REAL ESTATE TRANSACTIONS
Fall 2008 GREG UMBACH
Amanda Coen
I. INTRODUCTION
A. OUTLINE
1. TRANSACTION
(i) AGENTS
(ii) VENDOR & PURCHASER
 Listing agreement b/w vendor and listing agent
o Listing agreement specifies:
o The listing agent’s duties under the listing agreement:
 At the point where you reach a meeting of the minds a contract of purchase and sale is signed.
 Completion of the purchase/sale: Land Transfer Form (Form A), Statement of
Adjustments
 Closing Process:
 Obligations:
o Purchaser has to create transfer documentation
o Vendor has to provide registerable transfer
 Financing:
o Vendor has mortgage on property….undertakings
2. FINANCING AND REAL ESTATE TRANSACTION
(i) MORTGAGES
(ii) FINANCING
 The vendor probably needs money in order to discharge the mortgage from title (need to give the purchaser clear
title)
o Lawyer undertakings allow the vendor to receive money from the purchaser prior to giving clear title
to the purchaser.
B. BACKGROUND
Title certificate in BC
 Parcel Identifier-PID (not for Crown land)
 Legal description, ex. Lot 1 Block 5 Plan 123, New Westminster District (completely unique)
 Registered owner: owner in fee simple, meaning their ownership cannot be debated
VITAL ORGANS OF LTA
Indefeasability
 s.20 LTA - HEART
o Except against the person making it, an instrument doesn’t pass title unless it’s registered
o Not enforceable (in law or equity) against the new title owner (20(3) exception: lease of 3yrs or less)
o but any unregistered K is enforceable btwn the contracting parties
Exceptions To Indefeasability
 s. 23 LTA – AORTA
o (2) “An indefeasible title…is conclusive evidence at law…subject to the following [10 execptions, see
statute]:” (d) “a lease or agreement for lease for a term not exceeding 3 years if there is actual occupation
under the lease or agreement.” (i) “the right of a person to show fraud…in which the registered
owner…has participated.”
 Ways to obtain title
o Crown grant [Crown land not under jurisdiction of Land Title Act… its just the resource industry that
buys Crown land]
o Transfer of title [titled land was at some point granted by Crown to private parties]
 Old ways to obtain title
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o
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S. 23 and 24 do away with these, such as squatting or getting an easement by long habit of cutting
across land
s. 26 LTA: LUNGS (registration of a charge)
o (1) “A registered owner of a charge is deemed to be entitled to that interest when it is registered…” (2)
“Registration of a charge does not constitute a determination that the…charge is enforceable.”

So just b/c the registrar registers it, they’re not saying it’s an enforceable charge, only that it’s
properly registered (can’t go to court and say: “enforceable bc registered”)
Encumbrances
 s.27 LTA: SUPPORTS THE HEART
o “The registration of a charge gives notice, from the date and time the application…was received…to
every person dealing with the title…”
o Whenever an estate or interest is registered, it gives “notice to the world” –i.e., since the docs are
public, deems you to have knowledge
 s.28 LTA: LUNGS (priority of charges)
o “If 2 or more charges appear entered on the register…priority according to the date and time the respective
o
o
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applications…were received by the registrar…”
Caveat: subject to contrary intention in the docs (happens lots with mortgages)
EXAM: dates on registry doesn’t tell you everything; look for priority / subordination agreements
s.29 LTA
o
(2) “Except in the case of fraud in which he or she has participated…a person dealing with a
registered owner is not…affected by notice, express, implied, or constructive, of an unregistered
interest affecting the land…”
o If you don’t register your interest (as agreed between you and registered owner), then the next person
dealing with the registered owner is not affected
o Exceptions:
o An interest that has been submitted buy not showing up on title yet (pending registration period)
o Lease of 3 years or less when actual occuption
s. 33 LTA (LTA only deals with legal interests)
o “An equitable mortgage or lien created by the deposit of a duplicate indefeasible title or other instrument,
whether or not accompanied by a memorandum deposit, is not registrable.”
II. MARKETING THE PROPERTY
In BC almost all marketing is done by real estate brokers / agents (in Kamloops some lawyers do too)
 1st step: Vendor enters into agreement with a broker (the “vendor’s agent / listing agent”)
 Then: another broker brings in buyer (the “selling agent”)
A. LISTING AGREEMENTS (K btwn vendor & broker)
1. GENERAL - TYPES
 4 types of listing agreements:
o General/Open Agreement: vendor agrees to pay commission upon the agent completing the sale, but
has the option of also listing w/ other agents.
o Exclusive Booking Agreement: vendor agrees to list solely with a particular agent to the exclusion of
anyone else. (Common for commercial vendors, bc may have biz secrets)
o Exclusive Right to Sell Agreement: even if the agent to the K isn’t the one to sell, they are entitled to
commission
o Multiple Listing Agreement: global agreement that all licensed agents are a part of, whereby agents
share certain powers & obligations (and all agents who made sale happen, whether act for vendor or
purchaser, share the commission
o The MLS system is most common for residential properties—gives vendor’s listing exposure to many
agents (broader marketing)
o Vendor might still have an “exclusive” agent, but MLS agreement means this “exclusive” agent has a
sub-contract with all the other agents in the system (agents are contractually bound to each other)
2. AGENTS UNDER AGREEMENTS
NTD: Greg lays out a fact pattern where purchaser’s agent forgets to deliver acceptance to seller’s agent, during which
time seller’s agent has accepted another offer; purchaser sues seller to enforce the K; seller is pissed bc getting sued so
refuses to pay its agent commission; so seller’s agent sues seller as well. Also, seller’s agent has mistakenly let its real
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estate license lapse. [s.4 RESA – he was licensed when K of sale was made so he can enforce his commission, even
though license lapsed later] [breach of REC rule 5-4: must promptly deliver to parties; also negligence]
Real Estate Services Act – details how agents are governed
 S. 2 RESA – Act has very broad application: anything you do to assist the owner of real estate (dirt or an interest in
dirt) or assist in the disposition or acquisition of real estate; in expectation for renumeration (broadly
understood: whether its you or someone else who will receive the renumeration);is caught
o “The Act applies to every person who provides “real estate services” to, or on behalf of, another in
expectation of renumeration”
o “real estate services” defined to include:
o rental property management services – services provided to or on behalf of an owner of real estate (any
rental property manager who collects money or does repairs for a landlord MUST be licensed)
o strata management services – services provided to or on behalf of a strata corp (company that manages
a condo for a strata corporation must be licensed)
o trading services – services provided to or on behalf of a party to a trade in real estate (statute lists
examples) (if you rep someone in any transaction about acquiring or disposing of land, even if there’s
a proposed transaction, that’s still a trade in real estate and you have to be licensed)
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S. 3 RESA – the operative section
o Cannot provide real estate services with expectation of a reward if not licensed under the Act
o Exceptions include:
 a practicing lawyer, in respect of real estate services provided in the course of that person’s
practice (Note: firms in Kamloops rely on this exemption!! But lots of debate about what that
phrase “in the course of your practice” means; does it mean that if you have client that wants
to sell their land, you can draw up their contract AND act as their agent (and collect
commission etc.)? E.g., aren’t educated as brokers!)
 a trustee in bankruptcy; receiver; liquidator
 executor or administrator of an estate
 trustee in respect of real estate services provided under terms of a will
S. 4 RESA
o Can’t sue for remuneration unless you are licensed at the time the real estate services were provided
S. 5 RESA - Several categories of licenses (highest to lowest)
Brokerage: license gives ability to set up office, advertise, on behalf of which other licensees provide services
Managing broker: senior guy responsible for answering for actions of the brokerage house (s.6 – every office must
have one)
Associate broker: same education as managing broker; provide real estate services under supervision of managing
broker
Representative: provide real estate services under supervision of managing broker (this is who you prolly see when
go view a house)
[other employees in brokerage don’t need licence]
S. 7 RESA
o
Above listed licencees can only work for the one brokerage in relation to which they are licensed
[Brokerage can take the purchaser deposit money into their trust account] Greg: applies to law firms too
 S.28 RESA – if brokerage holds the money in brokerage trust account then it must be held unless or until (a) the
parties agree in writing; or (b) circumstances established by the regulations apply
 S. 31 RESA – payment of licencee remuneration
 the commission owed to licencee can be withdrawn from this account “when it is earned” “in accordance with the
rules [see REC Rule 5-15: generally, on the date when docs effecting the transfer are submitted to LTO; or if its not
a registerable interest, on the date the deal closes]—or, given s.28, when all parties agree in writing…
 …so, see below section on Agent Renumeration: agent may argue that the listing K provided that they should get
their commission even if deal doesn’t close (e.g., “exclusive right to sell” listing K)
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S. 33 RESA – payment of trust funds into court
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If there are adverse claims or one of the entitled persons is unknown or incapacitated, brokerage can apply to BCSC
to have all the deposit / fund paid into court then court decides who money goes to
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S. 73 RESA - establishes Real Estate Council of BC
o Objects: administer the Act; advance knowledge & maintain integrity of licensees; uphold & protect
public interest
o Real Estate Council only has power over licensed agents (not lawyers)
o Powers of the council:
 Can investigate, hold hearings, subpoena people to the hearings
 Issue reprimands, force education, suspension or termination of license
 Make rules, such as:
Part 5 – governs licencee’s relationships with principal (who hires the licencee) and other parties
 Come as response to Carmichael
Rule 5-1 – unless client waives, need a written service agreement, entered into before services given (must be signed by
principal, state all the terms of the K, incl. effective date; must incl. general description of services to be provided &
renumeration; and must incl. a provision wrt the use & disclosure of personal information
Rule 5-2 – must deliver a copy of any such K to client immediately upon execution of the K
Rule 5-3 – before signing any K on behalf of client, must have obtained written authorization from client (or from an
authorized agent of client)
Rule 5-5 – must not induce any party to a RE K to breach the K for purpose of entering into another K
Rule 5-3.1 – licensee who receives a signed offer must promptly communicate the offer to the relevant party
Rule 5-4 - licensee who has obtained a signed acceptance must promptly deliver it to each of the parties and to the
licencee’s brokerage
Rule 5-6 – re: making inducement reps: can make them, but they have to be accurate
Rule 5-8 – [requisite disclosures must be in writing, except for 5-10]
Rule 5-9 – disclosure of (even indirect) interest in trade—do it
Rule 5-11 – disclose who is paying them remuneration, and the amount
Rule 5-13(2) - disclose any material latent defect to all other parties
Rule 5-15 – re: renumeration out of trust account
Agency & Delegation
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Agency:
o Agent acts for a principal, on express or implied authority
o An agent is unable to delegate his power to anyone without express or implied authority of the principal.
 Criterion for authority to delegate:
o Was there express delegation
o Was there an implied delegation – indicia:
 What is the practice of the industry – is there usually a delegation [e.g., MLS agreement says
that anything main agent does can also be performed by other agents, and principal is familiar
with the MLS] [note: usually its delegation / sub-agency for more narrow purposes, like
showing property, communicating & accepting offers for vendor agent]
 Does the principal know from outset that there may be a delegation
 The actual conduct of the parties in the circumstances – does it look like principal knew (eg,
direct dealings or advice?)
 Emergency – actual emergency – not a business issue
 The type of authority given to the agent in the first place would require delegation
 Agent needs an environmental study done – need to delegate some authority to an
environmental agent.
 Usually power that is delegated is administrative only [eg, communicating & accepting offers],
but could be broad [eg, incl. negotiate the K…then all the duties that an agent has to principal
(incl. fid.) would seem to be taken on by sub-agent]
Note: Winners: simple fact that vendor lists under the MLS does not mean that all agents under MLS are (full) subagents of vendor’s agent—need “precise proof” that the relationship was created, either expressly or by implication
 Knock Estate suggests that even without delegation by the vendor, under the MLS system there is very limited
implied delegation for other agents to bring forward offers to vendor & corresponding duty of no active lying.
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CARMICHAEL V. BANK OF MONTREAL (1972, MAN. QB)
Apply this to Carmichael: purchaser agent was considered the sub-agent of vendor, for discrete purposes [show prop,
communicating & accepting offers]
- BMO manager was essentially the vendor (admin of estate); vendor knew how MLS system worked;
used it many times; understood sub-agent idea that was STANDARD PRACTICE in the MLS.
- E.g. conduct: BMO manager acquiesced in allowing Tilly (purchaser (Carmichael’s) agent) to show
the property to Carmichael – rather than insisting that BMO agent (Cuthbert) show property to
Carmichael
- Court concluded that Tilly had same authority as Cuthbert (for these discrete purposes)—Tilly was
Cuthbert’s sub-agent and thus had power to receive acceptance of the offer
Held: and thus there was effective communication of acceptance of the BMO counter-offer when Tilly got the
acceptance at 5:45pm [offer open until 6pm]
- specific performance: force BMO to carry out the sale to Carmichael
Note: Umbach thinks that even if they didn’t decide Tilly had valid delegated authority, probably still would’ve sided
with Carmichael because of equitable reasons.
 BMO manager & Cuthbert had made themselves entirely unavailable until 6:01pm (and Tilly did everything he
could—met his obligation to do all can to promptly deliver acceptance of offer)
B. AGENTS - duties
Summary:
1.
2.
2.
3.
4.
Contractual duties (to principal; under MLS, to other agents & maybe other parties)
Duties under statute & rules & regulations (to principal and some to other parties)
Agent owes strict fiduciary duty to principal (honesty, disclosure, confidentiality, no conflict, no secret
profits)
May be seen as fiduciaries of another party (even one that they do not have
privity of contract with)
An agent must exercise reasonable care & skill in keeping with the standards of the profession (do a little
research).
Duties to Principal:
- Statutory: RESA (be licensed), REC rules
- CL: fiduciary; care
Duties to 3rd party:
- Statutory: REC rules
- CL: care, and maybe fiduciary (when meet criteria)
FIDUCIARY RELATION
LAC MINERALS V. INTERNATIONAL CORONA RESOURCES LTD. (1989, SCC)
 3 criteria to find a fiduciary relationship:
o Is there a scope to exercise discretion/power over another? (power to make choices for another)
o Can the (unilateral) exercise of that discretion affect the beneficiary? (bad choice can harm them)
o Is the beneficiary particularly vulnerable? (rely)
Fiduciary relationship is founded on trust and confidence [rely not to hurt]
 Gives rise to obligation to act in the interest of the beneficiary, not for one’s own personal interest;
confidentiality & honesty
KNOCH ESTATE V. JON PICKEN LTD. (1991, OCA) – PURCHASER’S AGENT MAY OWE FID. DUTY TO VENDOR
Facts: Picken (purchaser agent) introduces Mantella to Knock Estate property; Picken also works for Caterpillar (who
would have paid a higher price for the property); Picken then brokers a deal between Mantella & Caterpillar;
 Knock Estate sues Picken, alleging that he should have introduced Caterpillar to them so they could get higher
price [note that Picken is purchaser’s agent, not vendor / Knock Estate’s]
Court:
(1) No significant delegation of agency powers by vendor agent to Picken such that Picken is sub-agent of vendor /
Knock Estate
 was an MLS system, but no direct dealings or advice; no evidence of implied delegation by vendor
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merely an authority to bring forward offers, and so duty to be honest about those offers brought
forward (no active lying) [MLS permits this delegation of discrete authority, but all agents are not
automatically sub-agents] (Winners also)
 don’t owe the unlimited agent duties (which as fid. would incl. no omission / full disclosure)
 distinguish from Carmichael – more evidence of full delegation
(2) No fiduciary relation between Picken (purchaser agent) & Knock Estate (vendor)
 no trust & confidence for Picken not to hurt; no power for Picken to make choices for Knock that might
hurt it
 again, don’t owe the fid duty of no omission / full disclosure
 [note tho that statutory provisions now require disclosure of certain things to all parties, eg: 5-13 latent
defects; 5-9 disclose if you are acquiring real estate and also providing services to one of the parties to that
TX]
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Note: it makes sense that purchaser’s agent shouldn’t owe fid duty to vendor as a manner of course… bc they have
fid duty to purchaser (which includes disclosure, confidentiality) and conflict of interest issues would arise.
Winners v. Goddard & Smith (1992, BCSC) – another MLS listing K
Facts: purchaser’s agent wanted to say they were sub-agent of vendor’s agent to get some commission when vendor later
sold to a different purchaser
Ratio: again, simple fact that vendor lists under the MLS does not mean that all agents under MLS are sub-agents of
vendor’s agent—need “precise proof” that the relationship was created, either expressly or by implication
 Look at the MLS agreement;
 Duties of a selling sub-agent to vendors may be implied from circumstances in which the sub-agency was
created, as well as from some fiduciary relationships, but the relationship of privity of contract cannot arise w/o
“precise proof” that the relationship was created, either expressly or by implication
AGENT DUTIES TO PRINCIPAL
REAL ESTATE SERVICES ACT – RULES ss. 5-1 to 5-15
 SEE ABOVE (INCL. DISCLOSURE DUTIES (REMUNERATION, INTEREST IN THE TRADE, LATENT
DEFTECTS; PROMPT DELIVERY OF OFFER & ACCEPTANCE)
COMMON LAW DUTIES
 Fiduciary duty (above) (loyalty, honesty, confidentiality -> disclosure, no conflict, no secret profits)
 Duty of care (below):
Phelan v. Realty World – not in materials.
Facts: vendor refused to pay commission, alleged that its agent didn’t get them the highest price and this was negligent
Holding: there is no duty on an agent to get the highest price.
Ratio for our purposes: states that agent has a duty of care
 Exercise reasonable care & skill in keeping with the standards of the profession
PRICE V. MALAIS (1982, BCSC)
Facts: vendor’s agent brought in some purchasers, who asked questions to vendor about the property; vendor gave vague
answer about an easement [but in fact there were 2 easements]; K was entered into which said free of all encumbrances
except mortgage [easements not mentioned]. Purchaser finds out before closing and refuses to close. Vendor sues for
their losses bc can’t sell again for a whole year.
Court:
 purchaser had the right to walk away, bc vendor breached covenant to give free title [note: court may not have
decided this if easement was no hindrance to use of land]
 and agent was negligent / breached standard of care: standard in industry would be to do a title search (esp.
since easement was mentioned, should have tipped her off)… so vendor’s agent is liable for all losses of
vendor!
Note: it is now considered negligent not to do a title search
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AGENT DUTIES TO 3rd parties
REAL ESTATE SERVICES ACT – RULES ss. 5-1 to 6-2

SEE ABOVE (INCL. not inducing breach of K; no reps to induce parties unless accurate; disclosure of latent
defects)
COMMON LAW DUTIES
 Fiduciary duty (above) (if meet criteria for fid relation)
 Duty of care (below):
Bango v. Holt (1971, BCSC)– court seems to extend agent duty of care to parties beyond those that agent signs K with
Facts: Bango wanted property to use as rental; Holt listed with an agent & described property as capable of rental units;
but city no longer allowed this; neither agent investigated
Court:
 Holt was deceptive: fraudulent misrep [so purchasers can rescind / walk away]
 Bango’s (purchaser) agent: owe duty of care to purchaser; made no effort to confirm whether rep was true
[found negligent, and brokerage VL]
 Holt’s (vendor) agent: owe some duty to purchaser to investigate whether the info the purchaser is providing is
indeed true [found negligent, and brokerage VL]—
Ratio: So there is some duty of care to 3rd party, but court doesn’t answer how far this goes
 But we do know that if vendor’s agent’s ad contains misrep, they can be liable to purchaser if didn’t live up to
standard of care
Note: bc of Bango, get REC Rule 5-6: a licencee must not make an inducement rep to enter into a K unless they deliver
to person being induced a written statement signed by the licencee [makes them more accountable]
SMITH V. YEASTING AND YEASTING (1955, BCSC) Facts: agent said that all permits had been obtained for certain renos done; but actually city had complained; vendor told
their agent this; agent made the false statement to induce purchaser
Court:
 Purchaser gets specific performance (can walk away from K) and gets damages for agent’s fraudulent misrep
 Principal is liable for the fraud of their agent!!! (principal & agent are one)
 But no fear, the principal now has an action against the agent … and this makes sense – otherwise the innocent
party may suffer
DUAL AGENCY
 Where there is only one agent involved in the deal (e.g. for vendor), the purchaser will be relying on them and this
may create fiduciary duty
 Fid duty entails avoiding conflict of interest: but acting for both parties is a clear conflict of interest.
 Rule 5-10 requires disclosure to both sides if are or expect to be providing services to party other than principal
 And agents use “Dual Agency Agreement”, which states that: since both of you relying on my expertise, I have dutes
to both and may have to disclose info about either of you that I find out… get both parties to sign (helps with
conflicting duties of confidentiality)
REMUNARATION OF AGENT
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Custom is that vendor pays the commission
Basic conditions for remuneration: agent adds value (and there is a K; no big ambiguity (that will be interpreted
against agent); no negligence; no non-performance of a K condition)
(i) CAUSATION
KEY: it is the listing agreement that drives HOW the commission is earned (look to the K; oral K enforceable)
 a TRIGGERING EVENT that entitles agent to obtain their commission—can be different triggers, even within
MLS—examples:
 once there is a binding K of purchase & sale (most common)
 when sale closes;
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when agent is the “effective cause” (agent introduced the future buyer to the property; even if the buyer buys
the property after the expiry of the listing agreement);
when you present a “ready willing & able purchaser”; if vendor then decides not to sell, agent might come after
commission (even tho not good for their biz)
when you have added some value (“quantum merit”)
Typically what happens: purchaser will make some deposit and will give it to the agent to hold in trust (agents
want this – its easy money for them to get at when it is in their trust account)
Because they have conflict of interest, RESA rules govern how they can take it out of trust account.
If parties don’t agree that agent deserves that commission, all agent can do is refer the matter to BCSC to make
a determination about who is entitled to that deposit money (RESA, s.33).
Sum: Case Law is moving in the direction of interpreting provision / trigger for agent remuneration in listing K such that
agent will get its compensation if it adds value (and all other things being equal—there is a K; no big ambiguity; no
negligence; no non-performance of a K condition)
(ii) STATUTORY REQUIRMENTS
REAL ESTATE SERVICE ACT
S. 3 RESA:
Can not provide real estate services to/on behalf of another in expectation of remuneration unless the person is (a)
licensed under this act, or (b) exempt
s. 4 RESA:Cannot bring an action for remuneration unless you are licensed at time service provided (or exempt)
s.28 RESA: must hold the money in the trust account until (a) all parties agree in writing as to its release; or (b) the
circumstances established by the regulations apply [see the rules below]
s. 31 RESA: money in trust account, may be withdrawn when it has been earned, in accordance with the rules.
REAL ESTATE SERVICE ACT - RULES
5-14: Licensee can not base remuneration on the difference between the price that the real estate is listed and the actual
price for which it is sold.
5-15: When licensee remuneration can be paid out of a trust account: typically the date on which the real estate is
transferred / date when a tenant takes possession; or, for registerable titles, when docs registered at LTO
(iii) CASES
BANFIELD, MCFARLANE, EVANS REAL ESTATE LTD. V. HOFFER (1977, MAN CA) - LENIENT
Facts: vendor contacted agent but didn’t want to sign any K; agent introduced a purchaser, negotiated, but sale didn’t
condlude; sometime later, vendor did sell to that purchaser; now agent wants to get paid
Court: first need to find a K (court must have seen evidence of a verbal K)
 Found for agent, on basis of “quantum merit”—the agent added some value
 “quantum merit” is imposed to avoid the unjust enrichment of one party at the expense of another
Minority: there was no K here, so can’t make an award under quantum merit
BLOCK BROS. REALTY LTD. V. VIKTORA (1974, BCCA) - STRICT
Facts: language in listing K—confusing clause, in small print, about earning commission… said something about “if
introduce buyer that is ready, willing & able”; agent does introduce ready buyer, but no sale concluded. Then the listing
K expires. Then the vendor does conclude a sale with that purchaser.
Court: agent not entitled
Ratio 1: there has to be some limit on how long liability to pay commission stays around
 If clause interpreted to mean agent entitled to commission no matter how long after listing K expires,
ridiculous
 Now language in MLS gives more definite time period (like 6 months after expiration of agreement)
Ratio 2: contra proferentem- rule of K interpretation: the ambiguous clause was written by the listing agent so should
be interpreted against him
 Court found clause meant that the eventual purchaser not only had to be introduced to the house but also
purchase the house within the term of the MLS
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ACADEMY ALUMINUM V. MCINEREY (1980, Alt.CA)
Facts: sale didn’t close because (a) vendor made a misrep; (b) vendor agent guilty of negligence in not fixing the misrep;
when purchaser discovers errors, repudiates agreement (vendor accepts this); then vendor sold their property elsewhere
for higher price. Agent wants commission. Each side argues it was the other’s mistake that cost the initial sale.
Court: can’t pin-point which error cost the sale;
 So said that agent didn’t offer the services the vendor expected to get, due to negligence
 General rule: failure to exercise appropriate care & skill can lead to forfeiture of one’s commission under the
listing K (even tho vendor screwed up too)
Umbach: on basis of language in listing K, agent seemed entitled to the commission; courts may be moving away
from the strict reading of K in Block Bros; main factor instead may be whether agent added some value
NO RIGHT TO REMUNERATION
 There are some instances when an agent may not be entitled to their commission (particularly if don’t add value?):
o Ambiguity in the listing K: contra preferentum (Block Bros)
o Failure / non-performance of a condition of the listing K
o Negligence (Academy)
o No contract (Banfield) (Winners)
o Listing agreement has expired (Block Bros)
III. THE CONTRACT OF PURCHASE AND SALE
A LITTLE REVIEW
 For every piece of property, there’s:
o Legal ownership – basically registered title
o Beneficial ownership – something other than registered title; the owner who’s entitled to the benefits
of the property; the profits derived from the use of the land
 our system only recognizes registered owners, it assumes the legal and beneficial owners are the same person
 Beneficial interest in land is something that doesn’t therefore appear on the title
 The LTA (s.20) says that agreements about title that aren’t registered are effective against the people making them,
but not to anyone else
Note:
 Bare trust = registered owner only holds the title (Sometimes this set up may be to hide the beneficial owner’s ID
from public b/c they are not on the title)
 Other types – registered owner may have responsibilities w/r/t land on behalf of beneficial owner
A. THE CONTRACT
1. INTERIM AGREEMENT, OFFER TO PURCHASE ETC. (ELEMENTS OF CONTRACT)
Valid K requires:
(1) OFFER
 Must have certainty of fundamental terms: Parties, Property, Price
 Can take various forms: standard form K of Purchase & Sale; Letter of Intent (despite saying “this is
unenforceable, may be found to be enforceable); MOU; Term Sheet
 Time element / expiration: if its not specified, the default is: “for a reasonable time or until clearly rescinded”
(2) ACCEPTANCE
 Must be unqualified / unconditional: any change in the offer is considered a counter-offer
 Must be communicated properly (offer might set out that acceptance has to be in writing, delivery instructions,
within time limit)
(3) CONSIDERATION
 Usually, give money for the real estate (dirt or interest in dirt)
 Note: bare trust: you buy the company and get the land too—is there consideration flowing?
(4) EVIDENCE OF INTENTION TO BE BOUND
 Evidence of intention to be bound
 This is the main element as to whether K is formed (but it won’t be enough if certainty of 3 P’s not there or
can’t be implied)
Note: difference btw contract being void and being unenforceable:
o Void - contract never existed
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o
Unenforceable – contract existed, but party trying to get benefit isn’t entitled to force other party to
comply
2. SAMPLE STRUCTURES OF OFFERS
(i) STANDARD FORM: K OF PURCHASE & SALE
(1) Starts with the 3 Ps
Parties –
 Seller: Need to list all owners of the interest being sold:
 if legal & beneficial title is split, can’t sell full (legal & beneficial) title unless both parties are parties to the K
 if there is split in ownership via joint tenancy (= if one owner dies other owner takes) or tenancy in common
(=if one owner dies, interest goes to their estate), need both parties
 Purchaser: careful about saying “X and nominee” (vague, who is nominee); “X and/or nominee” (courts have
rejected for uncertainty); “X or nominee” (BC courts have accepted)—just be more precise: say “X can assign
the interest without the consent of the vendor”
Property –
 test: describe in enough detail that a reasonable person could find it again
 BEST: use legal description, unique w/in province (e.g., Lot 2, Block 5, NW District, Plan 450)
 Can also use parcel identification no (PID) (e.g., 000-111-222)
Purchase Price –
 don’t need a total sum, just need a clear description of the method/process for determining the price (See
Nemetz)
 Note: our courts can only give awards in CAN dollars, so if K is in USD it’s a good idea to outline method of
conversion to USD (what time, what rate)
[money for land = consideration]
(2) Deposit – true deposit = sum of money that vendor has immediate recourse to if purchaser defaults (forfeited to
vendor) [if don’t pay breach of K]; may or may not be in lieu of further damages (liquidated damages); may or may not
be determined an unconscionable penalty
 General rule of thumb: 10%
 State who is going to hold deposit & on what terms (sometimes lawyer, usually agent)—RESA, s.28
(3) Terms & Conditions – condition precedent (e.g., the TX is subject to an inspection by purchaser that is satisfactory to
purchaser—we’ll see that courts want to interpret as “satisfactory to a RP in purchaser’s desires/objectives” in order to
have enforceable K)
 Like a mini-K inside the K / it holds the K in suspension until the mini-K is fulfilled or waived
 [the background K exists, its just not enforceable until the mini-K is waived or declared fulfilled]
 S.54 Law & Equity Act – allows purchaser to waive condition if its for sole benefit of purchaser, if K is capable
of being performed w/out condition, if its waived by the date specified.
(4) Date for Completion
(5) Possession Date – the last para here (“subject [only] to the following tenancies”) protects against unknown tenants
(6) Adjustment (to purchase price) – for taxes paid by vendor, bc you pay property tax until the end of the year
(7) Included Items (with the real estate) – eg, blinds, chandeliers
(9) Title (status) – “free & clear of encumbrances, except [standard] Crown royalties, public utility right of way, etc.”
 Need to list any non-standard encumbrances (lease, mortgage, etc)
(10) Tender = what is required from buyer & seller to complete the TX
 Lay out how the documents & consideration ($) will be exchanged so as to complete the deal
 Must strictly comply with the rules for tender (or will be in breach of K; can’t use equitable remedies like
specific performance)
(12) Time (“will be of the essence”) – means that parties have to comply with the terms of the K strictly within the date
for completion, or are in breach of K
 If no such clause, then more leeway: “within reasonable time” [NTD: check this]
(13)&(14) Allow for undertakings –
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
mechanism for vendor to delay getting mortgage off title until money is received from purchaser, but still
provide clean title to purchaser;
and purchaser can get new mortgage for unencumbered property, and delay paying until get this mortgage
(16) Risks – states that risk remains with vendor (even though beneficial title transfers to purchaser the minute both
parties sign the K; legal title (& possession) is still with vendor so it makes sense for them to take care of the property &
responsibility if anything happens btwn signing of K and completion)
 make sure purchaser’s insurance is effective one minute after completion date!
(19) Agent discloses who they have agency relation with – one side, other side, or both
(20) Disclosure of personal info clause – agents want this so they can use MLS (share the info with agents on MLS)
(ii) LETTERS OF INTENT/ENFORCABILITY

Another form of offer
 Purpose is to help the parties pin down terms while negotiating
 Generally not enforceable or binding on the parties, but:
 Courts will look to what the intent of the parties – did they intend that it would be enforceable
and binding?
387903 B.C. LTD. V. CANADA POST CORP. (1991, BCSC)
Facts: letters of intent drafted, then several months of intense negotiations; lawyer for Can Post consistently said “this is
always subject to senior management approval”; at very last minute, before signed docs were exchanged, Can Post calls
deal off; Purchaser wants to enforce the K / letter of intent (offer & acceptance of all key terms; P had told Can Post to
only send over those ppl authorized to negotiate a K)
Court:
- While the 3 P’s are there in the letter of intent, need to look at parties intentions
- Objective Test to determine Intentions = look at how a reasonable person in the position of the parties would
take the agrmt to mean (subjective intent not sufficient—not inquiring into the actual state of mind).
- There is no evidence that the principal CP held out the negotiating agents of CP as being authorized to sign and
concluded agreements – no sign of ostensible authority.
- On balance of probabilities, court finds that the persons in position of the plaintiffs and CP would reasonably
understand and intend that these transactions were be subject to senior corporate approval of CP.
Court also says:
 There is no duty to negotiate in good faith/reasonably; this duty btwn 2 equals would be repugnant
 The only duty the court imposes is not to lie.
(iii)




OPTIONS/RIGHT OF FIRST REFUSAL – we skipped this here
Options give party right to purchase lands on some conditions but require separate consideration.
K for option and K for purchase & sale are separate Ks, each need their own consideration
so an option relating to land is: I grant you option to buy my land and you must give me notice 6 months before the
Olympics to exercise it and you must close within 10 days etc. [Sets out terms of exercising the option, price and
when it closes.]
Those must be STRICTLY followed; courts have found consistently that they enforce options MUCH more strictly
than regular real estate contracts.
B. PROBLEMS WITH REAL ESTATE CONTRACTS
1. EVIDENTIARY
(i) LAW AND EQUITY ACT s.59 / STATUTE OF FRAUDS
Can there be an oral agreement for the purchase & sale of land?
Statute of Frauds
 Originated in UK: said that all K dealing with interest in land must be in writing
 This position has been changed by replaced by s. 59 Law and Equity Act – can have an oral K if it fits into s.59(3)
(b) or (c)
s. 59(3) Law and Equity Act – Enforceability of Contracts – unless a K respecting land fits into one of the following 3
exceptions, it is not enforceable:
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




(a) it is in writing, signed by the party “to be charged” [the one denying the K] (and has a reasonable description of
the subject matter/property)
(b) part performance is evidence of a K
E.g., payment of a deposit; or absence of an action to stop / acquiescence
(c) reliance/estoppel: the party alleging the K has acted in reliance on it, such that it would be unfair unless K
enforced
E.g., already took out loan
Exceptions: s. 59(2) – A lease for a term of 3 years or less
(a) ORAL VARIATIONS to written K
 If there’s an oral variation to written K, the courts must consider the parole evidence rule; this prevents the use of
oral evidence to modify a written agreement. Exceptions were oral variations are permissible:
 It isn’t inconstant with the written agreement; and
 It supplements the oral K (collateral contract)
Note that the oral variation / collateral K must also meet s.59 [it applies to any K about real estate]:
 59(a)—is there evidence in the written K of what the party is purporting is an oral variation / clarification?
 Or (b) or (c)—is there evidence of part performance or reliance?
Greg: need not be separate consideration for this oral “collateral K”
NICOL V. WEIGEL (1991, BCCA)
Facts: there was a K and not all terms written down, so an “oral variation”; purchaser did everything he could,
arrangements with bank, paid deposit; [docs weren’t signed by vendor]; when vendor got back from Europe, sold to
another purchaser.
Court: purchaser was “ready willing & able” and vendor did nothing—acquiesced, accepted deposit
 The K (incl. the “oral variation”) was enforceable bc fell under s.59(c)
 so we see court emphasizing intentions of parties, even if certainty of terms is not within the 4 corners of the doc
itself (compare with early case Nemetz)
(b) OTHER DOCUMENTS that can amend written K
 Can also try to amend written K with further docs:
 Statement of Adjustments (w. lawyer notes) – adjust purchase price for all utilities, taxes, etc. pre-paid by vendor;
may try to slip in something more.
 Need evidence of intention to be bound by the collateral K, and need separate consideration for the collateral K
2. THE 3 P’s AND VAUGNESS/UNCERTAINTY

3 P’s:
o Price
o Parties
o Property
Umbach: evolution in case law from: “3P’s within the corners of the K” as decisive (Nemetz) to more emphasis on
whether intention to be bound (First City; Rex Hill; Nicol)
 Needs to be big gaping hole (that can’t be filled in by looking at doc as a whole, or even outside conduct) to
render it unenforceable
 Courts will extend themselves to enforce commercial Ks
ARNOLD NEMETZ ENGINEERING LTD. V. TOBIEN (1971, B.C.C.A.) – UNCERTAINTY OF PRICE
Facts: Purchaser didn’t have enough money, so vendor said he’ll finance (mortgage); they flesh this out on a napkin but
details are cryptic—impossible to determine with certainty the principle and interest
Court: asks whether it can attribute to the parties any particular contractual intention regarding the manner in which the
loan repayable?
 Was some evidence of purchaser’s intention to make monthly installment payments, but court disregarded bc found
no evidence that the parties agreed
 Court can’t make a K for the parties
 “contract so vague and uncertain as to essential matters that it must be held unenforceable”
Ratio: (Greg) if you don’t find the 3Ps, will be a unenforceable
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FIRST CITY INVESTMENTS LTD. V. FRASER ARMS HOTEL LTD. (1979, B.C.C.A.)
Facts: [financing K rather than K for purchase & sale, but relevant to K interp]
Fraser got mortgage broker to find them a lender (so they could build)—term sheet & commitment letter drafted (set out
amount of loan, interest rate, payback details, security lendee was giving lender, set up fees to lender (partly payable up
front, partly after deal closes)
 As lender lawyer was drafting, investigated property & discovered that the city actually owns the portion of
land where Fraser’s kitchen sits… so they stall
 In the meantime, Fraser finds other financing, and tells lender they aren’t interested anymore
 Lender still wants the fee
 Fraser argues the commitment letter was still at stage of uncertainty; lots of terms of mortgage not settled (eg,
would there be an acceleration clause on default of payment; will mortgagee have immediate possession on
default?)
Court: the letter was a binding K—within the four corners of the letter the parties clearly expressed their intention as to
how the loan would be repaid wrt both principal and interest
 “there is no single form of words that must be used in a deed of land”
 Only unenforceable if its lacking a term so essential (without it the court cannot collect the real intentions of the
parties), and court is unable to imply into the K (given evidence of intention from within the language within
the 4 corners) what would be necessary to make it enforceable
 SO: court will look to the document and see if essential terms are there; will infer anything necessary to make it
enforceable if there is evidence in the doc to support intention to have that term
Ratio: (Greg) broader, purposive approach than Nemetz
 evolution from: “specific 3P’s within the corners of the K” as decisive (Nemetz) to more emphasis on whether
intention to be bound (will imply terms if evidence of intention)
 may not be able to distinctly find the 3Ps all the time, but can still look to the context—is there enough
evidence of intention (within the K and sometimes look externally) for court to imply inexplicit terms so as to
enforce a K?
 Needs to be big gaping hole (that can’t be filled in by looking at doc as a whole or external evidence) to render
it unenforceable
Ratio: courts want to support commercial efficacy
REX HILL HOLDING (ONTARIO)
Facts: purchaser enters into K to buy 54 acres of land; finds out its really 57 acres; decides it doesn’t want to buy…
 Argues K is unenforceable bc property not adequately described
Court: this is not a gaping hole in the K—it does not put into question the identity of the land
 Possibly gives rise to a right to sue for damages for misrep, but doesn’t make the K unenforceable
Ratio: the combo of Rex & First City v. Fraser suggest that courts will extend themselves to enforce a K for commercial
TX
(i) IMPLIED TERMS
 Key considerations when implying terms into a contract:
o Presumption against implying terms into agreement— Court will not imply terms if the contract can be
complete without the implied terms; and Court can’t write the K for the parties
o But Court will imply terms to give effect to intentions of party (as evidenced by the doc as a whole;
and also conduct), and thus make the K enforceable (esp. commercial K?) (First City v. Fraser)
o Objective test to find intention (Canada Post)
C. DEPOSIT
Not all payments made under a K for sale of land are true deposits—may just be a part payment or mere installment
 When use word “deposit” courts almost always interpret it as a true deposit
 Court can also look at express words of K and intentions to interpret
 [note: if it is installment payment but there is a forfeiture clause (as in Stockloser) this is equivalent to being a
true deposit]
True deposit: will be forfeited to the vendor if purchaser does not complete the TX (and supposed to be a genuine preestimate of damages); purchaser cannot recover at law (but possibly via equity, see Stockloser)
 this is an implied feature of a true deposit; but many K’s will say explicitly that the amount is “forfeited to the
vendor if TX doesn’t close” so its treated like a deposit no matter what
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WINLEY INVESTMENTS INC. V. MILMORE SALES LTD. (1991, BCSC)
General rule: In absence of contract to the contrary, where the transaction fails to close due to a default by the purchaser
the deposit becomes the property of the vendor [NTD: in today’s failing economy, if purchaser defaults vendor may
prefer to keep the K alive & sue for specific performance!].
 (In this case, the parties agreed to the contrary)
 But note: where the deposit monies are held on trust (and deal doesn’t close), RESA s.28 - can’t release to anyone
unless everyone agrees or s.33 get an order from court
This case also deals with: specific performance is affirmation contract still alive
- In this case vendor commenced action for specific performance; thus K is still alive and they can’t get deposit
[claiming entitlement to deposit indicates ending the K]
- Can use this strategically to keep contract open and damages running.
- If the vendor wants to collect damages (ie. retain the deposit), they must accept that the contract is no longer
enforceable after the breach of the purchaser.
 Vendor should claim deposit as liquidated damages, and if necessary seek further damages
from the court.
1. PURPOSE

Functions of a deposit:
1. Indicate part performance on a contract (i.e. partial payment)
2. Guarantee of the purchaser’s sincerity
3. Access to a quick remedy for the vendor—quick damages for vendor if purchaser breaches K
4. A possible 4th function of the deposit but not recognized by common law: Sometimes the agent
considers the deposit as guarantee of their commission.
2. ISSUES RE DEPOSITS
Court will need to characterize the amount as either:
(1) mere installment / part payment / consideration—goes back to purchaser
 even if repudiation of K results from purchaser’s default;
 but vendor may sue for damages or use tactic of specific performance to keep K alive and hold on to deposit
(keep control of that money), as vendor did in Winley v. Milore [as soon as K over have to give to purchaser]
(2) true deposit—goes to vendor
 If true deposit, further issues:
(3) can purchaser seek relief from forfeiture under Law & Equity Act s.24 (Umbach – unlikely)
(4) can purchaser get the money back via equity, because: the deposit amounts a penalty, and it is unfair for vendor to
keep it? (Stockloser)
(5) is the deposit amount a limit on vendor pursuing further damages (is it a genuine pre-estimation of damages that
parties put their minds to)? [Need evidence of intention.]
 In BC this is presumed by words: “the deposit is absolutely forfeit as liquidated damages” (but could rebut with
evidence)
 Whereas “this is liquidated damages” is unclear
IS THE DEPOSIT A PENALTY
STOCKLOSER V. JOHNSON (1954, CA)
Facts: K for purchase of plant & machinery; K was repudiated by vendor, because purchaser defaulted on installment
payments. There was a forfeiture clause in the K saying: if purchaser defaults in installments for more than 28 days,
vendor can (upon giving 14 days notice to rescind) get all payments thus far forfeited to him.
 Purchaser sues to get installments back (argues they amount to a penalty); loses at trial bc fails to show
unconscionable
SCC: purchaser loses again; fails to show the forfeiture was unconscionable (even though they concede it was penal)
Denning’s analysis:
(1) when there is NO forfeiture clause [alternatively, no true deposit]: then if the purchaser makes a default with
installment payments, once the vendor repudiates / ends the K owing to this default, the purchaser is entitled by
law to get its money back;
(2) when there IS a forfeiture clause [alternatively, an express true deposit]: then a purchaser in default cannot
recover the money by law. He may, however, have a remedy in equity:
Denning’s test (for whether equity can step in and relieve purchaser from forfeit to vendor):
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(1) the forfeiture clause [or, deposit] must be of penal nature: the sum must be out of all proportion to the damages
suffered by vendor (extravagant sum); and
 in this case, they found the forfeiture penal, but not explained why: vendor not only got the plant & machinery
back, but also got the installment payments (quite a bit of $)
 [the difference between this eg and those below is that there is not (yet) a resale at a higher price]
(2) it must be unconscionable for the vendor to retain the money. [look at the circs of the particular case, not just the K]
 Denning’s egs: you pay 9/10 of purchase price via installments, and vendor also sells for higher purchase price
to someone else
 Or: instead of the usual 10% deposit, it is a 50% deposit; when purchaser fails to complete, vendor not only
keeps the 50% deposit, but also resells at a profit.
 “In short, vendor ought not to unjustly enrich himself at the purchaser’s expense.”
I think what the court is looking for is that the vendor’s conduct is unfair, sharp, or even fraudulent: They cite
Steedman, where vendor noted that land had increased in value, so quickly seized on the purchaser’s default as an
opportunity to repudiate the K and resell at a higher price. Vendor’s behavior was “sharp”; it was unconscionable
for vendor to also forfeit the sums already paid.
 Denning is clear that the purchaser’s conduct—in terms of whether he tried to then tender, so remained ready
willing & able—is NOT a precondition for equitable relief here (as it is for specific performance); the purchaser
is not trying to re-establish the K but to get his money back
 But Denning does give weight to other poor actions of the purchaser (a bad “gamling” type decision made him
unable to find the additional amount necessary for installments)
IS THE DEPOSIT A CAP ON DAMAGES
LOZCAL HOLDINGS LTD. V. BRASSOS DEV. LTD. (1980, ABCA)
Facts: the K says the deposit is “deemed liquidated damages”
Court: Merely using the phrase that deposit can be held onto as liquidated damages does NOT stop vendor from trying to
get more.
- Also have to look at deposit paragraph of the agreement to extract intention of parties when dealing with this.
Note: External circumstances may incline court to find that vendor didn’t turn their mind to the deposit amount being
cap on their available damages? Can imagine in a rapidly falling market that deposit could quickly become far less than
damages of the vendor in reality
BUT In BC, if you use the language that “the deposit is absolutely forfeit as liquidated damages”, that’s magic
language in BC that gives rise to a presumption that limits the damages of the vendor
o Can be rebutted based on the facts and circumstances, in trying to determine whether there was a
contrary intention by the parties
If you want to be clear that vendor can go after purchaser for further claims, say “without prejudice for further
claims”
HUGHES V. LUKUVA (1970, BCCA)
Facts: deposit clause stated it to be “genuine pre-estimation of damages”
Court:
 although not conclusive, the words afford strong evidence of a genuine pre-estimate of damages—especially where
it could not be said that the amount was out of all proportion to the damage.
 In order for the forfeiture of a deposit to be considered liquidated damages, it must be established that the parties
made a genuine pre-estimate of damages [intention; put their minds to it]… Must be some basis for this assertion…
look at express words of K, at intention
 when competent parties by free contract purport to agree that a sum is liquidated damages, there is NO reason to
refuse that wide limit of discretion [ie, when that intention is there, shouldn’t interfere]; to interfere, there must be
an extravagant disproportionate between the contract sum (the deposit) and the amount of damages suffered.
D. INTERIM PERIOD

Interim Period – time between when K becomes enforceable (when parties sign or, if conditions precedent, when
they are fulfilled or waived) and the date of completion.
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1. RELATIONSHIP BETWEEN VENDOR/ PURCHASER
LYSAGHT V. EDWARDS (1875 – 76, ENG.) – OWNERSHIP DURING INTERIM PERIOD
Principle: there is a transfer of interest immediately upon K becoming enforceable:
 Purchaser immediately has beneficial interest, and vendor holds the property as trustee (has legal title still)
 vendor gets a right to be paid, a right to put a charge/lien on the property as security for payment, and a right to
retain possession until he’s paid (unless contract specifies possession is delivered at some other time).
 (since vendor retains physical control, it would be hard for purchaser to deal with the detriment that comes with
beneficial ownership… that is why the risk para in the K puts the liabilities back on the vendor)
Note: while purchaser has beneficial interest, there’s never been a case where they try to get income (rents) from the
property that accrue during this interim period
RICH V. KRAUSE (1975, BCSC) – BC COURT ACCEPTS LYSAGHT PRINCIPLE
Facts: purchaser makes all payments, assumes vendor’s mortgage; but before the transfer / closing the vendor
disappears; purchaser applies to court to complete transfer / vest title in her
Court: yes there is evidence that K was enforceable, and so the vendor was holding on trust for purchaser (until they do
all need to in order to close), at which point purchaser is entitled to the deed transferring property
 Application granted
2. UNPAID PRICE (VENDORS LEIN)

Vender entitled to a lien for the full amount of the purchase price
3. What RISKS must purchaser worry about during Interim Period

Usually specified in the K, especially in large commercial K
MARTIN COMMERCIAL FUELING INC. V. VIRTANEN (1997, BCCA)
Issue: can a 3rd party creditor of vendor (who registered the judgment BEFORE the transfer was registered) make claims
on the purchaser? [Note: land title system would suggest yes!]
Facts: (1) creditor gets judgment against vendor; (2) vendor enters an enforceable K with purchaser; (3) judgment is
registered; (4) property transfer is registered
Court: vendor’s (beneficial) interest in the land transferred at time (2) [Lysaght principle]… prior to registration (i.e.,
time (4)) the purchaser has acquired an interest in the land***
 So at time (3) when judgment registered, vendor doesn’t have an interest in the land for that judgment to attach to
 So the purchaser gets the land free of the judgment
 And creditor can go after vendors proceeds of the sale
***Note: this runs contrary to Torrens system [anything registered is good against 3 rd parties; 1st to register, 1st in line];
Greg—not sure the case would be decided in same way, but BC courts do take glee in allowing equitable / CL principles
to trump the statutory principle
4. DEFAULTS – ANTICIPATORY BREACH

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
Anticipatory breach – breach before closing time
Once a party thinks the other side will commit an anticipatory breach, then the non-defaulting party has to decide:
(1) accept breach and seek damages; (2) reject breach and keep K alive
Re: (1)—since its not really a breach until closing time expires and haven’t tendered, must be a very clear intention
to breach the contract in order for the court to find there was an anticipatory breach. The only time a non-breaching
party can consider itself relieved of its obligations when the contract is still alive is if the breaching party has made a
clear, unequivocal statement that he won’t be performing on a contract (or something very clear like is bankrupt so
no way can tender the money); otherwise, right to repudiate the K only when other side does default
Re: (2)—must continue to perform your obligations (ready willing & able) [maybe bc don’t want damages
crystallized just yet; or bc you want order for specific performance for K to be completed… you can get the ball
rolling on specific performance when anticipatory breach, but won’t actually get the order for specific performance
until completion date.. at least it applies pressure]
E. CONDITIONS


Condition precedent = term of the K required to be fulfilled before the K is enforceable (the background K can exist,
it is just not enforceable until the mini-K / CP is fulfilled or waived)
Care must be taken in drafting a condition precedent provision to ensure that it merely holds the K in suspension
rather than prevents the formation of the K
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
The determining factor is the intention of the parties at the time the K is executed
Usually a CP does not prevent the formation of a binding K—it merely holds the K in suspension (Dynamic and Wiebe
reject Turney idea that a “true condition precedent” precludes formation of a K)
 So long as there is evidence of the parties to form a binding K
 Even where its not clear which party is to advance the condition, Court will impose obligation one party, and also
impose a standard for such performance: “best efforts” [courts impose in Dynamic and Wiebe and Tau]
But a CP may prevent the formation of the K—issue for a condition like: “subject to inspection that satisfies the
purchaser” or “to purchaser’s sole discretion” (Griffin)
 If court can’t find evidence to interpret the “satisfaction” in an objective/subjective way, and it is too subjective
or discretionary, then the K will fail to be formed… seen as more of an option than a K of purchase & sale
 Or even something like “subject to approval by spiderman”—prevents a K bc impossible to fulfill the CP
 [unless there is evidence of parties intention to be bound to whatever stated]
NTD: so it looks like Lambert (Griffin) is more hesitant about just implying and obligation & best efforts standard on the
party that benefits from the CP—If evidence shows that its just subjective (more like leaving the deal at the option of one
party), then the K will fail
 So 1st need to analyze the CP: can it be interpreted that the parties intended something like: “Satisfactory to a
reasonable person with all the subjective but reasonable standards of the particular purchaser”
1. STATUS OF CONTRACT

looking at how the law has evolved – each case changes things a little
TURNEY AND TURNEY V. ZHILKA (1959, SCC)
Facts: the condition precedent said: purchaser’s obligations are subject to the lands being taken over by the municipality
(so CP for the protection of purchaser); when it was clear to purchaser the lands wouldn’t be annexed, they tried to
waive the CP and close the K
Issue: whether one of the parties could waive a true condition precedent
 but court also talked about nature of condition precedent
Court: this is a “true condition precedent” = fulfillment depends in whole or part on the act / will of a 3 rd party
 neither party to the K can advance the condition
 so a TCP is a bar to the formation of a K (it’s a mere offer)
 and neither party to the K can waive the TCP (unless there is an indication in the K to the contrary)
Turney gets modified by s.54 of Law and Equity Act and further Case Law (Dynamic).
Law and Equity Act s.54
If the performance of a K is suspended until the fulfillment of a CP, a party to the K may waive the fulfillment of the CP
(even if the fulfillment is dependent on the will or actions of a person who is not party to the K) if:
(a) the CP benefits ONLY that party to the K
(b) the K is capable of being performed w/out fulfillment of the CP
(c) where a time is stipulated for fulfillment of the CP, the waiver is made before the time stipulated (and where the
time is not stipulated, the waiver is made w/in a reasonable time
Greg adds a 4th that he thinks is implied by law: notice must be delivered to the other party of that waiver–and notice
needs to be clear (properly given) that it was waived not satisfied (Dallas)
DYNAMIC TRANSPORT V. O.K. DETAILING LTD. (1978, SCC)
Facts: purchaser only wanted to buy the land if it was sub-dividable; so the K was subject to CP that subdivision
approval be obtained prior to closing
 it wasn’t set out WHO had to go do the work to obtain subdivision approval
Court: contra Turney, the K does not fail just bc the condition depends upon 3rd party (gov’t) approval
 attempt to give effect to the intentions of parties [there was common intention here to transfer land]
 although performance of the rest of the K not due unless & until the CP fulfilled (or waived), those K
obligations are not negated, merely held in suspension
 and the CP obligations are in force [mini-K]…
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Imply obligation on a party
 and since it wasn’t set out in the K WHO had to go do the work to advance the CP, court will look for evidence
so as to imply this
 here, court found external evidence (statutory obligation on “person planning the subdivision” to apply for
approval… court saw this as on vendor’s shoulders)—vendor had obligation to advance CP
Imply standard
 court also implies a standard on this obligation: “best efforts” (ie, do all within your power)
 [if party so obligated fails here, breach of K and other party has rights]
2. More on the DUTIES/EFFECT ON THE PARTIES
Note: BC Cases, Lambert is Minority (dissent?) in Wiebe but moves to Majority in Griffen (seminal case in BC)
o Lambert basically establishes the law of conditions in BC through his analysis in these two cases.
WIEBE V. BOBSIEN (1984, BCSC)
Facts: Wiebe entered into K to buy a new house in White Rock, conditional upon the sale of his Port Moody house by a
certain date; so he finds a purchaser for the PM home, sends notice to vendor of WR home that he has removed the CP
and now there is an enforceable K. But vendor has already sold the WR house to someone else! Weibe wants court to
force the sale of WR home to him.
Court:
Majority - Bouck
 Condition merely held contract in suspense and purchaser had obligation to give best efforts to satisfy.
 Condition may prevent the formation of an enforceable contract if the agreement itself, and the surrounding
circumstance indicate it was never the intention of the parties to be bound by a contract of purchase and sale…
 This may have occurred if, eg, Wiebe could simply just elect not to put effort into performing the condition
 But here purchaser had obligation to use best efforts to advance the condition (court implied)
Minority (Dissent) – Lambert (IMPORTANT)
 Details lacking in the agreement left it too ambiguous/subjective and should not be binding
 Most likely that condition was there to give escape to purchaser, and if that’s so, maybe purchaser never had an
intention to be bound by the agreement (more like an option to purchase, at their discretion)
 Lambert introduces idea of subjectivity: P had too much, meaning he has too much DISCRETION (subjectivity)
o Condition was too subjective, purchaser could accept or reject any offers that came on their house and
thus completely within their control as to whether condition would ever be fulfilled. This was intro of
subjectivity.
 Subjective: too imprecise or depends entirely on the discretion of one party, that it must be an
offer (ie. “subject to the approval of president of company”)
 Objective: depends too much on a 3rd party/outside event (“subject to John being elected Mayor
in municipal election this year”)
 Half/Half: some discretion (“subject to planning department approval of attached plan of
subdivision)
NTD: so it looks like Lambert is more hesitant about just implying and obligation & best efforts standard on the party
that benefits from the CP
 If evidence shows that its just subjective (more like leaving the deal at the option of one party), then the K will
fail
 So 1st need to analyze the CP: can it be interpreted that the parties intended something like: “Satisfactory to a
reasonable person with all the subjective but reasonable standards of the particular purchaser”
GRIFFIN V. MARTENS (1988, BCCA) – LAMBERT; KEY CASE
Facts: sale & purchase subject to purchaser obtaining “satisfactory financing, to satisfaction of the purchaser”. Purchaser
could not find financing that was satisfactory, let the time on the condition satisfaction run out, and argued that K was
dead. Vendor argued that purchaser didn’t try hard enough to advance the condition (want specific performance)
Issue: is the CP too subjective? is it just saying “this whole deal is subject to my subjective approval”?
Court:
- Court decided the parties intended the “combined standards test” with respect to the CP
o “Combined standards test”/ combine subj & obj = “Satisfactory to a reasonable person with all the
subjective but reasonable standards of the particular purchaser”
o i.e. the purchaser was to use his best efforts to obtain financing that was satisfactory to him, and he
was not to withhold his satisfaction unreasonably.
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Invoking the RP allows court to imply “best efforts” obligation to advance the CP, and no
unreasonableness wrt being satisfied
Held – K enforceable & purchaser here withheld his satisfaction unreasonably (so purchaser breached K)
More detail
 Lambert asks what this phrase could possibly mean – 4 things:
(1) Satisfactory to a reasonable person but on unknown grounds (unknown grounds)
 Can’t be realistic b/c not enough context given to judge what’s satisfactory
 K fails
(2) Satisfactory to a reasonable person in the general circumstances of the purchaser (pretty objective)
 Gives meaning to word satisfactory; retains commitment of purchaser to use his best efforts
 K won’t fail
(3) Satisfactory to a reasonable person w/all the subjective but reasonable attributes of the purchaser
 (probably a more accurate interpretation to the words the parties chose)
 Hybrid, between objective and subjective ends of the spectrum.
 K won’t fail
(4) Satisfactory to the particular purchaser w/all of his quirks and prejudices, but acting honestly (completely
subjective)
 Ruled out b/c it is similar to saying ‘subject to your approval’ – really just an offer b/c way
too much discretion
 K fails
 courts are really wanting to enforce these agreements (strong pattern of courts giving efficacy to commercial
contracts)—will try to interpret parties intentions wrt the CP as (2) or (3) [‘combination standard test’] so as to
uphold the K, but have to take the evidence available
o
KITSILANO ENTERPRISES LTD. V. G. & A. DEVELOPMENTS LTD. ET AL. (1990, BCSC)
Facts: bunch of stuff (review of all leases, Ks, plans, etc) said to be “at sole satisfaction of the purchaser” [stronger
language than Griffen]. [Vendor wants out of K, purchaser wants to keep it alive.] Time for fulfillment of conditions
runs out and purchaser tries to waive them. Vendor says no bc (1) time expired and (2) conditions were so subjective that
there was no intended K
Court: given the language in this K (& conduct of parties), the CP was too discretionary
 conditions were purely whimsical and completely subjective to Purchaser therefore could not be binding agrmt,
but an offer
 fell under 4th category from Griffen – “satisfactory to the particular purchaser w/all his quirks and prejudices,
but acting honestly”
But note: rather than using labels of different categories, can just use DISCRETION—test the condition by seeing
how much discretion it gives to beneficiary of the condition.
 use scale of subjective (sole discretion)…
 to objective (fulfillment completely in power of a 3 rd party); either end is unenforceable
 hybid (both subj & obj features, where one or more parties have obligation to perform, using reasonable
efforts)
NTD: so Kitsilano had a different interpretation of a similar CP—subjective so K failed (rather than finding enforceable
K and implying obligation & standard on purchaser and then finding purchaser in breach)
 “sole discretion” tends to be found too subjective
TAU HOLDINGS LTD. V. ALDERBRIDGE DEVELOPMENT CORP. (1991, BCCA)
Facts: CP said “purchaser shall have approved a no. of reports and obtained financing by a certain time”
Court: [recall if court can find there’s an obligation on one of the parties, and there’s some standard party can be held to,
then contract enforceable]
 given parties intentions, court interpret this CP as a hybrid: one party has to do something and there will be a
standard of duty to complete that obligation
o so, this CP means purchaser had obligation to consider the reports and attempt to get financing, but not
to act in an arbitrary manner in rejecting those things
Held: purchaser breached, vendor w/in rights to terminate and keep deposit
4. CONDITION REMOVAL

Removing conditions can mean waiving the condition or fulfilling the condition.
o Courts are strict about giving notice properly
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DALLAS PARK SHOPPING CENTRE LTD. V. BUY-LOW FOODS (2001, BCSC)
Facts: a condition of enforcing the lease was for landlord/Dallas to get construction financing; this CP had to be “waived
or satisfied” by a certain date; landlord gave notice that he “fulfilled this condition” and then went to enforce the lease
- But Dallas had not satisfied the CP – and so Buy Low elected to treat the agrmt as null and void.
- Dallas states that in saying “fulfilled the condition” it was actually affirming that they were waiving the subject
clause
Court: nope, can’t enforce the lease, bc failed to give notice in the required way: “satisfied” does not mean “waived”
Precision: the words are to be given literal meaning: Be careful.
F. WARRANTIES / REPRESENTATIONS

Remember that you can always argue a term is one or the other

Conditions/Terms: a statement of fact regarding a matter under the K, where there is special knowledge and the
statement induces the K (eg, price term; state of title term)
o Test: is the matter of such importance that the party would not have entered into the K unless
assured?... does breach deprive the party of substantially the whole benefit he expected to obtain
o Breach gives rise to: right to repudiation; damages; rescission at the discretion of the court

Warranties: a statement of opinion with respect to a matter under the contract that is collateral to the subject matter
of the K
o Breach gives rise to: damages
o Purchaser wants lots of warranties, vendor wants minimum
o Eg., environmental (no orders or assessments of prop); if corp is vendor, are they validly existing
(legal status), did the requisite shdr resol etc to sell (corporate status); if buying the co & not the land
directly, take the co’s liabilities, so want promise that there are no outstanding tax/workers comp/debt
liabilities; no unregistered easements, mortgages, etc.; if its commercial prop, are the leases all good?;
aboriginal claims?

Representations: verbal statements of fact that don’t make it into the contract. Statement of fact.
o Have to consider if it modifies the contract, if it is a contract itself, can it be proved, can it be enforced,
was it breached – etc.
o Solve this dilemma with “Entire agreement clause”:
o No representations and warranties beyond what is expressly stated in the agreement.
o [Note: some BC courts question whether this clause is enforceable in a standard form K… want to see
some evidence of parties meeting of minds]
Environmental Warranties
 Vendor is responsible for: (1) ground/dirt; (2) air; and (3) ground water (the worst, bc migrates)
 Purchaser will want lots of warranties here
 But note: BC Environ. Management Act—makes everyone who has ever touched the land liable for environ
issues (so Ministry of Environ can go after the person with the deepest pockets)
 So if Ministry goes after purchaser, purchaser can then sue previous owner if: (a) there is a warranty in the K
that survives; or (b) the Act says you can sue prior owner if you can show it wasn’t your doing but theirs
Indemnities
 Where uncertainties can’t be resolved by diligence/testing and warranties, often include indemnification clause:
 Eg. Vendor will indemnify purchaser for any loss relating to any Aboriginal claim that comes up
IV. FINANCING THE PURCHASE
A. MORTGAGES




Use your interest in land so as to borrow money
Mortgage: a grant or payment of land as security for a payment of a debt.
Mortgagee = lender
Mortgagor = borrower / person mortgaging the property
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

Foreclosure = borrower loses his interest in the mortgaged property and lender gets title
Dual Nature of Legal Mortgage:
o A legal interest in land / a conveyance of land—it actually vests legal title to the lender, subject to
borrower’s right of redemption [can register this interest; priority over creditors lower]
o Security for a debt (consequence: [contractual covenant] if I don’t repay, you keep my land/interest;
and [personal covenant] if that isn’t enough to cover the debt, I’ll still owe you more)
1. HISTORY/NATURE
(i) LAW/EQUITY
 Originally, lender took your right in the land (mortgages as an actual conveyance of land), and there was a
contractual agreement that says as soon as debt is repaid mortgagee gets land back (redeems the land).
 But now, under Torren system, its seen as a charge or lien on the land (although LTA creates some
ambiguity).
 Mortgage is an interest in land, can be registered at LTA, can be sold
 Redemption
o Under CL the very date the loan not repaid, lender takes title
o Equity saw this as too harsh: created a grace period (even though under the K their time is up, have a
“redemption period” to still repay and get land back)
o This right became recognized as an interest in land—“redemption right”.
o When you mortgage your property, all you have left is the right to redeem (take title back) if you repay
the debt
o You can sell this right to someone else—called a 2nd mortgage (equitable mortgage) [purchaser gets the
right to pay the 1st mortgage and thus foreclose / get the land (usually sell the land, pay of 1 st mortgager,
and take the remainder).. purchaser can register this right (it’s the only kind of equitable mortgage that
can be registered; shows up as another charge on the land]
o Redemption right can only be extinguished by :
 Lapse of time (our Limitation Act says 6 yrs)
 Foreclosure or court ordered sale of the property, or
 a sale of the right to redeem
(ii)



TORRENS SYSTEM ASSUPTIONS
In BC, LTA does not necessarily recognize the mtg as a transfer, rather a charge/lien against title.
Registering a mortgage does not change the registered title owner
A charge is something less than Fee Simple – so not a transfer of FS (but is 2nd best, it binds the interest of the FS
title holder—so lender thru mortgage can control the FS title).
2. LAND TITLE ACT s. 231





(1) Doesn’t matter if mortgage has language saying it conveys or transfers the land, the LTA says the mortgage acts
as a charge
However, (2) screws it up – says that regardless of what language is in mortgage (Form B), all the historical legal
and equitable right under law of mortgages is maintained for both parties
o But traditional legal and equitable conception: mortgage was a transfer of the land to the lender! Pure
craziness.
(3) makes it even worse:
o (a) says (1) and (2) don’t validate a mortgage that would be unenforceable (okay),
o (b) says (1) and (2) don’t change the law – but real problem is that they do change the law
o (c) says you can still put language in your mortgage that transfers title
Bottom line – there’s confusion (it seems the statute permits conveyance but won’t recognize it); but most lawyers
don’t care about it b/c the BC courts always see it as a charge (not a transfer)
but judges could decide differently!
 Why is this important? Someone could argue that the mortgage is a conveyance of the title and then the old owner
can’t grant other interests in the land, such as leases and subdivisions and it is the lender who can only do this
NORTH VANCOUVER V. CARLISLE (1922 BCCA)
 S. 231 LTA – a mortgage is a charge not a transfer, but you still get all of the remedies & rights as if it was.
o The LTA does not change the law of mortgages.
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
A mortgage passes legal title to the lender, subject to an equity of redemption in the borrower
Greg on Carlisle
 Case was a long time ago under a different Act – the Land Registry Act
 There was a mortgage that had words like “we convey land to the vendor” (words of transfer)
 Argument over whether a foreclosure action could be taken or not
 Court’s not very helpful – case demonstrates confusion rather than clarity
 Statute said no legal estate passes in a mortgage, but there was language in the mortgage that basically said
otherwise
 Nothing the statute prohibited the language
 Greg can’t remember what the outcome is….
B. ELEMENTS OF A MORTGAGE
1. LEGAL STATUTORY ELEMENTS OF MORTGAGE (ss. 224-31; 239)

“Conveyance” of land, as security for payment of a debt or other obligation (need not be money; in practice
mtg often used to secure obligations of partners to a partnership in a development project), but is subject to the
borrowers right of redemption.
o Legal mortgage vests the legal interest in the land in the lender, subject to the borrowers right of
redemption.
o Legal mortgage is the 1st mortgage on title.
o Even though the legal interest is not technically transferred to the lender, still use the concept of
redemption (i.e., get back full & complete title when borrower pays in full)
(i) LAND TITLE ACT ss. 224 to 231, 239
s. 224 LTA:
o “terms” includes covenants, conditions, representations, warranties, grants and assignments.
s. 225 LTA:
o Legal mortgages take form in two parts:
 Part One – Form B: contains basic information such as: the parties, the legal description of the
mortgaged land etc…this is basically a registration document.
 Part Two: The terms of the actual mortgage (covenant to pay, take care of property, pay tax, keep it
clean, etc. The terms can be: (s. 225(5)):
a) Prescribed: Default terms prescribed by S. 227 LTA that can be included into the mortgage by
stating in Part 1 that: “Part 2 of the mortgage consists of the set of standard mortgage terms
proscribed under s. 225(5)(a).”
b) Filed standard mortgage terms under s. 228 LTA: Approved by LTO and can be adopted by
stating in Part 1 that “Part 2 of the mortgage consists of the set of standard mortgage terms with
a reference to the filling number assigned by LTO under s. 225(8).”
c) Express Mortgage Terms: A set of mortgage terms that is expressly set out in Part 2 of the
mortgage, and attached to Part 1/Form B
SUMMARY Physical characteristics of mortgages
 In BC form of mortgages is governed by LTA, starting at s. 225
 It must contain 2 parts
o Part 1: Form B, a statutory form where you fill in the blanks to give a summary of the mortgage,
what’s the land, principal amount, interest rate term, repayment amounts
o Part 2: terms—i.e. the legal stuff like the promises, conditions and covenants.
 3 kinds of terms
 Express Terms: you take the form B and terms together and file it w/ LTO
 Standard Terms: most financial institutions use the same kind every time for
residential or commercial: LTA allows them to file one copy and give it a # and they
can then refer to it by that #
 Prescribed Terms: a regulation to the LTA contains standard prescribed terms—
which you can use by referring to them
o If you use them, LTA s. 229 requires you give a copy to the borrower so
they actually receive the K
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
They generally have standard terms, including
 Repayment covenant
 Charging language,
o That says this is security over the land—charging the land provided the
lender will release on payment and proved the land will be given back to
the borrower
o And a proviso that once debt is repaid we will release or discharge this
mortgage. ***These two things are fundamental: charging the land and
promising the discharge. Everything else is gravy.
Types of Legal Mortgages

Types of Legal Mortgages
o Conventional Mortgages:
Mortgages, which at most secure up to 75% of the value of the property; 25% down
(main Can. banks are prohibited from lending for more than 75% value)
o High Ratio Mortgages:
Mortgages that secure up to 95% of the value, and are insured by CHMC and GE insurance. [no
requirement to buy insurance for commercial property?]
o Collateral Mortgages:
Mortgages that are collateral to another obligation i.e. a mortgage granted to secure a promissory
note.
o Vendor Take Back Mortgages:
Mortgages granted by the actual vendor of a property who gives financing to the purchaser and
takes back a mortgage to secure the purchase price.
2. EQUITABLE MORTGAGE




An Equitable Mortgage (Equitable Mortgages) is not registrable in BC (but that is not the case elsewhere) with the
exception of a 2nd mortgage:
o A 2nd mortgage (which is the mortgage of the mortgagor’s right of redemption on previous mortgage) is
registered as a charge on title
An equitable mortgage creates a charge over property, but is not sufficient to pass a legal estate
o Only passes a beneficial interest in property.
o Can be enforced (same remedies as for legal are available); but priorities may be a problem bc can’t
register (except 2nd mortgage)… so other registered charges may defeat
[Why use it then? Sometimes its all you can get! Eg, something wrong with title of your land and you can’t get legal
mortgage]
Fundamental differences of equitable mortgage from legal mortgage:
o Not registered (except 2nd mortgages)
o Its not a conveyance: no transfer of estate
o Formed differently: legal mortgage is formed via a K; equitable may not be formal (see below 3 ways):
An equitable mortgage can arise in 3 ways:
1. Sell a future interest in the land.
o 2nd mortgage – mortgaging the right of redemption which is an equitable interest b/c mortgagor is
no longer the unencumbered owner of the land—the only thing they can give the 2nd mortgagee is
what they have left, which is the right to redeem the first one
2. By an instrument that is not sufficient to convey a legal estate.
o Ex. an agreement that “I promise to execute a legal mtg at a later time if I haven’t yet paid you
back”. Lender has an unsecured interest – not registered and no conveyance of land.
3. The deposit or giving to lender the document of a duplicate certificate of title. (orange doc)
o Dupe is evidence of who owner is and what status of title is. Can only be issued by registered
owner (on request).
o This has incredible power over our property b/c if it is issued nothing can happen to title
(LTOffice won’t register a transfer or mortgage, etc while its outstanding). So if it’s issued and
you lose it, you’re SCREWED.
o Giving the bank a dupe as security for a loan (in exchange for money) can be seen as the granting
of an equitable mortgage (but no presumption anymore: RBC v. Mesa—need some other indicia of
23

intent). The bank will put it in a safety deposit box and say pay up before you do anything. It
effectively freezes the title.
Every equitable mortgage can be enforced in the same way as a legal mortgage, so you can foreclose on it, the only
hitch being there’s a priority list and an equitable mortgagee is not secured. It’s exactly what happened in… Royal
Bank v. Mesa Estates
(i) LAND TITLE ACT ss. 33, 176, 189, 190 to 196
s. 33 LTA:
o An equitable mortgage created by deposit of duplicate certificate of title, or other instrument, is NOT
registerable.
s. 176 LTA: creates the dupe
o Upon written application the registrar will issue a duplicate certificate of title to the register owner in fee
simple, if there is no mortgage on title.
o States qualifications and information contained on the dup, and how it is to be delivered to the registered
fee simple owner
s. 195 LTA:
o
On an application to register a charge by way of mortgage or agreement for sale, the duplicate
indefeasible title, if any, must be surrendered to the registrar for cancellation.
ROYAL BANK OF CANADA V. MESA ESTATES LTD. (1985, BCCA)
FACTS:
 This was an appeal by a bank (from the dismissal of its application) for a declaration that DUPE given to it by a
property owner constituted equitable mortgage.
 The property owner had delivered duplicate certificates of title to the bank, as security for all obligations, present &
future, owed to the bank
 A contest of priorities subsequently arose between the bank (which claimed to hold an unregistered equitable
mortgage against the property) and two other banks which held judgments registered against title to the property and
which had commenced execution proceedings on their judgments.
HELD:
 Evidence failed to disclose an intention to create an equitable mortgage. Bank’s appeal dismissed.
ANALYSIS:
 Court accepts that intent of parties was that the documents would be held as security, but rejects argument that they
created an equitable mortgage
o A contract depositing documents as security doesn’t necessarily create a security against the land
described in the documents
 Bc there could have been 3 reasons why bank was holding these documents:
o As safekeeping (unlikely)
o As a negative covenant
 i.e. to support an agreement by Mesa to not encumber or dispose of the lands until Mesa’s
obligation to the bank is discharged or released, or
o As an equitable mortgage
 A charge against the land in favour of the bank as security for the performance of an
obligation to the bank
 Although the documentation delivered to the bank had the aura of a pledge, there were no clear words of pledge,
mortgage or charge contained therein.
 Neither were there any words of seizure and sale or of foreclosure.
 The amount of the mortgage debt wasn’t stated or ascertainable.
 There was no provision for the holder of the duplicate title documents to require production by the deliverer of a
registrable form of legal mortgage or charge, either on request or upon default.
 Furthermore, there was no evidence as to the intention of the parties in entering the lodgement agreement.
In the absence of any indicia of an intended mortgage, the Court refused to infer the objective of the lodgement of the
title documents had been to create an equitable mortgage.

“The substance of the agreement between the depositor and the bank must be determined from the documents and
the oral evidence, if any, subject as always to a strong presumption in favor of the documents when they are
clear.”…
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RATIO:
 In BC, there is NO presumption that the deposit of a duplicate certificate of tile creates an equitable
mortgage, the onus is on the mortgagor to prove otherwise, by looking at:
 Intentions of the parties.
 Documentation must be clear that property is intended to be security for a certain sum.
NORTH WEST TRUST CO. V. WEST (1989, ACA) – IN ALBERTA THE PRESUMPTION LIVES
FACTS:
 This was an appeal from a judgment holding that the appellant did not hold an equitable mortgage on the
respondents' lands.
 W and his company executed 3 separate mortgages in favour of the appellant (on 3 different properties)
 After the mortgages fall into arrears, so W and his wife obtained a personal loan (prom. Notes) from North West so
that they could pay off the co’s debt and bring the mortgages into good standing (otherwise North West wouldn’t
have renewed the mortgages)… and delivered to NW a duplicate certificate of title to a 4 th property with agreement:
o Agreement said that North West would hold the doc’s until all obligations under any agreement btwn
the parties were fulfilled (so pretty similar to Mesa)
 2 years later, North West registers a caveat based on the documents
 One year after that, W and his wife defaulted on their promissory notes.
 The issue was whether a lodgement of title agreement accompanying the deposit of a duplicate certificate of title
(borrowers invoked as showing contrary intention) displaced any presumption of an equitable mortgage arising from
that deposit. (trial judge found for borrowers)
ANALYSIS:
 The appeal was allowed—NW held an equitable mortgage.
 Presumption that the deposit of a certificate of title by way of security creates an equitable mortgage
 The trial judge erred in his conclusion that once the lodgement of title agreement entered into the picture, that alone
could be determinative of the issue.
 To determine if a contrary intent, the terms of the lodgement agreement as well as all other circumstances had to be
examined.
 Moreover, the intent to create security was clearly expressed in the words of the lodgement agreement.
RATIO:
 Alberta has retained the presumption that the deposit of a DCT creates an equitable mortgage; requires
significant contrary E to displace.
 Reaches opposite conclusion that Mesa on similar facts
 Can also distinguish Mesa based on:
o Here there was a fixed sum for the mortgage ascertainable in the documents
o Here there was other evidence of borrower’s intentions
3. COMMON ELEMENTS OF MORTGAGES
(i) REDEMPTION
 Right of Redemption: ability for the mortgagor to redeem property / regain legal title (by paying debt to
mortgagee)
 The common law imposes terms into the documents which do not appear in writing, they include:
o The equity of redemption
 every mort must be redeemable
 equity ensures this by making it void if not redeemable
o The requirement of redeemability: the redemption period
 See s.10 Interest Act
 See Knightsbridge
 Equity of redemption can’t be contracted out of (lender can’t require you to give up right to redeem)
 Right of redemption is so paramount that courts will not enforce a lenders power of sale without court order
o If a BC mortgage goes into default the lender must go before a court to enforce it’s mortgage in terms
of a forced sale of the property
 Details:
o Right of redemption is an interest in the land, and therefore it can be conveyed or mortgaged (2 nd
mortgage).
 Exercising:
25
o




Interest is created at the time of the mortgage, but cannot be exercised until contractual right of lender
expires / until term of loan expires???? (ie. Its not gonna get you out of your contract to have a
mortgage for a term of 5 years) [check on this]
o Unless you have an open mortgage (5 yr mortgage but can repay at any time)—then the right of
redemption is exercised whenever you pay the money
Clogging (see below):
o The courts will find any condition that interfered with the right of redemption to be invalid.
o The mortgage must be redeemable and the right of redemption cannot be illusionary, but just b/c
something is not redeemable for a long time does not make is illusionary or void (Knightsbride)
o Cannot place conditions on right to redeem, either you have it or you don’t.
o Equity says you can’t place a clog on the right of redemption: a penalty or some condition that makes
it more difficult to redeem
Can not contract out of right of redemption, but it can be limited (lost) by:
o Timeline:
 The absolute limit is 6 years, but in reality, it is normally 6 months
o Foreclosure
 Equitable remedy for mortgagee (lender)
o Transferring right of redemption to someone else
 2nd mortgage
o [Contractual power of sale to lender]
 Usually a term that says that if you default, I can sell the land and use the money to pay us
back…not valid in BC b/c lender can’t require you to contract out of your right of redemption.
Mortgagor (borrower):
o Ability: ability to redeem
o Equitable Right: right to redeem
o Control: period of redemption
Mortgagee (lender):
o Equitable Right: right to foreclose
o Control: period of redemption
KNIGHTSBRIDGE ESTATES TRUST LTD. v. BRYNE (1938, CA)
FACTS:
 An estate company borrowed a sum of £310,000 from an insurance company, and as security mortgaged to the
lenders property consisting of 75 houses, 8 shops and a block of flats.
 It was a term of the mortgage that the principal should be repaid by 80 half-yearly installments spread over a period
of 40 years (the term for repayment was suggested by the mortgagors)
 6 years into the mortgage, the mortgagors claimed that they were entitled to redeem the mortgaged property after the
expiration of six months' notice upon their paying to the lenders the principal, together with interest and costs…
ANALYSIS:
 Borrowers argued 2 things:
o (1) Since the mortgage postponed redemption until the end of 40 years, they were prevented from
redeeming the mortgage at any time upon proper payment of the principal and interest, and therefore
this provision was void because it was a clog on their right to redeem
o (2) Postponement clause rendered the mortgage irredeemable for an unreasonable length of time, and
so was unenforceable in equity
HELD: right of redemption not made illusory in this case; and postponement not oppressive
o This isn’t a case where the borrower got an oppressive bargain b/c it was at the mercy of an unscrupulous lender
– borrower got the long-term installment deal it wanted, at a low interest rate
Court explains distinction between contractual right of redemption, and equitable right of redemption:
o A postponement of the contractual right of redemption is NOT properly described as a clog on the
equity of redemption: it’s a K regarding the right to redeem (court will only interfere here (in contract)
if oppressive or unconscionable (doesn’t have to be a “reasonable” period: courts don’t want to
interfere with K too much)—when oppressive, the contractual right of redemption becomes illusory
o if the contractual right of redemption is illusory, equity will grant relief by allowing redemption (this
too would be a clog on the equity of redemption)
 EX of illusory redemption – where in a leasehold mortgage of 20 years, the right to redeem
only kicks in 6 weeks before the expiration of the lease (the redemption of a leasehold
26
mortgage is postponed until the term of the lease has practically expired, the right of
redemption becomes illusory.)
 Length of postponement of redemption right (40 years) could fall under this category, but
doesn’t here
o Note: Lender is also prohibited from hampering redemption after the contractual date for redemption
has passed (this would also be a clog on the equity of redemption)
Umbach: Here they didn’t strike it down b/c they thought the commercial parties were sophisticated enough to get into it
 But it might be different between bank and a home owner
o No rule in equity that when period of postponement is lengthy it’s just void – have to show disparity of
bargaining power or something else that’s inequitable.
(ii) COLLATERAL ADVANTAGE
 Lender can’t tie borrower’s redemption right to some other condition (something above & beyond repay with
interest) e.g., CIBC can’t force you to buy RRSPs in order to exercise your redemption
 Collateral advantage is acceptable as long as:
o Advantage is not unfair or unconscionable
o Not a penalty, clog on redemption or inconsistent with mortgagors right of redemption.
 Example:
o Participation interest in businesses in addition to interest collected on loan, and other bonuses bank
may be able to secure
o
o
A collateral advantage is ok in a mortgage:
Petro Canada example:

M has borrowed money fr PC. 10 year term.

In her mortgage she had to promise that she would buy all products sold in her service station from PC.

The business does well and she is able to pay off the entire debt and she realizes that she is being gouged by PC
for her products

It is not illegal for these collateral stipulations to be enforced even after the money has been repaid
(iii) CLOGS ON EQUITY
 Equity says you can’t clog the right of redemption:
o You can’t prevent borrower from eventually getting the property back
o The mortgage must be redeemable and the right of redemption cannot be illusionary, but just b/c
according to the term of the K its not redeemable for a long time, does not make is illusionary or
void—must be oppressive or unconscionable (Knightsbridge)
o Cannot place conditions on right to redeem, either you have it or you don’t.
o
Examples:

Where lender’s allowed to take a right of first refusal on property – not generally seen as clog on redemption (just a
right to match an offer)

Things that are clogs include: “options to purchase at any time during mortgage” (directly enforceable, so it is a
clog—exercising the right would make it impossible for borrower to redeem)

If the option is done separately from the mortgage and at a diff time then it is ok however

It has to be contemporaneous with the mort to be void
4. IMPLIED COVENANTS


Equity implies right of redemption and right to foreclosure regardless of what contract states.
Covenants may also be implied into a mortgage by way of the Land Transfer Form Act.
o If a mortgage is made pursuant to the LTFA, short standard phrases in the mortgage may mean a
whole lot more, so be sure to check.
(i) LAND TRANSFER FORM ACT – PART 3
 Land Transfer Form Act – deals with transfers, leases and mtgs of land.
o Gives drafters the ability to refer to a short phrase and have that short phrase mean much more.
o Mortgage must expressly provide that it is made under the LTFA in order for it to apply (s.9).
o Practical tip: make sure you know the long form if you make mortgage subject to this act!
 s. 9 LTFA:
o If a mortgage expressly provides that it is made under the LTFA, any short form phrases in Column 1
of Schedule 6, automatically implies the corresponding wording in Column 2 of Schedule 6
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(ii) LAND TITLE ACT – s.225
 Section that determines that the mortgage has to have 2 parts (Part 1 is the standard form, and Part 2 contains all of
the terms of the mortgage)
 If you look through the section there’s specific guidance on what has to be in the mortgage
(iii) POWER OF SALE – FORECLOSURE (we didn’t cover in class)
 Power of sale (foreclosure) is another equitable implied or express term in K (other then right of redemption).
o If the mortgagor (borrower) goes into default, the mortgagee (lender) can foreclose on the property and
sell it in order to re-pay debt/obligation owed to it by the mortgagor.
o Result of foreclosure is that property is transferred to lender free of claims (“foreclosing down the
title”.. see below).
o However, in BC this power of sale is tempered by borrowers right of redemption
 BC hold that even tho there’s a right to sell we won’t let lenders exercise it until we’ve gone
through redemption period
 Procedure:
o Keep in mind dual nature of mtg – conveyance of land and a security for debt; can’t just think of it as
debt.
o Every mtg has clause that says: in default lender has right to demand full repayment immediately. So
this is first thing that banks do once the mortgagor is in default.
o Next step is to go to court under r.50 under Supreme Court rules.
 Court process is 2 pronged commenced simultaneously:
 Action starts with petition to enforce the conveyance of land nature of mtg (we want
the dirt)
 Also issue a writ and statement of claim to enforce the covenant (personal action:
you promised promised to pay).
o After the mortgagee files a petition, everyone who has interest in the land gets notice of court date.
o In court (re: petition), lender present mtg in default and seek an Order NISI:
 Declares the mtg as valid / debt in default,
 State what debt is / an accounting (how much has been paid, whats the running interest, etc),
 Also starts the redemption period. Borrower has what ever amount of time court has granted
to try and save the property (i.e. sell property or secure funding for repayment).
 [Occasionally, court will here grant an order for sale of property (this means someone can
contact a real estate broker to engage the sale process; will happen if mtg is so large in
comparison to true value, then don’t to wait to get value of that property). If so, stop here.]
o
Once redemption period expires, lender goes back to court to seek foreclosure, has two options:

Sell land
 If they seek court-ordered sale, they have to bring back every offer to court and
court decides whether to sell. Proceeds go to pay debtor, any extra goes back to
borrower. At this point lender has fulfilled the petition. If there is a deficiency,
personal covenant of borrower remains outstanding—lender still has a personal
judgment against borrower.
 Court may “foreclose down” all the charges on title to make it more attractive to
purchaser
 Take possession land (Order Absolute)
 If lender decides instead to take land, then true foreclosure and borrower takes
true ownership of the land.
 Court “forecloses down” all the charges or encumbrances below the lender
 Property Law Act s.32—taking land ends right to go after borrower for any
further deficiency in the loan (can’t enforce personal covenant).
o
Foreclosure process is entirely a process of equity and thus subject entirely to discretion of the courts.
C. STATUTORY PROTECTION
1. PROVINCIAL
(i) MORTGAGE BROKERS ACT PART 2
 Mortgage broker: arrange & grant mortgages—regulated provincially
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

The Act: generally concerned with licensing education and management of mtg brokers. Minimum standards MB’s
need to maintain in terms of education/qualification.
Part II concerns how brokers deal with public.
o Sets out a number of disclosure requirements.
o (s. 16) Have to disclose true and hidden costs of loan, so that mortgagor (borrower) is aware of all costs
involved:
 Fees that need to be paid (i.e. to lawyers or other consultants), interest etc
 Failure to disclose does not make the mortgage void or unenforcable
o Statute imposes a cooling off period (borrower may (no later than 48 hours after receiving disclosure
statement or signing mtg) rescind the mtg). 48 hours to rescind.
(ii) BUISNESS PRACTICES AND CONSUMER PROTECTION ACT PART 5 – hinted on exam?
 s. 8: Unconscionable Acts—if the lender acts unconscionably then court can intervene (imposes a duty on
lenders to act in a fair way).
o Unconscionable act can occur before, during or after the consumer TX
o If alleged unconscionable act, onus to argue the act is not unconscionable is on the ‘supplier’/lender
(reversing common law).
o Indicia of unconscionabilty: (must consider surrounding circumstances): undue pressure, purchaser has
some inability or incapacity to protect their interests, no reasonable probability of full payment of the
monthly payments at the time mortgage is entered into.
 Power of court:
o Set aside transaction
o Re-account between borrower and lender
o Order re-payment of excess from the lender to consumer
o Re-visit the transaction
o Suspend the rights and obligations of the parties to the mortgage transaction. ing, reverse payments or
suspend elements of the transaction (basically whatever the court deems equitable).
2. FEDERAL
 Section 10 of the Interest Act –
[Note: If there is a pre-payment penalty clause it is a closed mortgage; if no penalty it is open]
o If an individual has a closed mort that goes beyond 5 years, any time after 5 years this individual can
tender the outstanding balance plus three months interest “in lieu of notice” (ie. without notice, you
can just send a cheque, include an extra three months of interest and that is that)
o If the bank does not accept and discharge mort from this time onward the bank cannot charge interest so of course they will accept
o the intention is to allow borrowers to have a chance, at least once every 5 years to pay off their mort.
o If the borrower renews, it re-sets the s.10 clock (see Potash)
o This s.10 relief for borrower doesn’t apply to mortgage granted by a corp.
 Neat: the BCBCA allow corps. to issue non-redemable mort.’s called debentured
(i) INTEREST ACT s.10
 10(1) If mortgage is for more than 5 yrs, after the expiry of 5 years the mortgagor can completely repay the
mortgage without penalty (with the exception of 3 months interest in lieu of notice but case law suggests that 3
months interest due regardless of notice). (2) makes it clear that this relief is not applicable to mortgages given by a
company or corporation.
o Reason is lender wants anticipated time to earn interest, if you were able to get 2 years early they
loose 2 years worth of income and corp. still have to pay their providers of the money (usually a
bond to be repaid).
ROYAL TRUST CO. V. POTASH (1986, SCC)
FACTS:
 The respondent mortgagor (Potash) mortgaged 2 properties in favour of the appellant mortgagee.
 Each mortgage had an original term of slightly more than 5 years and each was renewed for an additional term of 13
months; The mortgages were renewed a 2nd time for a further 5-year term.
 In each case, the renewals stipulated that all terms contained in the original mortgage remained in effect unless
amended and that the "original mortgage" was "deemed" to be dated as of the maturity of the existing loan.
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
The renewals also gave the mortgagor the right to prepay 10% of principal annually but no further right of
prepayment.
 Well before the maturity dates of the second renewals, the mortgagor, relying on s. 10(1) of the Interest Act, tried to
tender the principal balance owing on each mortgage plus 3 months' interest.
 The mortgagee refused to discharge the mortgages.
 An application by the mortgagor to the Manitoba Court of Queen's Bench for an order discharging the mortgage was
dismissed but the Manitoba Court of Appeal allowed the mortgagor's appeal from that decision
 The mortgagee appealed to the Supreme Court of Canada.
ISSUE:
 Does a mortgage renewal re-start the clock for s.10 (in determining if mortgage is for more than 5 yrs)? yes
 Can a borrower contract out of the s.10 rights? no
ANALYSIS:
 The purpose of s. 10(1) was to ensure that mortgagors had the right to pay off their mortgages at the end of each 5year period; They could not be "locked in" for more than 5 years. Where the original term of the mortgage exceeds 5
years, the mortgagor has the right to pay it off at the end of 5 years.
 Where the original term of the mortgage is 5 years or less and the term is extended beyond the 5-year period (the
"date" of the mortgage remaining unchanged), the mortgagor has the right to pay it off at the time of renewal.
 BUT, where a mortgagor elects not to exercise his right under s. 10(1) but instead enters into a renewal agreement,
the term is reset and previous years do not count towards the 5 year repayment right
 On the facts of this case, therefore, the mortgagor was not entitled to pay off his mortgages until the maturity of the
second renewals.
 Rule: borrower must be allowed to repay once every 5 years
 Rule: Not possible to contract out of the s.10 right, for policy reasons
(ii) INTEREST ACT ss.6-9
s.6 - if mortgage contains any of the 3 listed repayment plans, then mtg must disclose the principal AND the actual amt
of interest you will pay, otherwise you won’t receive any interest:
Whenever mtg as a sinking fund plan, blended plan, or stipulated repayment plan, no interest whatever shall be
chargeable, payable or recoverable on any part of the principal money advanced, unless the mortgage or hypothec
contains a statement showing the amount of the principal money and the rate of interest chargeable on that money,
calculated yearly or half-yearly, not in advance.
o Sinking Fund: no one does this
o Blended: almost every mortgage uses this, except in the way the act means. A lot of case law has tried
to figure out what this means – payment on principal and interests are blended - case law that says
this is not what blended is (but they never say what it is). Umbach says best bet is that if it looks like it
is then it is.
o stipulated repayments: a schedule and they tell you when principal applies and when interest applies
(not common)
 Statute says if you are one of the three, you must show borrower what the actual rate being charged will be. Has to
be some statement in mtg that reconciles fact that if you calculate interest in advance you pay more.
o In practice this statement is easy, put interest calculated yearly or half-yearly in a box that’s right on
the mtg. Idea is that it allows borrower to figure out on an annual basis what their actual interest rate
is.
s. 7: if s.6 applies, can’t charge any greater rate than as per s.6 (can’t have a secret way of getting more):
Whenever the rate of interest shown in the statement mentioned in section 6 is less than the rate of interest that would be
chargeable by virtue of any other provision, no greater rate of interest shall be charged than the rate shown in the
statement.
s. 8. interest after late payment/default/arrears can’t be more than interest before late payment (can’t have a fine,
charge, etc that would have effect of raising interest rate)
 Unique to Canada, huge problem for foreign lenders. US for example, often uses default rate (i.e. rate charged in
the event of default).
 Note: s.6, 7, 8 all apply to corps
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(1) No fine, penalty or rate of interest can be charged on any arrears of principal or interest secured by mortgage on real
property that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money
not in arrears.
(2) Nothing in this section has the effect of prohibiting a contract for the payment of interest on arrears of interest or
principal at any rate not greater than the rate payable on principal money not in arrears.
s.9 – if breach s. 6, 7, 8, court can order repayment to borrower of any overcharge
All of the limitations right restrictions in 6,7,8 – if any money paid to lender in contravention of these, can be recovered
back or deducted from next payments due.
Many examples where tried to get around s.8:
RE WEIRDALE INVESTMENTS AND CIBC (1981, OHC)
FACTS:
 This was an application by the mortgagor for a determination of the amount of interest owing by it to the respondent
bank under a certain mortgage and for an order discharging the mortgage.
 issue was whether a provision in the mortgage which provided that "if principal was repayed before maturity date,
interest is waived (0 interest)” was in contravention of subsection 8(1) of the Interest Act.
 The applicant argued that the interest payable on maturity (10%) had the effect of increasing the interest from 0% to
10% (triggered by default), contrary to subsection 8(1) of the Interest Act.
 The respondent argued that the provision conferred a benefit to induce prompt payment of the principal and not a
penalty since the same rate of interest applied to both the moneys not in arrears and the moneys in arrears, i.e.,
interest accrued and was owing up to the due date whereupon if the principal was promptly paid a collateral
advantage was conferred on the mortgagor by an agreement to waive interest.
HOLDING:
 The application was allowed (borrower wins and got off paying no interest)
 The provision was therefore void and unenforceable as it contravened subsection 8(1) of the Interest Act.
ANAYLSIS:
 If principal paid on due date, then no interest would be payable
 Issue was that payment was not made on March 30, and so lenders wanted to charge 10%
 Borrower argued it violated s.8 b/c it provided a new interest rate in event of default
 Court looked at substance of deal, and found it violated s.8, b/c it increased the interest rate due to default
 Shows court looks at more than just the structure of the deal
RAINTREE FINANCIAL LTD. V. WILLIAM ROBERT ALEXANDER BELL AND JEFFERSON FINANCIAL
FACTS:
 The issue was the enforceability of a term in a mortgage which set interest at a rate of 18% per annum until one
week prior to maturity, and thereafter ballooned to 24%.
 The mortgage was not redeemed and was in default, so the lender here is claiming interest of 24% on the arrears
 Borrower argues that this provision violates s.8 of the Interest Act
 Some evidence that drafters of this clause in mortgage were deliberately & cleverly trying to circumvent s.8…
TRIAL: court agrees this is contra s.8
 The impugned clause had the effect of increasing the interest charge on the arrears amount, above the rate of
interest payable on the principle that wasn’t in arrears
o J thought that increase in the interest rate was basically to compensate the lender for the hassle of
having to try to collect the overdue mortgage, which seems reasonable, but problem for them is that
Parliament has forbidden this in s.8
COURT OF APPEAL: not contra s.8; the dual rate is enforceable
 It was not the default that triggered the higher rate—
 what matters is what triggered the higher rate: if default / lateness, or maturity, trigger the higher rate (such that the
amount in arrears has higher interest than the amount not in arrears) then VIOLATE s.8
 In this case, clause didn’t technically offend the statute b/c it was just 2 separate terms of the K….
 intentions of the drafters to circumvent s.8 irrelevant
 so by increasing the interest rate before default, the lender gets to avoid s.8?
Another case is TD Trust Co v. Guiness: interest rate inc from 16.5% to 25% after maturity
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Where do you draw the line in deciding whether an interest provision violates s.8?
The line should be drawn btwn interest provisions which are intended to extract a higher rate of interest in
the event of default, and interest provisions which have a legitimate commercial purpose
It will be the function of the court to decide what is the true intent of such provisions
i.e. are there legitimate reasons for charging the higher interest rate after a certain point in time or
triggering event, or is it really just a way to punish the borrower for not paying on time]
(iii) CRIMINAL CODE s.347
 Criminal rate defined as anything that exceeds 60%
 S.347 creates 2 offences:
o (a) Crime to enter into agreement to receive interest at a criminal rate (to charge it)
o (b) Crime to receive payment of a criminal interest rate (to collect it)
o important distinction in the cases
Criminal Interest Rate
347. (1) Notwithstanding any Act of Parliament, every one who
Criminal
interest rate
(a) enters into an agreement or arrangement to receive interest at a criminal rate, or
(b) receives a payment or partial payment of interest at a criminal rate,
is guilty of
(c) an indictable offence and is liable to imprisonment for a term not exceeding 5 years, or
(d) an offence punishable on summary conviction and is liable to a fine not exceeding $25,000 or to imprisonment for a term
not exceeding 6 months or to both.
Definitions
“interest" means (v.broad) any charge on “credit advanced”
“credit advanced” (v.broad) all money or services advanced or to be advanced by lender
“criminal rate” = an effective annual rate calculated in accordance with GAAP that is 60% or more
“effective” = effectively annualize the interest rate – Greg’s e.g., if loan $100 to sis at 5% and sum is due in a day, then the
interest rate once annualized is (5% x 365 days) well over 60%
Presumption


(3) Where a person receives a payment or partial payment of interest at a criminal rate, he shall, in the absence of evidence to
the contrary, be deemed to have knowledge of the nature of the payment and that it was received at a criminal rate.
Formula for determining criminal rate: (aggregate of credit advanced/time frame to repay) x aggregate
interest
CL has been mixed – courts have come out with 4 possible outcomes:
o In some circumstances lender can’t collect any money
o Lender can receive principal sum, but no additional interest
o Lender can recover principal sum and interest at a specified rate by court
o Lender gets principal and interest right up to the 60% max
GARLAND V. CONSUMERS’ GAS CO. (1998, SCC)
FACTS:
 Consumers’ Gas billed its customers monthly, and customers who did not pay by the due date incurred a one time
penalties of 5% of the unpaid charges—so for that one day in arrears, charged effective amount of (5% x 365)…
way beyond crim rate
 Garland brought a class action for restitution of late payment penalties paid by Consumers’ customers since 1981.
ANALYSIS: not criminal
 A penalty incurred, pursuant to the terms of a standing arrangement between parties, for the deferral of payment of a
specified amount of money owing for goods, services or benefits, was an “interest” charge within the meaning of
s.347.
 Should construe the 1st offence s.347(a) (to charge) narrowly and at time of the transaction
32


Should construe the 2nd offence s.347(b) (to collect) broadly and at time payment received
347(1)(a):
o Whether an arrangement for credit violates 347(1)(a) is determined at the time the TX is entered into
o If the arrangement permits the payment of interest at a criminal rate, but does not require it, there is no
violation of 347(1)(a), though there may be a violation of 347(1)(b)
APPLY: 347(1)(a) is NOT violated here b/c the arrangement between Consumers’ and its customers did not, on its face,
require the payment of a criminal interest rate.
 i.e. the 5% only becomes more than 60% depending on how long you take to pay your bill
 347(1)(b):
o this provision should be broadly construed, and whether an interest payment violates the provision is
determined as of the time the payment is received
o Pursuant to Nelson, there is no violation of 347(1)(b) where a payment of interest at a criminal rate
arises from a voluntary act of the borrower, that is an act wholly w/in the control of the borrower and
not compelled by the lender or by the occurrence of a determining event set out in the agreement
APPLY: 347(1)(b) not violated here b/c it was voluntary: no demand for payment to be one day late! therefore not a
criminal interest rate.
NELSON V. C.T.C. MORTGAGE CORPORATION (1984, BCCA)
FACTS:
 If loan was paid on agreed date, it would have been legal rate (52% per annum)
 But there was a clause saying they could repay early (interest jumped to 84%)
ANALYSIS:
 Point of s.347 is to make illegal MANDATORY payments of more than 60%
 Not mandatory here—voluntary exercise of an option
D. MORTGAGE FUNDING PROCESS
Didn’t talk about
E. UNDERTAKINGS/ COMMITMENTS
See below, under COMPLETION / CLOSING
F. ENFORCEMENT
(i) ASSIGNMENT OF MORTGAGE
Assignment of Debt (we are really talking about assignment of mortgages)
 What if the debtor wants to transfer it’s debt / mortgage with the property they are transferring?
 Under the original common law – you could not assign your debt to some one else
 But Equity came along with a new set of rules … whereby a debtor could assign their debt and those rules are now
in our Law and Equity Act – s. 36
o When a property owner transfers property to another owner and there is a mort. outstanding, what that
guy is really transferring is the right to redeem
o Note: at common law – the original owner still had a personal convenant to repay the debt even though
that person had no interest in the transferred land
o So in BC – we address this (wrt residential mortgages) in ss.23 &24 the Property Law Act
Law and Equity Act
S. 36 LEA:
o Assignment must be a) absolute (not partial), b) in writing, c) there must be notice to the debtor of the
assignment, and d) assignment must be made subject to existing “equities” between the parties (whatever
the status of your accounts are, that status moves with the assignment).
Land Title Act
S. 209 LTA: [also codifies permissibility of assigning debt]
o Transfer of a mortgage must be in a prescribed form and that transfer effectively transfers the benefit of
collateral securities and the right to demand and sue and enforce all of the covenants and its rights.
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PROPERTY LAW ACT ss.21-24 [**know for exam] – doesn’t just apply to assigned mortgages
Property Law Act [gives protection to borrowers]
s. 21 PLA: [different than the release in s.24: if you don’t get the release via s.24, this section helps:]
o If you transfer a fee simple with a mortgage on it, there is an implied covenant that the transferee/new
purchaser will make the payments under the mortgage and indemnify the transferor/seller for all the
payments and liabilities that are under the mortgage. Does allow for K out of this implied indemnity.
s. 22 PLA:
o Current registered owner in FS that is subject to mtg & is liable for all obligations under the mtg. (when I
transfer land subject to mortgage to you, bank immediately has your covenant that you are liable for
payment of the mortgage).
s. 23 PLA:
o If person transfers land subject to a residential mtg, that person ceases to be liable on the personal covenant
aspect of the mortgage at the end of the term unless lender gives notice to this former owner w/n three mo
that they will be making demand for payment. (so if 5 year term and no notice 3 mo before that term
expires then scott free even if new owner/assignee screws up).
s. 24 PLA:
o If property subject to residential mtg is transferred and lender approves (in writing), then original owner is
released from this personal covenant. Generally what happens is that bank gets new owner to sign
assumption agreement – new owner assumes all obligations.
s. 31 PLA:
o Does away with the old CL doctrine of consolidation – which said that if one lender has several loans to
same debtor, if default then lendor can consolidate those loans are demand repayment of them all. You
can now pay off just one of your mortgages with the same mortgagee, as opposed to previously where you
had to get a discharge for all of them bc consolidated. [Can contract out of this benefit—and Bank wants to
force your payments & consolidate.. you prolly lack bargaining power with Bank!]
s. 32 PLA:
o If lendor takes an “order absolute” / foreclosure, then lender has no further rights to enforce the personal
covenant in the mortgage.
(ii) NOVATION – [may not be on exam]
Another way for a borrower to get out of liability under a mortgagee = NOVATION
 A new contract replacing an old contract … so the old parties are released from obligations under the original since
it ceases to exist
 This issue often comes into play where terms of mtg are amended or mtg is renewed.
 3 criteria for finding novation:
o New debtor must assume complete liability of the debt
o Creditor must accept new debtor as a principle debtor, not just as a guarantor
o The creditor must accept the new contract in full substitution of the old one
 These can be made out by implication …
 How is this different from “assignment of mortgage”?
o It is different than assignment (where new purchaser wants to ‘buy my mort.’) because this is the creation
of a whole new contract … it’s similar, says Greg, but different)
o In assignment – the Bank is consenting to a change in the name of the debtor
o In novation – brand new terms and conditions … even if same/similar … it is a new contract
PROSPECT MORTGAGE INVESTMENT CORP. V. VAN-5 DEVELOPMENTS LTD. (1985, BCCA)
FACTS:
 Van-5 granted mtg to Prospect [Prospect the lender], directors of Van-5 gave personal covenants to insure
repayment of loan.
 Van-5 then sells land to X who modifies the mortgage. [the modification changed some dates and added some
parties, but basically everything else stayed the same]
 X then sells to Y and mtg immediately goes into default. [land sold but doesn’t get Prospect enough money to cover
the mortgage]
 Prospect sues Y and directors of Van-5 who were personal covenantors, want them to cover the deficiency.
 (1) Novation arg: Directors claimed that as transfers happened, mtg was modified, and this was novation because
not aware of modification and did not consent to it [me: why does consent of directors / initial borrowers matter?
Criteria above talk about consent of creditor/lender. Maybe its just part of the evidence.]
 (2) And their other argument was that they were only guarantors of the mortgage and not indemnitors
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
There are 2 types of personal covenants: guarantor & indemnitor/covenantor—guarantor is not a primary debtor
(secondary); is released from their personal covenant unless consent (indemnitor would be liable regardless)
 under the terms of the mort. Prospect could go after the borrower or the covenators exclusively (they could go after
the cove’ors first if they wanted to).
HELD:
Re (2): As a finding of fact, court says the Directors were primary debtors … so the argument that they s/d be released
b/c didn’t agree to mort. fails.
Re (1): Novation
Court looks at criteria for novation … see three step test above … and says the evidence that we have supports the
possibility novation, and so it should go back to trial
 Not decided at CA because novation is a matter of fact and can only be decided by the TOF
 Only guidance provided to trial is to look at the lang. of the new contract
 This is all we need to know … i.e. the test for Novation …
 Note: Financing agreements are modified lots … all the time … but one of the things that is rarely considered is
whether the modification might constitute a novation … this is dangerous … b/c if novation is found, the parties that
the bank thinks it has bound in by covenants … could be released.
(iii) PRIORITIES – not on exam
Recall: legal mortgage is registered at LTA; equitable mortgage is not (exception: 2 nd mortgage)
(a) EQUITY
 Historically under equity,1st lender got priority. Rules of notice developed bc subsequent lenders may not know
about this 1st lender.
(b) Land Title Act
 But under out LT system priority is determined by date and time of registration (not date and time of making the
agreement) [and registration is notice to world] :
 1st registered doc takes priority (or, 1st “pending reg” doc) s.20 LTA
o If the two instruments both have the SAME DATE AND TIME on them, it goes by serial number … it
is also seen as an indication of time and date.
3 exceptions to this general registration rule re: priority for mortgages:
o (1) contrary intention in the doc (eg, state in the mortgage that you give priority to…)
o (2) priority agreement between lenders that rearranges priorities (e.g., big bank who comes along later
will insist on priority over the prior mezzanine lender)—
o LTO will list that there is a priority agreement but will not itself rearrange the priorities, so if acting for
lender key to do a title search and see if any priority K
o (3) fraud—if registration occurred through a fraud (eg, someone else signs for you), the courts won’t
allow this fraudulent 1st registered charge to defeat the bona fide charge
 Another statute that affects mortgage priorities: S. 28 of the Property Law Act
 Responds to an issue left open by CL: where lender is making a 2nd advance of money, this may not be able to take
priority over a subsequent lender
o S. 28 of the Property Law Act: 1st mortgagee gets priority on all advances only if:
 (1) If the 2nd mortgagee agrees to it, usually in the form of a priority agreement;
 (2) If the 1st lender has no choice but to make the advance (mortgage obligates the lender
to make the second advance—rare for bank to make this commitment). Policy behind this
is that it’s been registered and everyone should be able to understand it; or
 (3) If 2nd mortgage isn’t registered; OR (goes further, back to equitable notice principle)
1st mortgagee doesn’t have notice of the 2nd mortgage. Reason is that 1st mortgage can’t
find out about this, so he should get priority.
 Greg: so if a 2nd lender doesn’t register its mortgage (eg, equitable mortgage) but sends a
letter to the 1st mortgagee, its possible that any further advances by 1 st morgagee will not
take priority over the 2nd lender
(c) OTHER STATUTES
 liens under the Builder’s Lien Act, the Court Order Enforcement Act, Employment Standards Act, Workers Comp,
strata, bankruptcy, etc…some of these statutes can take super-priority liens which are created by statute and can skip
ahead of even registered mortgages (or ahead of further advances):
 Rattles off quickly – he just wants us to know they exist and roughly what they are:
o Builders Lien Act – permits unpaid workers on your property to reg lien against prop for unpaid
amounts … the act grants priority of reg’ed lien over any advances from lender that come after the lien
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
RBC has a mort. over my prop – I have contractor do some work and I stiff him and he reg’es
a lein … if the RBC gives me any money on the mort., the money they give me after the lien
is subject to the leIn
 In practice bank will 1st do a lien check – they won’t give you the money until lien is dealt
with
o Court Order Enforcement Act
 permits reg of court judgment against any or all of the land of the defendant
 effect: land can’t be dealt with until judgment is;
 court can also permit judgment creditor to force a sale of the land (all judgment creditors take
equal share in proceeds)—see Hankin case below
o The following Provincial statutes provide for super priority liens for unpaid fees assessments payments
etc if not made and these get priority over even reg mort’s
 ESA – liens over lands of employer for unpaid wages
 WCA – for unpaid WCB assessments
 The Corp. Cap. Tax Act – for unpaid taxes
 The Strata Property Act – for unpaid strata fees
 if don’t pay condo fees, can file a lien that takes priority over registered mtgs.
 Family Relations Act – a super-priority claim for spousal interests in family assets
(d) JUDGMENTS
HANKIN FURNITURE INDUSTRIES V. GILL (1980, BCSC) – CONTEST OF PRIORITIES
FACTS:
 RBC had a mortgage, registered after the 1st judgment; other judgments registered after mortgage
 Forced sale of property by judgment creditors (JC)
 Court Order Enforcement Act says that when a JC forces a sale the proceeds are divided equally between them.
 JCs argued that the judgment holders should take proceeds 1st (pro rata) and THEN RBC can have the rest
ANALYSIS:
 Judgment is only a lien once registered
 The other judgments were only registered after RBC
 So, order of priority: (1) 1st judgment; (2) RBC; (3) other judgments (pro rata)
(iv) BANKRPUTCY & INSOLVENCY – didn’t talk about in class
SUM ON Mortgage PRIORITIES—ASK:
(1) Date & time of registration
(2) Is there priority agreement
(3) Is there a statutory provision that affects
________________________________________________________________________________________________
Remedies for DEFAULTS (some of this fromCCH)
Anticipatory Breach
One side informs the other prior to the closing date that he/she will not complete the TX
Actual Breach
One side does not appear on the closing date or is not ready to close the TX
(1) VENDOR response to breach by purchaser
(a) Cancel agreement & keep deposit (unless purchaser can show it’s a penalty); or
(b) Cancel agreement, keep deposit and sue immediately for damages (if deposit is not bar on further damages)
[may get rescission for certain types of breaches]; or
(c) Enforce the agreement, and bring an action for specific performance either at once or after the due date (can
include claim for damages)
If anticipatory breach, decide on remedy quickly!
 If purchaser believes K is still open, they may change their mind & be ready to close when vendor is not (and so
be able to claim damages for vendor’s breach of K)
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Vendor’s lien
An unpaid vendor who has transferred title to land may be entitled to an equitable lien and charge upon the property to
secure the unpaid balance of the purchase price
 Vendor wishing to enforce this lien must obtain an order declaring its existence (and, ultimately, an order for
the sale of property to satisfy the lien)
 Vendor can register this lien against title, and it will follow title if purchaser transfers it—an exception to rule
that LTA doesn’t register equitable interests
 (lien is lost when a subsequent purchaser w/out notice acquires title; so registration is key)
Gordon v. Hipwell (1952, BCCA)
FACTS: Purchaser and vendor enter agreement where purchaser will pay 24 diamonds for property (tres shady)
 Title transfers to purchaser; but RCMP seize the diamonds so vendor exercises its lien and registers caveat
 Caveat expires after certain period of time (vendors should have started action for CPL)
 The registrar at the LTO kicks off the caveat after expiration
 Rogue purchaser transfers it away in that time when lien not marked on title, and then takes off with the loot
 Vendor is making a claim under the assurance fund of in the LTA
RATIO:
 The case sets out principles of vendors liens:
o Don’t expire until they’re paid off
o It’s a right that arises before any court action is taken:
o The right / the lien arises as soon as the K of purchase and sale becomes enforceable / is signed
o Is registerable once as a caveat; then you must start an action, get an order declaring its existence and
file a CPL
o Useful to vendor b/c in action to enforce lien, court can force sale of property to satisfy the lien
 Purchaser also gets equitable lien if they pay money without getting title.
See below for:
Damages
Specific Performance
Recission
(2) PURCHASER response to breach by vendor
(a) Accept vendor’s breach, cancel agreement & ask for return of deposit (entitled to this when vendor breaches?
Or have to argue that its not a true deposit / is party payment, or is unconscionable to let vendor keep?); and
(b) Can also sue for damages [may get rescission for certain types of breaches]; or
(c) Enforce the agreement, and bring an action for specific performance either at once or after the due date (can
include claim for damages)
Purchaser’s lien
 As soon as deposit becomes repayable, purchaser has an equitable lien on the land
 (lien is lost when a subsequent purchaser w/out notice acquires title; so registration is key)
See below for:
Damages
Specific Performance
Recission
Damages
Mavretic v. Bowman – principles for damages
 Court can off-set the amount of damages for a vendor by the amount they got via deposit
 In awarding damages the court is striving to place the P in the position she would have been in had the breach
not occurred and the K completed (gives effect to the K)
 (basic rule: damages measured as difference btwn K price, and market price at date of breach; may also get
recovery of expenses related to the prospective sale)
37
General rule: Damage calculation should generally be done at date of breach (ie. the closing date), not at date it gets to
court (but court can modify this if there are unusual circumstances that would make this inappropriate—then use trial
date)
 Umbach says in general, if breach by P the tendency is to award damages calculated to date of breach (closing
date) not trial date. This is because at closing date if P hasn’t closed, V is able to mitigate – their damages have
crystallized at that point.
Specific Performance
For specific performance, Innocent party must:
 establish to a court that, on the original closing date (and up until date of judgment), they were ready willing &
able to close the TX—Evidence of this is demonstrated by tendering
 Not unduly delay
 Not take action inconsistent with the K (bc K has to stay alive)
 Have clean hands (have fulfilled your obligations as well)
Note: purchaser might use this as a strategy if they don’t want vendor to keep the deposit (vendor can’t take it while K is
still alive)
Semelhago—specific performance should not be granted as a matter of course in real estate deals
 Prior to this case, courts pretty willing to award SP, reflects idea that land is pretty unique. Principle exists that
property has to be unique in order to get SP (i.e. can’t get same property elsewhere).
 Party claiming specific performance should show that there is some unique quality about the land, to the extent
that a replacement can’t be readily found
o Test – Must be some characteristic of the property that is not readily available elsewhere.
 Implication: harder to get this remedy in the case of mass produced residential houses
 Flip-side harder for vendor to get this remedy? (nothing unique about cash)
ALSO: party entitled to specific performance is entitled to elect to receive damages in lieu
 [or damages in addition, b/c you may have suffered a loss as a result of the delay in the performance of the
agreement, extra expenses, etc.]
o Also a discussion about when to calculate damages: in claim for SP, damages calculated at date of
trial. Idea is that prior to completion or termination – damages are still accruing.
Rescission - not merely the termination of the K—the “un-making” of the K
 Equitable right of one party to cancel the K after the breach by the other, and to have the parties restored to their
original positions
 Court won’t allow recission where it isn’t possible to restore the parties to their original positions (eg,
purchasers made structural alterations, done poor maintenance, allowed mortgages to go into arrears)
Only certain types of default will get you recission:
(1) a mistake that constitutes an error in substantialibus (e.g. the land proves to be half the size of that contracted
and paid for)
 something so wrong that you aren’t getting what you contracted for—failure of consideration
(2) innocent misrepresentation that occurs before the K
(3) fraudulent misrepresentation
IV. Types of DEFAULTS



So we are at stage where agreement is signed, but not completed – the interim period
The contract at this stage is executory – it is “to be completed”
A. TITLE
1. VENDOR’S OBLIGATION


One main obligation – give title to the property in the state that they agreed to give it.
o Usually that means title free and clear of encumbrances (save any of those agreed to previously); and
In order to give title as required by the contract, the vendor must HAVE title, see below…
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(i) STATUTORY (a) PROPERTY LAW ACT ss. 1-7:
o Vendor must get registrable instrument for the land they are purporting to sell [so they have to register their
title if not already]
s. 5 PLA: Transferor to deliver registrable instrument
o Vendor must deliver to transferee a registerable instrument (a transfer registrable under the Land Title Act).
o Landlords are obligated to provide lease in registrable form (unless it is for a term of less than three years)
s. 6 PLA : vendor must have title to give title
o “nemo dat”, vendor must ensure that it has proper title to give.
o Relevant in speculative market – speculators will flip property to third purchaser before they actually
acquire title. This section tries to ensure the speculator gets title before the give it. In practice, there are
ways to get around this whereby middleman doesn’t ever have to take title.
s. 7 PLA:
o Vendor must adequately describe land and submit plans that describe the land to the LTO if that is
required.
If V is selling a portion of a legal parcel, the parcels must be described in ways registrable (puts
obligation on V to ensure that the subdivision actually occurs before title to the subdivision
passes). (recall Dynamic)
(b) LAND TITLE ACT ss. 185, 186
s.185 LTA:
o Transfer that affects conveyance must be in prescribed form (meaning statutory Form A - Transfer; as
opposed to Form B - Mortgage)—a single page:
 Includes legal description of land, name of transferor (must be exactly right), name of transferee
(must be an entity capable of holding title in BC  person or company/society; partnership cannot
hold and interest in land); type of interest.
s. 186 LTA – Implied covenants into Form A
 Unless expressly excepted or qualified, a transfer in the prescribed form (i.e., Form A) is deemed:
 to be made under Part 1 of the LTFA;
 to contain the forms of words contained in column 1 of Schedule 2 to the LTFA;
 to be made by the transferor as covenantor with the transferee as covenantee;
 and to have the same effect & be construed as if it contained the form of words contained in column 2.
o
o


No need to contain express words of transfer, if in the Form A and for valuable consideration it will have
the effect of transfer despite not expressly stating “transfer”
Does not operate to transfer an estate greater than the estate in respect of which the Transferor is the RO.
There are implied reps in the transfer / Form A:
Biggest one—Section 7 of column 1: LTFA implies into every Form A transfer a covenant that the land is
free of encumbrances…
(c) LAND TRANSFER FORM ACT “SCHEDULE 2”
LTA Form A: land transfer must be in this form and this form contains covenants described in the LTFA.
Implied Covenants:
o Covenant for free and clear title: Must clearly state any encumbrances.
 Title will be free of encumbrances. So important for V to put any existing encumbrances etc into
the agreement, otherwise the implied covenant means the V is in breach of their promises to the P.
o Vendor has the right to convey the land
o Purchaser will have quiet possession of the land i.e., No one will make a claim to the land prior to the B.
 In long form, there is a covenant that the purchaser will enjoy quiet possession (i.e. no one will
claim a right to the land through the vendor; so if vendor has unregistered mtg or easement then
purchaser can claim right to quiet possession).
These covenants / reps give the purchaser something to sue on if vendor breaches them—even if those reps aren’t in the
K of purchase & sale itself. Careful when using Form A!
2. WHAT CONSTITUTES A DEFAULT?
Interim period: problems / defaults bc—
 problems with the state of title (as stated in the K) [e.g., unregistered mtg or easement turns up]
 not all (or not right) owner is party to the K
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 defects (patent, latent)
 misrepresentations in the K (fraud; innocent; error in substantialibus)
 breach ‘time of the essence’
[NTD: get to problems with tendering later, they pertain to closing period]
RE HUGHES AND MACAULAY, NICOLLS, MAITLAND & CO. LTD (1969, BCSC)
Facts:
 Purchaser backed out b/c Purchaser said he discovered at a late date that there was an easement affecting the
property that he never authorized (contracted for clear title); so claimed default, and right to repudiate the K and get
deposit back
Issue:
 Was surprise easement enough to justify the purchaser’s repudiation of the deal?
ANALYSIS:
 Court asked whether purchaser is getting substantially what they bargained for.
o Does easement affect use and enjoyment of the property to the extent that P was getting something
completely different than what they bargained for. Court said no based on facts, not sufficient to allow the
P to repudiate the K.
o So a minor (‘comparatively trifling’) defect not a breach (not enuf to constitute a title default) that entitles
other party to repudiate
o So, not an automatic breach of K if purchaser does not receive title exactly as contracted for… instead ask:
o Is purchaser nevertheless getting essentially what they bargained for (presume this is: normal use &
enjoyment of the property)
 Demonstrates willingness of courts to inject some commercial reasonableness into considerations
CAPLAN V. COLES (1982, BCSC)
FACTS:
 Parties entered into an agreement of purchase and sale of land; the plaintiff (Caplan) paid $15,000 as deposit.
 Defendant/vendor was party to the K, but the registered owner of the land was a company owned by the defendant
(Coles Co). The plaintiff refused to close on the ground that the company which was named as transferor in the
conveyance was not a party to the original agreement, and claimed return of the deposit.
HELD: for the plaintiff.
 Under the agreement and the Property Law Act s.6 (vendor must have title to give title), the plaintiff was entitled to
a conveyance from the defendant and not of his company.
 court can’t force Caplan to agree to those covenants with anyone other than the party he had contracted with (which
was Cole, not Cole’s co.)
B. CONDITION OF PROPERTY - defects


Recall Lysack v. Edwards rule:
o As soon as binding contract entered into, beneficial interest transfers to the purchaser, even though
conveyance hasn’t occurred yet.
Our modern agreements try to reverse this consequence by use of a “risk clause” that says risk of the property
remains with vendor until closing. This does not reverse idea that beneficial interest passes, only that risk to
property does not pass until the conveyance takes place. So vendor owes a duty to take reasonable care of the
property, so it can pass on to the purchaser what they contracted for.
o The result is that if defects occur in interim periond, purchaser may be able to sue for damages, or (if the
defect is severe enough) even for rescission.
1. PATENT/LATENT DEFECTS
Patent defect – discoverable on reasonable investigation
Latent defect – not discoverable on reasonable inspection; may be concealed (close to fraud)
GRONAU V. SCHLAMP INVESTMENTS LTD. (1974, MAN. QB)
FACTS:
 This was an action for the rescission of a contract for the sale of an apartment building on the ground of a serious
latent defect discovered after the completion of the sale.
 The defendant concealed a serious crack in foundation of the building.
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
The defendant relies on the caveat emptor rule (“buyer beware”). No specific representations re foundation in
agreement
 The plaintiff maintains that the concealment of such a serious defect amounted to fraud, wants rescission.
HELD: for Plaintiff
 Discussion: should purchaser have done greater searches (i.e. buyer beware)? The caveat emptor rule did not apply
where latent defects were actively concealed by the vendor. It applied only to patent defects such as were
discoverable by inspection and ordinary vigilance.
 The concealment of the crack amounted to material misrepresentation of the apartment block and the purchaser
received something completely different from what it was represented to be. The court finds an ‘error
insubstantialibus’ and grants recession!
NOTES:
 This case is important because bc starting point for claims against vendor by purchaser unsatisfied with state of
property after closing. Everyone uses this case to argue that vendor didn’t tell purchaser of actual state of property.
 Most often, a court will be a little loathe to undo a sale – will only do so in limited circumstances, like fraud,
innocent misrep prior to K, and:
 error insubstantialibus – error or mistake so grave that it goes to the route of the contract – a total failure of
consideration. Case below is an example: Hyrksy v. Smith
C. MISREPRESENATION
1. FRAUDULENT

Fraudulent Misrepresentation:
o False representation that has been made knowingly or recklessly; with an absence of honest belief in what
is represented; and the misrep must have been a major factor in inducing the K (places onus on proving
fraud on party alleging it)
o If fraud is found, rescission if fraud is significant, otherwise damages.
2. INNOCENT

Innocent Misrepresentation:
o False statement person honestly believes is true. Courts more lenient. Really just misreps that aren’t
fraudulent or negligent.
o No damages
o If the innocent misrep occurred before the K, courts will grant rescission (persons to be restored to
positions before contracting)
3. ERROR IN SUBSTANTIALIBUS


A mistake or misrep so great it goes to the root of the contract and is a total failure of consideration
Rescission; damages
HYRSKY ET AL. V. SMITH (1969, ONT. H.C.)
FACTS:
 Plaintiff discovered 4 years after the purchase that half of the land they “purchased” belongs to someone other than
the vendor
 The issue to be decided was whether there was an error in substantialibus and whether the plaintiff could rescind
the contract after four years.
ANALYSIS:
 The plaintiff's action was granted.
 He was awarded payment of $5,387 which included his payments made to the defendant plus taxes, legal fees and
six per cent interest.
 Title was defective b/c it purported to convey title to more land than the vendor actually held (boundary was wrong
– mistake in the quantity of land being conveyed)
 Here the deficiency related to approx ½ the land purchased, and therefore the rest of the land was unsuitable for the
purpose originally intended (subdivision and development)
 There was an error in substantialibus by both parties and it was necessary in equity to rescind the deed.
 Doesn’t matter that 4 years had passed since registration of the deed – no wrongs by purchaser, so not denied relief
 For a contract to be rescinded for mutual mistake, the mistake must go to the root of the contract
 Such was the case here. There was a misapprehension as to the substance of the thing contracted.
41
D. TIME OF THE ESSENCE

When ‘time is of the essence’ it means that terms re: time must be strictly complied with, time limits become a
fundamental term, and the breach of which raises the right to repudiate.
(1) If one of the parties misses a deadline (or other provision re: time), it’s a breach of K:
o leading to right to repudiate;
o or specific performance instead… (keep it alive, innocent party can re-set the time by giving notice to the
other party)
(2) If both parties miss the deadline—constitutes a waiver of strict compliance with ‘time of essence’ clause (reset for a
time that is reasonable for both parties (Norfolk))
(3) Parties may expressly waive the term; re-set closing date for reasonable period; and reaffirm that time is of essence
for the new time
(4) Extending Closing—effect on Time of Essence clause:
Norfolk—waiver of the time is of essence clause can happen (1) expressly by the parties; or (2) by circumstances /
conduct that make strict enforcement of the time limit unjust or inequitable (as was found in that case)
Salama— extension of the completion date does NOT automatically operate as a waiver of a party’s right to rely upon
strict compliance with the ‘time is of the’ essence clause—the presumption is that the ‘time of essence’ extends to the
newly specified time
Ambassador—BC case: vendor argued that extension of the close date had effect of waiving time is of essence
 Court echoed Norfolk and said extension is not automatic waiver
 But then also (wrongly) interpreted Norfolk to say that when new closing is set, you need to give notice that the
clause is reinstated
So the practical effect in BC: when closing is extended, must say time of essence for this new time, or you run the risk of
it being seen as waived
1. WHAT DOES IT MEAN?
NORFOLK V. AIKENS (1989,BCCA)
FACTS:
 Residential sale, vendor’s crazy ex-husband got in way of sale by registering a claim on land.
 Purchaser sees this claim and tries to get out; on last day purchaser agrees to buy – but by then vendor not ready.
 Contract contained time of essence clause
ANALYSIS:
 Parties basically pretended to tender—neither was ready willing or able to close the deal on date said. Thus actions
amount to waiver of strict compliance to TOE. Nobody could insist on TOE.
 The K continues to exist after original closing date, and when somebody finally willing, ready and able to complete
title, that party could require/set a new closing date that is reasonable for both parties (and TOE is reaffirmed for
this new date).
2. WAIVER
SALAMA ENTERPRISES (1988) INC. V. GREWAL (1992, BCCA)
FACTS:
 Original K had ‘time of essence’ clause—no one was ready when closing came
 New K—no mention of ‘time of essence’
 Purchaser asked for a 1 day extension of the new K
 Vendor refused, claiming that purchaser bound by ‘time of essence’
 Purchaser didn’t complete on time so vendor repudiates; purchaser sues for specific performance
ANALYSIS:
o In the absence of circumstances that make it unjust or inequitable to insist on ‘time of essence’, the
extension of time to new K simply results in the substitution of a later date for the one stipulated in the
original K. The time clause is unaffected.
o Here the court found it would be inequitable to insist on strict compliance with the time of essence
o Vendor already extended once so that sub-division process could happen; second extension (for same
process) is very minor; unfair to now refuse to cooperate
AMBASSADOR INDUSTRIES LTD. V. KASTENS (2001, BCSC)
FACTS:
 Again a case where closing date in original K had been extended already;
 Re new date: all docs completed, to be sent by vendor to purchaser; courier is late
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 Purchaser wants to take advantage of this lateness and get out of K—claims vendor breached time of essence
 Vendor argues ‘time of essence’ was waived by the extension of the close date
COURT:
 Extension is not an automatic waiver
 But this court adds its own 2 cents:
 Principle: once the original completion date has passed, the law will imply a term that the sale is to be completed
w/in a reasonable time (parties can set a new completion date that is reasonable as between them)—but one party
can’t unilaterally make time again of the essence for the new date, at lease not without giving notice
 Before either party could again rely on ‘time of essence’ provision, they were required to give reasonable notice to
the other party that if the new date for completion was not met, they would treat the K as at an end
Note: so effectively, mere extension of closing date does constitute waiver, in absence of notice otherwise!
o So now in practice in BC: explicitly state that time is of essence for any extension of closing date to ensure it
remains active
3. LAW AND EQUITY ACT s. 31
Stipulations not of essence
31 Stipulations in contracts, as to time or otherwise, that are not deemed to be or to have become of the essence of the
contracts according to the rules of equity, must receive the same construction and effect as they would receive in equity.
o Greg didn’t mention this at all.
VI. THE COLLAPSING TRANSACTION
A.TENDER
CCH on What to Tender [tender all requisite funds and/or relevant documents, in registrable form]
Vendor, eg:
 Transfer/deed of land (signed)
 Statement of adjustments
 Directions re: funds
 Documentation re: any leases
Purchaser, eg:
 The funds
 Direction re: title
 Land transfer tax affidavit
How to Tender
General rule: tender must be made personally on the other party to the K
 However, can draft out of this: eg., special provision in standard K authorizing solicitors to tender
Norfolk—since the K didn’t do this, the parties wouldn’t have been able to use lawyers undertakings in lieu of
personally tendering title for cash
 Tender must happen in strict compliance with the terms of the K [by the parties and by the time set out there]
 In Norfolk, the parties pretended to tender—No evidence of being ready, willing & able
[Note: tendering may not be required where other side has unequivocally indicated prior to closing that she won’t be able
to close on agreed date (Norfolk)]
1. SIGNIFICANCE



Tendering expresses parties intention to complete obligations in the contract.
Tender is the best evidence of being “ready, willing and able to complete” – the magic words for getting certain
remedies where a transaction has fallen apart—
You are affirming the K when you tender, so it is the threshold test for obtaining specific performance
NORFOLK V. AIKENS (1989, BCCA) - AGAIN
FACTS: Purchaser started action for specific performance on anticipatory breach… bc title not clear (the K was for cash
(or a $30K 2nd mortgage + the balance of cash) in exchange for clear title)
o Vendor thinks purchaser won’t be able to close anyway so demands all docs to close
o Purchaser sends docs over as if completing, but on undertaking that money will come later
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o
The vendor never agreed to the undertaking mechanics for completion proposed by the purchaser’s
lawyers the day before the completion date – they wanted her to hand over title in exchange for a
promise to pay by the purchaser which wasn’t the deal [Note: Fall-out is that all standard form K’s
now provide for use of undertakings]
At closing date:
o The vendor did not have clear title– there was still a mortgage outstanding on the property
o The purchaser couldn’t pay (he was still working on some fancy financing fandangaling)
SOUTHIN’S ANALYSIS:
Suing for breach of time of essence:
o Does vendor’s inability to perform nonetheless give purchaser right to specific performance?
o A plaintiff who is in essential default at the material time can’t succeed in an action for specific performance
o Where neither party is ready and able to close according to the terms of the K, that waives the ‘time of essence’
clause (neither party can sue for breach of it). They can re-set time; K is still alive.
Effect on the Deposit
 Vendor wanted to keep the $8K deposit, alleging that purchaser breached (didn’t pay; not ready, willing, able); but
again, neither party was ready willing & able, so the K is still alive:
 Vendor isn’t an innocent party that has a right to repudiation & remedy.
 When one party is actually ready willing & able, and THEN if the other party defaults, the innocent party can get a
remedy.
Ratio: The attempt to make it look like you were ready willing and able isn’t sufficient.
o Only time not necessary is that if the other party has shown unequivocally that they wouldn’t close (not totally clear
what this entails; do you need a signed letter from other party?)
o You aren’t an innocent party who (a) gets a right to repudiate & deposit / damages; or (b) can sue for specific
performance unless you remain ready willing & able
2. REPUDATION
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Repudiation is where 1 party takes some action that leads to conclusion that they’re not going to perform on the
contract, whether done by color of right or not. (so vendor defaulting is repudiation.)
There tends to be 2 kinds of repudiation:
o direct/express repudiation: i.e. phone call, letter
o indirect/implied repudiation: by conduct of parties
 Where one of parties indirectly repudiating, other party should go through motions of tender
to preserve their rights.
 Key is whether that party wants contract to continue or not, and then act accordingly. (For
vendor this means having clear title and instrument to convey title, for P this means being
prepared to pay purchase price. Vendor has to have that transfer ready to go).
3 options for innocent party:
o can accept repudiation and terminate the K
o can accept repudiation, terminate K and sue for damages
o can reject repudiation, affirm K, and claim specific performance and/or damages
Equity requires refusal to accept repudiation to be clearly communicated. Cannot do anything that would not be
inconsistent with K staying alive. Equity further requires acting quickly in refusing repudiation (i.e. can’t wait 6
months then sue for specific performance).
Rescission – return parties to their original position as though they had not entered into an agreement. Rarely will a
court grant rescission of a complete deal. Happens under the following:
o Fraud
o Error in substantialibus (total failure of consideration; error of subject matter of the K).
o Breach of condition or term of agreement can give rise to rescission in certain circumstances (equitable
remedy at the discretion of the court).
SALAMA ENTERPRISES (1988) INC. V. GREWAL (1992, BCCA)
FACTS: Vendor refused to complete the transfer of title (bc purchaser defaulted—recall: 1 day late)
 Purchaser sues for specific performance (so must keep K alive, reject vendor’s repudiation)
 [Note: purchaser was strictly speaking in default, even still this can be a tactic to delay, to find a way to negotiate. In
the end, recall that court found it would be inequitable to insist on strict ‘time of essence’ and hold P in breach for
being 1 day late]
ISSUE: did purchaser’s actions on closing day amount to acceptance of vendor’s repudiation?
HELD: no—P’s actions were consistent with his obligations under the K (sub-divided; had purchase $ ready)
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
If you’re going to seek specific performance, it’s crucial that the party act in every way as though the contract is still
in force (must be ready, willing and able) and perform its obligations
SHAW INDUSTRIES LTD. V. GREENLAND ENTERPRISES LTD. (1991, BCCA)
FACTS:
 Both parties were in breach of ‘time of essence’: V did not provide docs until after closing date, P did not present
cash. So have to re-set the clock for closing (as reasonable to both parties)
ANALYSIS:
 Failure to perform contract by both parties will not give rise to right to repudiate for either party.
 In order to terminate, someone needs to reinstate closing (i.e. one party sends the other a later reasonable closing
date and adds that time is of the essence). Then one party can do a default repudiation; or can wait for other party to
default and do a rightful repudiation.
3. FORFEITURE
HIRST V. MOORE (1955, BCSC)
FACTS: K of purchase & sale, to be paid by installments; purchaser missed a few installments; vendor rightfully
repudiates K
 Vendor argues that parties intended that cancellation clause contain a forfeiture provision: if purchaser defaults and
then vendor cancels / repudiates the K, all sums paid under the K are forfeited to vendor
COURT: the K contained no such statement; the K did not contain a forfeiture clause stating that vendor was entitled to
keep any part payments upon purchaser’s default
 If no forfeiture clause [alternatively, if no express deposit], then a purchaser who is in default (but has not
repudiated or abandoned his purchase) is entitled, upon vendor’s cancellation due to P default, to recover from the
vendor installments of purchase-money paid, with the exception of any sum paid by way of deposit
 Recall Stockloser
VII. COMPLETION/ CLOSING
A. PROCEDURE
1. UNDERTAKINGS

Undertaking is a special promise given by lawyers, used to facilitate the closing of real estate transactions.
o If a lawyer breaches an undertaking they are accountable to the Law Society (possibly disbarred) and the
person who the undertaking was preformed in the benefit of, has a contractual right to sue (completely
binding)
Usually purchaser drafts documents for completion of the transaction (comes out of Shaw); sends them over to vendor.
 Once the vendor receives transfer documents prepared by the purchaser (ie. Form A), the vendor must sign the
documents and send them back to the purchaser, as technically it is the vendor’s obligation to (a) have title, and
(b) have instrument that can convey title; (c) deliver the instrument (PLA).
o Vendor will not want to send the completed transfer/Form A back to the purchaser until they receive
money from the purchaser – ideally, hand to hand exchange, but not real world
 Time delays: title form must be registered at LTO, purchaser does not want to hand over
money until that done, BUT vendor does not want to hand over title until get money…
 THUS, system of undertakings:
How the Undertaking process works:
 At closing, vendor presents completed transfer documents to purchaser’s lawyer, on purchaser’s lawyer’s
undertaking to make no use of transfer until purchaser has sufficient money to pay purchase price – once have
money and on day of closure, register title and if registered satisfactorily, hand over money to vendor.
Variation when outstanding vendor mortgage:
 Sometimes various undertakings bw vendor and purchaser lawyers – may be intervening issue of mortgage –
vendor must get rid of any liens against title if promised clear title under agreement, otherwise vendor in breach
of that agreement:
o Dilemma: vendor does not enough money to discharge
 So, as above, vendor presents transfer docs to purchaser’s lawyer, and purchaser takes title with mortgage still
on, on vendor lawyer’s undertaking that when purchaser lawyer sends money to vendor lawyer, they will use
the money received from purchaser to pay the mortgage, get a discharge of it, file that discharge, and tell
purchaser lawyer about it:
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o In BC used to do this without problem until Martin Wirick
Now vendor lawyer must send all sorts of docs to purchaser lawyer:
 On day of closing, a copy of the “pay-out) statement from vendor bank (where bank says, if you pay this, we will
discharge mortgage)
 w/in 30 days (see 60 / 30 rule below):
 a copy of their check to the bank; a copy of their letter accompanying this check; a copy of courier receipt; a copy of
confirmation of receipt of cheque by bank;
 and then a copy of the discharge, when it is received (must be w/in 60 days)
Law Society 60 / 30 rule:
 W/in 30 days of closing, all this paperwork must be delivered
 W/in 60 days, a discharge must be received & filed—if it isn’t, then (either sides lawyer) must report to Law Society
EDWARD WONG FINANCE V. JOHNSON (SEE NORFOLK V. AIKENS)
 Quoted from in Norfolk
 Similar facts – an agreement to be completed by undertakings – that happened but things went wrong
 Turns out the lawyer used undertakings w/o permission from client … sued lawyer and lawyer lost (negligent for
using undertakings without authority)
RATIO:
(1) the agreement must set out that undertakings will be used to facilitate the closing and,
(2) the client must understand that you are using an undertaking and what he consequences will be if things go sour
 Otherwise, at best negligent; or, breach of K
RE: WIRICK (A CASE STUDY)
FACTS: Wirik (lawyer for Mr. Gill, who built & sold homes) would receive money on undertaking to other lawyer that
he would use the money to pay out the Gill mortgage & get discharges
 Instead, Wirik gave almost all the money to Mr. Gill (and use some of the $ to service the mortgage, so no one
would catch on); sometimes Wirik would even forge a discharge
 Wirik felt guilty so resigned; reported himself to Law Society
 Lots of ppl ended up having to pay 2 mortgages on their properties [PLA, s.21: current owner / transferee will
make payments for the mortgage on the land]
 Wirik is being sued; Mr. Gill filed for bankruptcy & had criminal charges
2. PREPARING DOCUMENTS
SHAW INDUSTRIES LTD. V. GREENLAND ENTERPRISES LTD.(1991, BCCA)
FACTS:
 The vendors were not ready, willing and able to complete on the date fixed for completion in the sense that they had
not cleared the title.
 The agreement required completion in the Land Title Office, and neither side had given notice to the other of a time
to meet in the Land Title Office (and neither attended at the Land Title Office on 29th September)
ANALYSIS: both parties were in breach
 There was no explicit requirement for a notice fixing the time for completion; i.e., when the parties shall meet at the
Land Title Office. - safe to imply, at least, a term in this contract that one side or the other may give notice of a
meeting time so long as the requirement of the notice is reasonable. By "reasonable", I mean that a notice delivered
at 10:00 am. to be in the Land Title Office at 10:01 a.m. would not be reasonable.
 However neither side did anything it ought to have done by or on the day it ought to have done it - neither even
attempted to communicate with the other.
ANOTHER ISSUE (main one for us):
 Where a K provides that the purchaser is to “bear the cost of the conveyance”, then the purchaser is responsible for
drafting & producing all the documents to make the purchase happen. It is for the vendor to be ready to execute.
[However, where vendor does not have registered title at LTO, it is his responsibility to prepare those documents.
PLA, s.6,7]
 Note: sometimes there can be lots of docs (not just Form A; also: statement of adjustments; enviro indemnities;
financing docs (mortgages, general security Ks)
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VIII. POST COMPLETION
A. MERGER
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So, post-completion, purchaser owns the property. What if a deficiency shows up? E.g., environ contamination
Even if the K of purchase & sale stated reps & warranties about no environ contamination, this does not
automatically survive into the title document (the Form A Transfer) [Doctrine of Merger], and so there is
nothing for the purchaser to sue on—no reps in the Form A beyond those implied by LFTA
Doctrine of Merger: all of the covenants of the contract are swallowed up into the completion of the contract.
Everything in the contract (representation/warranties etc) merge into the title document (Form A Transfer) and
is spent in the completion – unless there is something in the contract that stipulates otherwise [‘caveat
emptor’].
Typical way to get around the Doctrine of Merger is the Survival Clause:
o “all the representations and warranties survive the closing…can state a period of time”
(Limitations Act limits it to 6 years after closing; but sophisticated vendor will want to limit the time
frame that the people can sue for keeping these representations)
And also typical that an Entire Agreement Clause will accompany the Survival Clause [purchaser will
negotiate for latter, vendor for former]—says the only reps & warranties are those set out in this purchase &
sale K (clause 18 of standard form K)
REDICAN V. NESBITT (1924, SCC)
RATIO: there are other exceptions to the Doctrine of Merger:
 Purchaser may rely, after completion, upon no fraud and no error in substantialiblis [re physical state
of property, or existence / non-existence of encumbrance, etc]
 if there is an error in substantialiblis or fraud discovered post-completion, then even if there is no
survival clause, purchaser can sue vendor for damages (and may even get rescission)
 (misrep that is not fraudulent not sufficient to overcome Doctrine of Merger)
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