any mere carelessness or want of prudence on the part of the legal owner.” Carelessness re docs by legal owner (or mortgagee) is not a reason to postpone its priority Whipp’s appeal dismissed; NCEFI’s action wins Court will postpone prior legal estate to a subsequent equitable estate where: o The first party was a direct party to fraud used to create newer equitable interest o The fraudulent party was an agent for the owner of the legal estate Exceptions to Nemo Dat Quod Non Habet: Exceptions to nemo dat only work in favour of a buyer, not someone who receives a gift. Issue: Are there any exceptions to nemo Dat that would prevent it from applying. These are specific exceptions; they are not a general defence for honest buyers BUT if you are an honest buyer, you can use one of these exceptions to get a better title than the seller had to give you o Must meet the qualifications for specific exceptions Only apply when competing interest is acquired by honest buyer – none of these exceptions help if the person got the property as a gift or possess knowledge of an older existing right o Donees or people with notice are exempt from nemo dat exceptions Being an honest buyer on its own is necessary but not sufficient (Northern Counties v. Whipp) Defences only arise when competing interest acquired by innocent buyer, therefore: o N/A to donees o N/A to persons with prior notice These are specific exceptions, not as a general defence for all honest buyers o Money o Agents o Estoppel o Buyer/Seller in Possession o Voidable Title o Market Overt Money Currency (Sinclair v Brougham [1914] AC 398): NO obligation on receiver to question the title of transferor re currency (how are they supposed to know the cash was stolen??) o Cash money (coins and bills) used as currency is an exception to nemo dat but not electronic transfer of money When money is stolen, the thief has a right to possession but not a better right then the original owner However, if the thief spends some of the money as currency to an honest buyer, the original owner will not have title to that money anymore (exception to nemo dat) The ownership of bills and coins does not pass to the thief when they are stolen BUT a third party can acquire ownership of the stolen money if it is paid to them as currency and they give value in exchange without knowledge that it was stolen (Sinclair v. Brougham) If the money is used as a commodity (e.g. rare coins stolen) the exception does not apply – needs to be actually used as currency (Manning v. Algard Estate) Agents Agent is acting as a representative for the contracting party, vested with their authority. A transaction made by an agent for their principal will be valid so long as the other party acts in good faith and does not know that the principal did not consent This applies if the transaction was authorized by the principal or unauthorized, but it MUST be reasonable to rely on the agent’s apparent authority If the authority of the agent is not relied upon, then this exception cannot apply (Farquharson Brothers v. King) Reasoning: the exception applies to unauthorized transaction by an agent because the owner is presumed to have assumed the risk when they transferred possession or title to the agent Issue: Was it reasonable to rely on the authority of that agent? (If yes – exception applies) Farquharson Brothers & Co v King MacNaghten & Halsbury LLJ for the House of Lords - 1902 Facts Owners were merchants who imported timber. In the business of importing and selling lumber. They stored it in a warehouse at Surrey Commercial Docks. Capon was FBC’s (plaintiff’s) agent. Owner gave him written authority to accept deliveries. Using his written authority, he arranged sale of plaintiff’s lumber to fictitious person Brown. He abused authority to sell the plaintiff’s timber to a fictious Brown. Capon pretended to be a man named Brown. Transferred timber to Brown. Sold it pretending to be Brown, purchasers bought it in good faith. Court of Appeal held the owners were estopped from denying Capon’s authority to sell. Defendant thinks they bought timber from Brown, had good title, owners thought they should win. Lower courts said defendant should win because Capon was owner’s agent and did the deed, they made this possible to happen. House of Lords say plaintiffs have title to lumber. Issues Rules Analysis Did Capon have the appellant’s authority to sell the timber to the respondents? (No) Did the defendant rely on Capon’s authority in this transaction? (No) The sale of goods act indicates where goods are sold by a person who is not the owner thereof, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had If the seller is not relied on as an agent due to their apparent authority, the buyer didn’t rely on their apparent authority and the principal is not bound by their agent’s decision o This exception only bites when you think you’re dealing with an agent and their principal is responsible for creating that false assumption by bestowing them with authority that the innocent buyer relies upon Plaintiff wins – it was their lumber (owners) Capon had no authority to sell, so he was not acting as an agent This was theft and so nemo dat applies No estoppel here with the dock company, all the dock company did was what they were expressly authorized to do by the appellants Even though Capon was a bad agent, the defendant never relied on Capon’s apparent authority to buy the lumber – thought they were dealing with this fictitious character Brown They thought they were dealing with the principal and not an agent acting on behalf of the principal, so the agent exception to nemo dat cannot apply What authority was there to sell? None. What representation was there of Capon’s authority to sell? None.” — Halsbury LC Conclusion Class/Lecture Notes (Optional) “The right of the true owner is not prejudiced or affected by his carelessness in losing the chattel, however gross it may have been.” – Lord MacNaghten Onus on King to verify identity of the vendor (caveat emptor) FBC’s appeal allowed Estoppel Sale of Goods Act, s.26(1) Subject to this Act, if goods are sold by a person who is not the owner of them, and who does not sell them under the authority or with the consent of the owner, the buyer acquires no better title to the goods than the seller had, unless the owner’s conduct precludes the owner from denying the seller’s authority to sell The owner will be estopped from denying the seller’s authority if the owner is responsible for the buyer’s mistaken belief that the seller had authority (Sale of Goods Act s.26) o The owner will be estopped from denying the seller’s authority if the owner tells the buyer that the seller is the owner or an authorized agent (Peoples Bank of Halifax v. Estey). Peoples Bank of Halifax v Estey Taschereau CJ for the Supreme Court of Canada – 1904 No longer current law – Buyer/Seller in Possession would apply in similar facts today Facts Bank owns logs. Bank loaned money to Upham to log forest; the logs were held as security. Security for the loan were the logs cut down (can’t have them until loan repaid) Upham empowered Bank to sell the logs. Plaintiff bank agreed to sell logs to a lumber manufacturer in Fredericton named McKendrick. Bank directed log boom company to deliver logs to McK A term of the contract said he would not get title until the purchase price was paid. Estey calls bank manager and asks about the logs, told they were sold to McKendrick. Estey goes to see McKendrick and bought logs from McKendrick despite him not having good title Bank sued Estey for conversion, as the bank had not been paid by Upham or by McK for the logs that Estey acquired. E relied on a conversation with the Bank Manager to support his position. Bank was awarded damages at trial, that was overturned on appeal. Issues Can the bank lawfully sue for the logs back? (No) Rules Estoppel in action Analysis Estey had no idea that Bank had title to logs & did not learn this until long after his purchase The bank made a representation that McKendrick was the owner of the logs when he was not – buyer then relies on that representation to their detriment – Bank is estopped from suing for the logs back o (1) Bank Manager’s statement to Estey that logs sold to McK & that Bank gave authority to McK to sell logs to other bona fide purchasers estopped Bank from challenging validity of sale to Estey OR o (2) McK had authority, or ‘apparent authority’ from Bank to sell logs when had buyers Estey had no idea that Bank had title to logs & not learn this until long after his purchase. Bank actively dealing with lumber merchants & Bank Mgr telling E that it sold logs to McK so create possibility that E will seek to buy from McK. Bank Mgr should readily appreciate likely understanding of info by E. Endorse Farquhrson per Halsbury LC that when 1 of 2 innocent parties must suffer loss due to acts of fraudulent 3rd party, then the one “who by his indiscretion has enabled such third person to commit the fraud.” is the one to suffer – Davies J Conclusion Class/Lecture Notes (Optional) Estey wins Leonard v Ielasi Judge for the South Australian Supreme Court - 1987 Facts Owner (L) lent her car to friend She knew her ’friend’ registered the car in his name but L does nothing. Friend sold the car as it showed registration as proof of his ownership. L sues the purchaser of the car to recover the car as rightful owner. Issues Does L have sufficient rights to title to recover the car? Rules If someone is aware of shenanigans, and does nothing about it, one cannot claim damages when those shenanigans come back to bite you. Analysis Original owner loses as it was her negligence She didn’t challenge her friend’s registration of her car as his She left it in his possession, that enabled him to sell the car easily to Ielasi via his transfer of his registration of the car in his name. Thus, L estopped from challenging Ielasi’s title Conclusion L’s claim fails Class/Lecture Notes (Optional) Buyer or Seller in Possession Sale of Goods Act, s.30 o (1) seller in possession o (2) exception for PPSA o (3) buyer in possession o (4) exception for PPSA The buyer obtains possession of the goods while the seller retains title o As a buyer in possession, I can pass good title to an honest buyer even if I don’t have title. o Bought the goods but seller still has goods, someone comes along and tries to buy from seller, no authority to do that, not acting as agent, even though you’re a bailee as the owner and not in possession I can pass good title to an honest buyer. The seller retains possession of the goods while the buyer obtains title o As a seller in possession, I can pass good title to an honest buyer even if I don’t yet have title o Buyer delivered goods to you but title has not passed yet. There are cases where you can re sell to honest buyer. What the point of this exception? When title passes it’s a term of a contract. Do we want rights of third parties to be affected by particular decisions? If I want to take risk of putting you in possession without getting paid that’s a risk I’m taking, third party isn’t taking the risk. If someone comes along and deals with who’s in possession of the goods and they buy in good faith without notice of who has the best title then they can get good title based on this exception to nemo dat The normal reason parties to a contract of sale separate ownership from possession is to create a security interest. o Interest at this point is just a security interest, don’t want the actual goods. o If parties choose to do this, the owner takes the risk that the possessor might deal with the goods in breach of their agreement. o This would have applied in people’s bank if it was in effect then. A buyer can transfer good title to someone acting in good faith without notice of the seller’s title, and vice versa o Bailment o Seller in Possession Ex) A seller retains possession despite selling the goods to now owner and someone comes and seller then sells to someone else there is a nemo dat exception which allows good title to pass to new buyer so long as that new buyer had no knowledge about the owner’s title A seller in possession can transfer good title to someone who deals with the seller in good faith without notice of the buyer’s title Normal reason parties to a contract of sale choose to separate ownership from possession is to create a security interest – seller retains title to make sure they get paid o Owner (buyer) in Possession Goods are delivered to the owner before the title actually passes If the parties choose to separate ownership and possession under the contract of sale, the owner takes the risk that the possessor might deal with the goods in breach of their agreement The owner should protect their security interest by registration Voidable Title Voidable Title: Someone has the power to recover title by rescinding a sale (typically a result of a fraudulently induced mistake) Issue: Did the seller with voidable title sell the goods to the buyer before or after the previous seller rescinded the previous sale? Issue: Did the buyer have notice of the previous sellers right to rescind? Sale of Goods Act, s.28 Sale under Voidable Title: When the seller of goods has a voidable title to them [i.e., the goods], but the seller’s title has not been avoided at the time of the sale, the buyer acquires a good title to the goods, if they are bought in good faith and without notice of the seller’s defect of title. o In this case, ignorance is, indeed, bliss. If the seller is the owner of the goods and someone else has the power to rescind the transaction, but the seller’s transaction has not been voided at the time of the sale, then the buyer will acquire good title if they are an honest buyer Voidable title – where the title of a seller of a good may be voided at the option of the true owner (sale is rescinded, and title restored to original owner) o May occur on grounds of fraud, misrepresentation, duress, or undue influence o A finder does not have voidable title because they have good (possessory) title against all except the rightful owner (Manning v. Algard Estate) o A fraudster waives their right to be notified by the seller of a rescinded offer (Car & Universal Finance v. Caldwell) Car & Universal Finance v Caldwell Sellers LJ for the British Court of Appeal – 1965 Facts Caldwell was induced to sell Jaguar to Norris whose cheque bounced (Norris paid £10 cash, and offered £965 cheque) C called police & AA about Norris’ fraud. N sold car to dealer. Several dealers resold the Jag. C&UF bought the car with no notice of fraud. Car dealer who originally bought the care knew Norris was a fraudster; they were not an honest buyer o Later in the week, the dishonest care dealer sold to an honest buying car dealer Issues Did calling police & AA regarding the fraud constitute valid rescinding of the sale before Norris resold the car? (Yes) Can Caldwell rescind the contract without communicating with Norris? Rules Analysis Conclusion Class/Lecture Notes (Optional) If one party by absconding deliberately puts it out of the power of the other to communicate his intention to rescind which he knows the other will almost certainly want to do, he can’t insist to be communicated with A fraudster waives their right to be notified by the seller of a rescinded offer Reporting theft to the police is generally sufficient to rescind the contract A voidable contract has legal effect until its rescinded Caldwell’s rescission was effective before the second sale – title snapped back from the first dishonest sale to Caldwell following rescission– All the dishonest car dealer had to sell to the honest car dealer was possession, which is defeated by ownership (nemo dat applies) The first sale was not bought in good faith, allowing nemo dat to apply The honest second buyer would have had been saved under s.28 (voidable title provision) but wasn’t because Caldwell rescinded before it was avoidable (exception cannot be used now) Even though Caldwell could not notify the Norris, Norris waived his right to be notified of rescinded sale Honest car dealer couldn’t get a better title than Norris whose title was subject to Caldwell’s power to rescind 3-0 CA rule for C even though he could not rescind sale via notifying his purchaser (N) because impossible as N disappear, thereby N waived his right to be notified of rescinded sale. Party absconding with property acquired under voidable title intentionally making themself unreachable waives any right to be notified by seller such that seller can void contract by taking all reasonable steps to regain property. o Caldwell can rescind the contract without communicating with Norris if Norris makes it impossible to reach him o Reporting theft to police generally a sufficient reasonable step. If C had regained physical control of car, then that would rescind contract Exception to nemo dat applies o Caldwell’s rescission was effective before the second resale, title snaps back from first bad faith car dealer to Caldwell, all bad faith car dealer sells to new car dealer is not ownership, possession enforceable except against Caldwell. o The first car dealer can only get what Norris had to sell, which was voidable title. o The second car dealer buying from first car dealer. First car dealer has voidable title but seller’s title has not been avoided at the time of the sale. If second car dealer got it BEFORE Caldwell rescinds, they get good title (something better than seller had to give). However, Caldwell’s rescission is effective before second resale. Car and Universal Finance got to keep the car. Manning v Algard Estate Butler J for the BC Supreme Court – 2008 Differentiates between void and voidable Facts 1994: Antique coins & other items in valise lost/stolen. Algard (A) described 4 coins & say worth $58K when reported loss to police 2000: Mrs Ovsenek (O) bought 5 coins & brooch at garage sale for $5 2004: O died and coins were given to her daughter, Manning (M), by O’s husband. She looked up the 5 coins online and noticed a 1632 Gustav II Adolph ducat gold coin. Her friend contacted the Swedish Museum for information on all 5 coins that triggered West Vancouver police to seize coins in 2005. 1994 & 2005 statements of A differ: 1994 list detailed 4 coins & 2005 included 1632 coin as a 5th 2006: Police returned coins to A, and he died of heart attack soon after Rules Analysis Issues Conclusion Class/Lecture Notes (Optional) 2006: M sued A’s estate. BCSC reject A’s 2005 statement as 1994 was at the time of the loss & the huge value of the 1632 coin might have caused change to include it in 2005 statement. M got 5th 1632 coin, and disputed the other 4 coins Who has the better possessory interest in the coins? (The estate) Can a finder rely on the nemo dat exception of voidable title? (No) A finder does not have voidable title; they merely acquire a right of possession, exercisable against all but the true owner. M argued that O purchased coins for value in good faith without notice so she is a Bona Fide Purchaser for Value Without Notice (BFPFVWN) Voidable title exception to nemo dat does not arise. o The seller did not have good title – seller had a possessory right but was subject to A’s better right as true owner – at no point did A enter into a transaction that was voidable – nothing has occurred to cause A to lose his title The seller at the garage sale did not have voidable title to the coins because they were a finder, not a thief, so A’s estate has better title to the four coins than Ms. Manning o Seller has right of possession but that is all the seller can give to O and that is all that O can give to her daughter (nemo dat applies) o She had none of the exceptions to nemo dat Estate argued O was obligated, given the age of coins, to question the seller how they acquired coins, as they were worth 1000+ x more than $5; Ms O got no receipt; paid cash; examining coin put on notice to check value & ownership. Court rejected this argument; there is no basis for O to investigate “s. 26 (the nemo dat rule) will apply unless one of the statutory exceptions can be found to be engaged.” If A knew the 1632 coin was valuable, would he not have included it in the initial list of stolen coins? Seems sketchy, like he’s only adding it after he found it was worth something “Voidable title describes the situation where the title of a seller of goods may be voided at the option of the true owner. This may occur on grounds of fraud at common law or in equity, misrepresentation, non-disclosure, duress or undue influence … A finder does not have voidable title. Rather, a finder acquires a right to retain a chattel she has found. The right can be exercised against all but the true owner or those claiming through the true owner.” Court decided seller must have been a finder, given A lost coins 6 yrs before O buy box. Thus, estate have better title to the 4 coins than M. Nemo dat applies: Manning had no more than a thief’s right to the stolen coins Algard Estate’s claim succeeds; A’s estate can claim the four coins, but M keeps the 1632 coin. Holat v Wettlaufer Funt J for the BC Supreme Court – 2104 Pure forgery is not a voidable transaction; forged documents make the transaction a pure nullity Facts Holat’s company bought truck for $95,200 for use by Wettlaufer (W) via $1,000/mo lease (95-month loan, at a very small percentage). H loaned money to W. W forged transfer documents, making him the registered owner (rather than lessee). W sold truck for $65K to Robson (R) = honest buyer. H sued R to recover the truck & W for money he owed. W file no defence, so H get order for $2500 loan & her company get $49,668.96 (for gas) + $10 K punitive damages Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) R argued he is Bona Fide Purchaser for value Without Notice so should be protected by relying on ss. 26(1), 28 & 33(3) of SoGA in dispute with H & her company S. 33(3) is N/A; W never bought or sought to buy truck Does Robson’s title claim have priority over Holat’s title to the truck? If one doesn’t have legitimate title to own property, one cannot then transfer or sell that property. Anyone who legitimately acquires such property has a lesser priority to title than the original owner A forged document is a pure nullity S. 26(1) required R prove conduct of H & her company precludes them from denying W’s authority to sell truck to him. Is a form of estoppel that disallows party to assert its real ownership rights as its conduct invested seller with appearance of ostensible ownership or authority to sell via deliver title or other indicia of ownership Neither H nor H Co gave any indicia of ownership or agency to sell truck as R relied on W’s forged doc that H knew nothing about. Thus, requirement of s. 26(1) of proving “owner’s conduct precludes the owner from denying the seller’s authority to sell.” - N/A An innocent buyer will only acquire title under Sale of Goods Act if the title of the seller is voidable, but not if the seller has no title at all. There was no voidable document, pure forgery. Title of the truck did not pass to Mr. Wettlaufer. Unlike the Land Title Act, registered ownership under the Motor Vehicle Act, doesn’t constitute indefeasible title. If there is no title at all, buyer never acquires title. Re S. 28 argument - “A forged document is a pure nullity … title to the truck did not pass to Mr. Wettlaufer” as he only had right of use such that W had no ‘voidable title’ for H or H’s Company to ‘avoid’ before W sold truck. No title to the truck means no right to sell the truck. “Unlike the Land Title Act… registered ownership under the Motor Vehicle Act… does not constitute indefeasible title.” So registration of vehicle gives no protection to purchaser as Land Title Act does for land purchaser. Thus, R must return truck, even though he bought it in good faith. Holat’s application allowed; theirs is the better title. Market Overt Market Overt: Open market, where the sale must take place between sunrise and sundown in a market legally constituted by Crown grant or statute (as in BC). Sale of Goods Act s.27 (BC ONLY) o s.27(1) If goods are sold in market overt, according to the usage of the market, the buyer acquires a good title to the goods, as long as they are bought in good faith and without notice of any defect or want of title on the part of the seller. o s.27(2) This section does not affect the law relating to the sale of horses NOTE: This provision ONLY EXISTS IN BC Limited in applicable scope, but it is still good law. “The reason why the law permitted a sale in market overt to confer a good title upon the bona fide purchaser was the openness of the transaction … When shops were scarce, the market was the place, and market day the occasion, for the public to buy and sell. The market was regulated by the franchise-holder. The place, the day, and the hours of business were established under the authority of the franchise and were well known. Thus any person whose goods had been stolen would know where and when the thief was likely to seek to dispose of them, and would have an opportunity of finding and recovering them before they were sold in the open market.” — Scarman LJ in Reid v Commissioner of Police of the Metropolis [1973] QB 551(CA) Westcoast Leasing v Westcoast Communications Murray J for the BC Supreme Court – 1980 Facts Westcoast Leasing (WL) purchased radio equipment in 1975 from Westcoast Communications (WC) and leased it back to WC o WL went from owner to lessor of their equipment WC remained in possession of equipment WC defaulted on lease payments WL demanded delivery of equipment (while they leased it to WC, they still owned it) o The equipment was sold by Greater Vancouver Two-Way Radio (GV) to Valley 2Way Radio (V2) WL entitled to damages for conversion by V2 Issues Does the market overt exception apply in BC? (Probably not, no) Is the plaintiff the owner of the goods? (Yes, entitled to damages for conversion) Who has better title between V2 or WL? Rules In practice, market overt does not apply in BC No evidence that any custom alone in BC would constitute the shop as a market overt Analysis Exceptions to nemo dat? Estoppel? (Nope; WL left WC in possession after default) o WL took reasonably diligent steps to recover equipment so estoppel N/A Seller in possession? o Sale to V2 by GV, not by WC so s. 31(1) [now 30(1)] is N/A o If WC had been the vendor, then V2 would have had good title under s.31(1). GV is a separate entity. Market overt? o No market overt in Vancouver (exception is limited in scope); cases tend to restrict concept to England & upstairs service department not market overt in any event o Market overt only exist in London by custom, rather than law. o WL own gear & entitled to damages from V2 4 not return when WL ask & damages = WL’s loss of rents from Nov 1977 to March 1980 Conclusion Class/Lecture Notes (Optional) No exception to nemo dat applies Estoppel? No, because WL took reasonably diligent steps to recover the equipment Seller in Possession? No Market overt? No market overt in Vancouver Market overt argument unsuccessful BC is the only province in Canada that still has the market overt exception but there are no reported cases where the defence has been successfully pleaded PRIORITIES IN EQUITY Equitable property rights tend to be less durable than legal property rights, for two reasons: 1. They are subject to destruction by a bona fide purchaser for value without notice 2. The holder of some equitable property rights may lose priority if they fail to take steps to protect those rights, while the holders of legal property rights do not lose priority merely because they are careless When one holds the older right, but that older right is equitable, nemo dat does not solve the problem, therefore you must choose one of the following two starting points: 1. Bona fide purchase (if newer right is legal) 2. First in time (if newer right is equitable) Starting points The starting point at common law is nemo dat quod non habet. The starting point in equity is the defence of bona fide purchase. Choice depends on nature of competing property rights o If the older right is legal, the holder of that right will rely on nemo dat - while the holder of the newer right will hope for an exception. o if the older right is equitable, nemo dat is unlikely to be helpful. The issue is whether the holder of the new right is a bona fide purchaser. Bona Fide Purchase Bone fide Purchaser = Someone who acquires a legal estate for value in good faith, without notice that the legal estate was subject to an equitable interest, takes the legal estate free of that equitable interest All equitable property rights are subject to destruction by a bona fide purchaser Can only be a bona fide purchaser if you have legal title o Mortgages, easements etc. No restrictive covenants (that is an equitable interest) 1. Bona Fide = Bought in good faith o Purchaser has to be acting in good faith o In good faith means that equity requires not only an absence of notice but genuine and honest absence of notice (Midland Bank Trust v. Green) 2. Purchase = legal right acquired (not inherited given or merely equitable interest, even if was BFPVWON if no actual “Purchase”, as the word in this context meant title was transferred) o One actually has to buy something for value to be a bona fide purchaser (inheritance and gifts need not apply) o You can only be a bona fide purchaser with value and without notice if you acquire legal title If you don’t have legal title than all you have acquired is an equitable interest and the defence of bona fide purchaser is not available to you o Doesn’t have to be ownership (can be an easement, mortgage etc.) 3. For Value = not gift. Does not require fair market value, but $1 makes contract valid o Defence cannot apply to donees of gifts. If legal title passes, and no value is given, the defence does not apply. o Doesn’t have to be market value (Midland Bank Trust v. Green) o Consideration must be received (promise may be good enough consideration for contract, but not enough for the defence; money must be paid) o Peppercorn principle 4. Without Notice of older/prior equitable right o You got legal title in good faith and for value AND you did so without knowledge of an older equitable right o In the eyes of equity, the purchaser of legal title with actual notice of an equitable interest is considered to be guilty of fraud/unconscionable behaviour (R Griggs v. Evans) o You can discover after the purchase that someone had an equitable interest in your legal property; you just can’t have notice of that equitable interest at the time of purchase (Pilcher v. Rawlins) o There are three kinds of notice (see below) Three Kinds of Notice for BFP Actual Notice: You were subjectively informed of the equitable interest or its possible existence at some point (past knowledge you once knew but forgot still applies). Notice is knowing the possibility of something being true. o Knowledge Present knowledge that one believes to be true of prior equitable interest held by other party. This counts as notice even if the knowledge isn’t proven or if it is later forgotten. Past knowledge that one once knew, whether one still remembers or not (knowledge is binding, whether or not one recalls it) constitutes actual notice Dementia is exception to this (nothing to remember) o Suspicion Cannot engage in willful blindness to avoid notice Recklessness (aware/warned that there is something ’pish, but go through with it anyways) Ex. If you know there is a registration system you would need to check o Notice Documents provided Warnings given (caveat) Constructive Notice: If the reasonable objective person in your position would have discovered its possible existence (Joseph v Lyons; R Griggs Group v Evans) o You know enough to be put on your guard; enough to think you should look into things further (counters wilful blindness) Purchasers do not owe a duty to themselves; they are free to take risks & trust vendors’ promises (no negligence) o No actual notice given but treated as if they had received notice Objective test o What facts would have been discovered by a reasonable person in that situation? In light of nature of transaction, value of asset, knowledge of vendor or not Facts discovered during transaction o No duty to inform, therefore not negligence o What facts would have been discovered by a reasonable person in that situation? o No actual notice given but it is treated as if they had received notice Imputed Notice: If an agent acquires notice (actual or constructive), this principle presumes the principal has passed on (imputed) that notice (Macarthur v. Hastings). This is part of the agent’s job o Solicitor’s notice imputed to client o Director or officer’s notice imputed to corporation o Partner’s notice imputed to fellow partners o Doesn’t matter whether: Agent has actual or constructive notice Agents informs the principal of key facts or not 2 major qualifications: 1. Notice must come to the agent as part of the transaction in which they are acting on behalf of their principal 2. If the agent is acting fraudulently against their principal’s interest, then their notice will not be imputed to the principal (Macarthur v. Hastings) Midland Bank Trust Co Ltd v Green Wilberforce LJ for the House of Lords – 1981 Bona fide purchase Walter Green (WG) give 10-yr option to buy his farm in 1961 to son Geoffrey Green (GG). Facts Although option was registerable under Land Charges Act 1925, GG not register option. They had a fight in 1967, so WG sell farm to his wife (Evelyne) for £500 when it was worth £40,000, and she amended her will to leave farm to all 5 kids. GG then sought to register his option, enforced it & sued with question: did the sale of the farm to the wife cancel GG’s option? Both EG & GG died, so MBTC, as GG’s executors, proceeded with trial. WG & EG had received legal advice that any valid sale would end an unregistered option to buy. GG could have registered option under Land Charges Act 1925, which states that an unregistered charge is void vs purchaser. She won at trial, but GG won on appeal, so she appealed to HL & won. Issues Equity requires not only an absence of notice but genuine and honest absence of notice Rules “My Lords, the character in the law known as the bona fide (good faith) purchaser for value without notice was the creation of equity” Analysis Conclusion Class/Lecture Notes (Optional) “I think that it would generally be true to say that the words ‘in good faith’ related to the existence of notice. Equity, in other words, required not only absence of notice, but genuine and honest absence of notice. As the law developed, this requirement became crystallised in the doctrine of constructive notice.” Reversed Denning LJ on requiring “adequate consideration” to be Bona Fide Purchaser as Act stated “a purchaser of a legal estate for money or money’s worth” so merely is ‘valuable consideration’ & EG formally paid WG, which defeated GG’s claim. Nature of transaction is NOT to be confused with motive for purchase. “My Lords, the character in the law known as the bona fide (good faith) purchaser for value without notice was the creation of equity. In order to affect a purchaser for value of a legal estate with some equity or equitable interest, equity fastened upon his conscience and the composite expression was used to epitomise the circumstances in which equity would or rather would not do so. I think that it would generally be true to say that the words ‘in good faith’ related to the existence of notice. Equity, in other words, required not only absence of notice, but genuine and honest absence of notice. As the law developed, this requirement became crystallised in the doctrine of constructive notice.” Green’s appeal allowed Option to buy is only available from the person who grants it; since father sold the farm already, there is no option to purchase (as sale had concluded). Wife was a Bona fide purchaser for value (despite how minimal the exchanged value was) EG’s reallocation of resources to all 5 kids was equitable, rather than locking out 4 of them for the benefit of the 1. R Griggs Group Ltd v Evans (No 2) Prescot J for the Australian High Court & Jacob JA for the East Westminster Court of Appeal – 2005 Bona fide purchase – If you have notice, the defence fails Evans (E) designed new Doc Martens logo under 1988 contract with Irwin Ad Agency for its Facts client, Griggs (G). E owned copyright, as it was his IP, not an employee’s. E believed logo was for UK point of sale NOT for global ads, so he understandably got a little peeved at how much he was paid compared to global ad reach (and annoyed that his rights to the logo everywhere else in the world had been overwritten by the sale). Evans sold the rights, giving Irwin (thus, Griggs) exclusive ownership of the logo Issues Rules Analysis E later assigned [sold] copyright to Raben Footwear Ltd. via contract in New South Wales. Raben used logo with full knowledge of situation. Griggs sued Evans, Raben & its 2 directors. All were aware of key facts. What interest did G have? Why was it enforceable against Raben? One is not a bona fide purchaser if one has notice of a prior equitable interest In the eyes of equity, the purchaser of legal title with actual notice of an equitable interest is considered to be guilty of fraud/unconscionable behaviour Equitable fraud or Unconscionable conduct requires the party to have actual notice of prior equitable estate, or deliberately refrained from inquiring via willful blindness Although Raben was a purchaser for value, they had notice of Grigg’s right and cannot claim bona find purchase. Griggs had an equitable interest because they had a contract where Evans had promised to transfer the copyright – specifically enforceable so it was equitable Raben has legal title from the assignment (purchase) from Griggs Griggs has an older equitable interest Raban had notice of Griggs equitable right and thus, Griggs equitable right takes priority to Rabens legal title Conclusion Class/Lecture Notes (Optional) There is equitable interest, so E was obligated to transfer copyright to G, as E knew Irwin paid him on behalf of G R had full notice of E’s contract with Irwin and that the logo was produced for G, so they ordered to transfer copyright to G “Thus equity acted in personam. It fastened upon the conscience of the defendant”. What does that mean? Knowledge binds a knowing person but person cannot be willfully blind so as to avoid having notice In pure registration system, notice is irrelevant, as the intended Purchaser can merely check registry and does not need to make exhaustive inquiries. Risk is 1st to register, wins even over party with greater rights. Some systems combine (1) registration & (2) notice or proof of good faith, but copyright has no registry “Hence the courts of equity held it was also equitable fraud for a man deliberately to refrain from making any inquiries in order to be able to say ‘Notice? I had no notice.’ That was the origin of the doctrine of constructive notice…one might say that there came to be at least two doctrines of the purchaser with notice: one (actual notice) which was equitable fraud pure and simple, and the other (constructive notice) where it might not be.” So (1) having actual notice of prior equitable estate, or (2) deliberately refraining from inquiring via willful blindness, is guilty of equitable fraud, or framed more gently as, unconscionable conduct CA viewed this as a question of contract interpretation re what was intended in contract between copyright creator and its client when not made explicit. “The principle is clearly stated that in deciding which of various alternatives should constitute the contents of term to be implied, the choice must be that which does not exceed what is necessary in the circumstances.” Thus, “if it is necessary to imply some grant of rights in respect of a copyright work, and the need could be satisfied by the grant of a licence or an assignment of the copyright, the implication will be of the grant of a licence only.” Any implication of terms must be as minimal as necessary, to prevent the contract from being substantially altered beyond the parties’ intent Evans knew that Griggs wanted exclusive (not limited) use of the logo. Griggs wasn’t seeking a non-exclusive right to use it. Evans’ appeal dismissed; R Griggs Group Ltd wins Equity is bound to legal entities (based on their behaviour) not property (rights in personam) Knowledge binds a knowing person; if you don’t know who owns the property, look it up (that’s what the Land Title Registry is for) Independent Trustee Services Ltd v GP Noble Trustees Ltd Lloyd LJ for the British Court of Appeal – 2010 Bona fide purchase Morris couple divorced. Facts Ms. Morris was paid £1.4M on consent order in divorce to forego claiming more assets o This was a bona fide purchase She had the order set aside as she now believed he had far more assets hidden away The £1.4M was misappropriated from pension funds of £52M & laundered offshore by GP Noble Trustees. New trustees of pension sued her for £1.4M in her possession, on the grounds that her ex had obtained the £1.4M through fraud. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Was she entitled to the defence of bona fide purchase? One cannot be a bona fide purchaser if you set aside the transaction It’s the 1st case to consider position of purchaser for value where the purchase transaction was voided afterwards; so she cannot claim still to be a ‘purchaser’. Morris wants to void the initial transaction, prompting the trustees to come forward Ms. Morris was a bona fide purchase until she had the initial order set aside. She now has notice about the breach of trust and misappropriation of her husband. She can’t use the defence any more, as she would not be acting in good faith o She also gave no value for the payment because it was set aside. Can’t do so now because she knows about the breach of trust – stuck and loses “… a transferee of the legal title to property under a disposition made in breach of trust, or a successor in title to such a person, does not have the beneficial title to the property, which remains held on the original trusts, unless either the transferee, or a successor in title, was a bona fide purchaser for value without notice. The trustee acting in breach of trust can transfer the legal title, but cannot vest the beneficial interest in the property in a bona fide purchaser for value without notice, since he does not own that title and is not acting in a way which enables him, under the trust, to overreach the beneficiaries’ equitable interest. Despite that inability, the availability of the bona fide purchaser defence means that a transaction in favour of a bona fide purchaser for value without notice is as effective as it would be if he could vest the beneficial title in the purchaser. Thereafter the purchaser can deal with the asset free from any prior claim of the beneficiaries.” In setting aside the order, no value was given. No value, no bona fide defence. Ms. Morris had to return the money Can’t plead bona fide purchaser if one has notice of the fraud and if the transaction was voided Pilcher v Rawlins Hatherley LC for the Court of Appeal – 1872 Constructive Notice 1830 Jeremiah Pilcher transferred property to 3 trustees for himself for life, then to his kids from Facts his 1st marriage. Trustees loaned £8,373 to Rawlins (a solicitor) with mortgage as security in 1851. By 1856, 2 of 3 trustees died with WH Pilcher remaining. WH connived with Rawlins, so WH Pilcher transferred the mortgage back to R, who then remortgage to the other trustees (Stockwell & Lamb) S&L were unaware of 1st mortgage for £10,000 loan. WHP & R split the money (“I love it when a plan comes together”). JP & kids sued R, WHP and the new trustees. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) S & L claimed they were BFPFVWON. JP and the kids won at trial. 1851 mortgage and trust was valid so as Beneficiaries, they are entitled to be free of 2nd mortgage. “...it is immaterial whether the purchaser knows or not that another has an equitable interest prior to his own, provided that he did not know that fact upon paying his purchase-money. It may perhaps be sufficient in all possible cases for the purchaser to say, "I am not to be sued in equity at all. I hold what was conveyed to me by one in possession, who was, or pretended to be, seised, and who conveyed to me without my having notice of another equitable title;" and that the Plaintiff in equity must disprove the plea before he can proceed any further with his suit.” “I propose simply to apply myself to the case of a purchaser for valuable consideration, without notice, obtaining, upon the occasion of his purchase, and by means of his purchase deed, some legal estate, some legal right, some legal advantage; and, according to my view of the established law of this court, such a purchaser’s plea of a purchase for valuable consideration without notice is an absolute, unqualified, unanswerable defence and an unanswerable plea to the jurisdiction of this court. Such a purchaser, when he has once put in that plea, may be interrogated and tested to any extent as to the valuable consideration which he has given in order to show the bona fides or mala fides of his purchase, and also the presence or the absence of notice; but once he has gone through that ordeal, and has satisfied the terms of the plea of purchase for valuable consideration without notice, then, according to my judgment, this court has no jurisdiction whatever to do anything more than to let him depart in possession of that legal estate, that legal right, that legal advantage which he has obtained, whatever it may be. …” – James LJ Trustees were off the hook, as they did not know of the fraud; they did not consent to the second mortgage with knowledge of the existing fraud. Stockwell & Lamb appealed and won. Joseph v Lyons Cotton & Lindley LLJ for the Court of Appeal – 1884 Constructive Notice for Bona Fide Purchase Bill of sale of existing jewellery as ‘stock-in-trade’ from Manning (M) to Joseph to secure debt, Facts including any after acquired jewelry Jeweller executed bill of sale of his stock-in-trade to Joseph as security for a debt owed. He then pledged some of his jewellery to Lyons; a pawnbroker (who obtained legal title to the jewellery for value) Conflict between two security interests: Joseph’s older equitable charge (the security for the loan) versus Lyons’ newer legal pledge. Joseph registered bill of sale M pawned jewellery to Lyons who delivered money to M so L, who refused to release jewelry to J, so J sued L in conversion J claimed his equitable charge had priority because L had constructive notice of the registered bill of sale. Joseph won at trial, so Lyons appealed What interest did Joseph acquire? Equitable Issues What interest did Lyons acquire? Legal Whose interest had priority? Why? When a party is a bona fide purchaser for value without notice and the bona fide defence arises, Rules an earlier equitable security right cannot take priority over a later legal security right. It is not objectively reasonable for a pawn broker to search register with every purchase Joseph argued that Judicature Acts of 1873 & 1875 effectively eliminated distinction between Analysis Common Law and Law of Equity but CA rejected that argument as (a) it did not abolish the Conclusion Class/Lecture Notes (Optional) difference between trustees and cestui que trust (b) Act states that courts will administer both, but where there is conflict between them, the rules of equity prevail over those of common law Conflict between Joesph’s equitable charge and Lyon’s CL pledge o Did Lyons get possession? Yes o For value? Yes-loaned money. o Did he have notice? No, not reasonable for a pawnbroker to have to search the register. o Defendant had legal title and no notice of equitable title existing in the plaintiff. o If he had been informed of the existence of bill of sale would have been bound to search and inform himself of contents Bill of sale re future goods was framed as future deed but gave legal title solely over existing stock, unless contract was explicitly clear that title passed for future goods. o N/A here, so only the interest in equity passed for any future goods coming into M’s possession. There was no proof that L had notice of J’s interest in M’s jewelry o Lyons was a BFPFVWON, though he was technically not a purchaser Bill of sale gave no legal title; Joseph only got an interest in equity through the floating charge (which was a security for the debt owed to Joseph). Lyons had legal title, and had no notice (express or constructive) of the equitable title to Joseph Lyons was a pawnbroker, and he was not bound to search the register of bills of sale: he was not bound to inquire as to goods pledged with him in the course of his business. o If L had been informed of the existence of the bill of sale, he would have been bound to search the register in order to inform himself of its contents Lyons was a bona fide purchaser for value without notice, the registration of the bill of sale doesn’t constitute actual notice o Because the bona fide defence arises, Joseph’s earlier equitable security right cannot take priority over Lyon’s later legal security right Joseph must have legal title; having only equitable, he would have to demonstrate that Lyons had notice of that equitable title. Lyons’ appeal allowed MacArthur v Hastings Perdue J for the Manitoba King’s Bench – 1905 Imputed Notice – still good law Hastings was MacArthur’s solicitor and became trustee of M’s tax sale purchase of land in Wpg Facts in 1894 for M’s minor son. H registered the deed in his own name & later fraudulently conveyed land to defendant Stenning, also one of H’s clients, to clear $460 of H’s existing debt to her. S had no notice that H was the trustee, not owner S believed the land was vacant, although in fact there was a house on it with tenants who were paying rent to M’s agent. Does S have imputed notice of equitable title that would void her status as a bona fide purchaser? Issues Notice is not imputed to clients where the agent has committed fraud Rules M’s claim should not be attributed to S, even though H was her solicitor & his knowledge would Analysis normally be imputed to her. He would naturally suppress that info from her to cover his fraud The presence of tenants would normally import constructive notice to S, but only re their existence as tenants, not that they were paying M vs H. S is entitled to be regarded as BFPFVWON as she paid $460 as value of land to reduce debt & had legal title that prevail over M’s prior equity to extent of $460, with H owing the rest of debt to S that he later paid in full. o M had equity of redemption, so he would recover the right to title, so long as he paid $460 + interest + S’s expenses (gets his name back on title though) Conclusion Class/Lecture Notes (Optional) “In ordinary transactions the knowledge of the solicitor in respect of a matter passing through his hands is the imputed knowledge of his client. If the solicitor knows a material fact respecting a title, such as a prior incumbrance, it is assumed that he will communicate this fact to the client, and consequently the client is fixed with notice. Where, however, the circumstances of the case show that the solicitor in the very transaction intended a fraud which would require the suppression of the knowledge of the material fact from the person on whom he was committing the fraud, then notice is not to be imputed to such person.” Despite being MacArthur’s agent, notice is not imputed because the fraud required the defendant to intentionally withhold information from MacArthur MacArthur wins (though he’s gotta pony up some cash to clear up the red-tape hurdle to get title) Competing Equitable Rights ISSUE: Are the two competing rights both equitable? If there are two competing rights and they are both equitable, bona fide purchase defence isn’t going to help because no one is acquiring legal title What you need to determine is older and newer right – typically older rights will win but not always The holder of the older equitable right will not win in situations where they contributed to the mistake of the newer equitable right holder believing that the older equitable right did not exist Priority of competing equitable rights depends on three factors: First in Time Responsibility for the Mistake Nature of the Older Right First in Time Starting point is the equitable maxim: Qui prior est tempore potior est jure (he who is first in time is preferred in law) o Older equitable right > newer right (Rice v Rice) o Older equitable interests may be postponed to newer equitable interests if Newer interests was acquired in good faith, for value, without notice of older interest Holder of the older interest bears some responsibility for the problem (similar to nemo dat rule re estoppel) o If neither party has done anything to mislead the other into believing the older right did not exist, FiT applies First in time has priority o Unless there is good reason to postpone it o The older right is a vested right and should not be taken away without justification Rice v Rice Kindersley VC for the Court – 1854 Older right has priority Facts Vendors (V) sold leasehold estate to Michael Rice They delivered title deeds to MR that stated the purchase price was paid in full (as is a common clause in deeds) o Standard clause: “Paid in full”. Drafter didn’t remove this language from the clause, despite the vendor not having been paid in full BUT this was UNTRUE here so there is a vendor’s lien against the title for the balance of money owed by Purchaser. Vendor’s lien allows vendor to sue on the property and seize it if they don’t get their money Purchaser deposited Title deeds with mortgagee as security for what now is an equitable mortgage (granted an equitable mortgage to the defendant, created by giving them possession of the title deeds) Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Conflict: Plaintiffs’ older vendor’s lien versus defendants’ newer equitable mortgage Vendor & Purchaser both signed deed, which caused harm to mortgagee as V’s lien still exists, so earlier lien postponed & mortgagee won o Problem for mortgagee: the mortgagor doesn’t actually own the property they have a claim over… Earlier right normally wins UNLESS there is a strong reason to postpone it in favour of later interest, as was the case here Whose equitable interest was better? When two equitable interests are the same in all respects except time, then qui prior est tempore potior est jure. A bona fide acquisition postpones an earlier right if it was acquired for value with belief that there was no older right, and that perspective was encouraged by the older right-holder. If a party is partially responsible for the mistake, first in time won’t apply. “In a contest between persons having only equitable interests, priority of time is the ground of preference last resorted to,” which should be used only if “their equities are in all other respects equal.” Time considerations should be a last resort. One must look at whether one interest is better. When determining which equitable interest is “better”, the Courts must look at; the nature and condition of their respective equitable interests, the circumstances and manner of their acquisition, and the conduct of each party The possession of the title gives better equity generally. There are exceptions to this though “The deeds were delivered to the purchaser. Thus they voluntarily armed the purchaser with the estate as the absolute legal and equitable owner, free from every shadow of incumbrance or adverse equity” The vendors armed the purchaser by giving them title The mortgagee is bona fide; they relied on the registered document, which indicated that the vendor was paid in full, and the vendor would have no lien or claim. o Bona fide purchase postponed the older right Vendor and purchaser were the ones who screwed up, so they must bear the loss that harmed the lender/mortgagee. Mortgagee won, despite having more recent right Responsibility for the Mistake Older right may be postponed if o Bona fide acquisition: newer right acquired for value in belief that older right did not exist, and o older right holder contributed to that belief (somewhat like the nemo dat estoppel exception) Older will not be postponed if o newer right was acquired with notice of older right, or o newer right acquired as gift: No reason to defeat someone’s property right to something if you didn’t pay for it With delivery, the gift completes, and the original owner surrenders interest. If they intended to gift the property, but have not delivered, the original owner still has valid title, and the intended recipient has nothing. o Different from bona fide purchase Nature and Hierarchy of the Older Right Express Trusts o Trustees owe duties of loyalty and care to beneficiaries Trustee has legal title, but not beneficial or equitable title o Beneficiaries not expected solely to protect own interests o Older rights not postponed unless beneficiaries actively misled holders of newer rights Contracts of Purchase, Lease, Mortgage o Parties ARE expected to protect their own interests o Postponed if carelessness causes mistake o no duty, therefore, not negligence Mere Equities o Does not affect anyone except the parties to the transaction in which it is contained Mere equity is both rights in personam and rights in rem, if a mere equity is a personal right, it is enforceable against specific persons and will not affect anyone else even if they have knowledge of it If its property, then it can be enforced against others These are less durable than other equitable property rights Equitable right to rescind a contract or other transaction is a mere equity Mere equity is subject to defence of bona fide purchase and is defeated by someone who gets a newer title o In these cases, it’s expected that a failure to protect one’s own interest CAN be regarded as one’s fault (look after yourself) Parties ARE expected to protect their own interests Right is postponed if right-holder’s carelessness causes mistake Mere Equities “Mere Equity” is a terrible term as it’s unclear & suggests somehow that it does not involve rights recognized in Equity, but it is still subject to BFPFVWON, which can overrule prior owner’s legal right to rescind. Includes both rights in rem [enforceable against all] and rights in personam [enforceable vs. only certain persons] Right to o (1) recover assets by rescinding contract (in personam) Power to rescind to recover assets = Equitable interests in the assets o (2) rectify a contractual transaction If rectification creates a right to recover assets or an interest in those assets, right of recovery creates equitable interests (Taitapu Gold Estates Ltd. v Prouse) o (3) acquire via option to purchase = ‘mere equity’ as when it’s done, (1) contract ends, personal rights are released & is right to recover property previously transferred to each other; (2) Obtain title to the property bought upon receiving payment Having Power to rescind gives a right in equity to recover property (like an Option to Purchase gives right to complete contract); optionee has right in equity then. o Option-holder can acquire legal title to property IF the option is exercised and the sale is completed Right to rectify contract also creates a ‘mere equity’ and, IF it creates a right to recover assets OR an interest in assets, then that right of recovery creates an equitable interest in that specific property o Examples arise re mistakes in key terms of contract re what’s included or excluded AND, if there is compelling evidence that there was a mistake, a court can order that the error be corrected, but until a court order is made, party with right has equitable interest in that property & property holder may be trustee of that interest o i.e., if one has to pay before a certain date, and the other party wants to end the contract early, the payor has a mere equity in the property, as they still have the ability to complete their performance A ‘mere equity’ is also subject to BFPFVWON principles, but can also be defeated by someone who acquires a newer equitable interest for value without notice of the mere equity (first in time rule doesn’t apply). Functions like the common law right to avoid a sale of goods When Resolving Priority Disputes When dealing with registered land, always use priority rules under Land Title Act. When dealing with personal property security, always use the priority rules under the PPSA. LAND REGISTRATION Indefeasibility does not guarantee that title will last forever (bankruptcy, fraud, etc.). Indefeasibility refers to protection provided by priority rules in the registration system. Registered interest subject to older registered interests, but free from all unregistered interests (unless caveat or caution exists) Function of Registration Systems Government regulation of real and personal property through registration (gov’t wants to know who owns what) Land Motor Vehicles Firearms Pets Protection of property rights (ensure you don’t lose what you own) Land titles (protects one’s ownership interest in real property) Personal property security (mortgages, allows financing and ensures that lenders aren’t completely screwed over) Patents (protects intellectual property/copyright) Deed registration o PEI and NL only have deed, MB, ON, NS, have deed + title Give priority of documents but does NOT avoid fraud or possible BFPFVWON claimant may not obtain the property free of all interests. Validity of documents not guarantees (if acquired in good faith for value, overrides unregistered documentation) o Deed/document passes title; registration just affirms it and protects its priority o Does NOT guarantee validity of documents o Does NOT guarantee that the grantor had any legal rights to give o Does NOT exclude rights created without writing o Protects registered documents from Effects of constructive notice of older interests Protects rights created by documents, not so good at protecting rights not by document. (E.g. constructive trust of the family home) Loss of priority to newer interests Some problems normally associated with nemo dat. Title Registration = Legal rights are transferred or created by the registration of a document and not by the document itself Register of property rights, not a register of documents o Reduces likelihood of fraud and BFPFVWON (easy to check ID of owner when there’s a registry one can check out), but does not guarantee freedom from fraud. Title/Torrens registration: o BC AB, SK, territories have title registration only. MB, NB, ON, NS have title + deed Give priority of registration: Registration creates rights, not the document being registered. Title passes with registration o Protects against issues with nemo dat; rights created by registration not dependent on chain of title. Registrant obtains the title that the documents purports to convey, whether the grantor held such rights to give or not. o Protects against notice; registrant not affected by notice of unregistered interests. Makes it unnecessary to search for competing interests; reduces problems associated with bona fide purchase for value without notice. o Caveats protect unregistered rights (caveats don’t prove the right exists, nor gives it validity) o Registered title vs unregistered title is NOT the same as legal rights vs equitable rights E.g., Making a deposit on property gives the purchaser a right in equity over the land (developer can’t just sell it off to someone else). Equitable interest, but an undeveloped property isn’t registered, so there’s no legal interest Registration not affected by constructive notice of unregistered interests Registration can protect equitable interests Title Registration ISSUE: Is the interest registered legal or equitable? • Rights you can register (rights over land) are typically legal – rights you cannot are typically equitable ISSUE: Is the interest registered or unregistered? (matters for priority) ISSUE: Who registered their interest first? ISSUE: Was what was registered a forged document? Summary of Rules: The registrant’s title is subject to older registered interests but free from all unregistered interests except those listed as exceptions in statute and those that are protected by a caveat Indefeasibility: Registration system priority rules will protect one’s interest (the Province guarantees one’s title) o When someone acquires a registered interest in land for value and without fraud, they obtain what is often called indefeasibility of title o The benefits of indefeasibility are not available to those that obtain a registered interest by their own fraud or a party to someone else’s Registration solves problem of nemo dat because rights created by registration don’t depend on the chain of title, registrant gets legal rights that the document conveys and is not affected by notice of unregistered interest which gets rid of the problem of bona fide purchase for value without notice o Don’t have to worry about having good title or an older title if it’s a registered fee simple for value and obtained without fraud your good to go as a buyer BUT this creates a new problem of void documents having legal effect and risk of forgery o In BC, the law through the Land Title Act asserts that a “person who purports to acquire land or an estate or interest in land by registration of a void instrument does not acquire any estate or interest in the land on registration of the instrument.” Exception: Forged document can still have legal effect if its accepted for registration – if you obtained it for value, were not a party to the fraud, and the interest your registering is a fee simple estate and nothing less o In BC, a person who gets a fee simple by registration of a forged transfer would get immediate indefeasibility if they acted in good faith and gave value for it Nemo dat applies to all other interests United Trust v Dominion Stores Spence J for the Supreme Court of Canada - 1977 Facts Issues Rules Analysis Conclusion Class/Lecture In a Torrens system, legal title is created or transferred by registration and not by the execution or delivery of documents. The registration of a flawed or forged document can produce good title, Notes which eliminates the need to confirm the validity of a chain of title. The registered owner (Optional) acquires an “indefeasible” title, which means that it has priority over all unregistered interests subject to the exceptions set out in the statute. This replaces the priority rules at common law and in equity. An honest buyer will acquire good title free of most unregistered interests even if they have notice or knowledge of them. This greatly reduces the need to conduct extensive searches. Unregistered interests can be protected lodging caveats. Both systems significantly change common law and equitable priority rules. Provide protection for someone who registers their interest in land by giving them priority over older unregistered interests and new interests. Land title registration goes further than deed registration, almost completely replaces old rules Land Title Act RSBC 1996, c.250 Rules s.1 Owner, Charges, & Encumbrances Owner = A person registered in the records as owner of land or of a charge on land (whether the land is theirs, or they’re acting as representative) o Owner must mean fee simple owner Charge = An estate or interest in land less than a fee simple o Includes a registered estate/interests and an encumbrance o A charge is not a security interest – profits, easements, leases, restrictive covenants etc. Encumbrance = Includes (a) a judgement, mortgage, lien, Crown debt or other claim to or on land created for any purpose whether by the act of the parties or any Act or law, and whether voluntary or involuntary o Encumbrance is really about security interests in land s.179(1) Owner of the Surface Except as provided in the Strata Property Act and in Part 9 [Air Space Titles], the owner of the surface of land is alone entitled to be or remain as registered owner of the fee simple, and the owner of a part of land above or below its surface who is not also the owner of the surface is only entitled to register that person's estate or interest as a charge. ss.138-146 Air Space Titles “air space parcel” means a volumetric parcel, whether occupied or not occupied in whole or in part by a building or other structure, shown as such in an air space plan; “air space plan” means a plan that (a) is described in the title to it as an air space plan, (b) shows on it one or more air space parcels consisting of or including air space, and (c) complies with the requirements of section 144 139: Air space constitutes land and lies in grant. 140: Covenant to grant easements or to convey restrictive covenants not implied 141: Subdivision of land into air space parcels 142: Air space parcels re highways 143: Air space plan must be re air space parcels registered 145: Air space parcels subject to tax s. 180 Trusts (1) If land vests in a personal representative or a trustee, that person’s title may be registered, but particulars of a trust created or declared in respect of that land must not be entered in the register. (3) In effecting registration in the name of a trustee, the registrar must add, following the name and address of the trustee, an endorsement containing the words “in trust” and a reference by number to the trust instrument. (4) The trust instrument must be filed with the registrar with the application for registration of title. s.33 Equitable Mortgages & Liens An equitable mortgage or lien created by the deposit of a duplicate indefeasible title or other instrument, whether or not accompanied by a memorandum of deposit, is not registrable s.20 Unregistered Documents to NOT Pass Estate (1) “Except as against the person making it, an instrument purporting to transfer, charge, deal with or affect land or an estate or interest in land does not operate to pass an estate or interest, either at law or in equity, in the land unless the instrument is registered in compliance with this Act.” (2) “An instrument referred to in (1) confers on every person benefitted by it and .. claiming [thru it] (a) to apply to have the instrument registered…” (3) Subsection (1) N/A to lease or agreement to lease for a term not exceeding 3 years o Note: Been confusion of thinking this has something to do with equitable interest. Just talking about passing LEGAL title, legal title will not pass or be recognized. o I execute a registerable transfer of land to my house, give registerable transfer to you. Do you acquire any interest to the land? Clearly, I’m still legal owner, do you have any interest in the land at that point? You have a constructive trust (Re Rose). o Usually requires witness, need actual form (BC). s.22 Operation from Time of Registration An instrument purporting to transfer, charge, deal with or affect land or an estate or interest in land passes the estate or interest, either at law or in equity, created or covered by the instrument at the time of its registration, irrespective of the date of its execution.” o First come, first served o Restrictive Covenants are the only equitable interests that can be registered (everything registerable is a legal interest) o If we have a contract, I make contract to sell house to you, if not specifically enforceable right to damages, if not specifically enforceable, no doubt you have equitable interest in my house notwithstanding s. 22 Land Title Act. There’s still equity in Torrens system. o At most you’d have equitable interest IF you are holding a registerable transfer document. s.23(2) Effect of Indefeasible Title (Exceptions to Indefeasibility) An indefeasible title, as long as it remains in force and uncancelled, is conclusive evidence at law and in equity, as against the Crown and all other persons, that the person named in the title as registered owner is indefeasibly entitled to an estate in fee simple to the land described in the indefeasible title, subject to the following: … o (a) “…reservations, including royalties, contained in the original grant or contained in any other grant or disposition from the Crown” o (b) re federal & provincial tax; (c) re municipal charges o (d) “a lease or agreement for lease for a term not exceeding 3 years if there is actual occupation under the lease or agreement” o (e) “a highway or public right of way, watercourse, right of water or other public easement” o (f) re expropriation or escheat; (g) re caution, caveat, builder’s lien, pending court proceeding, etc. o (h) “right of a person to show…wrong description of boundaries or parcels” (i) “the right of a person deprived of land to show fraud, including forgery, in which the registered owner has participated in any degree” o (j) “ a restrictive covenant, right of reverter, or obligation imposed on the land by the Forest Act that is endorsed on the title.” 23(3) After an indefeasible title is registered, a title adverse to or in derogation of the title of the registered owner is not acquired by length of possession. 23(4) Despite subsection (3), in the case only of the first indefeasible title registered, it is void against the title of a person adversely in actual possession of and rightly entitled to the land included in the indefeasible title at the time registration was applied for and who continues in possession. o Note: Indefeasible is a misnomer. All it means is protection provided by the system, gives really strong protection to registered interest. Not truly indefeasible, but pretty well defended. o s.26 Registration of a Charge (1) A registered owner of a charge is deemed to be entitled to the estate, interest or claim created or evidenced by the instrument in respect of which the charge is registered, subject to the exceptions, registered charges and endorsements that appear on or are deemed to be incorporated in the register. (2) Registration of a charge does not constitute a determination by the registrar that the instrument in respect of which the charge is registered creates or evidences an estate or interest in the land or that the charge is enforceable o Registrar =/= judge. o A charge does not mean the registrar is giving the interest in the land an A-OK. One can still challenge charges on property that exist earlier in priority (i.e., if one was from fraud). o If you have a fee simple estate you’re getting a guarantee of title. If it’s anything less, you’re not getting a guarantee of title. If you have a 99-year lease, you’re getting a charge not getting indefeasible title s.29(2) Notice and Fraud Except in the case of fraud in which he or she has participated, a person contracting or dealing with or taking or proposing to take from a registered owner o (a) a transfer of land, or o (b) a charge on land, or a transfer or assignment or subcharge of the charge, is not, despite a rule of law or equity to the contrary, affected by a notice, express, implied, or constructive, of an unregistered interest affecting the land or charge … o Note: If someone has an unregistered interest and you obtain notice, it doesn’t affect your own property interests, unless you’re involved in fraud relating to the property. If you’re a fraudster, notice of an unregistered interest in the property vitiates your interest in equity. o Knowledge of existing unregistered rights: Not fraud to know that an interest will come to an end if I get title, but it is fraud if I know or suspect shenanigans, that you are doing something wrong and I’m getting involved in it. s.25.1 Void Instruments (1) Subject to this section, a person who purports to acquire land or an estate or interest in land by registration of a void instrument does not acquire any estate or interest in the land on registration of the instrument. (2) Even though an instrument purporting to transfer a fee simple estate is void, a transferee who o (a) is named in the instrument, and o (b) in good faith and for valuable consideration, purports to acquire the estate, is deemed to have acquired that estate on registration of that instrument. (3) Even though a registered instrument purporting to transfer a fee simple estate is void, a transferee who o (a) is named in the instrument, and o (b) is, on the date that this section comes into force, the registered owner of the estate, and o (c) in good faith and for valuable consideration, purported to acquire the estate, is deemed to have acquired that estate on registration of that instrument. o Note: Each section intended to protect a bona fide purchaser for value. Class/Lecture Notes (Optional) Owner, Charge & Encumbrance: (Land Title Act, s. 1) Owner = A person registered in the records as owner of land or of a charge on land (whether the land is theirs, or they’re acting as representative) o Owner must mean fee simple owner Charge = Means an estate or interest in land less than a fee simple o Includes a registered estate/interests and an encumbrance o A charge is not a security interest – profits, easements, leases, restrictive covenants etc. Encumbrance = Includes a judgement, mortgage, lien, Crown debt or other claim to or on land created for any purpose whether by the act of the parties or any Act or law, and whether voluntary or involuntary o Encumbrance is really about security interests in land Unregistered Documents do not Pass Estate: (Land Title Act, s. 20.1) The key remains that registration is the event that causes title to pass and not the issuing of a registerable document o Document being given, created, or received is not the event that causes title to pass – only registration of that document can Priority of registered interest depends on who was granted the registered interest first (Land Title Act, s. 22) o It’s essentially a race—whoever has it registered first will win in a priority dispute Effect of Indefeasible Title: (Land Title Act, RSBC s. 23.2) Indefeasibility of Title = When someone acquires a registered interest in land for value and without fraud o Essentially means above all other interests o Indefeasible is a code word for the protection afforded to your fee simple interest by the registration system o It can be defeated but it’s really hard to do so – offers very good protection but is not absolute o Deals with fee simple estates Notice and Fraud: (Land Title Act, s 29.2) A significant issue with title registration is that a forged document can still have legal effect if registered, leading some innocent people to lose their estate, which is not an issue in a deed registration system where nemo dat continues to operate YOU DO NOT have indefeasible title if it was acquired through forgery or fraud and the registered owner is a party to that forgery or fraud (Land Title Act s.23.2) The registration of a flawed or forged document, however, can produce good title which you will receive indefeasibility on if you were not a party to the fraud and it was a fee simple estate To cancel registered title of the defendant, the claimant must prove that there was fraud, not only mere notice, or knowledge of the claimant’s earlier unregistered interest (Hackworth v. Baker) o It’s not enough that someone knew you had a registerable document and by registering first they are destroying your title – need to show fraud in order to cancel this (Hackworth v. Baker) o In BC, there must be actual evidence of notice (that the person knew they were destroying your title) and some act of dishonesty or deceit for a declaration of equitable fraud (Vancouver City Savings v. Serving for Success Consulting) What is NOT fraud? knowledge of existing unregistered rights (i.e., existence of a trust) knowledge of their destruction What IS fraud? One knows or suspects shenanigans (wrongdoing), but one remains wilfully blind anyhow If A holds estate in trust and transfers estate to B It’s not fraud if B knows it is a trust [as trustee can give good title if advances beneficiary interests] o If one can’t buy the property, how can the trustee convert it for the benefit for the beneficiary? It is fraud if B suspects the sale is part of a breach of trust but does not inquire further (wilfully blind) o B is not the fraudster, but is facilitating A’s fraud, which counts Hackworth v Baker Turgeon JA for the Saskatchewan Court of Appeal – 1936 Knowledge that trust interest will be destroyed is not fraud Halcro (80-yr-old blind woman) transferred title to property to her daughter, Elizabeth Facts Hackworth. The property was never transferred or registered to Hackworth, though. Baker (neighbour on both sides of Halcro’s property) wanted to buy the property, told it was Hackworth’s and not for sale. Then Baker realized Halcro was still registered. Baker saw an opportunity. Baker bought property from Halcro and registered his interest. Hackworth sued, alleging that, at the time Baker obtained his transfer from Halcro, he was aware of the plaintiff’s rights under her prior unregistered transfer, and that he dealt with Halcro in fraud of the plaintiff. Does Baker have a better priority than Hackworth? (Yes) Issues To cancel registered title of the defendant, the claimant must prove that there was fraud, not only Rules mere notice, or knowledge of the claimant’s earlier unregistered interest The mere fact that the holder of an unregistered interest is “hurt” or “deprived of his property” by the act of a person who, with notice, or knowledge, of that interest, acquires and registers an adverse interest, does not affect the position of that person Analysis Relying on one’s legal rights, even if they cause hardship to others, is not fraud. Registered title overrides unregistered title. o The plaintiff was free to register her land but chose not to do so o It was only after Baker bought the land, paid the taxes and paid the mortgage, that Hackworth decided that she could and would assume the interest o Nothing short of fraud on Baker’s part will affect his title; Baker did nothing that would amount to fraud and as such, his title cannot be cancelled Baker is claiming a registered title obtained by a preceding registered owner. He doesn’t have to inquire about whether the person who said they had the title wanted to sell. All he’s told and all he knows is Elizabeth is owner of the land (owner in land-trust interest). Fraud, of course, vitiates all things, and I do not believe there is any case where the Legislature has enacted otherwise. But to rely on one’s legal rights, whether created by common law or by statute, is not fraud, even though in some cases a positive hardship may thereby fall upon another person. He is not affected by the doctrine of notice. Does not matter that Baker knew he was destroying Hackworth’s title – he gets an indefeasible estate because he registered first and he did not commit fraud “Fraud, of course, vitiates all things, and I do not believe there is any case where the Legislature has enacted otherwise. But to rely on one’s legal rights, whether created by common law or by statute, is not fraud, even though in some cases a positive hardship may thereby fall upon another person.” Conclusion Class/Lecture Notes (Optional) Baker wins John G Diefenbaker [later Cdn PM] represented Elizabeth, possibly pro bono. Lost at trial & SCA 3-2 but dissenting Justice Gordon later said that Martin JA had agreed to overturn but switched after reading Turgeon JA decision 5 member bench at the CA (unusual, given the norm of 3). Until registration occurs, there is no delivery of the property and the sale/gift is incomplete. Vancouver City Savings Credit Union v Serving for Success Consulting Bracken J for the BC Supreme Court - 2011 Van City claimed its 1st mortgage (of $4.3M and assignment of rents re hotel in Victoria) ranked Facts first in priority over the defendants’. Safety First Savings and 3 other claimants claimed priority of their $800K mortgage over SSC. o Hotel made own deal with SSC and leased parts of hotel. VanCity initiated foreclosure; get order nisi appointing receiver-manager; & bring action to confirm priority of their interests by summary trial o Want to prevent hotel from selling it out from under them before they get their interest SSC wanted full discovery pre-trial to see if VanCity had knowledge of their interests. o If receiver could sell bankrupted property, VanCity may buy it, if they got vacant possession. SSC wanted to retain their 5-yr (never registered) leases, which they paid for. Again, leases over 3-years need registration to protect their priority. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) What is the law concerning fraud in BC? “Before a finding of equitable fraud can be made there must be evidence of actual notice coupled with some act of dishonesty or deceit on the part of the person seeking the protection of s. 29 of the Land Title Act” There must be evidence of actual (subjective) notice couple with some act of dishonesty or deceit on the part of the person seeking protection under s.29 to qualify as fraud. “The law in British Columbia appears to have developed so as to create two arguably divergent lines of authority. o The first line of authority … states that a purchaser of real property who takes title to a property with knowledge of a prior unregistered adverse interest, and who then attempts to rely on s. 29 of the Land Title Act, may be found to have committed equitable fraud. o The second line of authority … requires something more than knowledge; usually conduct that constitutes some form of dishonesty.” “…[B]efore a finding of equitable fraud can be made there must be evidence of actual notice coupled with some act of dishonesty or deceit on the part of the person seeking the protection of s. 29 of the Land Title Act.” This was not fraud; VanCity is entitled to vacant possession of the property VanCity won 5 parties suing the same defendants Hotel owner not direct party Institutional Mortgage Capital et al v Plaza 500 Hotels et al Goepel JA for the BC Court of Appeal - 2020 IMC approved the sale of a mixed residential & commercial high rise for $82.5M; Facts IMC gave Plaza a $62M 1st mortgage in 2017 [after prior mortgage defaulted] Plaza was in arrears, owed the remainder ($20.5M) and owed Crown taxes IMC sought foreclosure June 3, 2019: Master ordered 6-month redemption period, but Plaza didn’t pay up. o Masters are quasi-judicial; intended to expedite process, minimize delay, and smooth matters out before getting to court IMC moved to sell. They want their money back. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) IMC file application for the OK to sell; Plaza opposed, thought they could get more out of the sale (IMC’s portion would be covered, but they want a piece of that pie to avoid bankruptcy). BCSC Justice Fitzpatrick reviewed situation with great care including odd aspects [9% residential vacancy, COVID as a “cataclysmic event”, unregistered lease renewed to Hotel owners day before order of sale with rights of renewal, etc.]. Concluded agent’s sale efforts were extensive and the fair sealed bids process was fine Plaza 500 appealed & applied for leave for stay, on IMCC’s sale pending appeal o Appeal of foreclosure only possible via leave of BCCA, hence why this was heard in Chambers Mortgagee was in default for 1.5 yrs [added $7M to the debt] and interest continued to accrue at $530K/mo. 2nd mortgagee feared further delay will end any chance to recoup their interest Proposals to buy have to be sealed bids (not knowing what other bidders are offering) Van City followed by Fitzpatrick J. Challenged in leave app. Although Van City is the leading authority since 2011, Goepel JA states it is open question if mere notice of an unregistered interest triggers equitable fraud within s. 29(2) LTA as ruled in Van City. Not bad law, just no binding precedent. BCCA did not consider the question yet, but this is a weak case so the JA denied Building will be sold one way or another. Any delay merely diminishes its value. Further deferral will see fewer bids and higher debt-load. Better to sell now, a sthe bid is reasonable ($20.5M more than initial mortgage). Ordered complete sale to the highest bidder (even though the $82.5M won’t cover the total cost) Plaza’s appeal denied and BCCA stayed their application Some creditors are just plain out of luck here, and will be getting next to nothing Pros and Cons of Title by Registration • • • Removes need for costly investigation of validity of the conveyor’s title Creates new problems (though admittedly “few in time”): o Registration of void documents have legal effect o Risk of forgery Benefits for many at the expense of a few Indefeasibility: Immediate vs Deferred Effects of Registration of a Forged Document Example: I am the registered owner of a fee simple estate. Someone forges a transfer of that estate to you, an honest purchaser for value. You grant a mortgage to the bank to borrow the purchase price which you pay to the forger who is never seen again. You are the registered owner of a fee simple estate subject to a registered mortgage to the bank. What should happen? Immediate Defeasibility: Title is indefeasible because it was obtained for value without fraud and the system guarantees it. I will be compensated by the assurance fund because the loss was caused by the registration system. o Unclear if this is accepted in Canada o Accepted in Sask in Hermanson v Martin the Schmidts were joint owners of 540 Osler Street in Regina, they divorced and she moved to Calgary and married Hermanson. Mr. Schmidt sold land to Martin in 1975 for $13,500, signed transfer along with an unidentified woman posing as Mrs. Schmidt. He died 2 years later, she discovered the forgery, her claim failed against Martin because he purchased the land without fraud on his part. o Ontario has instead done double deferred indefeasibility in Lawrence v Maple Trust Co which is just as confusing as it sounds o BC only gives immediate indefeasibility for fee simple estates Deferred Defeasibility: Title is defeasible because the loss was caused by the forger’s deception and not by the registration system, the bank loaned money to you in reliance on registration system, which guaranteed you owned the fee simple estate. Having relied on the register that stated you were the owner, the bank’s mortgage is indefeasible. I get my estate back subject to the bank’s mortgage but the assurance fund will still compensate me for the loss caused by registration system and I can use that money to discharge the mortgage. Your claim is only against the forger who has disappeared in prison and isn’t worth suing. Bona fide Purchase; Chris now has legitimate and good title Rogue Anna The real victim; will be compensated by Registry Insurance Fund for property FMV. Still loses the property itself, as the buyers validly paid. Forged transfer Blythe | Immediate defeasibility; protects Blythe and Chris $ $ If the fraud is discovered before Chris finalizes, he can walk away Scot-free Chris | Deferred defeasibility; screws over Blythe but protects Chris Hermanson v Schmidt et al Brownridge JA for the Saskatchewan Court of Appeal – 1987 Immediate indefeasibility Valerie & Edward Schmidt were joint owners of 540 Osler Street in Regina. Facts They divorced, and she took the kids to Calgary & married Allen Hermanson. Edward sold the land to Ralph Martin (RM) in 1975 for $13,500 [1st mortgage went to Co-op Trust for $12,271] and took back 2nd mortgage of $2200 from RM. All docs were prepared by RM’s solicitor. Transfer was signed by Edward & a woman posing as Valerie who signed. Edward died in 1977, his brother was executor & the only real asset was the 2nd mortgage. Valerie discovered forgery & sale to RM when she planned to sell home. RCMP pursued forgery but were unable to ID the woman that was the forger. Valerie sued RM for property & Registrar of Regina Land Registration District but failed because RM was unaware of fraud McIntrye J (trial judge) awarded her $6750 (½ of sale proceeds) + 12% simple interest with damages from date of fraud [1975]. Registrar appealed, arguing RM did not have good title; VH did & VH should not get 50%. Valerie Hermanson appealed re RM’s good title, that 1st mortgage was valid, that they failed to declare that the executor owed money to discharge the 1st mortgage and, if estate judgement was proven, failed to approve VH’s right to sue Registrar for loss and costs from insurance scheme in Torrens system. Does Valerie have a valid claim to the house? Issues Accepted doctrine of immediate indefeasibility: Rules Title is indefeasible because it was obtained for value without fraud and the system guarantees it. The only way you could validly normally transfer land was for Valerie and Edward to sign it. Analysis Edward brought another woman long pretending to be Valerie. Valerie has discovered she should be legal owner of this house now, not Ralph. She makes a claim against Ralph. Ralph isn’t guilty of fraud, he’s entitled to immediate indefeasiblity. He was fooled by fraudster, not the system – Immediate Indefeasibility Bayda CJS & Brownridge JA each review facts & law concluding: RM relied on registered title in name of ES & VS. Solicitor of RM prepared docs. RM never met VS so had no idea that ES had woman purporting to be VS forged signature of VS. RM had no idea from solicitor or anyone else that fraud was occurring. No evidence that ES’s solicitor knew of fraud. o Neither lawyer knew of the fraud Land Titles Act, RSS 1978 in several sections contain exception to normal indefeasibility of title re “except in case of fraud wherein he has participated or colluded” or “the person who through the fraud has been registered as owner” in Frazer v Walker [1967], 1 AC 569 (JCPC) fraud limited to “actual fraud by the registered proprietor or his agent”. These exceptions to indefeasibility arise solely if later registered owner was directly involved in the fraud underlying that person’s registered title, & that N/A here Saskatchewan CA sustained trial judge on all aspects Conclusion Class/Lecture Notes (Optional) Appeal dismissed In BC, immediate indefeasibility is only given to fee simple estates Void Instruments (Land Title Act, s 25.1) • • This is the system BC uses for a fraudster or forged document which an honest buyer then registers – o Even though the register will show the honest buyer has the instrument and good title it’s not accurate because the document/title they purchased is a forgery. o Void/fraudulent document =/= good title In BC: we give immediate indefeasibility to whoever acquires the fee simple BUT do not give it for other interests in land (Gill v. Bucholtz) o In other systems it does not matter what interest you register– that interest will nonetheless be protected when registered – but in BC, only fee simple interests are protected when registered • Per s.25(1), If you register a void instrument, you get nothing o Forgery is a classic example of void instrument but an instrument can also be void if it’s not registered properly, executed under duress, or executed without the required mental capacity • s.25(2), if you register a void fee simple estate, you get estate (exception to the rule above) (1) Even though an instrument purporting to transfer a fee simple estate is void, a transferee who (a) is named in the instrument, and (b) in good faith and for valuable consideration, purports to acquire the estate, is deemed to have acquired that estate on registration of that instrument. o S. 25.2 is an exception which states that if you register a fee simple estate for value and in good faith you get immediate indefeasibility – Just not for other interests in land—fee simple only (Gill v. Bucholtz) Gill v Butcholtz Newbury JA for the BC Court of Appeal - 2009 Mr. Gill (P) was the registered owner of Lot 4 – Innocent owner Facts In 2005, a fraudster forged his signature on a transfer of Lot 4 to Gurjeet Gill, who was working in cahoots with him (the scoundrels!). Gurjeet Gill then granted a mortgage to Bucholtz, who, relying on the register, advanced some $40,000 to Gurjeet Gill. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) None of the mortgagees had known about the fraudulent root of Gurjeet Gill’s title and they had sought and obtained confirmation of her identity before advancing funds. Can Mr. Gill cancel the mortgages that were fraudulently registered under his land, despite the mortgagees knowing nothing of the fraud? (Yes) Statutory exception to nemo dat only applies in favour of someone who has acquired a fee simple estate. A mortgagee does not acquire estate or interest in properties obtained through fraud; fraudster didn’t have anything to give, so nemo dat kicks in (Can’t give what you don’t have) Fraud is the exception to indefeasibility Can be an honest buyer, check the registration system, pay for value, not be a party to the fraud, and still not get the interest in the property IF it was not a fee simple Mr Gill would get his estate back, and insurance fund would be used to compensate the Bucholtz The Bucholtz would have gotten the estate had it been a fee simple – but it was a mortgage which is not protected in BC They did everything a reasonable lender would do in the circumstance – checked the registry, were not a party to the fraud, purchased for value – but does not matter in BC, was not a fee simple estate The mortgagees (Bucholtz) in this case did not acquire any estate or interest in Lot 4 on registration of their instruments because having been granted by a person who had no interest to give, those instruments were void o NEMO DAT APPLIES Not saved under 25(2) because they got a registered mortgage, not a fee simple “This appeal arises in a classic case of real estate fraud, reminiscent of a law-school examination. It raises some basic questions about the Torrens land registration system of the province that have not previously reached this court. Historically, the relevant provisions of the Land Title Act… gave ‘mixed if not conflicting signals’ as to whether the system was one of ‘deferred’ or ‘immediate’ indefeasibility… The facts obviously raised … central ‘indefeasibility section’ of the Act, s. 23 and the ‘fraud exemption’ in s. 23(2)(i)” “The Act preserves the nemo dat rule with respect to charges — even where the holder has relied on the register and dealt bona fide with a non-fictitious registered owner. The mortgagees in this case did not acquire any estate or interest in Lot 4 on registration of their instruments because having been granted by a person who had no interest to give, those instruments were void, both at common law and under s. 25.1(1).” o Bucholtz’s cannot recover their loan, since Ms. Gill had no interest in the property to give over to them re mortgage. In British Columbia, a person who acquires a fee simple estate by registration of a forged transfer will acquire immediate indefeasibility if they acted in good faith and gave value for it. Other interests in land do not receive the benefit of any indefeasibility unless they are granted by someone with an indefeasible fee simple estate. Gill wins Likely not used in exam Caveats • • • • • • • Caveats – a legal document lodged to provide notice of a legal claim to a property. Lodging a caveat allows time for both parties to claim their interest in court. No other transactions can be registered against the title until the caveat is resolved o Caveats protect unregistered rights Preserves your place in priority o Something you file to claim you have an interest in the land o Preserves your priority Validity: Caveats do not create rights; they only protect rights that already exist Priority: Further registrations are subject to caveat (s.31) o Does not give fee simple title A caveat is a warning that someone other than the owner claims some right over or nonregistered interest in the property. A caveat does not create a right it only protects a right if it already exists Technically, anyone can file a caveat but if you file a caveat when you have no interest, you can be liable to pay damages as compensation (s.294) Who can lodge a caveat, caution, or certificate? o A person claiming interest in land, referred to as a ‘caveator’ (s. 282) o The registered owner (s. 283) o The Registrar (s. 284) Exceptions if Caveator does not have an Interest: 1. Register owner can lodge a caveat against own interest in land (might be worried about dealings with land that aren’t authorized, want to stop them) 2. The registrar (person in charge of land title system) can file caveats if they suspect issue • If someone puts a caveat on someone’s title, and doesn’t have reasonable claim/interest, they are liable to pay compensatory damages to the injured party (BCSC “considers [if the claim’s “reasonable cause” is] just.” (s. 294)) o E.g. development going ahead and you stop things unreasonably, causes significant financial loss. The party who lodges a caveat when there are 2 unregistered interests has a better right than the party that did not file a caveat (Scotia Mortgage Corp v. Ludwig) Union Bank of Canada v Phillips Boulter-Waugh Davies CJ for the Supreme Court of Canada - 1919 Boulter Waugh (BW) agreed to sell land to Phillips in installments – not registered, but it Facts (agreement) created equitable interest. o Philips assigned the agreement as security for a loan, creating an equitable mortgage BW filed caveat on the title. Once Phillips completed the purchase in 1919, he gave the mortgage to Union Bank (UB). UB registered their mortgage (legal, not equitable, mortgage) and in doing so, discovered the caveat. Registrar served notice on BW to take action on the caveat but since they did nothing, the caveat got removed by Registrar in November. BW then claimed that its prior caveat for unregistered interest prevails over UB’s registered mortgage. BW lost at trial, won on appeal, and UB appealed. Who has the better priority in title? Issues What is the proper construction to give to s.194 of SK’s Land Title Act? It isn’t fraud to obtain registration with actual knowledge that an unregistered interest exists Rules Knowledge on any part of any such person that any trust or unregistered interest is in existence shall not of itself be imputed as fraud. Analysis Conclusion Class/Lecture Notes (Optional) A caveat can be lost if the caveator is asked to prove it and fails to do so within a given length of time No fraud occurred and so the unregistered interest will not trump Union Banks registered interest By letting their caveat expire, BW abandoned its priority interest A purchase for value is not affected by any notice direct, implied or constructive, of any trust or unregistered interest in the land, any rule of law or equity to the contrary notwithstanding. But for s.194, plaintiff respondent would have a right to maintain its action and priority of its security over that of the bank and without section 194, failure to maintain/renew its caveat would not operate to affect such a right of priority. BW allowed, by its own neglect and inaction, the property to be vacated o Lost the right it otherwise would have had to enforce a claim against UBC, which, in the meantime acquired an interest in the land. Davies CJ cite LTA, s.194 of SK that purchaser, mortgagee, lessee, etc. from person with registered title for value o (1) “shall except in case of fraud by such person. nor shall be affected by any notice direct, implied or constructive, of any trust or unregistered interest in the land, any rule of law or equity to the contrary notwithstanding.” o (2) “Knowledge on the part of any such person that any trust or unregistered interest is in existence shall not of itself be imputed as fraud.” Davies CJ say: “the object and purpose of this section, apart from cases of fraud, was to lay down a different rule… and unless we are prepared to ignore the section altogether… we must hold that, except in cases of fraud, these equitable rules established by the authorities, however just and equitable they may seem to be under ordinary circumstances, are not applicable to cases coming within s. 194 of the Land Titles Act.” Relied on Fels v Knowles, NZCA that purpose is for Act to “contain a complete system” Purpose of s. 194 was explicitly to reverse old rules. By letting their caveat expire, BW has no one to blame but itself UBC’s appeal allowed. Statutory amendment can override not only prior legislation, but also existing case law jurisprudence. Scotia Mortgage Corp v Ludwig Smith J for the BC Supreme Court – 2010 Facts Robert Wiseman sold land in Prince George to Cindy Ludwig, with unregistered $20,000 mortgage back to him – unregistered equitable mortgage. Cindy transferred land to herself and her husband Ken Ludwig. They registered mortgage to TD Bank for $341,334 – bank took interest free of Robert’s equitable mortgage. TD sold mortgage to Scotia – assigned it to Scotia. TD failed to deliver transfer of mortgage to Scotia as promised, but TD discharged the mortgage by mistake. Cindy and Ken became bankrupt and didn’t pay RW for the mortgage May 2009: RW learned from trustee in bankruptcy that their mortgage was unregistered, so he lodged a caveat RW filed petition that he had an equitable mortgage, and sought foreclosure. September 2009: Scotia filed petition for mortgage registration Which party’s mortgage had priority? Issues Priority is based on first to register Rules If there are two unregistered interests and someone lodges a caveat, they have a better right that the person who did not file a caveat Both Robert’s & Scotia’s mortgages were never registered, although each mortgagee believed Analysis their interest was registered & acted properly always Robert moved quickly when he discovered the situation; he filed caveat & launched proceeding Because Robert filed the caveat, his priority over Scotia was protected “The Land Title system…based on the fundamental principle that those dealing in interests in land are entitled to rely on the registered title. The key sections” of the LTA are ss. 20(1) and: 27(1) ‘The registration of a charge gives notice, from the date and time the application for the registration was received by the registrar, to every person dealing with the title to the land affected, of o (a) the estate or interest in respect of which the charge has been registered, and o (b) the contents of the instrument creating the charge so far as it relates to that estate or interest, but not otherwise. AND must be followed in 2 months by commencing action & registering certificate of pending litigation (s. 293). s.31(a) caveator gets registration priority if they win their action Both Wiseman & Scotia mortgages never registered, although each mortgagee believed their interest was registered and otherwise acted properly Wiseman moved quickly when he discovered the situation; filed caveat and launched proceeding o The search of title only showed BC Hydro lines, and named BC Hydro as Respondent so he believed there were no other mortgagee. o RW also had a mortgage interest 3 years earlier than Scotia did. Caveator must be “entitled to rely on the state of title certificate in deciding whether to lodge the caveat and proceed with the underlying action.” “I therefore conclude that the Wiseman mortgage ranks in priority to the Scotia mortgage and are entitled to a declaration to that effect.” o If Scotia had registered their legal mortgage, RW’s unregistered equitable mortgage would have come second in priority. But the caveat gives notice, locking the equitable mortgage in. Wiseman’s action wins. Unregistered mortgage doesn’t die because of time. Puts the holder at disadvantage if competing with other unregistered mortgages, but it is still registerable on title. If the property has a charge on the property, though, registering the mortgage comes subsequent to priority of registered charges. Conclusion Class/Lecture Notes (Optional) Caveats in LTA LTA RSBC 1996 c 250 Provisions s.31 Priority of Caveat or Certificate of Pending Litigation If a caveat has been lodged or a certificate of pending litigation has been registered against the title to land, o (a)the caveator or plaintiff, if that person's claim is subsequently established by a judgment or order or admitted by an instrument duly executed and produced, is entitled to claim priority for that person's application for registration of the title or charge so claimed over a title, charge or claim, the application for registration, deposit or filing of which is made after the date of the lodging of the caveat or registration of the certificate of pending litigation, and o (b)if proof of service of notice of claim to priority on the subsequent applicant is provided to the registrar before registration is effected, the registration of the title or charge claimed by the caveator or plaintiff relates back to and takes effect from the time of the lodging of the caveat or registration of the certificate of pending litigation, and that time, as well as the time of the application for registration of the title or charge so claimed, must be endorsed on the register. s.282 Lodging Caveat (1) A person, in this Act referred to as the "caveator", claiming o (a) under an unregistered instrument which is incapable of immediate registration, o (b) by operation of law, or o (c) otherwise, to be entitled to land the title to which is registered under this Act, may by leave of the registrar, granted on terms, if any, the registrar may consider proper, lodge a caveat with the registrar prohibiting registration of a dealing with the land either absolutely or in the manner or to the extent expressed in the caveat. (2) A committee or the Public Guardian and Trustee acting under the Patients Property Act may lodge a caveat with the registrar if the committee or Public Guardian and Trustee certifies o (a) that he or she has been appointed committee or is the committee under the Patients Property Act, and o (b) that the land of a patient is or may be endangered. (2.1) An attorney acting under an enduring power of attorney may lodge a caveat with the registrar if the attorney certifies o (a) that the attorney has the authority to act as attorney under Part 2 of the Power of Attorney Act, and o (b) that the land of the person for whom the attorney is acting is or may be endangered. (3) Section 293 does not apply to a caveat lodged under subsection (2), but the registrar may withdraw the caveat o (a) on receiving a withdrawal notice under section 290, or o (b) on application by any person, if the registrar considers it proper to do so. s.285 Power of Registrar to Lodge Caveat (1) If, in the opinion of the registrar, o (a) an error has been made in a registration or in an indefeasible title or other instrument or document, o (b) a prohibition against dealing with land is necessary to prevent fraud, o (c) a person empowered to administer an enactment has produced satisfactory evidence of a contravention of the enactment and a prohibition is considered necessary to prevent improper dealing in land covered by an indefeasible title, o (d) land owned by or alleged to be owned by the Crown or a person under a disability is or may be improperly dealt with, or o (e) any other circumstances require it, the registrar, on the registrar's own behalf or on behalf of the Crown or a person under a disability, may lodge a caveat to prohibit dealing with the land. (2) The registrar, in the exercise of the registrar's discretion under subsection (1), may call for such evidence as the registrar considers necessary in the circumstances. (3) A caveat lodged by the registrar does not lapse unless the caveat expressly so provides s.294 Compensation if Caveat is Lodged Wrongfully (1) If a caveator wrongfully and without reasonable cause lodges or causes to be lodged with the registrar a caveat, the caveator is liable to pay to the person who sustains damage by it such compensation as the Supreme Court considers just. (2) This section does not apply to a caveat lodged by the registrar. Class/Lecture Notes (Optional) FIXTURES Destruction Property rights cannot survive without the subject matter, but destruction may give rise to personal rights (collect on insurance policy, sue wrongdoer in torts) The creation or destruction of things will rarely affect the nature of the property rights in the land of the owner (assuming land still there), but may readily impact on enjoyment of the land’s structures as their contents can readily be affected by fire, flood, etc. which impacts monetary value The right to possession of the land continues unless dimensions of the estate [surveyed land] are changed, e.g., by a landslide in which part or all of realty is gone. If an office building is destroyed, what becomes of leases of office space in the building? Clearly the tenants cannot occupy their offices if the building is destroyed. Accretion & Erosion Changes to the shoreline along a lake, sea or ocean, or a river overflowing its banks [e.g., Merritt, Abbotsford, etc] can clearly affect real property rights if the estate’s boundaries are defined by the shoreline or river. o If you have a chunk of land, earthquake, huge portion falls into the sea. Probably doesn’t exist as an estate anymore, no longer land; there’s a difference between land and sea. o Changes to shore line can affect property rights if estate defined by shore line Those land boundaries can shrink via erosion, as land disappears, OR grow, via the accretion of sand & soil to adjacent land. The land changes Fixtures Fixtures are Goods that are attached to land and lose their distinct and separate identity They are no longer goods but are part of the real property estate o e.g. Cement in a truck was a good but when it was poured into the foundation – now becoming attached to land as a foundation – it becomes a fixture and is part of the estate o if the property is readily removable, it is not a fixture. (i.e., shower rod is a fixture, shower curtain is not) Fixtures generally become an issue when someone claims the land and the fixture as a single package, and another party wants the fixture as a separate good. Whether something is a good or fixture depends on the o Degree of annexation (how, and to what extent, they are attached to the land) TV plugged into the wall is a good, attached to the wall is a fixture (degree) o Object of annexation (why, and for what purpose, they are attached to the land) Essential fixtures (i.e., toilets) harder to steal, harder to argue as goods (object). Stack v T Eaton Co Meredith CJ for the Ontario Provincial Court – 1902 Sets 5 Rules for Fixtures vs Goods Freehold estate is sold. Was being used as a shop, shop fittings (shelves, lights, gas fixtures) were Facts installed by owner of freehold. Guinane installed electric light and gas fittings in a building he owned in freehold G sold the land as fee simple with the building, including fittings o Fittings can be easily removed without damage to fittings of land. o Fittings consisted of shelving in sections and screwed to brackets attached to the wall. o They were attached by screws, easily removable without damage to the building. Land was sold. Respondents bought the land and claimed the fittings had passed to them by the conveyance of the land. o The fittings and shelves were readily removable without damage to them or to the building. Guinane claimed they were goods. Ontario Court was asked to decide if shelves/light fittings were transferred to purchaser as fixtures, or belonged to vendor as goods. Were the electric lights fixtures or goods? Issues 5 Principles for Fixtures vs Goods: Rules (1) Articles not otherwise attached to the land than by their own weight are not to be considered as Analysis Conclusion Class/Lecture Notes (Optional) part of the land, unless the circumstances are such as shew that they were intended to be part of the land (2) Articles affixed to the land even slightly are to be considered part of the land unless the circumstances are such as to show that they were intended to continue chattels – rebuttable presumption (3) The circumstances necessary to be shewn to alter the prima facie character of the articles are circumstances which shew the degree of annexation and object of such annexation which are patent to all to see (4) The intention of the person affixing the article to the soil is material only so far as it can be presumed from the degree and object of the annexation – their opinion can be guided by what benefits them so the court is saying need to look at the circumstances and only consider the intention of the party as to the degree we can presume it (5) Even tenants’ fixtures, put in for the purposes of trade, form part of the freehold, with the right, however, to the tenant, as between him and his landlord, to bring them back to the state of chattels again by severing them from the soil, and that they pass by a conveyance of the land as part of it, subject to this right of the tenant When the fittings were affixed to the wall, they became fixtures and thus passed with the land to the respondents o There is nothing in the degree or object of annexation leading to the conclusion that such an intention existed. It is necessary to alter the prima facie character of the article arising from the fact of it being affixed but the contrary If he wanted them exempt, should have said so in the contract to sell “I am unable to see why the shelving affixed by Guinane when he was the owner of the freehold for the purposes of the business he carried on there, is not to be deemed a part of the land, and I can see nothing in the degree or object of the annexation of it to lead to the conclusion that such an intention existed as is necessary to alter the prima facie character of the article arising from the fact of its being affixed, but the contrary.” “The title to the gas and the electric light fittings is, as it seems to me, to be determined by the same considerations, which lead necessarily, I think, to the conclusion that when affixed as they were they became part of the land, and passed by the conveyance of it to the respondents.” … “The appeal, in my opinion, fails, and should be dismissed with costs.” They were fixtures G’s appeal dismissed Who cares if things are goods or part of an estate in land? Tax collectors per Property Transfer Tax Act, RSBC 1996, c. 378 Transfer of land o What is included in a sale of land? All fixtures [per Stack v T Eaton Co, (1902) 4 O.L.R. 335 (Div Ct)] What if testator leaves real and personal property to different people? Zellstoff Celgar Ltd v British Columbia Tysoe JA for the BC Court of Appeal - 2014 Company bought 20-acre pulp mill from1960s in Castlegar, BC Facts The mill’s machinery and equipment are used to produce bleached paper-grade market kraft pulp The chambers judge found the machinery and equipment to be fixtures. o Degree of annexation was substantial o Object of annexation of the machinery and equipment was the better use of the land as a pulp mill. Property transfer tax was $4,554,510 because machinery, etc from 1990s were fixtures Tax would have been $286,298 if they were goods Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Are the machinery and equipment in the mill chattel or fixtures? Zellstoff’s appeal dismissed. Berlin Interior Hardware Co v Colonial Investment Elwood J for the Saskatchewan Court of Appeal – 1918 Goods set up for improving the property are fixtures Theatre chairs were sold to Sutton under a conditional sales agreement by which the seller (Cope Facts Furniture) retained title and right to possession until the purchase price was paid (had a lien). Cope assigned the lien to Berlin, and Sutton got a mortgage from Colonial for the building S defaulted, so sold to Colonial Berlin Interior Hardware sued to recover the chairs that had been screwed to the floor of the theatre. Fixtures or goods? (Fixtures) Issues The nature of the building and the purpose for which the chattel was bought shows an intention of Rules affixing them to the building to make them part of the freehold. “it seems to me bearing in mind the nature of the building for which these chairs were bought, the Analysis intention of affixing them to the building was to make them become part of the freehold.” The learned trial judge remarked: “a theatre is not much good without chairs. And it would seem to me that chairs to a theatre are as essential as seats or pews in a church” The chairs were fixtures because they were bought with the intention of affixing them to the building The chairs were furnished with the idea that they would be fashioned down. The intention to affix them to the building becomes part of the freehold. Even though they’re easily removable again, they were fixtures, installed not to enjoy the chairs but so we can have a useful movie cinema or theatre Chairs are an essential part of a theatre so in the absence of express notice, the purchaser had the right to assume that everything affixed to the building passed with the building Chairs were affixed to the floor; they were now fixtures BIH’s appeal dismissed Conclusion Class/Lecture Theatre chairs are for theatre improvement Notes (Optional) Degree of Annexation Starting assumption: If the good is attached even slightly, the starting presumption is that it is a fixture. What is the extent of the attachment? How are goods attached to the land? Issue: How attached to the land are the items in question? The greater the attachment, the more likely that the goods are fixtures o If an item is attached to the land and cannot be removed without significant damage to the item or the land, it will be a fixture Goods resting on land by their own weight are assumed to be goods BUT very heavy objects, e.g., massive statues, may be viewed as fixtures Goods attached to land, even slightly, are assumed to be fixtures, even if goods can be easily unattached [e.g., unscrewing the chairs in a theatre as in Lyon v London City & Midland Bank, quoted in Berlin Interior. o The situation is clearer where the method of affixing to the land/building is more extensive (as in Reynolds v Ashby, cite in Berlin Interior) Thus, the greater the attachment, or the more complex the attachment, then the more likely the goods will be viewed at law as fixtures Object of Annexation The purpose of the person’s intent is largely irrelevant; it’s the effect that matters more Why is the good attached to the land? What’s the apparent purpose of attaching goods to the land? Issue: What is the purpose of attaching the goods to the land? If removal is practical, objectively examine the apparent purpose of bringing the goods onto the land o Is it for improvement of the land? The better use or enjoyment of the goods? Goods can become fixtures, even if their owner did not intend for them to be o e.g. Stones stacked to form a wall vs. stones stacked in a loose pile (intent is to make a wall; walls are fixtures) If the item can be removed relatively easily = Its status as a fixture depends on whether it was attached to the land for better enjoyment of the item as a chattel or for improvement of the land o Clearly stones stacked to form a wall was done so to better the property despite being removeable If removal is practical, the apparent purpose of bringing the goods onto the land is examined. o Improvement of land or better use of goods? o Viewed objectively The nature of the building and the purpose for which the chattel was bought should be taken in account when determining if something is a fixture or a good (Berlin Interior Hardware v. Colonial Investment) o Can serve as evidence that something was intended to be a fixture vs. a good The object of annexation does not depend on the subjective intentions of the people who placed the items on the land, but on the objective reason for their placement (Melluish v BMI No 3) Lasalle Recreations v Canadian Camdex Investments McFarlane JA for the BC Court of Appeal - 1969 Wall to wall carpets were sold under a conditional sales agreement and installed in hotel – they Facts didn’t pay. Vendor wanted to seize the carpets and sell them as is or trim them a bit and sell them as area rugs Are they goods or fixtures? Issues “Weighing all these circumstances, I am of the opinion that the object of the annexation was the Rules better and more effectual use of the building as a hotel and not the better use of the goods as goods.” Look to the object of annexation Why are the carpets there? (To enjoy the carpets or for the Analysis improvement of the land/hotel?) Hotel was carpeted clearly to improve the hotel and not for the purpose of enjoying the carpet separately Wall to wall carpets affixed to reduce risk of people being hurt Affixing carpets met the definition for fixtures under s.12(1) of the Conditional Sales Act, 1961 The carpets were fixtures. Appeal allowed Conclusion Class/Lecture Notes (Optional) Personal Property Security Act s36 RSBC 1996, c 359 s.36 Facts Common law and equity: o A security interest in goods was lost if they became fixtures. o The creditor had a right to enter the land and remove the goods, which was an equitable interest in the land (subject to defence of BFPFVWON). If a security interest is attached to goods before they became fixtures, that security interest has priority over interests in land that existed before goods became fixtures. If a newer interest in the land is acquired for value and without fraud, it has priority over the security interest unless the secured creditor has registered a notice of their interest in the land registry. Class/Lecture Notes (Optional) Priority to recover goods that you put in; security-holder has the ability to recover them against landowner Tenants’ Fixtures Issue: Can the tenant remove the fixture? Tenants’ fixtures can be added to the estate by the tenant and may be removed again during or at the end of the lease The wrongful removal of a fixture by the tenant during the lease is not trespass (since the tenant has possession of the land), but it is a form of waste. o The tenant typically can remove it during the lease and possibly shortly after, but the right will be lost if the lease ends, is abandoned or, the tenant does not keep possession (Scott v. Filipovic) o A tenant is not entitled to remove the permanent or landlord tenant fixtures o The right of removal is subject to the terms of the lease (Scott v. Filipovic) At common law, tenants’ fixtures, with the exception of agricultural fixtures, can be removed by the tenant so long as the tenant remains in possession of the property o Any right of removal is subject to the terms of the lease & cause no real damage to leased property It is not always easy to tell whether a fixture is a tenant’s fixture or not. This depends on whether it was attached to the land so the tenant could better enjoy the leasehold estate or as a permanent improvement to the land. o In other words, was it attached to the tenant’s leasehold estate or the landlord’s freehold estate? Three Categories of Tenant’s Fixtures 1. Trade fixtures: Installed by commercial tenants (i.e., installing freezer, shelving brackets) 2. Ornamental and domestic fixtures: Installed by residential tenants (i.e., hanging pictures, installing lights) 3. Agricultural fixtures: Installed by farming tenants (i.e., crops, greenhouses, irrigation networks) Scott v Filipovic Chiasson JA for the BC Court of Appeal – 2015 Agricultural Fixtures 2007: Filipovic leased land to the Scott’s as “Oldfield Orchard” for the purpose of growing Facts blueberries. The lease contained two covenants: o 1. Tenant will remove the blueberry plants at the end of the lease and plant Timothy Grass (to preserve topsoil) o 2. The lease is not assignable; Scott’s not allowed to sublet. Scotts planted blueberries and farmed until 2010. Sold the business and F’s lease to Guité, who leased with F while the Scotts were in Arizona. Issues Rules Analysis 2012: Guité resold the business and assigned the lease to the Scotts until 2010, who sought to remove the plants. F blocked them from doing so, so Scotts sued F for conversion and breach of lease The appellant refused to the respondents remove the blueberries so they are suing for conversion of the blueberry plants but it’s being appealed on the grounds that only chattel can be converted, and the blueberry plants are fixtures. BCSC awarded $90,000 to S as they viewed the lease as treating plants as chattels not fixtures as they were to be removed at the end of the lease. Do the buyers have a right against the landlord to continue the lease? Do the buyers have a right to the blueberry plants? Were the plants chattels or fixtures? Whether an object has become a fixture is determine by the application of established rules to the facts of the case rather than by agreement or conveyance Subjective intention of the parties is not determinative of whether the property is a fixture or a chattel. Scotts were to remove plants at lease end, BUT this did NOT make plants chattels until they were actually removed (until then, fixtures). Must view intentions of parties to lease objectively [La Salle; Zellstoff, in which BCCA adopted 5 principles of Stack] The blueberry plants were fixtures, which the tenant was entitled to remove, but the plaintiffs were not tenants because the lease was unassignable so the right to the blueberry plants did not transfer to them Degree of annexation – Attached to the land o However, can probably be removed without damage to the land Object of annexation – Improvement of the farm, so they are fixtures, not goods What was the effect of the leasehold covenants? o Lease is treated as abandoned by the tenant, it no longer exists o Allows them to turn the blueberries back to chattel from a fixture, normally wouldn’t have right to remove fixtures as agricultural o Duty and right to remove (right depends on clause in lease) – means they’re tenants’ fixtures o Fixtures attached by tenant that tenant is entitled to remove again Conclusion Class/Lecture Notes (Optional) What rights did the respondents have to the plants? o Respondents don’t have rights to plants as they’re not goods, but since they’re fixtures and because they’re not tenants because of invalid assignment, they aren’t entitled to tenants’ fixtures “…determination of whether a chattel has been transformed into a fixture is a matter of intention objectively determined…Whether or not a chattel becomes a fixture cannot be conclusively controlled by contract…The objective test… is mainly aimed at protecting third parties who may be dealing with the land at some future point.” “In my view, the subjective intention of the parties is not relevant…” o Sublets not a party to the initial lease; can only rely on objective understanding of the contract Both 2007 & 2010 leases precluded Scotts & G from assigning lease. Since G didn’t sever plants from land, they were still fixtures and passed to F when G ended his leasehold. F entitled to stop Scotts from taking plants The original tenant had a right to remove the blueberry plants but the respondent did not because they abandoned their lease Lease was abandoned by the former tenant, right to remove the tenant’s fixtures was lost. They had the right to remove but it was lost when they abandoned the lease Filipovic’s appeal allowed Melluish (Inspector of Taxes) v BMI (No 3) Browne-Wilkinson LJ for the House of Lords - 1996 BMI install central heating & crematoria equipment for local government Facts Installation was under a lease that required the return of goods to BMI at end of lease OR gave BMI equitable rights over its property Issues Goods were affixed to realty so that they became fixtures, which overrides the terms of lease of Rules goods The terms expressly or implicitly agreed between the fixer of the chattel and the owner of the Analysis land cannot affect the determination of the question whether, in law, the chattel has become a fixture and therefore in law belongs to the owner of the soil: “The terms of such agreement will regulate the contractual rights to sever the chattel from the land as between the parties to that contract and, where an equitable right is conferred by that contract, as against certain third parties.” “But such agreement cannot prevent the chattel, once fixed, becoming in law part of the land and as such owned by the owner of the land so long as it remains fixed.” BUT BMI still had its rights in equity re goods, which are revived if the goods are severed from the land Melluish’s appeal dismissed Conclusion Class/Lecture Notes (Optional) SPECIFICATION, ACCESSION, AND MIXTURES There are three ways property rights to goods can be lost: Specification: Goods are used to make other goods Accession: The goods are attached to other goods in such a way that it is impossible to separate them Mixture: The goods are mixed with other goods and it is impossible to tell them apart. Jones v De Marchant Richards JA for the Manitoba Court of Appeal – 1916 Mixtures vs Accession; used to explain accession, but makes more sense as Specification Facts Husband stole 18 beaver skins from his wife (plaintiff) & took her 18 + his 4 beaver skins to furrier to make into a coat for $50 He gave coat to his girlfriend & wife sued. Can’t distinguish her 18 skins from his 4 Plaintiff gave her husband her own money to buy her beaver skins to be made into a coat for herself. He bought them and delivered them to her, she put them in a locker for safe keeping which he had control of and access to. After, the husband stole 18 beaver skins from his wife. He promised the defendant (his mistress) that he would make her a fur coat. Sent the wife’s furs to the defendant, appears to show they were for making the coat. Added 4 of his own beaver sins and paid $50 to have them made into a fur coat with a lining. Gave the coat to his mistress (beaver coats: what every woman wants). Wife found out the furs were missing, went to the defendant, accused her of having the coat. She was mad. Defendant doesn’t appear to have known the furs were the wife’s. Issues Who is entitled to the coat? Is this a specification, accession, or mixture? Rules The loss has to be borne by the wrongdoer or the defendant who claim through him. There is no satisfactory reason why wrongful conversion of original materials into a different name/species should work a transfer of the title from the true owner to the trespasser provided the real identity of the thing can be traced by evidence. Analysis Just because it is now impossible to tell which parts of the coat are the 18 skins doesn’t mean they are lost, they can still be traced to the coat. The skins were wrongfully mixed together, but were ultimately attached to each other in an inseparable fashion (accession) The defendant is a gratuitous donee, can stand in no better position than the husband who gifted it to her. Husband is plainly guilty of wilful trespass in taking the plaintiff’s furs for the purpose of depriving her of them, he never acquired any title to them, they were hers bought with her own money, title belonged to her. She is not being called upon to separate hers out. It wouldn’t matter if she didn’t have the majority of the furs in the coat, the fact that they were stolen and can now be identified as being in the coat give her a right to them. Governed by law of accession but it’s really a case for specification The beaver skins as legal separate goods were lost when they were made into a new thing. A better outcome would’ve been to order husband to pay damages of conversion. Conclusion Class/Lecture Notes (Optional) “In the finished coat [the plaintiff’s furs] constituted the greater part of the material. In saying that I do not imply that if they had been the smaller part it would have affected her rights when they had been taken by a wilful wrongdoer. Their identity was not destroyed. The fact that it is impossible now, in examining the coat, to say which parts of it constitute the 18 skins, does not show their identity to be lost. They are traced to the coat and shown to be part of it, which sufficiently identifies them…” “It is said that, as she cannot say which are hers, she cannot separate them. She is not called upon to do so. The case is governed by the law of accession, and the loss has to be borne by the wrongdoer or the defendant who claims through him.” “It would be most unjust if the plaintiff had no remedy for the loss of her furs, or could only bring an action for damages for the conversion, in which, even if she recovered judgment, she could probably realize nothing. [but this is really specification so why is $ via conversion not better remedy? Possibly due to belief he likely can’t pay damages] “With much deference to the view taken by the learned trial judge, I think that the title to her furs is still in the plaintiff, and that she is, under the law of accession, justified in claiming with them, against the defendant, the materials added to them by the wrongdoer, and the increased value given to them by the labour expended.” Coat was wife’s property; the coat was accession, not mixture or specification. Jones’ appeal allowed Mistress ordered to deliver the coat to the wife. The reasoning is great but this is actually “Specification” NOT “Accession”; it’s not possible to dismantle the coat to restore to the original individual skins. The skins no longer exist at law; they have become a “coat” Specification Specification: Occurs when new goods are created. Creation of a new thing, legal term for creation of new goods. The law also has to deal in various circumstances with the creation of new things and the rights arising re these new things o From “specificatio” in Roman law o Means the creation of nova species = new things Any new things can be EITHER: o Created naturally e.g., via Mother Nature with birth of cows, lambs, bunnies, puppies, cats, etc. o Mother nature with Human assistance (picking berries, milking cows, etc.) Manufactured intentionally or unintentionally Does it become a new ‘thing’ when: o Almonds are ground into almond flour? o Cotton fabric is made into a quilt? o Loose rocks made into a stonewall? o Hydrogen is mixed with 2 parts oxygen? Would giving it a different name matter at law? Does the ability to restore it to its prior form have a legal impact? What if it’s possible to restore but not practical to do so? Existence of new things made from parts generates new property rights in new item as former goods cease to exist There are default rules for allocating rights, e.g., o Owner of animal has the usus (right to use): Owns its offspring as well as other products it provides, e.g. milk, eggs, wool, as well as its own body o Owner of land has fructus (right to the fruits): Owns all its produce, whether valuable or not o Owner has abusus (right to destroy or convey) o Manufacturer/maker/baker/tailor, etc. owns things made by self or employees even though parts are supplied by others [subject to contract terms] Default rules can be varied by consent or contract o e.g., pizza dough delivered to friend to make pizzas o e.g., laptop assembled by employees on assembly line Problems naturally can arise: o when materials used without consent etc. Problem when things get made into other things without consent. o when goods are made from raw material without consent of the owner of those raw materials. Manufacturer who consumes raw materials without the owner’s consent will be liable for tort of conversion even if they acted honestly. What happens if I, without your consent, ... o Grind your almonds into flour? o Form your stones into a stonewall? o Use your marble to carve a sculpture? Associated Alloys Pty Ltd v Metropolitan Engineering and Fabrication Pty Ltd Judge for the Court - Date Facts Pressure vessels had been made from steel plates that belonged to Associated Alloys. Issues Can goods that have been used in some manufacturing process still exist in the goods produced by that process or have they gone out of existence on being incorporated in the derived product? Does their steel continue to exist? Rules Each example of goods being used in a manufacturing process must be addressed separately. Analysis When wheat is ground into flour seems to still exist. When flour is baked as part of bread, does not. Important to consider whether goods can be reduced to OG material through more than just physics. If they were to take out the steel from the plates, wouldn’t be the steel they sold, would be scrap steel. Conclusion Associated Alloys no longer has property in the derived products. Class/Lecture Notes (Optional) Accession Accession: Occurs when goods get attached to other goods (can be hard to determine accession or specification). Loss of goods by becoming attached to other goods. o Accession does NOT cause goods to come into existence. When one chattel is attached to another, the minor chattel may lose its distinct identity and become part of the principal ISSUE: What is the principal item, and what is the accessory? What happens when one chattel that’s smaller in size is attached to a bigger chattel, the smaller or less important minor chattel may lose its separate identity and become part of the other. But not necessarily. What if a valuable diamond is attached to a large 12k gold chain? Similar to fixtures, with additional problem o Which is the principal or primary chattel and which is the accessory? o Land is always the principal, regardless of relative value, even where the cost of construction far outweighs the land’s cost, as with any major high-rise, sports stadium, etc The principal item continues to exist, but the accessory may cease to exist as a separate identity and becomes part of the principal o Important to identify the principal item and the accessory Rules for accessions are different from rules for fixtures Is separation economically practical after they have been connected? What if it’s not practical as it will damage the object? o Can it be done without damage to either chattel? o Is the cost justified? Does that matter? Accessory or principal? o Milk/cream/sugar/sweetener added to coffee o Embroidery added to clothes, ballcaps, masks etc. If they cannot be separated, the owner of the principal chattel is entitled to the whole, but possibly with a duty to pay the owner of the accessory for the value of their goods that have ceased to exist at law o Factors for determining which is the principal chattel and which is the accessory chattel include: Whether the separation is practical, will separation damage the object, is the cost justified Financial value Size Historical value Sentimental value o o If separation is not possible – Accessory and principle If separation is possible – Two separate chattels (Firestone Tire v. Industrial Acceptance) Accessory loses its separate identity, whoever owns principal owns the whole thing McKeown v Cavalier Yachts Young J for the New South Wales Court – 1988 Manufacturing process determines what is an accessory Facts Cavalier Yachts agreed to build a custom yacht for McKeown. McKeown provided a hull worth $1,777 and paid $20,000. Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) They did not build the yacht, sold entire business to Spartech who built the yacht. Spartech mistakenly believed that it had acquired ownership of the plaintiff’s hull, built a yacht in that hull. Their work was worth $24,409. Spartech wanted plaintiff to pay for the work even though the plaintiff already paid Cavalier and couldn’t recover the money because Cavalier was insolvent. McKeown and Spartech both claimed ownership of the completed yacht. McK said hull was his property and the balance of the work done has, by virtue of accession, also been on his property. Not practical to remove Spartech’s improvements from McK’s hull (the work is really all built into the hull) Which is the principal chattel; McK’s hull, or Spartech’s inserted works? Why? The manufacturing process can affect whether something is an accessory. The yacht was built into the hull piece by piece, at the end of each day new bits became part of the hull. Each day the hull was just slightly improved. It’s not practical to remove Spartech’s improvements from the Hull. Odd that outcome would depend on manufacturing process. It would be injurious to now try to separate the hull from the boat. The doctrine of accession applies even though hull was only worth $1777 and the accretions are worth $24,409. Shouldn’t there be a conversion that you converted my hull? Court treated it as case of accession Sucks to be Spartech; they did a bunch of work on something they didn’t own Court ordered McKeown to pay $4,409; the value of their work less than the $20,000 paid to Cavalier, but McK gets to keep the full ship, with the inserts. Weird case court didn’t address specification: was the yacht a new thing or just an improved version of the hull? o If the yacht was new then the hull ceased to exist at law and Spartech would be responsible for covering it. If one has a security interest in the parts going into the hull (Spartech, but they didn’t register the security interest), that has priority over a claim to the accessory by someone with an existing interest in the whole (McK). If the security interest is registered, it retains priority over newer interests in the whole acquired for value without knowledge of the security interest (No registration, no priority) Firestone Tire & Rubber Co of Canada v Industrial Acceptance Corp Laskin J for the Supreme Court of Canada - 1971 Facts Big rig truck. A truck was sold under a conditional sales agreement. Seller is legal owner, created a bailment, buyer has possession as bailee, bailment exists to secure obligation to pay purchase price. Seller would register to protect its interest (all pre PPSA). Buyer bought new tires for it under a conditional sales agreement. Can’t afford the tires. Goes and buys these tires under a conditional sales agreement. All the tires are installed on the truck. The buyer defaulted on payments for both the truck and the tires. The seller of the truck seized it, claimed ownership of the tires as accessories. Issues Are the tires still a separate good? Rules If a good can be removed from another good without physical injury to the principal good, held to still be a separate good not an accessory. Analysis Conclusion Class/Lecture Notes (Optional) The tires were removable without physical injury to the body of the truck or any of its constituent parts. Can have the truck back without the tires, they are not accessories. Since removal is practical, tires being installed on the truck didn’t change ownership. The tires had not lost their separate identity; they were a separate good from the truck. Firestone’s appeal allowed Ilford-Riverton Airways Ltd v Aero Trades (Western) Ltd Matas JA for the Manitoba Court of Appeal - 1977 Facts Ilford owned an airplane and needed a new engine. One may only run an engine for so many hours. Ilford wanted to keep flying the plane, but couldn’t afford a new engine, Ilford rented one from Aero. The rented engine was installed in an airplane. Ilford, the owner of the airplane, went bankrupt. Aero, the trustee in bankruptcy, seized the engine and claim it was theirs; Ilford couldn’t get the engine back until they paid up to clear their mortgage Trial judge awarded $4200 to Ilford, and gave them their aircraft and engine Ilford sold them for $20K in 1975 Aero claimed, as creditors, the value of the engine from the sale price (claiming $4,341.81) Issues What happens to the engine? Rules If removal is practical, the goods are still considered separate; accession hasn’t occurred The engine can be removed and is still a separate good. Analysis Process of removing the engine can be done without injury to engine or the airplane. Installing the engine does not make it an integral part o he aircraft. Engine can be removed, still belongs to the person who rented it. “In the case at bar, Aero had rented the engine to Ilford. Obviously, the aircraft required an engine. That is the reason for Ilford having made arrangements to rent one when it found its financial position precluded a purchase. To say now that the engine was an integral part of the aircraft and could not be removed, would be a distortion of the accession doctrine. There is no basis for applying the rules of accession to this transaction.” The engine is a separate entity Conclusion Ilford’s appeal dismissed. Class/Lecture Notes (Optional) Mixtures Mixtures: Mix of indistinguishable goods can cause property rights to be lost/changed. Mixed goods continue to exist at law, impossible to tell which goods belong to whom. When goods from different ppl get mixed or mingled together. o Goods do not lose their identity as goods, so there is no specification or accession. Problem: Who owns the stuff that got mixed? What happens when A’s goods get mixed with B’s goods and it is impossible to tell them apart? Contributors to the mixture become tenants in common regardless of the nature of the goods that are mixed, and this seems to be current law. Tenancies in common have been created by accidental mixtures of bales of cotton, cattle and scaffolding. An unintended mixture is not a problem as long as there isn’t damage contributors can each take back a portion equal to what they contributed. Problem arises when mixture was unintended and some of the goods have been lost or damaged. If one contributor wrongly caused the mixture, they must wait until the claims of the other contributors are satisfied before they can take what is left. Innocent contributors can share mix in proportion of what they contributed. Roman law distinguished between fluid mixtures and granular mixtures. We really shouldn’t care which it is, doesn’t actually change how you could distinguish it. o Confusio = mixture of fluids from two or more different parties Tenancy in common in proportion to value; rights changed when the goods were mixed e.g., olive/vegetable oil, honey, wine, molten wax, etc. with key being that cannot easily unmix fluids so mixing goods blurs & affects title o Commixtio = granular mixtures, AKA “dry goods” Continuing ownership of goods in the mixture; rights unchanged until goods unmixed e.g., wheat, gravel, bales of hay, nails, etc. are physical goods mixed that are ‘fungible’ in sense are readily replaceable by identical goods. Same rules apply when tracing $ deposited in accounts that mixed $ from other sources. Amounts of $ are identifiable, and are severable (provided one keeps good records and knows how much of their money is where) o No real difference between fluid and granular mixtures in most circumstances oil in a tanker wheat in a grain elevator boxes of paper in a store room [easy to unmix identical boxes if know # of each share o No justification for treating fluid mixtures differently from granular mixtures, but been done by common law for so long that would require legislation or SCC to change the law Goods do not lose identity as goods o no specification o no accession Problem is identifying owners No problem if: o contributions to mixture are known o no goods are lost or damaged o each contributor can recover same quantity and quality of goods Problem if o parties don’t agree on division or allocation of the mixture where o Contributions of each party are uncertain or o Some goods are lost, damaged, or destroyed; unclear who can get what back from the mixture Mixture by Consent A mixture is not a problem if contributors consented to it can agree on how to divide it up. o Ownership of mixture determined by agreement before mixture occurs o If not specified, assume parties are tenants in common of entire common mixture in proportion to the value of their contributions. If goods get mixed without consent of all owners, ownership of mixture determined by operation of law Rights to mixture depend on o Wrongdoing: this is a big factor, did one of the parties do this wrongly? If done without consent, the “doer’s” interest is postponed o Type of goods mixed: not really a problem anymore, used to be in Roman law fluids vs solids. Rights in the mixture depend on: o The presence of any wrongdoing or o If one contributor at fault for causing mixture, their claim is postponed and everyone else’s claim is satisfied before the wrongdoer can receive money If there’s a wrongdoer, the innocent party gets to choose what they want out of that share. If we don’t know, then the split will be 50/50 The type of goods mixed and the value of the individual contributions Confusio = Fluid mixtures (ex. Honey, oil, wine) o Tenancy in common in proportion to value; rights changed when the goods were mixed Commixtio = Granular mixtures (ex. Wheat, gravel, bails of hay etc.) o Continuing ownership of goods in the mixture; rights unchanged until goods unmixed Wrongful Mixture Rights to mixture based on values of contributions. Contributor who wrongly caused mixture has their interest postponed until other contributors have received their share of contributed goods Honest people can wrongly mix their goods with others Presumptions against wrongdoers o Armory v Delamirie (1722) 1 Str 506, 93 ER 664 jury was instructed to award damages equal to value of most valuable gemstone in the world that could fit in the setting. Goldsmith by wrongful act created uncertainty, going to resolve adversity in favour of innocent party. Mixture of ring setting and jewel. o Mixtures o Tracing: If tracing is N/A, you can’t assess actual value, so choose most likely Uncertainty arising from wrongful mixture resolved adversely to persons who wrongly caused it o Assess value of respective contributions o allocation of loss to repair damage to innocent party Wrongful Mixture Example o You have an underground storage tank It has capacity to hold 25,000 litres It contains an unknown quantity of fuel o I have a tanker truck Capacity to hold 5,000 litres It contains an unknown quantity of fuel o The contents of my truck are added to your tank o Who owns the 12,000 litres now in your tank? o Start with who decided to unload & wrongfully mixed fuel then?? Who wrongfully caused the problem? Both people can be really nice, but one person must have added to the others. Could have been a mistake. A tenancy in common has arisen. Suppose the person who put the fuel in the tank is a wrongdoer. If the truck was the wrongdoer, wouldn’t get it back. If the tank person was the wrong doer, at most the truck could’ve contributed 5000, assume truck was full, contributed 5000 liters. Tenants in common 5/12 and 7/12. What if both parties are innocent? Someone else emptied truck into storage tank? Indian Oil v Greenstone Shipping Staughton J for the Queen’s Bench - 1988 Leading case for Wrongful Mixture Facts Russian crude oil was transported on a ship to the Indian Oil Corporation in Madras. Amount delivered to Indian Oil was 1287 barrels less than the amount loaded in Russia. Arbitrator awarded $46,014 for the shortfall. The missing oil had been wrongfully mixed with the crude oil that was already on board the ship before the Russian Crude Oil was loaded. Indian Oil appealed the arbitrator’s award, said because it was wrongfully mixed they were entitled to the full amount of all the oil on board (which would have been $388,000 USD). Issues What is the rule for wrongful mixtures? Rules Analysis Conclusion Class/Lecture Notes (Optional) The one who wrongfully mixes goods loses their right to their portion of the mixture. Where B wrongfully mixes the goods of A with the goods of his own, which are of substantially the same nature and quality, and they cannot in practice be separated, the mixture is held in common and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A. He is also entitled to claim damages from B in respect of any loss he might have suffered, with respect to quality or otherwise by reason of the mixture. If you create an evidential uncertainty, will solve it adversely to your interests. Similar to Armory v Delamarie where the size of socket was known but gem wasn’t, instructed to award plaintiff the value of the finest jewelry that could fit the socket. if someone wrongfully mixes their goods with goods of someone else, presumption will be made against the wrongdoer but subject to evidence. Old CL rule was that if you wrongfully mixed, got the whole thing. o This was overturned in this case, now you just lose your right to your part of it if you wrongfully mix. where B wrongfully mixes the goods of A with goods of his own, which are substantially of the same nature and quality, and they cannot in practice be separated, the mixture is held in common [as TiCs] and A is entitled to receive out of it a quantity equal to that of his goods which went into the mixture, any doubt as to that quantity being resolved in favour of A. He is also entitled to claim damages from B in respect of any loss he may have suffered, in respect of quality or otherwise, by reason of the admixture.” This case is example of confusion; the parties can’t separate the crude oil loaded in USSR. It was to be in their own storage when mixed with crude oil in the hold. All oil was bound for India and they were short 1,287 barrels. Court cited Armory v Dalamirie that if shipper’s wrongful act makse it impossible to ID actual loss to Indian Oil o Indian Oil would normally be entitled to full damages for best quality re shortfall N/A here as exact quantity was unknown. “Where a party wrongfully mixed the goods of another with his own goods which were substantially of the same nature and quality, and they could not be separated for practical purposes, the mixture was held in common and the innocent party was entitled to receive from it a quantity equal to that of his goods which had gone into the mixture; that, if doubt remained as to either quantity or quality, the matter should be resolved in the innocent party's favour, and he was entitled to claim damages from the wrongdoer for losses suffered, in respect of quality or otherwise, as a result of the admixture; and that, since the quantity of the receivers' crude oil could be ascertained with sufficient precision, the arbitrators were right to award damages for short delivery only” Indian Oil’s appeal dismissed Resolve discrepancy in favour of the innocent party Spencer v Union Marine Insurance Co Ltd Judge for the Court – 1868 Accidental mixture – NOT wrongful Facts Bales of cotton were being shipped, each bale marked to ID its owner. Ship sank, most of the bales were recovered but the identifying marks were washed away. This is an example of accidental mixture. Issues Rules When goods of different owners become by accident so mixed together that they are indistinguishable, the owners of the goods so mixed become tenants in common of the whole, in the proportions which they have severally contributed to it. Analysis Conclusion Class/Lecture Notes (Optional) Tenants in Common of all bales recovered damages in proportion to the respective number of bales shipped McDonald v Lane Strong and Ritchie JJ for the Supreme Court of Canada – 1882 Remedies for victims of mixtures Facts Battle over land title & logs cut on that land. SCC favour L’s title McDonald wrongly mixed his 513 logs with 930 logs of Lane, which were already inside Lane’s boom Issues Rules When one party wrongfully intermingles his logs with those of another, all the party whose logs are intermingled can require is, that he should be permitted to take from the whole an equivalent in number and quality for those which he originally possessed. Analysis SCC ruled that Lane was entitled to select any 930 logs he wants from total of 1443 logs [i.e., he can pick biggest, best logs or most expensive species of tree] The logs were in Lane’s boom, Lane was innocent, so he gets first/best pick to recover. McDonald wrongfully mixed logs together, even though he did not do so for any improper or malicious purpose. Simply McD’s mistake; he bears the consequences of it Conclusion McDonald’s appeal dismissed Class/Lecture Didn’t follow the Spence v Union rule. Notes (Optional) Big Top Hereford Pty Ltd v Thomas Judge for the new South Wales Supreme Court - 2006 Facts Cattle herds intermixed while mustering them in 60% / 40% shares 4 head died Apply loss per shares, with negligent party to cover shortfall Issues Rules Analysis Negligent party that caused the death of the 4 head had to pay the innocent party to cover the shortfall Conclusion Class/Lecture Notes (Optional) Hill v Reglon Pty Ltd Judge for the New South Wales Court of Appeal - 2007 Facts Mixture of scaffolding without consent Parties are TiCs The innocent party is entitled to recover full value of their percentage/contributing portion of the scaffolding Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) Name v Name Judge for the Court - Date Facts Issues Rules Analysis Conclusion Class/Lecture Notes (Optional) PERSONAL PROPERTY SECURITY ACT PPSA 3. Personal Property Security Act, RSBC 1996, c 359 – ss. 1-79 + Schedule = 80 pp – so not as long as LTA’s 238 pp 4. Every common law jurisdiction in Canada (so, as usual, exclude Quebec) has a PPSA o Inspired by the development of the Uniform Commercial Code in the USA, & its Article 9 o Saskatchewan PPSA then served as model for Australia and New Zealand to develop their own PPSAs 5. PPSA N/A to real property. Purpose is to be a simple system to capture all “security interests” so not matter if re bill of sale, chattel mortgage, hire-purchase, conditional sale, etc. BUT excludes “a lien, charge or other interest given by statute or rule of law” Types of Forms of Security Note: The specific form is not critical if the security is registered. Pledge (AKA Pawn) Bill of Sale (transfer legal title of current & future goods) Chattel Mortgage (mortgage on chattel, not land) Assignment of Book Debts (i.e., right to collect debts) Fixed Charge (by corps over specified assets) Floating Charge (floats over many assets) Conditional Sale (SoG Act title not pass until 100% paid) Retention of Title (Romalpa clause re Nov 9/21 class) Hire Purchase (car lease with option to buy at end or term) Chattel Lease (bailment or lease of chattel) Sale & Lease Back (sell asset & lease back, e.g., West Coast Radio) Elements of Registration Systems Document – is means to register title Title is KEY. It’s title that you register, the document is a means to register title Notice – like caveat, used to give alert to the world that the title has been registered o Efficiency of system is high; register 1 notice for multiple security interests o Can register interest in PPSA prior to doc execution o avoid the gap [i.e., between right creation & time registered] Key Concepts Collateral (= personalty subject to security interest) Proceeds (s. 1) Security interest (s. 1) Purchase money security interest (s. 1) Enforceability Attachment (s. 12(1)) o Floating charge; covers anything present that fits the description of secured property o Tries attempts to encompass everything necessary for the security Perfection o “Identifiable or traceable property” PPSA – Personal Property Security Act RSBC 1996, c 359 Sections s.1(1) – Collateral and Proceeds “collateral” means personal property that is subject to a security interest “proceeds” means o (a) identifiable or traceable personal property, fixtures and crops o (i) derived directly or indirectly from any dealing with collateral or the proceeds of collateral, and o (ii) in which the debtor acquires an interest, o (b) a right to an insurance payment or any other payment as indemnity or compensation for loss of, or damage to, the collateral or proceeds of the collateral “accessions” means goods that are installed in or affixed to other goods Security Interest (a) an interest in goods, chattel paper, investment property, a document of title, an instrument, money or an intangible that secures payment or performance of an obligation, but does not include the interest of a seller who has shipped goods to a buyer under a negotiable bill of lading or its equivalent to the order of the seller or to the order of an agent of the seller, unless the parties have otherwise evidenced an intention to create or provide for a security interest in the goods, and … o Note: Doesn’t matter who has title, so long as interest provides security for debt so can be registered Deemed Security Interests are NOT real security interest BUT PPSA deems them to be (b) the interest of o (i) a transferee arising from the transfer of an account or a transfer of chattel paper, o (ii) a person who delivers goods to another person under a commercial consignment, and o (iii) a lessor under a lease for a term of more than one year, whether or not the interest secures payment or performance of an obligation s.2 Security Interest 2(1) Subject to section 4, this Act applies o (a) to every transaction that in substance creates a security interest, without regard to its form and without regard to the person who has title to the collateral, and [e.g., repairer’s lien on goods until paid] o (b) without limiting paragraph (a), to a chattel mortgage, a conditional sale, a floating charge, a pledge, a trust indenture, a trust receipt, an assignment, a consignment, a lease, a trust, and a transfer of chattel paper if they secure payment or performance of an obligation. … 4 Except as otherwise provided in this Act, this Act does not apply to the following: o (a) a lien, charge or other interest given by a rule of law or by an enactment unless the enactment contains an express provision that this Act applies; … s.1(1) Purchase Money Security Interest (PMSI) “purchase money security interest” means o (a) a security interest taken in collateral, other than investment property, to the extent that it secures payment of all or part of its purchase price, o (b) a security interest taken in collateral, other than investment property, by a person who gives value for the purpose of enabling the debtor to acquire rights in the collateral, to the extent that the value is applied to acquire the rights, … s.10 Enforceability 10(1) a security interest is only enforceable against a third party if o (a) the collateral … is in the possession of the secured party, [or] o (d) the debtor has signed a security agreement that contains o (i) a description of the collateral by item or kind, or by reference to one or more of the following: goods, investment property, instruments, documents of title, chattel paper, intangibles, money, crops or licences, [or] o (iii) a statement that a security interest is taken in all of the debtor’s present and after acquired personal property, … s.12 Attachment 12(1) A security interest, including a security interest in the nature of a floating charge, attaches when o (a) value is given, (i.e., money is transferred) o (b) the debtor has rights in the collateral or power to transfer rights in the collateral to a secured party, and o (c) except for the purpose of enforcing rights between the parties to the security agreement, the security interest becomes enforceable under section 10, unless the parties have specifically agreed to postpone the time for attachment in which case the security interest will attach at the time specified in the agreement s.19 Perfection A security interest is perfected when o (a) it has attached, and o (b) all steps required for perfection under this Act have been completed, regardless of the order of occurrence s.24 Perfection by Possession 24(1) Subject to section 19, possession of the collateral by the secured party, or on the secured party’s behalf by another person, perfects a security interest in o (a) chattel paper, o (b) goods, o (c) an instrument, [(d) repealed 2007] o (e) a negotiable document of title, and o (f) money, unless possession is a result of seizure or repossession s.25 Perfection by Registration Subject to section 19 [perfected when attached & all required steps completed], registration of a financing statement perfects a security interest in collateral. s.42(1) There must be a registry known as the personal property registry for the purposes of registrations under this Act and for registrations that are permitted or required under any other enactment to be made in the registry. s.43 Registration of Financing Statements (1) A person who wishes to have a financing statement registered must submit it for registration at an office of the registry. (4) A financing statement may be registered before a security agreement is made and before a security interest attaches. (5) A registration may relate to one or more than one security agreement. (6) The validity of the registration of a financing statement is not affected by a defect, irregularity, omission or error in the financing statement or in the registration of it unless the defect, irregularity, omission or error is seriously misleading s.35 Residual Priority Rules (1) perfected interests take priority over unperfected interests (2) priority between perfected interests depends on order (date) of perfection (Registration) (3) priority between unperfected interests depends on order of attachment (date lien/caveat filed) Perfected PMSI has priority over other security interests in the same collateral given by same debtor (s34) o Note: Unless a security interest is attached and enforceable against third parties, it cannot be involved in a priority dispute. s.32 Priority of Liens A lien on goods that arises as a result of the provision, in the ordinary course of business, of materials or services in respect of the goods, has priority over a perfected or unperfected security interest unless the lien arises under an enactment that gives priority to the security interest. s.20 Unperfected Security Interests subordinate to interests of creditors who seize goods (i.e., their perfected interests win out) not effective against trustee in bankruptcy or liquidator (bankruptcy or liquidators have priority) s.30 (Protection of Buyer or Lessee of CONSUMER Goods (3) A buyer or lessee of goods that are acquired as consumer goods takes free from a perfected or unperfected security interest in the goods if the buyer or lessee o (a) gave value for the interest acquired, and o (b) bought or leased the goods without knowledge of the security interest. (4) Subsection (3) does not apply to security interests in fixtures, purchase or lease of goods costing $1,500+ s.38 Accessions are Treated like Fixtures If a security interest is attached to the accessory before it was installed or affixed to other goods (the whole), it has priority over a claim to the accessory by someone with an existing interest in the whole. Unless the security interest in the accessory is perfected (by registration), it will lose priority to newer interests in the whole acquired for value and without knowledge of the security interest. Class/Lecture Notes (Optional) Re Giffen Iacobucci J for the Supreme Court of Canada - 1988 Telecom Leasing Canada (TLC) Ltd leased a car to BC Telephone Co (BCTC), which leased it to Facts its employee, Carol Giffen (CG). Rules Analysis Issues Both BCTC and CG were listed as owners on registration and insurance TLC didn’t register the financial statements under PPSA, so TLC’s security interest was not perfected. Giffen went bankrupt. TLC seized car and sold it with consent of trustee in bankruptcy; Trustee then sued for proceeds of sale, rely on s. 20 (b) (i) PPSA re trustee in bankruptcy. BCSC ruled lessor’s interest N/A vs trustee’s. BCCA reversed the decision. Was the car the “property of the bankrupt”? An unperfected interest has lower priority than perfected and registered security interest holders. The property belongs to whomever has the highest priority Trustee in bankruptcy’s possessory interests overrules unperfected or deemed security interests Telecom can’t enforce its interest in the car against the trustee, it was deemed to be a security interest under PPSA and was unperfected when Giffen became bankrupt. Giffen’s trustee had good title to the car even though she did not. Giffen had right to possess car, enforceable against everyone except someone w better right. Telecom had a better right: right to possession upon termination of the lease. Giffen’s possession already transferred to trustee in bankruptcy. Telecom could not enforce its right to possession against the trustee, the trustee had the best right to possess. Per ss. 12(1)(b) that security interest “attaches” when debtor acquires “right in the collateral” & 12(2) “debtor has rights in goods leased to the debtor… when he obtains possession of them in accordance with the lease…” “...that provincial legislatures, in enacting personal property security regimes, have redefined traditional concepts of rights in property.” “this dispute cannot be resolved through the determination of who has title to the car because the dispute is one of priority to the car and not ownership in it.” Did TLC have a security interest? YES but NOT vs trustee in bankruptcy [via s. 20(b)(i)] even if TLC’s interest had been registered as it “remained vulnerable to the claims of third parties who obtain an interest in the car through the lessee including, trustees in bankruptcy.” PPSA interacts with federal Bankruptcy and Insolvency Act (BIA), RSC 1985 s. 71(2) BIA, “upon an assignment into bankruptcy, the bankrupt’s ‘property… shall, subject to this Act and to the rights of secured creditors, forthwith pass not and vest in the ‘trustee’.” … “In my opinion, the bankrupt’s right to use and possession of the car constitutes ‘property’ for the purposes of the BIA and the trustee, by virtue of s. 71(2) of the BIA, succeeds to this proprietary right… The trustee assumes the bankrupt’s possessory interest in the car through the operation of s. 71(2); it is upon this basis that the trustee can assert a claim to the car…. “I note that s. 12(2) of the PPSA also recognizes that a lessee obtains a proprietary interest in leased goods… Thus, s. 12 operates to ‘deem or recognize that a lessee has a proprietary interest’. “Public disclosure of the security interest is required to prevent innocent third parties from granting credit to the debtor or otherwise acquiring an interest in the collateral. However, public disclosure of the security interest does not seem to be required to protect a trustee who is not in the position of an innocent third party; rather, the trustee succeeds to the interests of the bankrupt...” “Prior to a bankruptcy, unsecured creditors can make claims through provincial judicial enforcement measures. Successful claims will rank prior to unperfected security interests pursuant to s. 20. Once a bankruptcy occurs, however, all claims are frozen and the unsecured creditors must look to the trustee in bankruptcy to assert their claims.” That is, it’s too late at this stage for unsecured creditors to register security interests via PPSA once bankruptcy proceedings are initiated, as their rights are merged into the bankruptcy proceedings & the trustee has the right to attack those unperfected security interests to benefit higher priority claims. Conclusion Class/Lecture Notes (Optional) S. 20(b)(i) makes clear that the trustee’s possessory interest prevails over unperfected security interests at the date of bankruptcy. “Section 20(b)(i) does not grant title or any proprietary interest to trustee, but it prevents the lessor from exercising rights against the trustee.” Giffen’s appeal allowed; trial judgment restored Name v Name Judge for the Court - Date Facts Issues Rules Analysis Conclusion Class/Lecture Notes (Optional)
