A. Context and Introduction
- Objectives: Legal knowledge, Professional responsibility and ethics and Preventive design and judgment
1. The Real Estate Market and the Business of Law
1.1 Volume of Transactions
1.2 Liability: Greatest areas of solicitor liability
1.2.1 Communication
- Failures in listening, asking, explaining, 26%
- Lawyers need to receive the instructions directly, cannot be through another person. The number one
area of problem is when there is incorrect communication
- The responsibility of the lawyer to view the different legal documents like easements and explain them
properly.
1.2.2 Oversights
- Sloppy practices or oops, 24%
- Poorly drafted precedents, improper search procedures.
- Failing to identify non-resident tax issues
- Failing to review mortgage instructions properly, each bank has different practices.
1.2.3 Unmanageable Risk
- No loss prevention steps can avoid these risks, 16%
- Fraud is an example of this type of risk
1.2.4 Legal Issues
- Failures in managing legal issues, 15%
1.2.5 Engagement Management
- Failures in managing expectations, 15%
- The client thought you were going to do x and the you thought you were going to do y
1.2.6 No Trail
- No confirmation in writing, 4%
- Very little documentation of the interaction between the client and lawyer
- You need to record what you have told them, what they have responded and how you have responded as
well
1.3 Lawyer Oversight
- Vast majority of work in residential real estate is undertaken by paralegals.
- However lawyers are responsible for any conveyance undertaken by them, regardless of who fills out the
forms
- Legal Professions Act: We govern ourselves, so need a degree of public confidence, we have the
expertise that we will carry out profession with due diligence
- Law Society Rules: They are the bylaws of the law society.
o How you can become a lawyer, set out the discipline processes, transferring into the province,
election of the benchers, the workings of how we carry out our professional relationships.
- Professional Conduct Handbook: Tells lawyers how to behave with one another and in relation to other
lawyers.
o Chapter 12: Supervision of employees
 In most real estate conveyances, they are undertaken by staff. Lawyers must have
conduct of the file at all times, personal and actual control, they have to maintain direct
supervision. All legal matters which require professional skill and judgement must be
done by the lawyers
 Training and assistance of staff must be appropriate
 Rule 9: legal assistants cannot take instructions from clients or give legal advice
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 They may draft docs (Rule 8)
Rule 10: Lawyers acting as realtors and lawyers – lawyers as marketers – must
personally show prop
2. Course Summary
2.1 Transaction – Agents, vendor/purchaser
Listing the property----K of purchase and sale----interim period (may be yr or 30days) ---conveyance/closing--closing the file
- During the interim period, the conditions in the contract will be fulfilled
- Marketing the Property
- Contract of Purchase and Sale
- Closing/Registration
2.2 Financing – Mortgages
2.3 Enforcement
3. Regulatory Context
- Need to put this into the context with the Land Title Act
- 95% of the Land is owned by the Crown.
o This is different from most of the other provinces
o This is mostly not in the Land Title System, unless a lease has been defined to it, most of it is not
registered.
- The rest of the 5%
o 4% is the Agriculture zone, this allows the use of farming in that zone
o 1-2% is available for development in the urbanized form in BC.
3.1 Aboriginal Title
- There are 2 old treaties and a few very new treaties (about 6-7)
- Section 35 of the Charter protects treaty and Aboriginal rights
- In much of Canada, First Nations entered into treaties with the Crown. In BC, historically, we only had
2 (Treaty 8 and Douglas Treaty). For non-treaty nations courts have been recognizing Aboriginal rights
and title in different ways. Entitlements arising from use and ownership that pre-date colonization were
never extinguished. A pre-existing legal right which attracts constitutional protection but not included
in the real estate statutes that we deal with
Delgamuukw v. British Columbia, [1997] 3 S.C.R. 1010 (S.C.C.)
- First time SCC talked about title, had been recognition of rights prior to this
- They defined it as a “sui generis right”
o Unique propriety interest held collectively by an Aboriginal community.
o It can only be sold or alienated to the Crown.
o Imposes a burden on Crown title because arises from the prior use of the land which was never
given. It predates Crown title and Crown regulation of land
o Where recognized, confers exclusive use and occupation
- Provincial Crown cannot extinguish title or infringe on it, constitutionally protected right which the
federal government has jurisdiction over
- No title claims that have been recognized yet, but a variety are in the works
Skeetchestn Indian Band v. British Columbia, Court No. A991695
- Aboriginal title is not a marketable interest in land that was contemplated when the land title system was
being developed.
o Not registered because it lacks the requirement of marketability
- Facts: The band brought a motion to register the land, registrar refused
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Decision: CA upheld the registrar’s refusal to register the land. Nothing in the legislative history shows
that the Province intended that Aboriginal claims would be included. These were not rights that were
contemplated in the act
o They could not be registered like other interests/charges on land could be.
Note: you have these two separate legal regimes which won’t interact from a real property perspective.
Courts have not yet ruled on the new grant of fee simple title, and the effect on Aboriginal title. Like if
there was title on a piece of land which was registered
o So we know the province cannot extinguish but we have no challenge of that type of activity at
this time. It is unsettled as to what the impact is
Skeetchestn Indian Band v. British Columbia, (2000, B.C.C.A.).
- Upheld Registrars decision to refuse Certificate of Pending Litigation because these were not the type of
charge/encumbrance contemplated under the Act. Aboriginal rights are not marketable and cannot be
registered under S. 215 of the Land Title Act.
Tsilhqot’in Nation v. British Columbia (2007) BCSC 1700
- Facts: The chief sought declarations of rights in 2 areas in the territory.
- Decision: Court declines to make a finding of title based on a deficiency in the pleadings. But the court
goes through the evidence and says they would have found title in this case.
o In obiter judge found title to 2000 hectares of land, also found a variety of rights, like trade
o They concluded that the provincial government had no ability to infringe aboriginal title lands.
Through the forestry, they were infringing rights
o Since the province has no jurisdiction, title was not extinguished by the conveyance of fee
simple.
- Implications: The Land Registry cannot extinguish title because it is in the federal jurisdiction
Indian Reserves
- They are not fee simple lands, collectively administered but are private
- It is the band and people of the band that have control
- They are not in the Torrens system or land title system
- Some land is in the Land Title Act by virtue of a treaty or another special grant of government.
3.2 Colonial Torrens System
- Purpose: Certainty of title
- It facilitates title in land and impact is on the order of date of registration unless the date states otherwise
- Generally you will see financial charges, covenants, easements
- Indefeasibility of title: it is good against the whole world without concern for past defects in the chain of
title and subject only to exceptions set out in the statue
o Once in the land title system and registered, a bona fide purchaser has indefeasible title, cannot
be set aside because of a defect in title which existed
o Exception: Fraud is not protected by this quality of the system
- If there was an error there is the Land title compensation fund which can compensate which are caused
by or occur through the office.
Land Title Act – look at attached act
- We have adopted the Colonial Torrens System
- Only applies to very small part of the landscape, maybe 5%
- Three offices in BC, and 7 land title districts
- Section 20: unregistered instrument does not pass estate unless it is registered
- Section 22: Instrument is in operation as from the time of registration
- Section 23: Effect of indefeasible title
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Section 24: Title by Prescription abolished
Section 25: Protection of registered owner against actions for recover of land
Section 26: Registration of Charge
Section 27: Notice given by registration of charge
Section 28: Priority of charges based on priority of registration
Section 29: Effect of notice of unregistered interest
Section 31: Priority of caveat or certificate of pending litigation
Section 33: Equitable mortgage or lien not registered
Strata Property Act
- It enables the creation of legal parcels which behave like fee simple but are called strata lots. They allow
common ownership in a vertical sense
- You own your own unit, can mortgage it but you then also have responsibility and undivided interest in
the common property, hallway, elevators, etc.
- Your collective interest is taken care of by the strata counsel, which is the governing body. Each person
is the member of the strata and they vote a board
- Conflicts usually arise in regards to the by-laws, management, etc. of the strata
- Tends to be arguments in the governance as opposed to the property aspects.
Property Law Act
- An old act relating to rights and obligations of parties
- Talks about real estate transactions and brings equity into legislative law
Family Relations Act
- Enables claims against title
- Section 56: When a particular activity occurs with spouses there is an assumption of part ownership
- Even if one person is on the title, and you know the reason for the sale is a separation there is an
automatic interest in the property for the other person even if their name is not on the title.
Fraudulent Conveyance Act & Fraudulent Preference Act
- This act says that it is illegal to convey property for the purpose of avoiding, defrauding, delaying,
hindering creditors, defaulting judgement, etc.
- If you suspect it is a fraudulent conveyance have to cease to act by virtue of Chapter 4, rule 6 of
Professional Conduct Handbook.
4. Definitions
Condition
- A fundamental term of a contract such that a breach of that term allows the injured party to terminate the
contract or to sue for damages or specific performance.
- Ex. Bought a house where you thought you could put a pool in, but when you get it find out you cannot
use the yard for a pool. May be a fundamental condition if you bought the house on that basis
Conveyance
- The process of transferring an interest in land from one party to another by way of a transfer documents.
- Usually refers to the title, but can be any other interest in land like mortgages, easement, leases,
covenants
Covenant
- A promise between two parties, it is registered on the title to the property
- It can be positive or negative, usually negative and it runs with the land. Once it is registered and you
sell the land, it continues to have effect even on subsequent owners.
Easement
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The right to the use of the property for a particular purpose. Generally things like access, utility, or
sewage and also runs with the land like covenants
Encumbrance/Charge
- Registration on the title to your land can include mortgages judgments, liens, and other registrations. It
limits your fee simple to a certain extent, you need to tell the purchaser what this means in regards to
their use and enjoyment of property
Lien
- An encumbrance on property in security for performance of a debt. Informs parties that there are
outstanding financial dealings against the property
- Is an encumbrance on the property as security for payment of a claim of a debt, is statutorily based.
Basically telling people that if you want to buy the property, there is an outstanding lien on title that
implicates the property and should wait until the lien is discharged
Misrepresentation
- Untrue statement of a material fact, or an omission of a material fact
- We ask if the purchaser relied on the misrepresentation, if there was reliance and it was a material fact,
then this is important.
Mortgage
- A charge on land for security of payment of debt
- The property is pledged to the lender, in exchange for the lender giving money to the property owner.
The mortgagor is the property owner, they are giving the mortgage to the mortgagee
Licencee
- Person registered under Real Estate Services Act
Purchaser
- Buyer
Repudiation (repudiate the contract)
- Unjustified conduct by one party and which amounts to a total rejection of their obligations under the K
- By not fulfilling the obligation, the innocent party can chose to end the contract
Tender
- Prove that you are ready, willing and able to go through with your obligations in the contract. Usually at
or near the closing date
- Variety of requirements for tender.
Time is of the Essence
- Agreement between the parties that they will adhere to the time lines within the K
- Clause which elevates time in the contract process and if one party does not adhere to the time
requirements, they can treat the contract at the end.
Title (to the property)
- Evidence of ownership of property as documented in Land Title Office
Undertakings
- Is a personal promise in the capacity as a lawyer to do something
- They allow complex transactions to occur simply based on the promise.
Vendor
- Seller
Warranties and Representations
- Warranties are statements about the quality of the property but they don’t go to the root of the contract
- They are weaker then a condition of the contract and express some lesser obligation. They tend to give
rise to an action in damages and not a right to rescind or repudiate the contract.
5. Process of a Residential Real Estate Transaction
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Three stages:
o Gather information
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o Prepare & execute documents
o Receive funds, tender documents for registration, pay out funds
Look at the Residential Conveyance Property Checklist
(1) Initial contact
(2) Review purchase contract and property disclosure statement (if any)
o Look at the K and ask for any other documents related to the contract or the deal
o Can be disclosure statements, addenda to the K
o Need to bring forward any important dates and send a letter to the purchaser telling them about
your retainer
o Need to ensure 3 parts of contract: offer, acceptance and consideration
o Then make sure there is clarity of the primary elements: Property, parties and the price
o Completion: actual transfer of the property occurs
o Adjustment: the date where the liabilities associated with the property cease to be the
responsibility of the vendor and of the purchaser
o Possession: date after the transaction occurs
o Need to confirm the vendors representation of residency
o If new or renovated property, does GST or HST apply
(3) Search title
(4) Other preliminary matters
(5) Consult with client and obtain instructions
o Advise on the enforceability of contract and give opinion on the state of the title.
o Ask about vendors marital status, need to know about any split ups, etc
(6) Follow-up from initial review and discussion with client
o Confirm in writing what it is you told them
o Provide a written assessment of your interpretation of the state of the their title, and a written
confirmation of the contract
o This is so you have paper trail of what your advice was in case something goes wrong in the
future
(7) Prior to completion
o Adjustment statement shows the various monetary requirements of both the vendor and the
purchaser and the way the accounts are accounted for in the deal
o Discharge form: things not staying on title
o Authority to pay out
(8) Closing
o Do a pre-closing title search to make sure that something has not changed
o Then a post-completion search to make sure that everything went through properly
(9) Post-closing
o Transfer funds to pay yourself, release any hold backs, notify within 60 of the mortgage
discharge as this is a law society rule to prevent mortgage fraud.
6. Acting for Both Parties
Law Society of BC Professional Conduct Handbook: Appendix 3 – Real Property Transactions
- Appendix 3: Allows for parties with different interests to act for opposing parties in real estate
transactions
o Generally this would not be allowed elsewhere in Law – this is an exception
o Parties are not seen as adverse, would be difficult to find representation in certain cases
o Rules: Can act for parties with different interests, description of a simple conveyance, advice and
consent, foreclosure proceedings, unrepresented parties in real property transactions
 Look at attached document
- In BC we rely on the certainty of title to ensure us that the title is good, can get title insurance to protect
against defects you can’t see
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The buyer’s lawyer does all the paper work and lawyers are usually engaged after the agreement is
entered into.
o Lawyer has to be careful in giving advice about fixing contracts
o Most conveyances are on standard forms, less chance for errors. So when a change in law occurs,
CBS and real estate board slightly change the contract to reflect that change
o If lawyer acts for more than one client, have to abide by chapter 6, which set out the disclosure
requirements.
People can also go to a notary for real estate conveyances, may be cheaper
3 stages when acting as a purchaser
o Gather information
o Prepare the documents
o Tender documents and pay our funds, conveyance
Can act for both parties if: Remoteness is impracticable, it is a simple conveyance, or if one party wants
encumbrances removed and someone to witness the signatures.
Two things you tell your clients, where you exercise your judgment and apply your legal sense to the facts
at hand
- Review the contract and tell them if you think it is enforceable or not
- Look at the title of the property they want to buy, and review the encumbrances and contract to see
which ones will stay on the title. Also check to see if the vendor is right and then give your opinion of
the title is proper
- Avoiding Liability: You send a letter confirming what you talked about, what you told them and what
they understand they are to do and making sure that everything is clear in writing and it is on file.
Residential Real Estate – Pitfalls and Tips
- There is BC lawyers compulsory professional liability insurance policy
- Reporting claims: If you become aware of an error or any circumstances which could reasonably be
expected to be the basis of a claim however unmeritorious, you will give written notice, along with the
fullest information as soon as practicable.
- Can be circumstantial or alleged errors which expect to result in a claim. Look to reasonable person
- Common errors with clients and obtaining instructions
o Title registered as tenants in common despite instructions to Register as JT. To avoid this discuss
legal implications and take notes
o Client claims unaware of presence or effect of charges registered on title
o Failing to obtain correct mailing address to be noted on title for purchaser
- Review of the purchase K
o Failing to notice or ascertain that more than one legal title to be conveyed as part of purchase
transaction
o Failing to notice/explain holdbacks. Review K in detail
o Failing to identify non-resident tax issues. When dealing with non-resident situation, ensure the
correct amount is held back as different amounts are required depending on property sold
- Mortgage transactions
o Wrongfully assuming transaction governed by past practice/lender. Always verify instructions.
o Failing to note mortgage to be secured against multiple properties
o Failing to obtain appropriate insurance burden for bare land strata
o Failing to review pay-out statement from lender
- Searches and investigations
o Failing to resolve undertaking dispute prior to the closing of LTO
o Courier fails to deliver closing documents on time due to weather
o Assuming extensions will be granted as a matter of course
o Failing to review undertakings
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o Failing to correct registration errors prior to defect notice expiry
Expanding your Practice to Commercial Real Estate
- Commercial real estate is a transaction with a primarily business or commercial purpose involving real
property
- If you are taking on a commercial file, it is always wise to take a moment to consider what legislation
might apply and what searches should be done that are outside the usual residential practice
- You should always read this K because the person who has drawn the K may have attempted to force the
standard residential K of purchase and sale to fit commercial.
B. Marketing the Property
1. Regulatory Framework
- The agent for the vendor lists the property and gets the word out, advises how much property will sell
for drafts K
- The agent for the purchaser will use the given criteria to search for what they want and advise about
whether the purchaser should offer more or less than the asking price.
- There is an inherent conflict between an agents duties and judgment and their remuneration
- Agents hold deposits, provide advice, and it is the reliance on that advice that gives rise to a variety of
duties
- The duties arise from different kinds of legal principles or sources of law
o (1) Real Estate Services Act
o (2) Real Estate Counsel Rules: they set out how you can become a realtor, the duties, and the
expectation for your behavior
o (3) The Contract for Purchase and Sale
o (4) Tort law: Whether the licensee has made misrepresentations by omissions or overtly
o (5) Agency law: a common law regarding how professionals interact with their client and the
way in which they owe duties to their client to not be in a conflict of interest
1.1 Real Estate Services Act - Attached
- Applies to anyone providing real estate services, like trading, strata management, and property
management
- Section 1: Definitions
- Section 2: Application of act, applies to every person who provides real estate services for remuneration
- Section 3: Requirements for license to provide real estate services
- Section 4: No recovery of remuneration by unlicensed persons
- Section 35: Misconduct by licensee, sets out the duties, like professional misconduct, etc.
- Part 4 imposes statutory sanctions, discipline proceedings and other enforcement
- Part 5 sets out a special compensation funds for claims based on misappropriation
- Real Estate Service Act Rules: sets out the duties
1.2 Real Estate Development Marketing Act
- This is legislation from 2004 that requires any developer who markets a unit to comply with the act
- Development unit doesn’t have be located in BC, but if marketed here must follow the act
o A development unit is not just a condo or a piece of lot in subdivision, can be time shares or
shared interest in land
- Created due to issues with pre-sale of condos and difficulty to rescind the Ks
- Requirements: Have to file a disclosure statement, disclose zoning and material facts, anything which
could affect the price or use of the unit or property.
- Section 14 requires the statement and Material facts defined in section 1
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Ulansky v. Waterscape Homes Ltd. Partnership 2010 BCSC
- Facts: Ps bought a unit in Skye Tower because they wanted a place that didn’t allow short-term rentals.
Now city is issuing licenses for this type of rental and the towers are being used as hotels. Ps refuse to
complete purchase because they claim this was not allowed this in the initial agreement.
- Purchasers: argue non-disclosure of material facts is a breach.
- Vendors: short-term rental is not allowed and Ps must complete the contract and then go after the strata
council. Not designed as a hotel, so no need to disclose
- Issue: is short-term rental allowed, if yes is this non-disclosure a breach of K
- Decision: Developer failed to disclose all uses and so the contract is unenforceable
o Court first looks at whether the zoning allows for short term rentals in the area as secondary use
(incidental). If yes, then did the developer have to disclose this fact to potential purchasers
o They find that short term use is allowed in this zone. The short term rentals are not a hotel in
the conventional sense, it is a unique use, allowing people to rent out their apartments.
o Court concludes that given the requirement to disclose all facts, permitted use is a material fact
and must be disclosed
o They ended up with something they didn’t want, so this is a way for them to get their cash back.
- Test for materiality: An objective test must be applied to determine whether a fact is material, namely
would a reasonable person conclude that the face in issue would affect the value, price and use of
development unit.
2. Real Estate Licensees
2.1 Relationship with Principal
2.1.1 Agent’s authority
- They don’t usually sign contracts and tend to be more of a broker. They provide advice which is relied
on and so have duties to uphold themselves as professionals.
2.1.2 Representing the seller, buyer, or both:
Who is the Principal?
- Listing licensee: Always act for the vendor, they are the ones who provide advice to vendor on price
and how the marketing should happen
o Vendor is principle and they owe duties to them
o There may be situations where they also owe duties to the purchaser where they are involved in
advising the purchaser.
- Selling licensee: They are the agent who brings the purchaser to the deal, they close the sale
o Purchase is principle and they owe duties to them. This is called the assumed buyer agency. We
assume that the selling licensee’s principle is the purchaser.
o May not have an existing relationship with the vendor, and may have a principle like relationship
with the vendor where the circumstances warrant it.
Buyer Agency
- The duties that are owed by the various professionals to other parties.
- There are 3 types
- (1) Exclusive Buyer’s Agency Contract: Enter into a contract with a licensee to say that you are the only
one who will sell or buy this house for me.
o Generally agents work with each other and anyone else in the brokerage can step in
- (2) Designated Agency: The brokerage and you as a purchaser/vendor agree to have one agent who is
your designated agent. They are the person you are dealing with for the purposes of the sale or purchase.
- (3) Limited Dual Agency: Is where the listing licensee is acting for the purchaser and the vendor.
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o Potential conflict of interest, so a variety of disclosure requirements and both parties must agree
o Limited because need to deal with the parties impartially and duty to disclose to both parties all
information except for 4 things (RSA):
 (1) What the buyer is willing to pay or terms/seller willing to accept in price or
terms (each party’s bottom line)
 (2) If two buyers, what other buyer offering
 (3) Motivation of buyer or seller unless authorized by the party
 (3) Personal information
o Designated agent will disclose defects about the physical condition of the property known
o Will not negotiate on either party’s behalf
DeJesus v. Sharif
- Facts: Ps bought one property and then decided to purchase another to create a care home. They
consented to dual agency, the purchaser is buying from the vendor owner and the vendor is acting as
licensee
o Two days after signing the contract, parties executed an addendum which encouraged P to hire a
realtor, and look into other information about the property. He was seeking to clarify and cover
himself in terms of the reliance of the purchaser on him.
o There were problems with the building and V sold it for a large profit
- Law: Nature of the relationship, not the specific category of actor involved that gives rise to the
fiduciary duty. There is a presumption that real estate agent is a fiduciary and the onus is on the D to
rebut the presumption. Must show the relationship was not one of reliance, trust, and confidence.
- Decision: When selling own property, an agent must be able to prove that the transaction was entered
into by his principal after the agent has made full and fair disclosure of all material facts know to him
respecting the subject matter of the K which would be likely to influence the conduct of the principal.
o CA in looking at any breaches, adopted the TJ reasons, found the D had breached his fiduciary
duties to his principle, the purchaser.
o Duties: Here the seller is the vendor for both licensees and so has duties to disclose every
material fact and avoid a conflict of interest. Presumption that if you own the property or have
an interest, you have breached your fiduciary duty unless you have disclosed everything.
o Limited dual agency: Inappropriate here, it is inconsistent and incompatible with licensee’s
fiduciary duties. Cannot be fair to yourself, as a principal, and another person as a principal. In
any case he breached his fiduciary duties when he didn’t disclose the fair market value.
2.2 Duties to Principal, from Principal to Licensees, to Third Parties
2.2.1 Licensee to Principal
Statutory Duties
- Real Estate Services Act: S. 35 defines professional misconduct and conduct unbecoming of a licensee.
This sets out the general rules
- Real Estate Services Act Rules ss.3-3, 3-4, 5-1 to 5-13
o Rule 3-3: The catch-all rule that requires licensees to act in the best interest of their client and
lawful interest, maintain confidentially, make reasonable efforts to discover facts and to avoid
any conflict of interest. These duties can be modified by agreement between the client and
licensee
o Rule 3-4: act honestly and with reasonable care and skill as would be expected of a licensee in
that particular market
o Rule 5-1: written service agreement with the client, unless that requirement is waived
o Rule 5-4: when you have a signed acceptance of an offer, the licensee must deliver a copy to
each party in the transaction
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o Rule 5-5: licensee is prohibited from encouraging a party from breaking a contract with another
person
o Rules 5-8 to 5-13: a variety of disclosures that have to be made in writing
 Rule 5-8: requirement for disclosure in writing
 Rule 5-9: disclosure of interest in trade
 Rule 5-10: disclosure of representation and relationship
 Rule 5-13: disclosure of latent defects - e.g. mould, cracked foundation.
 Patent defects: those which are easily ascertainable and can be viewed with your eye
 Latent defect: not something which you can see with you eye, they are not discernible
Duties in Contract and Tort:
(1) Obey Instructions of Principal
- Glasner v. Royal LePage Real Estate Services Ltd. (1992 BCSC): Where licensee disagrees with a
principals instruction they should cease acting for that principal
- That relates only to lawful instructions, no duty to follow illegal or unlawful instructions
(2) Exercise Care and Skill
- This is regardless of whether or not you are being remunerated.
- It arises from either contract or tort, applies to all aspects of the licensees activities with the client
- 4 aspects:
- (a) Property Valuation: What it should be listed for, or what a reasonable offer would be
o Not a standard of a qualified appraisal and not the requirement to obtain the best possible price,
must be in a reasonable range. Can be negligent for a low value if it was put out without
discussion with the vendor or purchaser. (Nixon)
- (b) Verifying Material Facts: This is very imprecise, it is a feeling that one gets. If certain things don’t
add up then need to do more due diligence to see if what the vendor is saying is true
o This duty is on both the listing and selling licenses
o Licensee must get an inspector to come and structurally inspect the property or look at the
physical structure if they have some reasonable doubt
o Fletcher v. Hand 1994 ABQB: This was a case where the licensees were liable for failing to
determine the well capacity of a farm property. Vendor said it is a great well, pumps out this
much water per second. But it was actually nowhere near as good as what they said. The court
said this should have been verified as it was a material, so important
o Jakube v. Sussex Group-SRC Realty Corp. 1993 BCSC: Listing licensee was aware of
renovations done to the house but they were not done up to the standard of the building code.
- (c) Marketing Material: Describe the property to the world
o Multiple Listing Service (MLS): Primary way for marketing by licensees, is open for everyone to
put listing on and vast majority of residential real estate is sold here
o Preparation of the Purchase Contract: they have to exercise some care and skill in the way in
which they fill in the blanks, must show they are acting as professionals
o Price v. Malais
 Facts: Purchasers were looking for house in Peachland where they could put a pool in the
backyard. They enter into a K, but the listing licensee failed to disclose 2 easements. One
easement for a pipe running under property so could not build anything within 10 feet of
it. Important for the purchase to know about his because the irrigation company could go
onto the property to do repairs, results in disruption to the property. The buyers
repudiated the contract when they learned of the easement. They sued for their deposit
 The quality of the deal depends on if the purchasers have said what the primary need
for the property is
 Decision: Found for the purchasers and gave them the deposit back, the easement was
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very broad and constituted a serious title defect which would have interfered with
the purchasers use and enjoyment of the property
 Licensee was also found to be negligent for allowing the vendors to enter into a contract
which said good title was being delivered. If they are not able to do this, there has to be a
mention of that in the contract which makes notice of this. She failed to exercise the
degree of care and skill that is expected of an agent in such circumstances.
o Skill and Diligence: In terms of fulfilling the terms of the listing agreement you have to do
something to sell the house. The actions are of licensee may be substandard. They may not have
done enough to sell what is required of them as a real estate professional
(d) Standard of Care: Reasonable person test
o Reasonable care/skill of a real estate agent within that particular market and community (Nixon
v Eden, 1998, BCSC)
o If you hold yourself out as having particular expertise, you will be held to a higher standard of
care vis a vie those properties
o Baillie v. Charman
 Facts: K to buy one home, but then found a different one. Agent agreed to take over and
then sold that home for a profit. P then argued breach of fiduciary duty
 Law: Nature of relationship, not category that gives rise to the duty. Existence of
fiduciary relation is a question of fact.
 Decision: Judge held a higher degree of skill because they held themselves as
specializing in water front properties. The licensee breached fiduciary duties, and had
to account for the profits made. Only defence was complete disclosure and consent.
(3) Fiduciary Duty
- Fiduciary: Someone relies on your advice and alters their position because of your skill.
- Unique interplay with expertise, reliance and altering of the relationship which causes the party who is
being relied on to have additional duties or responsibilities.
- SCC case that sets out the 3 principles is Lac Minerals v International Corona Resources
o The professional has discretionary power, it can be exercised to affect the beneficiary’s
interest, the beneficiary is vulnerable to the person exercising this
o It boils down to what is the nature of the relationship between the parties and not the category of
the actors
- Paul Perell article p.3
o Historically, the relationship between an agent and his or her principal has been classified as a
fiduciary relationship and, in addition to his or her contract or tort duties, a real estate agent may
have fiduciary responsibilities.
o Assuming that there is a fiduciary relationship and that fiduciary responsibility is engaged, the
main responsibility of a fiduciary is to be loyal to the beneficiary of the fiduciary duty.
o Within the duty of loyalty, three major heads of fiduciary responsibility can be identified: (1) a
duty not to breach the beneficiary's confidences; (2) a duty to disclose material information to the
beneficiary; and (3) a duty to avoid conflicts of interest. The fiduciary's duty of loyalty includes
the avoidance of conflicts of interest, which, in turn, includes the "conflict rule" and the "profit
rule".
o The Conflict Rule: Absent fully-informed consent, a fiduciary should not enter into
engagements in which he or she has an interest that is adverse or potentially adverse to the
interests of the beneficiary.
 Purpose: Designed to prohibit the fiduciary from acting for a third party or from selfdealing when loyalty to the beneficiary would be compromised by the duties owed to the
third party or by the fiduciary's self-interest.
o The Profit Rule: absent informed consent, a fiduciary should not profit from the fiduciary
relationship beyond the agreed remuneration.
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(a) Presumption of real estate agent as fiduciary
- DeJesus v. Sharif
o Test: Look at the nature of the relationship and not the category of the actor
 From R v Guerin and Bal v Sharman
o Presumption in law that licensee is a fiduciary and the onus is on the licensee to rebut this
presumption
 Nature really hinges on whether the principal relies on and imposes trust in the licensee.
o Application: The D breached his duty to the principle by not disclosing the material facts, like
what he paid in 2005 and the value of the property. He didn’t make full and timely disclosure,
agreement can limit what to disclose but not the properties fair market value.
(b) Cannot Act for Two Principals without Consent
- Can act as dual agent but need consent (Knock Estate v. Jon Picken Ltd, Rule 5-10 and the Contract of
purchase and sale)
o Facts: The selling licensee gets an interest after the vendor has entered into a contract with
company 1, but then when they resell it to company 2, the selling licensee gets a larger profit.
Contact secured between the vendor and company 1, after the K is made the selling licensee buys
into company 1 and brings company 2 to the deal. Then company 1 and 2 enter into a K whereby
company 2 buys the property for a significant increase in price.
 The day before closing, it is company 2 that buys the property and selling licensee gains
the profit
o Vendor claims licensee had duties to not have a conflict of interest and therefore you owe them
that profit.
o 2 principles: (1) Selling licensee and vendor can have fiduciary relationship if direct. (2) The
difference between agent and fiduciary, if only agent then you have a lower level of duties.
 In this case the vendor did not put any trust or confidence to the selling licensee at any
point, so they simply were obliged not to mislead the vendor or deceive them.
 So the selling licensee was an agent of the vendor for the purposes of showing the
property and finding a potential purchaser, but not a fiduciary no trust or confidence from
the vendor to the selling licensee.
 The court focused on the fact that company 2 was not in acquisition mode when the first
contract between company 1 and vendor was signed. If company 2 had been involved at
the time of K 1, then it would have been different.
(c) No Secret Profit
- This is the licensee becoming the purchaser themselves or getting a benefit by becoming a shareholder
in a company
- RESA Rule 5-11: If you get remuneration other than what is set out in K, you have to disclose it.
- The selling licensee wrote a letter to the listing licensee to try and influence the seller to reduce the
price, then bought the property and resold it for a profit (Baillie v. Charman)
o Here he owed a fiduciary duty to the seller and breached it
- Defence: only defence to getting a profit is full disclosure
(d) Cannot Put Interests in Conflict with Principal’s Interests
- Unless you have full disclosure and consent may not have a secret profit
(e) Full Disclosure
- This is not just to avoid a conflict
- Ocean City Realty v. A&M Holdings 1987 BCCA
o Must disclose anything that would influence the principals conduct
o In this case the test was an objective one: what would a reasonable person in the licensee’s
position consider likely to influence the principal’s conduct.
- Rule 5-10: Specifies what needs to be disclosed. Whether they are acting for another party or are being
paid
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These are explained to the principals via different pamphlets, about the agency relationships and what
must be disclosed (Handouts)
2.2.2 Duties from Principal to Agent
- They need to disclose all material facts and be honest about property, cooperate with the licensee, like
letting them show property, pay commission to the licensee, less onerous but still there
2.2.3 Licensee to Third Parties
- These arise in tort and spring from Hedley Byrne and negligent misrepresentation
- Rule 5-13: Requires anyone providing trading services to disclose any latent defects which they know
about.
- Latent defect: things that cannot be easily ascertained or seen. If either of the licensees know about
them, must be disclosed
- Patent Defect: this is problems which can be seen by the visible eye. They must be disclosed by the
licensee if they can see them
- Real Estate Services Act Rules 5-1 to 6-2
- Hedley Byrne & Co. Ltd. v. Heller
o There was a duty of care, which was breached by misrepresentation, plaintiff reasonably relied,
loss resulted
o Is owed to people not parties to the contract of purchase and sale and therefore not captured by
the rules
o This is generally representations made by the listing licensee to the purchaser, even though they
may not have a contract with them as a client
Misrepresentations
- Material facts licensee is expected to know
- This is where liabilities arise
o Betker v. Williams 1991 BCCA: case where the listing licensee advertised a vacant lot as a
potential building site. However that lot was not connected to the sewer system and never could
be so can’t build on it.
 The purchasers sued and the licensee was liable under HB
 CA said that if the person says something, it can be assumed that they know about the
bylaws which are fundamental to the property
- Verifying material facts from vendor
o Fletcher v. Hand 1994 ABQB: Licensee did not verify the statements about the capacity of the
well, was much lower than what the vendor said. Both the listing licensee and the selling licensee
were held liable here for misrepresentation. Both the parties have an independent duty to make
inquiries about the matter
Reasonable reliance
- This is on the statements by the licensee, the party which relied has to show that they relied on the
misrepresentations and that the reliance was reasonable
- Bango v. Holt
o Facts: Had a property being sold as a potential duplex. But the property could not be used as a
duplex because the municipalities had issues with the vendor. A document was signed which
said that the property would only be used as a single family dwelling, and that they would tell
future purchasers about this. Agent said he would tell purchasers, but didn’t
o The purchaser relied on the selling licensee for this property to have a potential duplex and relied
on the listing licensee about her knowledge about revenue properties. The person had gone into
this transaction looking for a revenue property. The accuracy of the information was not
checked, no knowledge about the statutory declaration.
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o Decision: Both the listing and selling licensee were found liable for negligent
misrepresentation and negligent
3. Listing Agreements
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This is agreements that the vendor will enter into.
If you sign a multiple listing agreement, you are agreeing that not only can they list your property, but
any licensee can then show your property.
Listing brokerage also agrees to share the commission with the person who brings the purchaser.
Generally the selling licensee will put the property on the market, hold a few open houses and then show
it.
Duties of Real Estate Agents - Perell article
- A vendor’s agent even if acting exclusively for the vendor, will have a legal relation and duties to both
the vendor and the purchaser. Same thing for purchasers agent
- 6 sets of Duties: (1) agents vendor to vendor (2) agent vendor to purchaser (3) agent of purchaser to
purchaser (4) agent for purchaser to vendor (5) duties of dual agent (6) duties of agent when he/she is
purchaser or vendor
- Agent for vendor – duties to vendor
o Duty of a reasonably competent agent
o May include: confirmatory information provided by vendor about property, size, title,
configuration, water supply, etc.
o 3 Fiduciary Duties: a duty not to breach the beneficiaries confidences, a duty to disclose material
information to beneficiary and a duty to avoid conflicts of interest
o Conflict Rule: absent fully-informed consent, a fiduciary should not enter into engagements in
which he/she has an interest that is adverse or potentially adverse
o Test for existence of fiduciary duty: (1) the fiduciary has discretionary powers (2) the power may
be exercised to affect beneficiaries legal or practical interests (3) the beneficiary is vulnerable or
dependent upon the fiduciary exercising its discretion. Not always engaged
- Agent for vendor-duties to purchaser
o Liable for negligence or fraudulent misrepresentation
- Agent for purchaser-duties to purchaser
o Standard is reasonably competent agent
o Can have implied agency relationship
o May have fiduciary duties, look to facts
- Agent for purchaser – duties to vendor
o The payment of the commission and the references in the K were not determinative of fiduciary
relationship, Knoch Estates
o So duties limited to not deceiving or misleading vendor
- Dual agency
o Have 2 masters who have conflicting aims – the vendors to maximize profits and the purchasers
to minimize it. So may be impossible for agent to properly serve and be loyal to both
o Problem in asserting that an agent for one party cannot be agent for limited purposes for the
other party might interfere with such matters as the formation of the K between vendors and
purchasers
o So generally should not act for both but can with full and fair disclosure
- Agents as vendors or purchasers
o If agent has fiduciary relations with vendor or purchaser, the usual fiduciary duties about loyalty
and conflicts of interest arise and must disclose fully.
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D. Financing the Purchase – Mortgages
1. Introduction – Nature of Mortgage
Mortgage Fraud
- Reasons for an increase in mortgage fraud:
- Lack of face to face contact due to brokers and internet
- Identity fraud in the registration of electronic documents
- Lenders reducing barriers for approving loans, pre-2008 there were relaxed standards in regards to
amount of info you have to provide
- The number of players in the mortgage brokers and institutions are increasing so more pressure to close
deals quickly
4 things we want to do in the next two weeks
- Be able to identify whether or not an agreement is a mortgage.
- Know what is required to file a mortgage in the land title system
- Talk about the protections for mortgagors, the debtors. What are the statutory requirements for people
who grant mortgages?
- What are the pitfalls for law society concerns, like mortgage fraud
Terms
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Mortgagor: The land owner, or the person who is in debt or debtor
Mortgagee: Creditor, the bank/lender
Mortgage: An interest in land in payment for security of a debt or obligation
Fundamental terms of a Mortgage
o The length of the mortgage
 The end of the term doesn’t mean the whole thing is paid off. You may have to remortgage at a new interest rate
o The frequency of payment
o The interest rate
o The property has to be identified clearly and then the register or title
o Penalty or default provisions
o The amount, what would the amount of the mortgage be
Although they traditionally are seen as payment of a debt for land, banks now bundle your entire
indebtness into one mortgage.
History/Nature
- Had to give up the land to get the debt, so it was a bad deal for the land owners.
- The mortgagor would convey the land to the mortgagee but retain possession of it and use it, but still a
transfer of the title, subject to the person repaying by a certain date.
- Mortgage was construed very strictly on its terms, it you didn’t pay back, than you lost all your claims
on the property. This is a very harsh result when dealing with the land.
Law/Equity
- Law of equity arose to deal with this apparent harshness. The courts started to look at the substance of
the transaction and not its written form. Started to look at the fact that a conveyance of the property
was a security for repayment of debt not really a transfer of land as we understand it
- Equity of Redemption: Legal and Equitable right in property
o If you default from a legal perspective, by not repaying on time, court infers the equitable right
to redeem by a certain period of time. Debtor is given a reasonable period of time to repay the
mortgage.
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o So have two different payment periods, the legal one and the equitable one, if you redeem
o Section 44 of LEA: Rules of equity prevail over the rules of law
o Right to redeem can only be extinguished by 3 different things:
 (1) A lapse of time under the Limitation Act, usually expires in 6 years
 (2) An order of foreclosure or sale by the court
 (3) An actual sale under the mortgage document itself
Right to Foreclose: The opposite of redemption, is also an equitable principle.
o If debtor breaches the mortgage after they defaulted the mortgagee can apply for a foreclosure
o Under Section 16 LEA, have to redeem within the time ordered by the court or forever be
deprived of your stake in the land. The court orders a reasonable time, if after the time they have
not redeem then get an order absolute, the creditor thinks they can go ahead and sell
We have both legal and equitable aspects of a mortgage, the legal aspects are the agreements and
equitable are the right to redemption and the right to foreclose
Torrens System Assumptions
- Land Title Act governs
- Our Torrens System adopted the equitable view that the mortgage is a charge on land (legal estate does
not pass to the mortgagee) only an interest in land is registered.
2. Elements of a Mortgage
Land Title Act
- Section 33: Equitable mortgage or lien not registrable, An equitable mortgage or lien created by the
deposit of a duplicate indefeasible title or other instrument, whether or not accompanied by a
memorandum of deposit, is not registrable.
- Section 176: Duplicate Indefeasible Title
- Section 189: Dealings with duplicate indefeasible title on transfer
- Section 224: Definition
- Section 225: Form of Mortgage
- Section 226: Modification of Standard Terms
- Section 227: Prescribed Standard Mortgage Terms
- Section 228: Filed Standard Mortgage Terms
- Section 229: Receipt of Standard Mortgage Terms by Mortgagor
- Section 230: Registrar may require filing
- Section 231: Effect of a Mortgage
- Section 190: Destruction of duplicate indefeasible title
- Section 191: Registration of new indefeasible title and change of name
Law and Equity Act
- Section 36: Assignment of debts and choses in action
- 36 (1) An absolute assignment, in writing signed by the assignor, not purporting to be by way of charge
only, of a debt or other legal chose in action, of which express notice in writing has been given to the
debtor, trustee or other person from whom the assignor would have been entitled to receive or claim the
debt or chose in action, is and is deemed to have been effectual in law, subject to all equities that would
have been entitled to priority over the right of the assignee if this Act had not been enacted, to pass and
transfer the legal right to the debt or chose in action from the date of the notice, and all legal and other
remedies for the debt or chose in action, and the power to give a good discharge for the debt or chose in
action, without the concurrence of the assignor.
- (2) If the debtor, trustee or other person liable in respect of the debt or chose in action has had notice that
the assignment is disputed by the assignor or anyone claiming under the assignor, or of any other
opposing or conflicting claims to the debt or chose in action, the debtor, trustee or other person
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o (a) is entitled to call on the persons making the claim to interplead concerning the debt or chose
in action, or
o (b) may pay the debt or chose in action into court, under and in conformity with the Trustee Act.
Property Law Act
- Section 20: Definitions
- Section 21:Implied covenant in mortgage or agreement for sale
- Section 22: Direct action against current owner
- Section 23: Extinguishment of liability under the personal covenant
- Section 24: No personal liability if new purchaser approved by lender
Land Transfer Form Act
- Section 9: Effect of mortgage, If a mortgage of land made according to the form in Schedule 5, or any
other mortgage of land expressed to be made under this Act, the Short Form of Mortgages Act or the
Mortgages Statutory Form Act or referring to any of them, contains any of the forms of words in
column 1 of Schedule 6, and distinguished by any number in it, that mortgage has the same effect and is
to be construed as if it contained the form of words in column 2 of Schedule 6, and distinguished by the
same number that is annexed to the form of words used in that mortgage, but it is not necessary in the
mortgage to insert that number.
- Section 10: Mortgage to include all buildings, reversions and estate, Every mortgage under section
9, unless an exception is specially made in it, includes all buildings, yards, gardens, orchards, commons,
trees, woods, underwoods, mounds, fences, hedges, ditches, ways, waters, watercourses, lights, liberties,
privileges, easements, profits, commodities, emoluments, hereditaments and appurtenances to the land
comprised in it, belonging or in any way appertaining to it, or demised, held, used, occupied and enjoyed
with it, or taken or known as part or parcel of it, and if it purports to convey an estate in fee, also the
reversions, remainders, yearly and other rents, issues and profits of the land, and of every part and parcel
of it, and all the estate, right, title, interest, inheritance, use, trust, property, profit, possession, claim and
demand, at law and in equity of the grantor in, to, out of or on the land, and all part and parcel of it, with
their and all of their appurtenances, subject to the reservations, limitations, provisoes and conditions
contained in the grant of the land from the Crown.
2.1.Legal Mortgage
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Legal Mortgage is in 2 parts: (1) The form as set out by the Director of Land Titles (2) Terms that can be
prescribed by the lender.
Land Title Act Section 1
o “Encumbrance”: includes a mortgage
o “Charge”: An interest less then fee simple, which is also a mortgage
Effect of a mortgage: A legal estate is passed when you sign a mortgage, it wasn’t an interest. This was
changed by statute
Section 231 of LTA
o (1) Only an interest in land passes when you enter into a mortgage, no words of transfer in it
o However, s. 231(2) whether or not s. 225 mortgage contains transfer or charge - mortgagee is
entitled to all the rights as if the mortgagor transferred the land and (3)(b) - sub. (1) and (2) do
not operate to change the general law between mortgagors and mortgagees.
o (2) and (3) muddy the waters, all existing legal and equitable rights remain, or apply.
Standard Mortgage Terms – Sections 224-230, 238
o Section 225 LTA: Mandates we have a mortgage in 2 parts: (1) approved by the director of land
title (2) consist of standard mortgage terms.
o These standard terms can occur in a variety of different way. These are found in 226-228 LTA
o 3 ways you can acquire standard terms (1) director of land title can proscribe mortgage terms,
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these are the default mortgage terms (2) anyone like a bank can apply to registrar to file their
own express mortgage terms (3) if an individual or entity files mortgage terms frequently, the
registrar can require them to file a set of standard terms
o Basically you have a form, than set terms which that lending institution has provided.
Richmond Savings Credit Union v. Nijjer (2000 BCSC)
- Courts are willing to look to the entire agreement to ascertain the intention of the parties as opposed to
just the contract
- Facts: Mortgagor had a variety of different mortgages. Richmond Savings is the first mortgagee, they
allow the family to draw on additional amounts and start foreclosure proceedings. The second
mortgagees Greyfair, probably won’t get their money back. Grey is saying that the way in which
Richmond Savings filed its mortgage was incorrect such that it was invalid, and therefore Grey should
take priority.
- Grey bases argument on two areas:
o (1) Clause is improper - you need to specify what the interest rate and principal amounts are. By
having a place holder that doesn’t give specific numbers, not proper under s. 225(3)(d)
o (2) Section 225(5) says Part 2 of mortgage must consist of all other terms of the mortgage. This
is not being complied with because credit line should be part of the mortgage. The actual credit
line agreements between the parties are part of the mortgage and therefore should be attached.
- Decision: Court rejects a strict reading of the mortgage and the act. Can make sense of the mortgage as
a whole, satisfied that the parties came to an agreement.
o Argument 1: Rejected because to technical and conservative reading of the mortgage. Need to
take a more contemporary approach to contract – can party’s intentions be ascertained. The terms
are not ambiguous or vague - the parties turned their mind to all that they needed to; clearly
states that repayment on these terms will be contemplated with each future advancement, the
manner was just unusual. Para. 23.
o The WBD is a mechanical error, which should not be allowed to undermine registration, binding
effect, or validity of the instrument (from Hong Kong Bank case).
o Argument 2: Court holds that the agreements themselves are simply obligations secured by the
mortgage. There is nothing in the Act that says a mortgage can only secure one obligation - it
can secure many obligations.
- Court is unwilling to take a tight technical reading of legislation. Para. 36: Just because there is a
statutory form of mortgage - there is nothing to indicate that the Legislature intended to limit the number
of obligations that could be registered on the one mortgage.
- Court holds that Richmond Savings stands in priority to Grey’s Mortgage and stands in priority.
- Ratio: As long as the parties understand what the obligations are and registered in a form that the
legislation requires then Courts unwilling to take a nit-picky approach to finding them invalid.
o Should read the entire mortgage in its form, will not rely on mechanical terms to set aside the
details of the agreement
2.2.Equitable Mortgage
- Equity of Redemption: Allows a mortgagor/debtor to redeem the mortgage or pay it back after their
legal right to do so has expired. This principle arises or allows the debtor to still pay it back in equity
and keep their property.
- Right to Foreclose: Only the first mortgagee has the right to foreclose and sell the property.
o If you are a second mortgagee and want to foreclose, then you must take on the first mortgagor’s
interest.
- Equitable mortgage is a mortgage which has the equitable right to redeem. May not have a legal right to
foreclose, but they do have an equitable right against the property to retrieve their loan amount
- 3 Ways to Create Equitable Mortgages
- (1) Equitable or future interest
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o This is the second or third mortgage, legal title can only be conveyed once, but infinite equitable
mortgages can be made
(2) Legal mortgage fails
o The debtor has not executed an instrument that is sufficient to make a legal mortgage so out of
fairness should recognize one anyway
(3) Deposit of duplicate indefeasible title
o The registrar can issue, if someone wants physical proof of title
o S. 189: Where owner wants to transfer property, the duplicate must be returned to the LTO
o S. 195: If you want to register a property for sale, duplicate must be returned to LTO
o If the duplicate is lost or destroyed, SS. 192-193, another one can be issued by the registrar. If
you want to do anything with the property under section 189 or section 195, the duplicate copy
has to be in the registry.
o The actual impact is that it burdens the property and is an unregistered way of hindering or
inhibiting the property.
o An equitable mortgage is not registerable.
Royal Bank of Canada v. Mesa Estates Ltd. (BCCA 1985)
- Facts: There are three credits and Royal Bank has 2. They want a judgement saying the deposit of the
duplicate title with Royal Bank is an equitable mortgage and has priority over the other interests.
- Issue: Whether an equitable mortgage has been created
- Decision: Everyone has agreed the bank is holding the duplicate indefeasible title as security. But look
to the wording of the contract broadly and see no mortgage. There is a total lack of indicia to create an
equitable mortgage
- Usual elements needed in a mortgage:
o Clear words of pledge, mortgage or charges;
o Words of seizure and sale or of foreclosure;
o A mortgage debt stated of ascertainable e.g. fixed sum;
o 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 on the happening of a stated
event such as default;
o Any suggestion that a registrable form of legal mortgage was ever asked for
- Law: In equity a mortgage is created by K where evidence in writing for valuable consideration to
execute a legal mortgage or that certain property is to stand as security for a certain sum.
o Need to consider this in the context of BC Land Title Act, so reject the general statements of
Hallsbury
o Can only duplicate a certificate if returned.
o Imply that will look to whether it’s an equable mortgage on the road to a legal mortgage
- Application (Lambert): No clear intention, need to look at objective intent
o In BC when a duplicate indefeasible title is deposited with a bank, the deposit is generally for
one of three purposes
o (1) Safekeeping: not plausible
o (2) A Negative Covenant (security for an undertaking not to sell or mortgage the land until an
obligation to the bank is discharged or released): no clear evidence
o (3) Equitable Mortgage (to charge the land in favour of the bank, by way of equitable
mortgage, as security for the performance of an obligation to the bank): no evidence
o Here no evidence of an equitable mortgage described in the duplicate certificates of title. Not a
negative covenant to encumber or dispose of such lands.
Disguised Form Mortgages
- If an agreement has an option to repurchase, the court will decide if it’s actually a disguised form
mortgage. The court will really look at the effect of the whole agreement. Also what was the intention
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of the parties, has to be clearly stated
Kreick v. Wansbrough (SCC 1973)
- Facts: K made a variety of unsecured loans to W, some of Ws lands were conveyed to K with an option
to repurchase. If the option was not exercised then K could pay the rest of the property value based on
fair market value. W had the right to occupy the house without rent for as long as he wished. The option
expired, and then W wanted property back arguing it was a mortgage
- Issue: Were the terms to be seen as a K of sale of land with an option to repurchase or was it a mortgage.
- SCC: This was not an equitable mortgage and there was no undue influence. This was a fair market
deal as the purchase price of the land was adequate. The loans from K or the grant of security were at
different times and were not all part of the same transaction, such that the land was security for the
property when the loans were originally given out. The agreement for sale was not one of the loans
o Court looks at the complete nature of the transaction and surrounding circumstances
o Not in the nature of a mortgage
Blackaby v. Rabson (BCCA 1994)
- Harken back to Larsen and Charon
- Facts: B owns a house that was going to be foreclosed so R agrees to bail him out. It is seen as a
refinancing agreement, there is a transfer with an option to repurchase. The option is for 88K and the
lease is for $1000 a month. Once transferred to R, he re-mortgages it and gets it out of arrears. B keeps
living in it, and then extends the options. After 4 years the option and lease expire. R then tells B he can
buy for fair market value
- B then wants this to be an equitable right with an option to repurchase. This so he can get an equitable
right to redeem after the legal right to do so has passed.
- SCC: The documentation was clear and unambiguous and they do not portray an equitable mortgage.
The court calls into question Bs evidence at trial, felt he was less then truthful so the appeal was
dismissed
o It was clearly not a mortgage and the authorities citied as finding a mortgage can be
distinguished from this case on the facts
2.3.Common Elements
Redemption
- Even where a mortgagor (debtor) fails to make a payment or breaches the legal mortgage, there is still
an ability in equity to redeem the mortgage for a certain amount of time after that. That equity of
redemption is a legal interest that can be leased or mortgaged; can’t contract that away. Difference
between the value of the home and the equity = equity of redemption.
- Can’t be forced to be mortgaged forever - at common law, principle of redemption period depended on
principles of unconscionability and the circumstances; there has to be the ability to pay the mortgage
out.
Requirement of redeemability
- Section 10 of Interest Act: Cannot cause someone to be indebted in perpetuity. Have to be able to
redeem a mortgage at year 5 or later without a huge penalty. Corporations can K out of s. 10; individuals
can’t do so with personal mortgages.
Collateral advantage
- These are seen as bonuses needing to be paid for the privilege of obtaining a loan, in addition to interest
rate. If you want to get out early, then you have to pay 3 extra months of interest
- Ex in commercial context: we will advance you three payments and every time we do this, you will pay
us a 10% bonus
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So in essence you are paying more than the interest rate but ok as long as it is not unconscionable, 60%
Clog on equity
- Mortgage terms cannot be a clog on equity – cannot prevent you from paying it out – cannot be
contracted out
- If you grant an option to purchase, it would do away with the ability of the land owner to exercise their
equity of redemption. For our purposes, no matter how savy and intelligent we are, we have to be careful
not to inhibit equitable principles.
Release of liability
- When is a mortgagor released of their liability of a particular mortgage?
o Under equitable law of mortgage when a purchaser assumes an existing mortgage and bank
agrees, the original person who signed the mortgage documents will also be liable even if they
have assigned to another and no longer own the property. Vendor has no control over the
actions of the purchaser or the way they act on the property
o Changed so that now, when they assign the mortgage, they will cease to be liable three months
after the mortgage expires. This doesn’t give much comfort.
- Property Law Act ss.20-24
o S. 20 – Definitions
o S. 21 – Implied covenant
o S. 22 – Direction against current owner
o S. 24 - mortgage discharge provision by the legislature - the original borrower can request that
the lender to release them from liability. Lender cannot refuse unreasonably.
o S. 23 - the lender has a right of action against purchaser/current mortgagor/current property
owner in the event of default even if the purchaser has not yet entered into agreement with the
lender.
o These are limited to residential mortgages, and are limited to estates in fee simple; don’t apply to
leasehold interests.
3. Unexpressed Terms/Implied Covenants
Implied covenants
- Land Transfer Form Act Part 3
o Has a variety of sections that state certain things
o Implied that a mortgage contains all buildings, common yards, etc.
o It takes all the long language and say mortgages include this
- Land Title Act s.225
o The form of a legal mortgage, implied covenants must comply with this section
- Power of Sale – Foreclosure
o There is an implied power of sale or foreclosure in a mortgage. Final implied covenant
o Mortgagee has an equitable right to apply to the court for foreclosure, as well as their right to
compel the mortgagor to exercise their right to redeem.
4. Statutory Protections
Definitions
- Interest: Price paid for the privilege of using someone else’s money. Paying them for using the money
and the risk
o Generally, when you borrow money you have to pay the lender a certain amount in addition to
the principal amount for the privilege of borrowing money from time.
- Simple interest: Calculated over the term of the loan without any compounding. Principle X interest rate
X number of years
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Compound interest: Where interest from a previous time unit is added to the amount of which the
interest rate is applied to.
o Vast majority of interest we deal with, compounding in the norm
Nominal rate: The rate on the face of the document, different from effective annual rate (due to
compounding, fees, bonuses, penalties, different rates).
Effective annual rate: The actual rate that you pay given the effect of compounding. The amount
actually paid for after fees, penalties, bonuses, compounding etc.
Compounding: If you compound you have more to pay, generally calculated annually or semi-annually.
o Why compounding? Banks make more money; for mortgagor: make more payments instead of
monthly payments.
o For our purposes -when you are calculating an amount paid, remember that the amount paid is
not solely on the face of the document - if compounding occurs, you will be paying more
(important for criminal rate or Interest Act violation). Ask for a payout statement from the bank
to figure out how much you actually owe.
4.1. Federal
Interest Act ss.6-10
- General Rule: Where the interest rate is clear, then the courts do not consider payments blended and the
protection afforded by Section 6 of the Interest Act can be avoided, Kilgoran.
- Section 6: No interest is recoverable unless the mortgage shows the amount, the rate calculated yearly or
half yearly, or the rate not calculated in advance but at the end of the term.
o Purpose of this section is that the interest rate is shown and it is calculated on an annual or half
annual payment
- Applies in 3 situations.
o (1) Sinking fund plan: loan repayment method, we don’t really know what this is
o (2) An allowance of stipulated repayment. No definition no caselaw, don’t know what it is
o (3) Payment of interest and principal are blended. When paying loans paying both interest and
principal, but Kilgoran shows this many be different
- Section 7: the bank cannot ask you for more than what is owed on the face of the mortgage. No rate
recoverable beyond what is stated in the document.
- Section 8: Prohibited from paying a fine that is greater than what is owed on the principal. Once you are
in arrears, cannot charge a default.
- Section 9: An interest overcharged can be recovered
- Section 10: Cannot be indebted forever, after 5 years you can pay-out the mortgage by paying principle
remaining and the 3 months interest. Banks can’t force you to be indebted to them for more than 5 years.
- Amortization: the amount you have to pay each month
o Now it is very rare to have a 25 year with an interest rate
o The term of the mortgage will be 3-5 years but the amount they pay weekly or monthly is
amortized over the 25 year period. Then you just keep renewing after 3-5 years.
Kilgoran Hotels v. Samek (SCC 1967) – Section 6
- Facts: There was a loan with quarterly payments. The interest is set at 6.5% quarterly and we know in
the first quarter, the interest is $5018, and they pay $7000. Argument is that it doesn’t comply with
Section 6
- Decision: This is not blended payments as used in Section 6, since there is no concealment. The amounts
are clearly stated and the person is required to pay on each instalment. No way to say that the payments
are blended as to such an extent that they cannot be separate
o Not blended payments where interest and principle is easily calculable
- Purpose of Section 6 is to protect a mortgagor from having concealed from him the true rate of
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interest he is to pay. “Blended” means mixed as to be inseparable and undistinguished
If you can see what is the interest and what is the principal then section 6 doesn’t apply
Post Kilogran: Courts have only treated payments as blended (as recognized under s. 6) where there has
been inconsistency in the mortgage documents or ambiguity in the way in which payments will occur. If
there is confusion in the mortgage documents itself, then courts will look to s. 6; as long as interest is
not concealed then generally courts will not consider the payments blended.
Reliant Capital Ltd. v. Silverdale Developments (BCCA 2006) – Section 8
- Facts: The company has to sell the units to pay off the loan. There is a 13 months mortgage and 12 of
those months the rate is set at 14% and the last month it goes up to 20%. The company defaults and they
want to pay the 14% interest and not the 20%. The purpose of the increase was not a fine or penalty, is
to allow them to earn a reasonable compensation
- Issue: Whether the provision in the mortgage increasing the interest rate one month before the mortgage
due date is unenforceable as in conflict with Section 8.
- Law: Courts have refused to enforce interest charges that were in the nature of a penalty. Essence of a
penalty is a payment of money stipulated in advance of the party in default rather than a genuine preestimate of damages sufferance. Same application to commercial and residential real estate
o Purpose of this section is to protect property owners against abusive lending practices, while
recognizing that generally speaking partiers are entitled to freedom of K.
o Line should be drawn between interest provision which are intended to extract a higher rate of
interest in the event of default and interest provision which have a legitimate commercial
purpose.
o Section 8 does not prohibit rates of interest that are higher on arrears than on monies owing that
are not in arrears only if the increase is dependent on default.
- Decision: This type of provision does not offend section 8, clearly on the face of the document, the
increase in interest rates comes about due to lapse of time and not default. The rate is okay because it
is tailored to protect the mortgagee for after a year, when the risk goes up. Also here the increase rate is
on all monies owing, not just money before.
o They look to the wording and the intent in balancing the risk in this type of agreement.
o Legitimate commercial purpose test is not useful primarily because it gives rise to commercial
uncertainty and leads to arbitrary application
- Ratio: Section 8 only protects against interest increases that are levied as a result of default not those
that are based on other agreed upon factors (timing)
Criminal Code s.347
- 2 Offences: (1) If you enter into an agreement at a criminal rate, or (2) you receive payment at a criminal
rate then you are guilty of an indictable offence.
- Criminal rate is defined as exceeding 60%. Interest is defined not just as the percentage listed, it is the
sum total of everything received.
o Any money which results from the advancement of credit, not just the rate on the face of the
mortgage but all of the other fees, penalties, bonuses which are implicated in the benefit of the
financing.
Degelder Construction Co. v. Dancorp Developments Ltd. (SCC 1998) – Interpretation of S. 347 of CC
- Deals with an older section 347, but essentially (a) and (b) have collapsed into one subsection
- Facts: A construction loan was advanced for condo project. Due to structural problems additional
financing was needed. Got a one year mortgage from Metropolitian trust with a variety of conditions.
First mortgage for $16.6 million and then have an additional $2.5 million that can be drawn. But for
every dollar that they take out, they pay $1.30 and the interest is prime plus 2%, there is also a
placement and processing fee.
o On the face of K the interest is only prime plus 2%, but if you add in all the additional fees it gets
large. They pay monthly payments, but 3 days before the full payment is due, a receiver is
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appointed. The terms of the agreement for 11 months, but the loan was not paid until 3 years
later. Loan is challenged arguing it is a criminal rate, they argue if the payment had occurred on
the date specified, it would have been 75% interest.
Issue: Should the interest calculation be based on the contractual term of the loan or the period during
which credit was actually outstanding.
Decision: Court notes the broad definition of interest, all the commission and fees. The effective
annual interest date is related to the period of time the credit is extended and the interest is out there
being paid.
o Calculate whether or not an offence has been committed by entering into a mortgage of a
criminal rate and whether a criminal rate has been paid by looking at the period over which the
mortgage has been extended
Nelson v CTC Mortgage Distinguished
o Facts: because the debtor paid off the mortgage early, the rate of interest actually paid ended up
being criminal.
o Decision: By act of a debtor, the creditor cannot suddenly be committing an offence. If the
debtor choses to pay early, doesn’t make the creditor liable. So cannot punt an otherwise legal
agreement into the realm of criminal
o It is distinguished and reaffirmed. Nelson does not exclude the possibility of a criminal interest
rate arising during the course of a loan at the initiative of the lender.
For the foregoing reasons, s. 347 should be interpreted according to the following general principles:
o (1) Section 347(1)(a) should be narrowly construed. Whether an agreement or arrangement for
credit violates s. 347(1)(a) is determined as of the time the transaction is entered into. If the
agreement or arrangement permits the payment of interest at a criminal rate but does not require
it, there is no violation of s. 347(1)(a), although s. 347(1)(b) might be engaged
o (2) Section 347(1)(b) should be broadly construed. Whether an interest payment violates s.
347(1)(b) is determined as of the time the payment is received. For the purposes of s.
347(1)(b), the effective annual 255 rate of interest arising from a payment is calculated over the
period during which credit is actually outstanding.
o (3) There is no violation of s. 347(1)(b) where a payment of interest at a criminal rate arises
from a voluntary act of the debtor, that is, an act wholly within the control of the debtor and not
compelled by the lender or by the occurrence of a determining event set out in the agreement.
Nelson
Application: Over the three year period, the interest payments do not constitute interest at a criminal
rate. It is determined at the time the payment is received, over the time the mortgage has been extended.
Cannot determine this until it has been paid. In this case it was over 3 years, so it was not a criminal rate
of interest. First look at the document to see if a criminal rate of interest is in the document, then look to
the actual amount paid
Bank Act s.450
- Requires banks to disclose non-commercial borrowers the cost of borrowing.
4.2. Provincial
Business Practices and Consumer Protection Act
- Applies to the service of providing credit; does not apply to business transactions, only residential
- Definitions
o Supplier: Person who in the course of business supplies goods or services, including real
property. Should not engage in an unconscionable transaction with respect to a consumer
transaction.
o Goods are defined to include credit
o Consumer transaction: must be for a household purpose
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Unconscionable Transactions
Section 9
o (1): General prohibition - a supplier must not submit or engage in an unconscionable consumer
transaction.
o (2): Burden of proof that it is an unconscionable transaction is on the lender, reverse onus
Section 8: Looks to what the lender knew or ought to have known.
o Relation to other similar transactions; language; reasonable prospect of repayment; harsh terms
o Court will look at the circumstances: Undue pressure on the borrower, if the lender took
advantage of a particular weakness (physical or mental infirmity, illeteracy, inability to
understand transaction), whether cost of transactions exceeded other similar transactions,
whether at the time there was no reasonable prospect of repayment, or whether the terms were so
harsh as to be inequitable.
Part 5 – Disclosure Statement
o Section 66 and 67: lender has to provide the borrower with this statement at least two days
before entering into this type of situation, mortgage
Section 72 - Registrable discharge
o Can obtain this within 30 days, if all money is paid off
o They can reopen the mortgage, relive the borrower of any obligation to pay, or order them to
make any payment.
Section 10: Relief
o Additional powers to the courts, allows the vendor to reopen mortgage and take account of
transactions; reopen any transaction an relieve borrower or any obligation above the prime
interest rate; can order borrower to pay excess; can set aside the agreement
Mortgage Brokers Act Part 2
- Requires protection in the context of consumer protection
- Applies to mortgage brokers and some types of transactions
- Requires disclosure and conflicts of interest disclosure statements.
o e.g. if a mortgage broker is interested in a particular property, they have to disclose that interest
to the lender (pecuniary interest in the deal over and above their job as a mortgage broker).
- Disclosure: they have to disclose any interest. They get paid by the banks, so they get a commission and
if they get any fee above that they have to disclose it
5. Enforcement
5.1 Assignment/assumption
- Mortgages can be assigned, a lender can assign to another person
- Section 209 LTA: Transfer must be in a proscribed form, gives the person all the rights and benefits of
the mortgage. Transfers all the associated rights and equities
- Section 27 LTA: You cannot assign more than is due to you, the transfer takes subject to the equities that
are remaining
- Section 22 LTA: Can’t have an interest in land unless it is registered – title passes at the time of
registration
- Law and Equity Act s.36: You have to give notice to the mortgagor, in writing.
Property Law Act ss.20-24
- Deal with what happens to the equity of redemption when you assume a mortgage. Has overruled the CL
that original mortgagors are liable forever
- These sections mean: (1) Changed the common law in that the original vendor is released 3 months after
the mortgage is expired, as opposed to forever. (2) An original borrower can request that the vendor
release them from liability and that release cannot be unduly refused. (3) If there is a default under the
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mortgage, they have a right of action against the new purchaser, even if they don’t yet have privity of
contract
3 Principles
o (1) Only applies to the assumption of an existing mortgage
o (2) Limit the ongoing liability of an existing mortgagor
o (3) Gives the ability of the mortgagee or the bank which has the ongoing credit extended to claim
against mortgagor number 2.
These provisions are limited to residential mortgages
5.2 Priorities
- In our land title system, registration is everything.
- Land Title Act Section 22: No interest in land is created unless it is registered. The time of registration is
when the interest passes
- Land Title Act Section 28: When you have two or more charges on the register affecting the same piece
of land, they have priority over the date and time.
- Section 23-25
- Section 23(2): An indefeasible title is conclusion evidence that the person named in the title is the
registered owner. Subject to fraud
- Section 25(1): Anyone who purports to acquire land, but registration of a void instrument does not
acquire any interest upon registration. Exception is a bona fide purchaser for value with notice, they are
the purchaser of land and not a registered charge
o Indefeasibility of title as to ownership is only for bona fide purchaser, is not extended to lesser
interests like mortgages, covenants, rights of way.
- Section 26(1): Registered owner is deemed to be entitled to the estate/interest/claim created or evidence
by the instrument in respect of which a charge is registered, subject to some exceptions
o Just because you are registered doesn’t mean you are entitled to the interest, you are deemed to
be entitled which is a rebuttable presumption.
- These sections call into question the idea of having the best land title system, and the trueness of the
register
Gill v. Bucholtz (BCCA 2009) – Interests less than an indefeasible title are not protected through bona fide
purchase for new value
- Facts: Have an innocent land owner and an innocent mortgagee. Someone forges a title and then
registers 2 mortgages on it. The first was to the Bucholtz and they were about to register to a second
person, after money was advanced but were unable to because original owner had put a caveat on it so
the registrar refused to register.
o Neither of the mortgagees knew about the fraudulent nature of the title. They had relied on the
title certificate, also had confirmed Gill 2’s identity so had done some due diligence.
- Issue: Should the mortgages be removed from title. Application by original owner to cancel the title and
to be restored as the owner on the property.
- 3 general principles:
- (1) Have an indefeasible quality of title, true owner can recover where the second owners is part of fraud
- (2) LTA does not give the registered owner of a charge the same quality as an owner. They are deemed
to be entitled, but this is a rebuttable interest.
- (3) LTA preservers the legal maxim of nemo dat, that is you can’t give what you don’t have
o If you acquire interest in land though a void instrument, then you don’t acquire that interest
- (4) Torrens system does not provide absolute protection based on registration
- The LTSA has been joined as a party as this fundamentally has an impact on the title system
o Indefeasibility only gives protection to true owners and bona fide purchasers, not charge holders,
or someone who holds an interest
o The innocent mortgagees argue that the land title office is better able to determine if the register
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is correct or not, it is impractical that every person who will register will have to do significant
due diligence to see if the register is what it says it is.
o Anyone should be able to deal with the registered owner until fraud is shown and the register is
rectified.
TJ: Property returned to owners, but mortgage remain as this is fair.
CA: Overturn trial and use the intent and the plain meaning of act.
o LTA s.23(3)(i) – indefeasibility of title is conclusive evidence at law/equity that person on title is
the registered owner and entitled to title in f/s, SUBJECT to fraud
 At common law a fraudulent mortgage is ineffective as it doesn’t pass an interest. A
mortgage that is void, result of a fraudulent transaction, is not cured by registration, still
void.
o LTA s.25.1(1) – if you acquire interest in land through a void instrument, then you don’t acquire
that interest
 (2) Even though void, a transferee for value in f/s with no knowledge does take the
interest
 So anything less than f/s interest does not remain through a void acquisition
o LTA s.26 – registration deems the holder entitled, but registration doesn’t verify that it is a valid
interest
 On a plain reading of section 26 one can see that owners of lesser charges do not gain
absolute protection.
o Refereeing to nemo dat, the mortgagees did not require any interest because they were granted
by someone who had no interest to give. Court orders that the mortgages are cancelled.
Notes: Section 26(2) that registration of a charges does not constitute a determination by the registrar
that the charge in fact creates an interest in and or that it is enforceable
Section 25(2) and (3) create exceptions for bona fide purchasers for value, but they apply only to
instruments purporting to transfer fee simple estates
o The act does not purport to validate every grant or interest carried out by a fraudster who is a
registered owner not to protect every person relying on the register
If you can’t rely on the face of the register, what do you do?
- Obtain title insurance, which guarantees that the title is good and they will pay out if the title is not
good. Use it more in BC because of mortgage fraud and it insures for more than just mortgage fraud. It
usually only endures for 2-3 years, but if you get a survey you pay more but it lasts a long time.
- We see lawyers using title insurance, but the vast majority of them still rely on the state of title.
5.3 Foreclosure
- Collecting on a mortgage that has gone into arrears
- Foreclosure is more particular than a simple debt-collection, there is a right to redeem
- Attempting to get a particular date by which the mortgagor must exercise their right to redeem and an
order to sell the unit if this right is not exercised
- Must be an accounting of the amount due under the mortgage and various specific orders
6. Mortgage Funding Process
- (see 2 page summary on moodle)
- The majority of people who need financing to purchase, sign a k for p/s with a pre-approval of a
mortgage
- The pre-approval is actually a commitment to lend from the bank, so the K is entered into without
secured funding; so a “commitment to lend” letter from the bank would be worth more at the K signing
phase
- Bank sends mortgage instructions to lawyer; Lawyer must then perform title search, review the
instructions for unusual conditions, order an insurance finder with the bank as the loss payee; Ensure
that property taxes are paid in full, utilities are paid in full; order a survey or title insurance as required
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The lawyer’s final opinion on title is relied upon by the Bank
Order a state of title certificate and forward copy to both borrower and bank
It is standard practice for the bank to rely on the purchaser’s lawyer – they do this to ensure that the
purchaser is charged for the fees associated to the transaction
6.1 Typical Process
6.2 New Financing: Common Requirements of Lenders
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Often banks require lawyers to do things which are outside their expertise as lawyers
You have to be very careful that you don’t agree to do something which is outside your realm of
expertise
Read the instructions very carefully and don’t agree to do something which you don’t have control over
and don’t agree to do as lawyers
Mortgage instructions
Form of Mortgage Documentation
“Opinions” or Proofs of Authority
7. Conflicts of Interest
Chapter 6, Rule 10
- This is the general conflict section, lawyer who agrees to act in real property transfers for two or more
parties must adhere to conditions
Appendix 3 of the Professional Conduct Handbook
- Since real estate is a special area, have more rules and this is an exception to the strictly held rule for the
conflicts of interest
- On the face of a real estate transaction you can in a non-business transaction undertake simple
transactions for both parties.
- Note Clause 7 of Appendix 3
o Explicitly says that if a lawyer acts for both mortgagor and mortgagee or a bank, they must not
act in a foreclosure proceeding for either party in relation to that transactions
o There are a few exceptions to this general prohibition, like if they acted primarily for one party
and the other only for the purpose of signing documents or if one of the parties is not part of the
foreclosure proceedings
8. Mortgage Fraud
- Verifying the identity of clients is the main consideration in the protection against fraud.
- Recall in Gill the fraudster forged a f/s owner and transferred the property to himself. Land Survey
Authority protects themselves in this type of fraud by shifting responsibility to the lawyers
Martin Wireck Case
- Facts: Martin Wireck was a lawyer who acted for VanView properties. They would purchase a property
and then flip it to a nominee purchaser and then they would encumber the property with mortgages. It
was clear that the money was going to VanView, but they would then sell it to a 3P at a fair market
value without notice. The lawyer would complete the transaction and he would undertake to discharge
the mortgage but never would. He would give the money to VanView and either forge a discharge or say
that it was discharged
o So have a 3PP who thinks mortgage is discharged but their bank is actually in a 2nd mortgagee
position
o This went on for 4 years because banks took a year or sometimes longer to issue a discharge of
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the mortgage, so the fact that you had shell mortgage sitting on the property was not in issue. It
was only when VanView failed to pay their mortgages that this came to light.
- Decision: Wrieck resigned from the law society and then was discharged and disbarred. There were 555
claims to the special compensation fund and more than $32 million was paid out to claimants.
o Not all of them were paid out, some were duplicative some were investigated. So the law society
fees for lawyer each increased from $250 to $600. The law society then had all the claims
subrogated and so they had the ability to go after Wireck and VanView. So they were the largest
creditor for the VanView group of companies.
o Lawyer misappropriation has now been moved to the insurance and not law society fund
anyway.
- A few years later he was order to pay the Law Society $2 million in restitution, and 7 years in jail.
- Implication: Changed rules so that lawyers were required to report to the executive director of the
law society the fact that they have delivered funds to another person to obtain a registrable discharge.
o Notification was required within 5 days of application for discharge and notification is required
if not completed within 60 days (3-88/89)
o Also law society rules now require you to verify the identity of the person, you have to check ID
and photocopy, etc.
Homewood Mortgage v. Lee 2008 BCSC
- Failure to verify identity resulted in an unenforceable mortgage
- Facts: Lee is aging and incapable of managing affairs. So Homewood receives application from
mortgage broker on an unencumbered home. The mortgage was granted, but the application was a
forgery.
- Decision: Court relies on overwhelming evidence that Lee did not sign the mortgage or authorize the
documents. The mortgage is invalid and so the company was left not receiving any benefit. They didn’t
adequately verify the identity of the person getting the mortgage, the address and signature were very
different so their fault
E. Pre-Closing and Closing Problems
General Process
- Interim Period: Mortgage, house inspection, if commercial then attempts at rezoning, environmental
examinations, have notice and conditions fulfilled
- Closing: The documents are in possession of the lawyers, decide whether parties can close
No Mortgage
- The documents are with the purchaser’s lawyer plus they have sufficient funds in their trust account to
complete the deal.
- Before transfer occurs, they do a title search to ensure nothing has been registered during the interim
period.
- Register the transfer
- Title search to make sure the register is transferred properly
- Pay out the funds, taxes and licensees then the vendor gets the cash
Vendor Mortgage Only
- The vendor needs the purchase price to pay out their mortgage
- Purchasers lawyer has the funds plus any significant funds
- On a title search, the vendor’s mortgage will be on the title, and we understand that with the purchase
price will pay it out. If the purchase price will not pay it off, then the vendors have to give more money
to be put in the fund to compensate for the difference
- Then you transfer
- Do another title search
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Do a payout of the mortgage, taxes, licensees
Then clear title once the mortgage is paid out, the bank will provide you with a registrable discharge, is
a land title recognized document, and the title is cleared.
Then do a post-discharge search. This has to be in 30 days with regards to consumer protection act and
60 days according to the law society rules.
Another title search
Vendor Mortgage and Purchaser Mortgage
- The purchaser has the documents that are needed to file the transfer of title, they also have sufficient
funds in their trust account to complete the deal, but those funds are considered in light of the purchasers
mortgage proceeds. Have a figure that the bank has agreed to lend, also have the deposit and the rest of
the funds like the down payment with the lawyer. Also the payout statement from the bank of the
vendor’s mortgage.
- Title search and hopefully only find the vendors mortgage on title
- Then you register the transfer, but at that time you also register the purchaser’s mortgage. Before
advancing the funds, the bank wants to see that the mortgage is registered
- When you do the title search, you have two mortgages on title, for that brief moment of time, the Ps
mortgage is second but no money has been given
- You confirm to the bank that the mortgage has been registered; the bank then advances the funds, and
then you payout to the various parties. Pay the vendors mortgage out, taxes, licensees,
- Within 30 or 60 days you clear title, get a registerable discharge
- Post clearing title search, the only thing on title should be the purchaser’s mortgage. You are clearing
title of the vendors mortgage
1. Title
Good/Marketable Title
- Is the purchaser getting what they bargained for?
- "Marketable title": A title that can, at all times and under all circumstances, be forced upon an
unwilling purchaser who is not compelled to take a title with defects, clouds, or the reasonable threat of
litigation to mar peaceful possession – Perell
o Practical terms means whether it would be fair to grant the vendor SP, perhaps with an
abatement of the purchase price, and compel the purchaser to complete the transaction
notwithstanding that the vendor’s title is not perfect
o If defect is significant, then purchases can refuse
- Good title is free from encumbrances and deficiencies except those which they have agreed to
- Purchaser has the right to good title, but not all encumbrances create an unmarketable title. The quality
may not have changed so much that the court may not be willing to force it onto a purchaser. Look at
how much it influences the use and enjoyment of the purchaser
o If it was in the documentation when they signed the purchase documents, the court would require
them to take it. If it was a new easement, then arguably that would give rise to something
different than what the purchaser had contracted for.
o If there has been a liens put on title, will not force them on an unwilling purchaser
o Also anything to do with family law matters, would be something which would have to be
removed from title before a purchaser is forced to go along with it.
- Key element is whether the defect is sufficient or bad enough which justifies refusing to close. It goes
to the use and enjoyment of the property.
- Decent enough quality so that it can be forced upon an unwilling buyer
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1.1 Obligations and Form of Transfer
Contract of Purchase and Sale
- Clause 9: Vendor agrees to provide title free and clear of encumbrances, except for:
o Reservations to the Crown (e.g. minerals),
o Utilities (rights of way, ability to have municipal sewer system, etc.),
o Existing tenancies.
- Clause 11: Vendor agrees to provide to the purchaser’s lawyer the signed documents to give effect to the
contract.
Land Title Act
- Section 23: Indefeasible title is conclusive evidence at law and you are entitled to an estate in fee simple
except (list of 10 things that are excepted from indefeasible title):
o reservations to Crown
o Federal/Prov. taxes
o Municipal taxes
o lease for less than 3 years
o highways and public easements
o expropriations and escheats
o registered charges on title
o incorrect boundaries
o fraud
o restrictive conditions imposed by Forest Act.
- Section 50: Reservations and Exceptions in original grant from the Crown
o Crown has title to things like minerals, water, coal, petroleum, gas and water. They have the to
take portions of land.
o Also municipal taxes, registered charges and restrictive covenants
- Section 20: Instrument dealing with land has no effect unless registered with LTO, except against person
making it (K is good between the two parties, but not to the rest of the world)
- Section 27: Requires that notice of encumbrances is given
- Section 29: Notice of unregistered interests
- Section 26: Just because instrument is registered, does not mean that it’s enforceable
- Section 185: Transfer must be in the form approved by the Minister – Form A
- Section 186: Wording in the covenants are incorporated into the transfer
Registration does not guarantee enforceability.
- The registrar will do an identity verification and look to see whether the thing you are trying to register
is in the proper form, and not whether it is actually valid
- Section. 26: Just because an instrument is registered does not mean that it is valid or enforceable, or that
it creates an interest in land. It is up to purchaser’s lawyer to make a determination whether registrations
on title have an impact on title.
o Registration doesn’t create an interest in land and the charge is enforceable.
- Section 221(2): registration of a RC is on a determination of its enforceability or its essential nature,
actual impact.
Property Law Act ss.1-7, s.37
- Sections 4, 5, 7: Purchaser has the obligation to prepare and tender the transfer but the vendor must
supply the purchaser with the transfer instruments
o If a purchaser price is payable at a future time, the vendor must deliver to the purchaser an
instrument in the form that allows the land to be registered at the LTO in the purchaser’s name
- They in essence mean the purchaser prepares them and tenders the transfer but the vendor has to
facilitate that.
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Obligation on purchaser to prepare transfer documents, but vendor must supply purchaser with signed
documents sufficient for the transfer.
Section 3: Either party may apply to the supreme court to decide on transfer issues
Section 4: Vender must deliver registrable title
Section 5: Transferor must deliver registrable title
Section 6: Transferor/Vendor to register own title
Section 7: Transferor to provide registrable description in a form that is agreeable to the registrar
Section 37: Provides a cause of action for Purchasers who suffer damages or loss due to a vendor who
cannot perform due to defect in title. Explicitly provides cause of action for purchasers who suffer
damage or loss against vendor who can’t close because of defect on title.
Law and Equity Act s.31
- Terms that are not subject to ToE clause, are to receive equitable principles
Land Title Act ss.185-186
- Section 185: Form of transfer must be in form approved by the Director of Land Titles
- The words set out in the Land Transfer Form Act are incorporated into the transfer unless exempted
- Section 186: The covenants in the Land Transfer Form are incorporated by references. The act sets out
when you use one word it means three paragraphs.
1.2 What Constitutes Title Default
Norfolk v. Aiken (BCCA 1989) – Must be RWA to complete, agree to closing procedure
- Impact: The case that changed the way that lawyers did real estate transactions in relation to closing
procedure. Paragraphs 13-14 were added to the K of purchase and sale due to this case
- Facts: Have an agreement which is signed on Jan 15 with a closing date of April 29. Subject to typical
terms like purchaser financing, vendor gives clear title, deposit increased on removal of terms, time is of
the essence. On Jan 17 sign an interim agreement amendment, the vendor is offering a $30,000
mortgage. Jan 27 the subject to financing is removed and the purchaser increases the deposit.
o Later the vendor’s former common law husband has registered a notice of pending law suit on
title. Feb 18 the vendor sends the letter to the purchaser and on March 14 the purchaser states
they intend to proceed and gives options. The vendor is not at fault, and the purchaser says we
will proceed so come up with good title. On April 14 the vendor says they are revoking the offer
for financing. The purchaser then commences an action for specific performance.
o Purchaser has taken the vendor to mean they are anticipating a breach given the behaviour so
have commenced an action before the closing date.
o Day before closing the vendor says we demand that you comply
o The purchaser then sends the vendor a statement of adjustment, and asks they be returned in time
to close.
- Undertaking: Is a promise by a lawyer to do certain things. We undertake that upon receipt of executed
documents, we will pay the balance (para 20)
o Less formal way of payment method. One solicitor gives the other a registered form, the other
has money in trust account, so they simply payout. It is a way of bundling the risk so that it
facilitates money and property movement without having people present all the time.
o Here the Ps solicitor says vendor has repudiated so don’t need to show up to tender. But they do
set out the procedure for closing, without prejudice if the transaction were to complete. We will
send proceeds in trust, so that you will pay out mortgage and you will provide information
necessary to show that the mortgage is cleared.
o On closing day, the Vs solicitor gives a discharge of mortgage and transfer of estate in fee
simple. So on the face it looks like all the documents are there, but the purchasers solicitor did
not present the documents for registration and didn’t give money, the reason was the that
computers at the office had crashed and so they were unable to complete on that day.
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o On May 4th, the Ps solicitor writes to them saying they are unable to complete, we advised you
that the documents were at the office, but you said no longer want to complete, so we are
claiming specific performance and damages
Law: A solicitor whose client cannot in fact perform without assistance from the other side, ought to
seek an agreement on the method of completion from the other side, well before the completion date. So
that if the other side insist on the its legal rights his own client can do whatever is necessary to perform
strictly his own obligations
Equity: tender is a formal step, if one side has made it clear that it will not complete it is not necessary
for the other to go through the formal step of offering the necessary documents or consideration.
o Where neither party is ready, willing and able to close according to the terms of the K, time
although expressed in the K to be of the essence ceases to be.
Repudiation: Where one party repudiates, the other has a choice (1) may accept the repudiation and if he
does, then both parties are relieved from the obligation of further performance or (2) he may decline to
accept repudiation thereby keeping the K alive in all respect for both parties.
Decision:
(1) Undertakings: the purchaser’s solicitor never put client in a position where they were ready, willing
and able to complete. They didn’t have enough money even though they said they did. The defendant
vendor had never agreed to the closing logistics suggested. On the completion date the vendor did not
have clear title. They had produced a discharge but they hadn’t paid it out or registered it.
o The standard form contract that was used did not at that time provide for solicitors to undertake
to close.
o You can close on undertakings, but the clients have to agree and be put on notice of the risks and
agree on closing. Need the agreement/permission of client to close on an undertaking
o As a result of this case, we have amendments to the standard form contract, Clause 13 and 14:
You have knowledge of and agreeing for your lawyer to close, giving them undertaking.
(2) Tendering: the person seeking SP has to be ready, able and willing to complete on the day of
closing unless they amend the contract. The ready party can call on the other one to complete. If they
don’t do this, they are in default of their contract.
o The court ultimately concludes that neither party was ready, able and willing to complete here.
The purchaser was in essential default of completion date by not having enough money, so
cannot claim SP.
o Unless you are coming to court with clean hands, we are not going to give you the equitable
remedy you seek. The defendant did not have clear title, hadn’t paid out the mortgage nor had
they applied to register the discharge.
Tendering (sidenote): showing that you are ready able and complete the contract. Prove you have all the
documents, money and good title to show that you are ready, willing and able to complete. You don’t
have to actually go ahead and put it in motion until the other party has shown that they are also ready,
willing and able.
Seguss v. Fawcus (BCCA 1993)
- Facts: The vendors required the purchase money to close, but they hadn’t made that known to the
purchaser. Known to both that the purchaser doesn’t have adequate funds. The purchaser’s lawyer said I
will show up at 9am at the land title office holding an executed discharge of mortgage and conveyance,
but did not show up. A few hours later he checked the office, on the face of the title, found a financial
encumbrance. The purchaser then sends a fax and says we are not completing because titles not clear.
The vendors lawyers then gets money (interim financing), and clears title in one day but the purchasers
lawyer still does not show up.
- Decision: The purchaser cannot stop the clock at 9:03am on the closing day thereby truncating on the
closing day and precluding the vendors from taking extraordinary steps of clearing the financial
encumbrances before the actual closing in the view of the purchaser not being in attendance for closing
at the commencement of the agreed closing day and in the face of a purported repudiation of the K by
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the purchase.
o If the vendor needs the purchase money to clear title, should say this in the contract. When the
purchaser shows they have the ability to pay, this triggers the tabling the registration of
documents. No requirement to discharge a mortgage until the purchaser can show they are ready,
willing and able to complete their side of the agreement.
o Providing purchase price and clearing title are mutually exclusive. The vendors here were
not in default at any time of the day, so they uphold the damage award.
Ratio: When purchase money is needed to clear title, vendor does not need to clear title, only show that
they are able to remove it. Court will consider this adequate proof of their ability to complete the
transaction.
Price v. Malais
- Looked at this for duties of a licensee
- Facts: Easement in favour of the irrigation district. Purchaser wanted a property where they could
construct a pool. They think there is potential for pool but learn of an easement which will impair their
use and enjoyment of the property. The licensee was liable because didn’t tell the purchasers about the
easement
- Decision: Allowed the purchasers to get out of the agreement, and to get their deposit back because the
water easement was very broad which resulted in a serious defect of title, so would interfere with the
use and enjoyment of the property.
o Vendor was not able to deliver good title and licensee was found to be liable.
o Court will look at general use and enjoyment and specific use and enjoyment, in determining
whether there is a serious defect on title.
Chen v. Hsu (BCSC 1997)
- Facts: Here there was a RC in favour of Royal Trust that you have to go to CPR and get approval of
your architectural designs. This was a serious covenant, but old. The vendor’s solicitors applied for a
discharge of the covenant, to remove from title. CPR faxes a letter saying the covenant could be
discharged/released and they will prepare the documents. The vendors then sent this letter to the
purchaser to show the way in which they are going to fix title. So not something that will interfere with
the use and enjoyment of the property.
o The purchaser refuses to complete because the title is not free of all encumbrances, no getting
what they paid for
o No word from the covenant holder, Royal Trust that they are willing to release, was simply a
statement of intention, entirely up to CPR to say we are not going to release it
- Decision: The court first looks to see if the title is clear, they look at the discussion from Norfolk. The
letter did not contain any undertakings and the vendor’s solicitor did not undertake to remove the RC.
Given that CPR nor the solicitor undertook to remove not good title, free of all encumbrances.
o Minor Defect: Then look to if it’s a minor defect so that we can foist it to an unwilling purchaser.
The court finds that this is a material defect, it requires CPR approval on the architectural and
design with has a significant impact on the use of the property
o On closing date, no clear evidence that the RC would be discharged nor was there an undertaking
to do so by either the CPR or the Ps solicitor.
- Test: Whether the vendor can convey substantially what is required by the K. This test would not
permit repudiation of the K for the encumbrances which are merely minor and insubstantial.
o Exceptions: Rights of way and RC necessary or used for their operation as a utility would fall
within the exemption provision to free and clear title contain in Section 1 of KPS. Here doesn’t
deal with the sue of the line, so not that type of RC
2. Condition of Property
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Two types of promises about the condition of the property:
(1) Conditions: which are the fundamental or essential promises, and
(2) Warranties: which are minor promises incidental to the purpose of the contract.
Clause 8: This is the as viewed clause, will be in the same condition on the possession date as seen on
the date inserted
Clause 7: Included items which go with the K, like fixtures, attachment, windows, screen doors. It is
clear that you cannot remove those items before.
o Purchasers can negotiate an access prior to the closing date, to make sure it has not been
removed but a missing fixture is not a reason to refuse to close can get an action in damages
2.1 Perell – Size Matters
- If you can see the delineation of property, then size does not matter. It does matter if you are purchasing
a per unit amount, like thought you were getting 10 acres at 100K an acre and only got 9.5 acres –
material deficiency depends on the purchasers intended use
o Kuhirtt v. Lamb: if you can see the edges, may deny the purchaser ground for complaint
- MLS: If no survey giving the actual size, it will say size as is, or if important then purchaser to confirm.
- Purchasers anticipation of the property to be received is determined not only by the description in the
agreement, but also by the size of the property as may be perceived by the purchaser after having
inspected it.
- If a purchaser closes and subsequently discovers that the amount of land has been misrepresented then
the purchaser has no ground for recession or for completion unless
o (1) There is a warranty or price adjustment provision in the agreement that survives the
closing or
o (2) The representation about the size of the property was fraudulent or amounts to an error in
substantialibus.
- As a measure for whether the purchaser has a ground for refusing to close his/her purchase, materiality
suffers from the difficulty that it is contextual and this limits the value of any case as precedent.
- The contextual nature of materiality also means the determining whether a defect in size is material will
depend upon the particular circumstances of each case, including the purchaser’s purposes and plans for
the property.
- Four common grounds for repudiation:
o 1. Non-satisfaction of a condition precedent that is not waived
o 2. Where the vendor has breached a fundamental condition of the agreement
o 3. Where the vendor cannot deliver good title, different quality
o 4. Where the vendor or licencee has made a false representation and purchaser can rescind the K
- These are linked to four common statements in the K for purchase and sale
o 1. Conditions precedent
o 2. Promises – fundamental conditions
o 3. Vendor’s commitment to convey good title
o 4. Representations and warranties
- Size matters especially where the unit price is based on price per square footage
- NOTE: fundamental conditions – go to the heart of the k; representations/warranties go to the quality of
the property – but are less than a promise
- Motive and good faith of the purchaser matter in determining whether he/she has grounds to refuse to
close the transaction
- Uncertainty in outcomes emerges because the factual context of each particular case will influence the
solution to the questions of interpretation, contract classification, materiality and good faith. All of
which are factors in determining whether the purchaser may or may not refuse to close
- Risks to not close: if no basis, then purchaser breached K, forefeet deposit, has to pay compensation. If
they close, vendor may be judgment proof.
3. Misrepresentations
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In certain circumstances you can rescind the K if there is a misrepresentation
Recession is the unmaking of the contract and since it is an equitable remedy, it’s discretionary, and
must have influenced the contract making party’s decision to enter into the K.
o Pre-closing: recession if negligent misrepresentation, fraudulent misrepresentation, error or
innocent.
o Post-closing: recession for fraud and error
Equity provides the remedy for rescission for misrepresentations. Need:
(a) a false statement;
(b) materiality (the false statement must be of a type that would influence a contracting party's decision
to enter into the contract);
(c) the false and material statement must have induced the party to enter into the transaction; and
(d) the innocent party must object before the closing of the transaction, unless the representation is
fraudulent or an error in substantialibus.
3.1 Fraud
- Will support a claim for recession both before and after closing
3.2 Innocent
- Generally there is no recession unless there is fraud or error in substantialibus
3.3 Error in Substantialibus
- Can get recession both pre and post-closing
- Definition: It is a material error in the quality of the property in that the error goes to the very substance
of what is being sold, the character of the thing
- You have to end up with something entirely different than what you have contracted for and don’t care
what type of representations were made, negligent or innocent. Courts will refuse to say if it was
fraudulent or negligent.
4. Purchase Price
- Clause 12: If it’s the vendor’s responsibility to deliver good title, purchaser's responsibility to pay the
balance of the purchase price.
- Norfolk v. Aiken (BCCA 1989) – purchasers fundamental obligation
5. Time is of the Essence
- Clause 12: Time will be of the essence hereof unless the balance is paid.
- It means that the parties will agree to adhere to the time limits and the requirements of doing things by a
certain date a time.
- General rule: If one party fails to perform on time, that is a breach of the contract and it gives the other
party the right to pursue their remedies immediately. Parties can waive this by conduct or agreement, but
neither party can rely on it unless they reassert it and give the other party reasonable notice.
- Section 31 of Law and Equity Act explicitly allows courts to apply equitable principles when dealing
with TOE clauses
o “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 This equitable construction is seen in Salama, where through no fault of one of the parties they
don’t uphold the time clause
- TOE is a very process orientated rule, it is based on the parties behaviors. The courts are willing to not
rely on it when it would be unjust or inequitable to do
5.1 What it means
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If time is of the essence, the failure of a party to perform on time will constitute a breach, giving the
other party the right to pursue his or her remedies immediately.
Where, by words or conduct, a party waives strict compliance with time limits, time will no longer be of
the essence, and the other party will have a “reasonable time” to perform. Salama Enterprises v. Grewal
Norfolk v. Aiken: Cannot rely on it, if you have outstanding obligations. You cannot force it on the other
party if you are not ready to close
5.2 Waiver
Shaw Industries Ltd. v. Greenland Enterprises Ltd. (BCCA 1991)
- Facts: The two parties agreed that time was of the essence but they were both equally casual in working
out the details in the closing. On the closing date the purchaser’s lawyers left the documents with the
vendor’s lawyer. It was a Friday closing date and so they didn’t get them until Monday. The vendor then
refused to complete the sale and the purchasers seeks SP
- TJ: dismisses action, purchaser appeals
- CA: Neither party did what they were supposed to and didn’t try to close in a timely manner. They
didn’t contact each other prior to closing day and so they were already in breach when the documents
came to them. So both parties lost their ability to rely on time, if they wanted to do had to reassert it
and either party can give notice to reassert
o The purchaser was in breach because didn’t prepare the transfer documents in a timely manner
but the vendor could not rely on the purchaser’s failure to perform as reputation without
reasserting time and giving proper notice.
o The contract was still good, and the P reaffirmed it by suing, that was notice. When they sued
they were ready, able and willing to complete. So the court gave an order for SP and found in
favour of the purchaser.
Salama Enterprises v. Grewal (BCCA 1992)
- Facts: Subdivision was required and it was agreed that the purchaser would obtain it. The contract said
that time is of the essence and this deal is part of a larger agreement. There are a variety of other parcels
of land which were required to create access. Purchaser got the permission to delay closing for a month,
then further extensions for one day and one week. They wanted further extensions, but the vendor
refused and purchaser sued for SP
- TJ: No SP and the purchaser appealed
- Law: Where time is of the essence and an obligation must be met by a specified date, the effect of the
extension on the essentiality of time must be determined in the context of the factual circumstances
surrounding the agreement.
o If the circumstances make it unjust or inequitable for a party to insist that time is of the
essence, court may refuse to give effect to this provision.
- Decision: Here the purchaser and vendor agreed to work together and without subdivision and access
there is nothing for the vendor to convey. The court says that because the vendor refused to close, they
made it impossible for the purchase to bring about the subdivision and complete the deal.
o It was unjust and inequitable to assert time is of the essence. TOE gives us certainty of the
contract; it does not replace the equitable considerations. In this particular situation, the certainty
in the extensions does not remove the vendor’s obligation to complete as agreed to.
- Generally breach of TOE gives rise to the right to remedies, except where it is unjust/inequitable to do
so.
Ambassador Industries v. Kastens (BCSC 2001)
- Facts: K between the two parties and the sale is dependent on the condo of the vendors being ready.
There was a delay in the completion of the condo and so the vendors gave notice to the purchasers of the
delay but no new completion date was set.
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o In April the vendors then told them the condo would be ready on May 3rd, so changed the
completion date in the interim contract, noted that all other terms and conditions stayed the same
o Vendors executed the documents, arrange to have them sent to the purchasers lawyer, but for
some reason the courier didn’t show up until the next day. The purchasers refused to complete
and gave notice that they were terminating based on breach of the time is of the essence clause.
Counsel for the vendors say TOE was waived because no new completion date set, so K is valid. If you
don’t tender the funds by 3 pm we will consider you as being in breach and we will keep your deposit.
Issue: Does the general clause that all other terms will stay the same, reassert time of the essence.
Law: Once original closing date has passed, the law will imply a term that the sale be completed in
reasonable time and that one party cannot unilaterally make time of the essence by setting a new
date for performance, must give express notice that if the new date is not met, the party serving the
notice will treat the K as at an end.
Decision: The late delivery was no fault of the vendors and the purchasers never said that they would be
relying on time is of the essence before they accepted the documents. So the Ds couldn’t have avoided
being in contravention of time is of the essence, which isn’t fair.
o Cannot rely on the May 3rd letter as TOE re-assertment because that notice is insufficient/not
reasonable time to give the vendors to perform.
o Given that the vendors behaved properly and because a very short time frame for the completion
to be delayed, they are unwilling to allow the purchasers to rely on this general clause that all
other conditions will stay the same and get out
Ratio: When you have amended the contract then you have to give notice to the other party specifically
that you are relying on time is of the essence. Here notice was not given specifically, so the delivery
of documents was sufficient to complete the contract.
Sorensen v. Carriage Lane Fine Homes Ltd. (1998 BCSC)
- Facts: Sale of a unit with terms that time is of the essence and title to be clear. The purchaser was
allowed to move into the unit before the transfer of title. There was a variety of delays in getting the
occupancy permits and during this time, there were 13 builders liens so title no longer free and clear of
encumbrances.
o The purchaser is then given notice by the vendor that they will have to delay the closing because
there are still outstanding liens on the property. The purchaser finally gives notice that they will
not complete because vendor unable to provide clear title. The purchaser then claims damages
and deposit. The vendor counterclaims for the deposit.
o The vendor is saying it is unjust and inequitable to rely on time is of the essence because the
purchaser had agreed to all these extensions in the past. Therefore he had to give notice that he
will be relying on time is of the essence
- Decision: If there are circumstances that make it unjust, the court may refuse to give effect of time is of
the essence. Here it cannot be argued that by taking possession before completion, the P waived the
right to insist that D gave clear title. The court concludes the contract did use time is of the essence and
the purchaser was at all times was ready to complete, he didn’t do anything to prevent the vendor from
completing D ought to have been aware of the risk that P may not be willing to grant further extensions.
- Note: The purchaser is just insisting on their legal rights. The vendor is refusing to close because he
doesn’t have clear title. Not really a time is of the essence issue, as one party cannot make good title on
closing date. It is simply the purchaser walking away from a vendor who can’t complete.
Norfolk
Behavior
Neither party is ready, willing, able to
complete
Ratio
No TOE
Shaw
Casual agreement
No TOE
Why
Must be RWA if you want to rely on it,
have to reassert and give reasonable
time. Not RWA, No SP
Parties must give notice of when they
want to complete and of TOE
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Salama
Ambassador
Sorenson
Closing is extended due to no fault of
the purchaser. The vendor refuses a
one day extension after numerous
extensions
Many extensions because the condo
not ready, then documents are not
delivered through no fault of the
vendor.
Extensions and then the purchaser
refuses to close due to liens on title.
Unjust to
rely on
TOE, so
no TOE
No TOE
Unjust since purchaser didn’t do
anything incorrectly and the vendor was
unreasonable since didn’t do all they
could to bring about the K
TOE must be re-asserted with notice if
they are going to rely on it.
There is
TOE
The purchaser is relying on legal right
of refusing to close when the vendor
cannot make good title.
F. The Collapsing Deal
1. Anticipatory Breach/Repudiation
- It is clear in law that you don’t have to wait for the other party to breach to bring an action. If one party
to a purchase agreement, before the completion date, clearly indicates an intention not to complete, the
other party is entitled to treat them as being in default.
- Norfolk v. Aikens: You need to give them notice if you accept their anticipatory breach. If you don’t give
them notice, you are bound to continue on as if the contract is valid.
- Roy v. Kloepfer (SCC 1952): You don’t have to wait for the closing date to accept a breach. This relies
on the equitable jurisdiction of the court to provide a remedy or declaratory order.
2. Tender
- Tender is good evidence to show readiness to perform
- Norfolk v Aiken: The basic rule of closing procedure is that to sue successfully for specific performance,
the plaintiff must show that he/she was ready, willing and able to complete the transaction at the
appropriate time.
o Example of evidence is that you don’t have to actually discharge a mortgage, just show that you
are able to do it
3. Election – Affirm or Disaffirm
- Disaffirm: I accept your breach of K, will treat K as at an end and I will pursue my remedies
- Affirm: I don’t accept your breach, I affirm the contract, keep it alive and I will pursues my remedies
- You must choose one because it fixes the remedies that are available to you.
- Election is most often irrevocable, so need to explain to the client what the choice means. Also should
always communicate the election to the other party.
- Damages: SP, damages in lieu of SP, common law damages (now courts lump them together)
SP
Affirm
Damages
Breach of contract
Deposit
Disaffirm
Damages
4. Remedies for Failure to Complete
S.24 Law & Equity Act
- This gives the court equitable jurisdiction to do whatever they want
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Pulls into statute their CL and equitable jurisdiction
Courts will assess damages at different points in time and based on different facts
4.1 Retain/Return Deposit (recap)
- Vendor claims deposit, if the purchaser defaults as it’s meant to offset damages.
o Vendor could claim more damages if they are greater, or the purchaser can say your damages are
less so want more money. It is always in lieu of damages, so not a windfall.
- Purchaser claims deposit
4.2 Specific Performance
The Evolution of Specific Performance: LoPresti Article
- When breach of a sale of land contract, an aggrieved party may (1) treat the contact as at an end by suing
for damages or (2) keep the contract alive by suing for specific performance.
- Specific Performance: If the aggrieved party chooses specific performance, then the breaching party
can avoid defaulting by performing its obligations under the contract before trial. Because specific
performance keeps the contract alive, in theory, it extends the breaching party's period for performance.
o The aggrieved party must also be in a position to perform its end of the bargain at all times. If
the breaching party performs and the aggrieved party is unable to reciprocate with performance
of its own, then the latter will be in breach of contract.
- As long as the non-offending party can perform at trial, they can ask for SP, but they can also convert
that claim into damages at any time before trial. It is very onerous and puts a very high burden on the P,
if it takes you three years to get to trial, you have to have that much money for that long
- SP as an equitable remedy is very different. There is some kind of unquantifiable, emotional
attachment to homes. Since property is unique, may want that specific property.
- General approach is to mitigate and find a replacement, may be at a higher price but then claim that
from the other party.
o But in relation to land, houses are seen as unique in their characteristics and the parties have
certain needs and look for certain qualities, so law accommodates that if you can show some
uniqueness in the property and damages are inadequate
- Vendor: SP harder to argue since you seeking money anyway.
- In Smelhago Sopinka stated SP should not be granted as a matter of course absent evidence that the
property is unique to the extent that its substitute would not be readily available.
- Uniqueness: A subjective test would assess the aggrieved party’s reasons for wanting a property. On the
other hand, an objective test would determine whether a property has certain characteristics that
distinguish it from other properties.
o Don’t adopt either, is simply the extent that substitute would not be readily available.
- Onus: On the party seeking SP. The Ps decision is important because one of the main reasons for
denying deductions for damages in lieu of SP is that the award should mirror SP.
- The main consequences of Smelhago is that the aggrieved party in the sale of land K is no longer
guaranteed access to the equitable remedy of SP
o To avoid the type of windfall that fell on the innocent purchaser in Smelhago, the courts should
take steps to minimize undue gains by a purchaser in a rising market using discretion
o Achieve this by deducting from the award the carrying charges of the property and any interest
or the purchase money
Vendor SP
- Difficult for a vendor to prove that a deal is unique since all they have to do is go out and find another
purchaser, and in theory there are lots of other purchasers out there
- Must prove something unique about that deal or that purchaser
- Examples: If the deal was part of a land swap, involved some non-monetary compensation, or it is such
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a unique property that hard to find a purchaser
If the interim agreement says the sum total of liability for the purchaser is the deposit, then the vendor
cannot sue for SP.
Purchaser SP
- It is easier for the P to say its unique they sue for both SP and damages
- You cannot get SP if the property is sold to a bona fide purchaser for value without notice.
o When the breach occurs you should register a certificate pending title so other people know
about the claim.
- SP with abatement in purchaser price is when you come to closing and find there is a significant
quality defect in the property, but still want to go through with the deal
o You say they have breached the contract because have not produced the property as contracted,
so now you want them to give you the cost of dealing with the problem.
o A way to compensate the purchaser before closing for a failure to produce the property. Easier
then claiming damages after the fact. But will not be awarded if it will cause great hardship to
the vendor (Serebrennikov).
Uniqueness
- Need an aspect of the property which is unique, courts have a variety of statements about what is unique
- Rostrum Development Corp. v. Wafler, [1996] B.C.J: Court refused SP because property was being
purchased for a development, it was for a commercial purpose.
o Commercial deals will be less unique then residential and bare land will be less unique then land
with an existing structure.
- Cormack v. Harwardt: It was a property that accommodated the purchasers wishes to raise horses.
o Court found it was unique even though it was a for a commercial purpose
o Have to look at the circumstances around the purchase.
- Tropiano v. Stonevalley Estates (1997): The purchase was for a bare piece of land, but the price
included the price to build a house. It was like a custom build
o Court awarded SP for the land since it was a ravine lot with unusual/interesting features on it, but
SP was not awarded for the building of the house because the purchaser could go out and
contract someone else to build the house and so damages were sufficient for that.
o They distinguish between investment and something that will have a unique value for personal
purpose.
4.3 Damages
- (1) Damages in addition to specific performance
o Any out of pocket or other additional costs you have incurred due to breach. Must be a result of
the failure to perform of the other party
- (2) Damages in lieu of specific performance
o Awarded to a P in 2 different circumstances: (1) When the vendor cannot perform due to
circumstances out of their control. (2) Where the court doesn’t think it is appropriate to award SP
o Quantum: based on the difference between the contract price and the land value at the date of
trial.
o Assessment: Claim for SP simply postpones the consequences of the breach, so damages may be
assessed at the time of trial, Smelhago
 Mavetric: Assess at time of the breach unless there is compelling reason for another time.
- (3) Common law damages
o Based in contract, generally the difference between the agreed upon amount in the contract and
the land value at the date of breach. Shorter time period upon which to calculate the damages
o Ansdell v. Crowther: Damages in lieu and Common Law damages can be bundled together
 Rejected the notion of rigid rules of when you asses the damages, is it at the time of
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trial or breach
 There is no fixed rule as to the date and the court can fix damages on the date found to
be appropriate in the circumstances.
 Policy: Decision came down, when the interests rate were very high. The courts felt they
were creating unfair results by having rigid rules so exercise equitable jurisdiction
o You are being compensated for the loss given the change in land value, in both common law and
damages in lieu
o Mavertic: Damages should be assessed at the time of breach unless there are compelling reasons
to look to another time for assessment
o Smelhago: Damages were assess at the date of trial
(4) Statutory damages
o Section 37 PLA: Purchaser may get damages from loss of bargain from a vendor due to a defect
in title.
Mavretic v. Bowman (BCCA 1993)
- Facts: They agree to sell the home, $237,000 at time of contract. At the time of breach worth $215,000
and then at the time of trial went up to $255,000. The D purchasers fail to complete, so the vendor sues
for damages and SP. At trial they elect to claim damages.
- Issue: What date is applicable for the assessment of damages where the purchaser is in breach of K
- TJ: Award the difference between the date of breach and the time of trial. But it is minus the $10,000
deposit. The purchaser appeals, saying there are no damages because current value of the house is now
worth more than the K price
- Law: While damages are most often assessed as the date of breach, this is not an absolute rule, the court
has the power to fix such other dates as may be appropriate.
- Decision:
- Go over general principles
o Richter v Simpson: Fundamental principle is put the P in the same position had the K been
performed, but he is not entitled to get losses he could have avoided, mitigated. No absolute rule
to assess damages on the date of breach. Courts are able to choose whatever they see fit, based
on what is most appropriate in these circumstances
o Most courts take the difference between contract amount and date of breach.
o General Rule: Although damages have to be compensatory, courts can decide the time at which
they calculate them, and the courts will chose the difference between one of the three values (K,
breach, trial). Courts will assess what is most appropriate within reason
- Application: The fact that the value had increased at trial and not at the time of breach doesn’t cause one
to deviate from the norm
o Purchasers argue the date of trial should be used, since no damage to vendor the courts should
deviate from the norm
o But court says no extenuating circumstances which require us to deviate from the norm,
purchasers were behaving poorly and so should not have the benefit, don’t want the offending
party to obtain benefit over innocent
- Dissent: Purchasers point out that the vendors not only obtained the difference in value but also keep the
property in a rising market, so no loss
o Mitigation applies only where the Ps losses can reasonably be avoided and is not an important
issue in this case because the vendors could not be sure when selling would reduce the loss.
o The value of the property at the date of trial is a significant circumstance that militates against
using the date of breach for the assessment of damages.
o Date of trial much more realistic in this case
o Since vendors have the property with its enhanced value at the date of trial, cannot conclude they
have actually suffered a loss.
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Semelhago v. Paramadevan (SCC 1996)
- This case cements the notion of uniqueness of real property for SP.
- Facts: Agreement to purchase a home. The vendor failed to complete and the purchaser kept the old
home. At the time of the agreement, the old home was worth $190,000 but 4 years pass between time of
breach and trial. Old home is now worth about $300,000. The home contracted for was worth $200,000
and is now worth $325,000. Purchaser wants SP but at trial opt for damages in lieu
- Issue: What principles apply to the assessment of damages in lieu of SP and further, how do those
principles apply to the facts in this case?
- Johnson v Agnew (1980): General principle is that damages are compensatory, innocent party should be
placed in same position as far as money as if the K been performed. Usually date of breach but if that
would give rise to injustice, courts have power to fix a date which would be appropriate
- Law: A party who is entitled to SP is entitled to elect damages in lieu of and they must substitute as
nearly as may be what SP would have given. So can be assessed at time of trial.
o Rationale for fixing at the date of breach: Want the innocent purchaser to be compensated so
they can buy identical goods in the market place. But different considerations arise in situation
where its unique thing like real estate. It is not inappropriate to assess damages from date of
trial to account for the increase value of unique property
o Uniqueness: Historically every piece of real estate was unique so damages were inadequate and
SP appropriate. But with the progress of modern real estate, both residential and commercial
properties are mass produced no longer as uniqueness. Need some evidence in uniqueness
- Decision: SP should not be granted absent evidence that the property was unique such that a substitute
would not be readily available (TEST). Cannot assume that each piece of property is unique and that
damages are an inadequate remedy
o They award to the P, the difference between the contractual price and the value at trial, even
though they were still in the market and obtained the increase in value of their own property.
This was appropriate because the P had kept the contract alive for 4 years and the D could
have remedied that breach during that 4 year period
o Was not a windfall because this property was ultimately unique
o Can be explained by the behaviour of the Ds, they were thumbing their noses at contract law and
courts don’t like that
Serebrennikov v. Sawyer’s Landing Investments 1 Ltd. (2010 BCSC)
- Facts: There was a contract to buy a house in a modern subdivision with similar floor plates and
rooflines. The purchasers bought the land and the home was being built for them. The builders delay
several times and when they start building realize the floor plate was not what they wanted and many
customizations were not completed. But neither party takes action to cancel the contract. A year later the
purchaser bought another house in the same block because he really needed a home office. This house
was smaller and didn’t have some of the customization they wanted.
o Purchasers sued for SP with abatement of purchaser price of $143,000. They are also seeking
damages a little less than the cost of the home. The D builder does not defend the action, they
ignore it. The court dismisses the action for SP, despite it being undefended
- Issue: What are the factors that create uniqueness with respect to a particular purchaser?
- Law: The onus is on the P to prove that the property is unique and can be both objective and subjective
considerations. The fact that they are intending it to be their home is important. They have to prove the
notion of no readily available substitute at the time of breach. It doesn’t have to an exhaustive search,
also have to show that damages are inappropriate, the person seeking SP has to have mitigated (John E
Dodge v 805062 Ontario)
o 686966 BC Ltd v 686967 BC Ltd, When deciding if SP is appropriate must ask:
o (1) Is there evidence that the land is especially suitable for the purchaser?
o (2) Is there evidence that a “substitute” is not “readily available”
o (3) Are damages “comparatively inadequate” to do justice
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Application: There was evidence that the land was suitable for the purchaser but by purchasing another
home they showed that the new home was a replacement. The substitute does not need to be identical,
and so no evidence that damages would not be an adequate remedy.
o Vaulted ceilings are not enough to make uniqueness they are being biased in that homes of a
similar floor plate are not unique.
Policy: Court is taking a narrower view of uniqueness, the Ps didn’t help themselves by buying a house
on the same street and the court seems to use that against them. New realty in similar subdivision is not
seen as unique as opposed to old homes which are different.
o In this case the cost of curing the defect is 30% of the value of the home, if they award this, it
may be windfall because no proof that they would rectify the defects. When we are dealing with
abatement you get the money, or the loss of value, and so the courts are very careful in how they
weigh this because they are concerned with windfall
4.4 Vendor’s/Purchaser’s Lien
- Equitable principle that sits atop title
- Purchaser has an equitable lien against the vendor from the time of deposit until the return of deposit.
o This is why if there is a problem with the K, purchaser should register a certificate of pending
litigation b/c if the property is sold to someone else, they lose the value of that equitable lien.
- Vendor has an equitable lien to the extent that if they are not paid but have transferred the title, they
have an equitable lien on the property to secure the unpaid portion of the purchase price (e.g. if vendor
has been paid in instalments).
o If not registered on title, vendor would need to get a court order declaring that they have an
interest and then proceed on that basis.
4.5 Rescission
- General Principle: Seeks to put parties back in the position they were in before the K was made
- It is the unmaking of the contract. The right of one party to be no longer bound and then returned to their
original position since the deal is not what you wanted.
- Post-Closing: For fraud and error in substantialibus
- Pre-closing: Can be for negligent and fraudulent misrepresentation or ES
Error in Substantialibus
- Where the purchaser is receiving something entirely different from what they bargained for
- Court will look to whether the property can be used for the purpose for which it was intended
- Gronau: ES found where major repairs were needed and were concealed by V
- Cherris Estate v. Bosa Development Corp. (BCCA 2001)
o Facts: The Ps bought a penthouse apartment that was constructed in such a way that the
consistent temperature was between 35-40 degrees and so it was uninhabitable
o Issue: Is recession an available remedy in the absence of fraud
o D argues unless fraud no recession and P argues not available for innocent representations but in
the case of error in substantialibus where the purchaser has obtain something very different from
what was K for, is available.
o Decision: The parties received something completely different, when you purchase a residential
property you purchase it to live in. Even though no fraud, there is ES and recession is available.
They rely on Redican and Nesbitt
o D argues if required to take back the penthouse, refund purchase price, and pay restitution
damages and then if they are successful on appeal they will be put to cost of 2 conveyances,
unnecessary payment of sales tax and may have difficulty recovering from the P
 The order for stay must fail for balance of convenience. The Ds will have the penthouse
which can be made inhabitable as they say. A stay would deprive the Ps unfairly of the
fruits of their victory.
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Property Disclosure Statement
- Often used to determine if there were any misrepresentations made by the V
- PDS when adopted as part of the K, not considered a warranty, not a promise about the state of the
property, only a promise about the vendors knowledge. This can point us to misrepresentations whether
or not it has been incorporated into the contract or not
Curtin v. Blewett (BCSC 1999)
- Facts: The house had a termite problem in the past and the vendors said no to whether they were aware
of any infestations of insects of rodents in PDS. It was a present tense question, and they were told after
the inspection that there was no problem. A few weeks after closing, the purchasers noticed termites and
learned of the past problems. They want recession or damages for fraudulent misrepresentation or
alternatively damages for breach of warranty. No evidence of structural problems.
- Decision: The court is unwilling to find for purchasers, insufficient evidence that they knew the
problem was continuing; all they are being called on to do is to say what they are aware of at that point
in time. Also the K was conditional to house inspection, which the P waived
- Issue: Whether the PDS is present or past infestation
- Rule: the PDS does not call upon the vendor to warrant a certain state of affairs. It requires the vendor
to say no more than he/she is not aware of the problem. No mention of past tense unlike some of the
other questions, also since no problems for 2 years they responded accurately with the negative reply.
- Arsenault v. Pedersen: Disclosure statement doesn’t require the vendor to warrant, just that they are
not aware of the problem
- Here the purchasers removed the inspection clause and answered the question honestly and without
problem.
- Fraudulent misrepresentation also not proven. Fraud misrep is (a) a false representation made by the D
(b) that the representation was in fact false (c) the D knew that the rep was false or was reckless in
making it (d) P was induced to enter K by the false rep (e) damages were suffered
o Vs statement was not false, no infestation that they were aware of
5. Suing in Contract and Tort – Negligent & Fraudulent Misrepresentation
- Often see these against the licensee, but do have scenarios where you have representations in the
property disclosure statement that creates some reliance
- Recession is available for fraudulent misrepresentation at anytime
- For negligent or innocent misrepresentation, recession is only available pre-closing, unless its ES
- Can be failing to voluntarily disclose problems with the property when asked, failing to disclose latent
defects or concealing latent defects
Negligent misrepresentation: Queen v. Cognos (1993 SCC)
- (1) There must be a duty of care based on a "special relationship" between the representor and the
representee;
- (2) The representation in question must be untrue, inaccurate, or misleading;
- (3) The representor must have acted negligently in making said misrepresentation;
- (4) The representee must have relied, in a reasonable manner, on said negligent misrepresentation; and
- (5) The reliance must have been detrimental to the representee in the sense that damages resulted.
Fraudulent misrepresentation: Derry v. Peek 1889 H.L.
- (1) A false representation or statement made by the defendant;
- (2) Which was knowingly false;
- (3) Which was made with the intention to deceive the plaintiff;
- (4) And which materially induced the plaintiff to act; and
- (5) Which caused the plaintiff damage.
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Hanslo v. Barry (BCSC 2011)
- Facts: There is a culvert upslope of the property and a creek has been put underneath the property and
comes back to the surface at some point. It is treated as a private storm water system. The D knew about
it but hadn’t disclosed it to the vendor. Hanslo buys the house and the property floods also finds mold
and rot under the property. These are latent defects which should have been disclosed by the vendor, not
patent so no caveat emptor.
o PDS was incorporated into the contract. Vendors had answered no to knowing about
encroachments, easements or rights of way. Also no to any alterations made in the last 60 days.
Also no to knowing about any moisture problems in walls and crawspace
o Hanslo sues for damages, breach of contract, for failing to inform him, and negligent
misrepresentation
- Cardwell v Perthen: Caveat emptor applies, onus is on the purchasers unless the vendor is acting
negligently or fraudulent, they know of a latent defect, or the vendor is reckless as to the truth or
quality of the statements, breaches the duty to disclose serious defect
- Decision: PDS doesn’t make the representations into warranties, which are promises about the quality of
the property. It is just representations as to the state of knowledge of the vendor. If the statement is
untrue, supports a breach of contract claim
o Modifies Cardwell, the untrue statements doesn’t have to be dangerous defects or serious
statements that makes the house unfit, sufficient that the breach of contract caused P damages
o Here the vendors did breach the K when they said they didn’t know about any unregistered
easements.
- Negligent Misrepresentation: set out the test from Queen v Cognos
o Even if PDS is not in the contract, can still form negligent misrepresentation claim, bring in tort,
will depend on the circumstances of the case.
o Court applies the test to the unregistered easements and concludes a special relationship, vendors
were cautioned, must have known purchasers would rely on it, reliance continued even though he
had his own professional inspect the house. This is because the defect was with the land, not
house (easement). So court concludes negligent misrepresentation has made out
Aldred v. Colbeck (BCSC 2010)
- Facts: She tried to sell the property but it became evident after the sale that there was a leaking
underground storage tank and remediation was required. Purchaser failed to close and when she
mitigated her damages, it sold at 500k less. She completely replaced the backyard and she sued those
from whom she had bought the property.
o They had made statements which she argues made clear that the property had been repudiated.
The Colbeck’s owned the property for 2 years, the building inspection showed evidence of an
underground tank and told them to test the soil.
o They didn’t act on this, until they decided they want to sell the home. They had someone come
in, for $900 he claimed to take apart the sidewalk, pump out chemicals in one day.
o They told Aldred she didn’t need another house inspection since nothing had changed since the
last one. They claimed to conform to the requirements of the house inspection. They said they
had “decommissioned” the tank, she understood that to mean that they had removed it. She lives
in the house for 7 years and her realtor tells her ensure that there is no tank before ticking no on
the PDS.
- Issue: Were the Colbeck’s negligent about the state of the property such that Aldred didn’t have to do
her due diligence
- Decision: Court kind of bends the test to find them negligent. They said “decommissioned’ but find that
Aldred meant this be removed
o Go through the 5 elements: Issue with reasonable reliance and negligence
o Negligence: By representing the tank as decommissioned, they intended to convey that the tank
had not damaged the property or the environmental safety of the property. They retained a cheap
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contractor to do the original work, actions were insufficient to meet the standard of a reasonable
person, also didn’t take all the steps required of them like soil testing
o Reliance: Her reliance was reasonable, and they were negligent in their representations
Gronau v. Schlamp Investments Ltd. (ManQB 1974)
- Facts: The P purchased an apartment block after inspecting only 2 suites. The vendor intentionally
concealed a patent defect, so that is fraud. The purchaser was not allowed to inspect any of the suits until
they made an offer. Purchaser then saw two suits which were in excellent condition. The deal closes and
then P sees a large crack from basement to roof. There was a report by an engineer that there were major
problems with structure of the building. The vendor didn’t act on the report, thought it was too
expensive, patched the wall and then listed instead.
o The purchaser is seeking recession, not what we wanted and this is a fraudulent action. The D is
claiming caveat emptor, had the opportunity to inspect but failed to notice the defect.
- Law: an active concealment by the vendor of defects which would otherwise be treated as patent is
fraudulent and K is voidable by the P
- Decision: D knew this was a serious problem and actively concealed the defect from all purchasers and
so caveat emptor doesn’t apply. If you actively cover up latent defects or conceal patent defects and
don’t fix them then you are acting fraudulently. So you can get recession pre and post-closing
o Concealment of the crack was a material misrepresentation of the apartment building. Received
something completely different than what they had contracted for
o Also ES here, P received something completely different from what he thought he was receiving
(H) Post Closing Problems
1. Merger & Warranty
- Historically upon taking title, all the terms merge into the title. The only exception to this was unless the
K explicitly said that something would survive the transfer.
o For example if someone said the quality to the roof would survive, 6 months to a year after K,
needed an express warranty in the contract to get around the presumption of merger. In most
cases, purchasers were stuck with what they got, only exceptions were fraud or error in
substantialibus.
- Canadian Law has changed
- No presumption of merger: No longer have a presumption that everything will be merged after the
conveyance (Fraser-Reid)
o Courts will look to whether the parties had a common intention for the conveyance to be the
final resolution of the issue or would certain warranties carry on into the future.
- Warranty – express and implied: When V knows something that P does not, and P relies on the V for
that knowledge, Fraser-Reid
o They are statements which are not fundamental, they don’t go to the root of the agreement, but
are important enough that they give rise to certain damages.
o (1) Implied: court would imply a warranty of the fitness of the property if you signed the K for a
partially completed building. There was an implied warranty that the vendor would complete the
building.
o (2) Express: This is if you want a warranty for a completed building, must be in the contract that
it is of a certain quality and you have to rely on those warranties.
- All about risk allocation, what is reasonable in the circumstances. We will look to statements in and
around the contract, if the vendor knew the truth of the statement and the purchaser relied on that
representation.
Fraser-Reid v. Droumtsekas- No longer the presumption of merger in Canada
- Facts: Purchasers buy a new house from a vendor, 6 months later there was serious flooding in the
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basement, the builder had not installed drain tiles.
o There was a CP in the K requiring that the vendor to disclose to the purchaser all work needing
to be done according the municipality. The purchasers are trying to infer a warranty
TJ: just because the builder said they were building a good house doesn’t mean that is a warranty
Issue: Is this an express or implied warranty, also the issue of merger
Decision:
(1) Implied warranty: cannot be implied because the house is completed, if you K for an incomplete
house, then an implied warranty that the house will be completed by the builder, but no warranty for
workmanship for built homes.
o If you want to require a certain quality of building once the home has been completed, that is up
to the legislature, they should create a non-contractual warranty about the quality of the new
home (this has actually happened)
(2) Express Warranty: Where the V has knowledge that the P does not, and P relies, there is a warranty.
The builder had not disclosed non-compliance with municipal by-laws in terms of not putting in the
drainage tiles as they were supposed to. This was a breach.
o Court reads this condition as an undertaking of promise that all work will be done or they will
tell them if they have not. An assurance of compliance of statutory duty.
(3) Merger: if parties didn’t intend statements to merge at closing/before closing, be then they do not
merge.
o There must evidence of actual intent to merge terms at closing.
o Here there was no intention that the P abandon rights acquired by K. So the warranty is still
in effect, not fulfilled and is an express warranty and so the builder has to pay damages to put
things right.
What do we attach to the K that we would consider to be a warranty?
- Title to the property
- Survey or other documents like home inspection
- Other specific types of documents, like a licensee saying the zoning allows you to build on the property,
allows you to build
- Courts less likely to award if it’s just a warranty, more likely if ES or fraud. The cases often include a
variety of different factors. Only go to fraud if actual terms.
Effect of Parole Evidence Rule
- Rule: Everything in a K has to be in the K, and parties cannot rely on extrinsic information to either
prove the K or supplement it.
o The 4 corners of the K are the entire thing.
o It applies to not only formal statements but also written documentation
- Exceptions: Equity is willing to look at a variety of different things to clarify a K or where there was
reliance by one party courts will allow information to aid
- Courts will not rely on parole evidence to prove the existence of K. They will pull this in to clarify
terms, whether there was reliance or other warranties. So we see a variety of cases where courts have
found verbal statements outside the K.
- In Roberts v Montage: the sales brochure was found to be a warranty since it was an official document
that was relied on.
- Also the PDS even if not in the K, if relied on can point to evidence of misrepresentation. PDS is a
contractual condition, state of what the vendor knows. Now a warranty about the actual state of the
property
Entire agreement clauses – Clause 18
- Tension between the entire agreement clause, which says nothing in the contract except what is set out
in the K, with the courts willingness to look at things said and done beyond the clause. If there has been
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strong reliance, in particular marketing materials will be considered warranties if relied on. Tries to
capture all representation and warranties and the written documents
Does away with merger, all parties will carry on after the K has ended
Homeowner Protection Act, S.B.C. 1998 c.31
- Mandatory new home warranty regime in B.C. under
- Section 22 - Has to provide coverage by a warranty within 10 years of occupancy permit or being ready
for occupancy (unless exempt by regulation) for:
o (1) Defects in materials and labour for a period of at least two years after the date on which the
warranty begins;
o (2) Defects in the building envelope, including defects resulting in water penetration, for a period
of at least five years after the date on which the warranty begins; and
o (3) Structural defects for a period of at least ten years after the date on which the warranty
begins.
- Section 23 – if no new home insurance, statutory protection – deemed to have agreed that new home is
free from defects in:
o materials and labour for at least 2 years
o building envelope for 5 years
o structure for 10 years
2. Rescission
- Generally, caveat emptor applies absent any express warranty in the K post-closing
- Unless there is fraud or error in substantialibus, then rescission is available (Redican)
- In order to rescind the K after closing, there must be either fraud or error in substantialibus
o Fraud: Intention to induce the purchaser is the hallmark of fraud – intentional misrepresentations Eg.
Allen; Gronau
o ES: Where P receives something completely different than what was bargained for; where what was
received cannot be used for what P thought it could be used for Eg. Cherris Estates; Hyrsky
- Warranties: There is some confusion around the place of warranties post-closing: Whether a warranty is a
contractual condition that gives rise to damages and rescission OR whether a warranty may amount to EiS
and warrant rescission, remains in question from the case law
o But Generally: Warranty breaches only give rise to damages post-closing. Eg. Roberts; Fraser-Reid
Redican v. Nesbitt SCC 1923
- Facts: Redican makes an offer to lease a cottage from Nesbitt. There was an erroneous description about
the lease, purchasers did not inspect the property or house until after it had been assigned to them.
Parties brought in a lot of verbal evidence, the purchasers were ultimately disappointed with the cottage.
They had certain fundamental misunderstandings. No electricity and didn’t have 5 bedrooms. They
stopped payment at the bank, and then called to tell them why. The vendors then sued
- Decision: New trial ordered to properly assess the statements made by Vs agent. SCC could not
determine if the statements were innocent, negligent or fraudulent
o Caveat emptor applies and P must protect themselves using express conditions or warranties in
the K. Rule does not apply where there is ES or fraud
o When transaction fully completed, recession cannot be granted unless the misrepresentation was
fraudulent or amounted to ES
Hyrsky v. Smith Ont
- Facts: Purchasers bought property from the vendor without searching title. Vendor knew it was a
commercial property but they didn’t know they wanted to subdivide it. 4 years later they learn that the
vendor didn’t have clear title to half of it. The purchasers wanted recession and return of their money.
- Rule: P must protect itself in covenants unless ES or fraud.
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Decision: Court finds no claim for recession based on a contractual condition outside of the deed or
fraud. They look then to whether ES or a breach of an express condition or warranty in the K.
o Finds ES as there was a fundamental mistake about the quality of the subject of K.
o A mistake as to the quantity has to be so substantial that it changes the quality of the subject
matter. Only getting half of what you thought you were
o Even though P did not perform a title search, the defect was fundamental to the K. court doesn’t
award damages due to lack of due diligence
NOTE: we noted that size doesn’t matter if you can see the bounds of the property, you visually
understand how much you get not the quality unless you are buying for per unit.
o The court is making this distinction that where the quality of the property is fundamental to the
deal, the mistake as to the quality has to be so substantial and quantity has to be big enough to be
substantial
Allen v. McCutcheon BCSC 1979
- Facts: The Ps get a leasehold interest on an Indian reserve. The lease is subject to a Hydro transmission
right of way. The easement transmission line extended 25 feet through the property and not 5 feet like
the vendor had said. Was a variety of other qualitative problems like the septic tank didn’t work
- Decision: They were all latent defects, were material misrepresentations that induced the P to get the
leasehold, had he known about the problems, P would not have bought gotten into the deal. The
concealment of the easement was made recklessly, akin to fraudulent, and was intended to induce the P,
without the vendor knowing or caring if true or not.
- Rule: caveat emptor doesn’t apply where active concealment by the vendor.
- Argument by the vendors that it should fail because it was brought a few years after the deal closed
o This was rejected, in these circumstances it was reasonable to bring action at this time. The error
as to the quality had becomes visible later, and the Ps tried to deal with them in a variety of ways
- The purchasers were required to pay occupiers rent but got recession
Roberts v. Montex Development Corp. BCSC 1979
- Facts: The P was very concerned with the sound proofing of the condo. The sale brochure said that
sound proofing was maximum. The K has a term that says only things in the contract are included. There
was very poor soundproofing. So the purchasers sue for fraudulent and negligent misrepresentation
- Warranty: must be a collateral undertaking forming part of the K by agreement of the parties express or
implied and must be given during the course of the dealing which leads to the bargain and should then
enter into the bargain as part of it.
o To decide if intended, look at whether the vendor assumes to assert a fact of which the buyer is
ignorant or merely states an opinion or judgment upon a matter which the vendor has no special
knowledge and on which the buyer may be expected to have an opinion and to exercise
judgement
- Decision: They are entitled to remedies in both breach of K and tort. The sales brochure was accepted as
a warranty and not a mere representation of the property itself. Was a factual statement that the V held
as true, that was relied upon by the P to their detriment.
o He asserted facts and not merely opinion or judgement on which no special knowledge. Was a
warranty in brochure, potential purchaser is not expected to look behind walls. Here since escape
clause in the present case was ineffective to exclude liability, it is equally ineffective to exclude
liability in tort
o She is entitled to money to make the suite conform to the standard envisaged by the brochure.
3. Damages - When to assess
- Generally damages are assessed at the date of the breach; but the court may chose a different day for
assessment where it feels there are circumstances that demonstrate its appropriateness (Mavertic)
- They may want damages for a defect, can allege a variety of problems, whether its fraud, negligent
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misrepresentation, breach of contractual warranty or ES
3.1 Damages Assessed at Time of Breach
- Generally calculated by looking at the K price against the date of the breach
- Courts regard the entire circumstances to determine which date would be most fair to the parties
Mavretic v. Bowman BCCA 1993 (recap from Collapsing Deal)
- General approach is to assess damages at the time of breach
- Facts: Here the property value went down at time of closing, then went up before trial to more than
contractual value. The D argued that there were no damages for failing to go through with the K because
it’s worth more now
- Law: Starting point is the time of breach, but Ricter v Simpson, said the purpose is to be put the nonbreaching party in the position had the K not been performed. So the court is willing to deviate from
this approach where it is unjust on inequitable to take this approach.
- Decision: Court assessed damages at the date of closing so P had to pay damages.
o Put V in a better situation – wind fall – but may have been the court’s way of discouraging
people from attempting to back out of deal where the market is dropping.
o The date of assessment can be shifted from the breaching date where the court has compelling
reasons given the circumstances to assess damages from a more appropriate date
3.2 Damages Assessed at Date of Judgment
Semelhago v. Paramadevan SCC 1996 (recap from Collapsing Deal)
- Sometimes it will be at trial or date of judgment
- This is where the D vendor had gotten the benefit of the increase in property value. Courts are unwilling
to allow them to breach the K, and keep the benefit.
- Court want a purchaser who has been wronged to enter the market and gain the rising market. Also send
a message that Vs can’t get out of the Ks easily in a rising market, makes specific mention of the
flexibility in the common law
3.3 Mitigation
- Duty to mitigate and deposit taken into account in damages
Hargreaves v. Brar 2010 BCCA
- Facts: Sale of property during the 2008 recession, huge price drops. The purchaser breaches here
because not able to sell her property, V was then unable to buy their property and sells the property in
question for less, 200K.
- Issue: To what extent does the vendor have to mitigate losses? Were the vendors actions adequate
- From vendor perspective SP is rare, can mitigate by putting property back on market and then suing for
damages if price is different. Only if deal was unique will they succeed
- Principles:
o Baud Corp N.V. v. Brook: Party who has suffered should take all reasonable steps to mitigate
o Davidson v. Miller: Onus is on the D to prove failure to mitigate. They have to show D didn’t
adequately mitigate, not reasonable
- Decision: TJ said she sold to quickly and should have gotten more financing, could have taken the lower
offer. CA this was akin to reversing the onus, making the P prove that what she did was reasonable but it
is actually up to the D to show that other mitigation would have reverted the loss. Here the D hasn’t
shown that the loss would have been averted by other actions.
o The Vs actions were overlooked, they were reasonable within a falling real estate market.
Mitigation was carried out appropriately, V did seeking interim financing, but in the
circumstances units were dropping fast and the common practice was to sell below fair market
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3.4 Deposit Taken into Account
(G) Closing/Completion: Conveyance and Registration
1. Undertakings
1.1 What are Undertakings?
- This is a promise that lawyers make to do something on behalf of another person.
- To settle the logistical matters of documents, pay out of money, registration
- They can be implied, don’t have to use the words for one to be imposed on you. If it looks like your
promising to do something, the other party might still find that you did in fact make an undertaking.
- Enable complex transactions to occur based on lawyers integrity and professional standing
1.2 Purpose
- (1) To deal with matters of process: Set out the process by which a variety of activities will occur and
a lawyer promises that the activities will occur in that order.
- (2) To agree on how to return parties to original position if the transaction fails: Should be in writing
Clause 13 and 14
1.3 Who Can Give and Release Undertakings
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Give: Only lawyers and notaries can give undertakings in a real estate context. Letters that are
confirming the undertaking should be signed by the lawyer. Lawyers are bound by any undertakings
given by the staff
Release: Only the person to whom you gave the undertaking can release you of it. Not the client of the
lawyer, it is the lawyer themselves.
You give an undertaking on behalf of your client, so need to act in their best interests, if the other party
wants you to get out of it, need to act properly.
Undertakings will be enforced even if inconsistent with the position of your client or with the
understanding between the clients about what will happen. McCarthy Tetrault v Lawson Lundell
Rule 1a requires a lawyer to report to a law society another lawyers beach of an undertaking which has
not been consented to or waived.
1.4 Professional Responsibility
Professional Conduct Handbook Chapter 11 Rules 7-11
- Set out boundaries around undertakings which help us understand our responsibilities when we are
giving and taking them. Lawyer has to fulfill every undertaking and honor every trust position
undertaken.
- Rule 7: Undertakings and trust conditions should be in writing and unambiguous in their terms
o (7) A lawyer must (a) not give an undertaking that cannot be fulfilled, (b) fulfill every
undertaking given, and (c) scrupulously honour any trust condition once accepted.
o (7.1) Undertakings and trust conditions should be (a) written, or confirmed in writing, and (b)
unambiguous in their terms
- Rule 9: If a lawyer gives an undertaking conditional on something else happening or in respect of which
the lawyer does not intend to accept personal responsibility, this must be stated clearly in the
undertaking itself
- You cannot undertake to: (1) ensure that your client has cleared all credit cards, (2) obtain zoning, since
it is uncertain and need permission from city council.
o You want to avoid agreeing to do something which depends on the behavior of another party, or
agreeing to do something which is not in the realm of your professional responsibility.
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Rule 10: A lawyer must not impose on other lawyers impossible, impractical or manifestly unfair
conditions of trust.
Rule 11: If a lawyer is unable or unwilling to honor a trust condition imposed by someone else, the
subject of the trust condition must be immediately returned to the person imposing the trust condition
unless its terms can be forthwith amended in writing on a mutually agreeable basis.
Have to ensure that what you say you are going to do directly fulfills your outcomes and interest.
Because of the risk inherent in undertakings, you have to have permission to enter into undertakings.
1.5 Authority to Use Undertakings
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Need the clients consent if you’re not using the standard form K
Standard Form Contract of Purchase and Sale
o Purchaser’s Authority – Clause 13
 They need to register the transfer and new mortgage, can do so as long as they close on
CBA undertakings
o Vendor’s Authority – Clause 14
Canadian Bar Association Standard Undertakings (handout)
1.6 Implied Undertakings
Professional Conduct Handbook Chapter 11, Rules 8 and 8.1
- Trust cheques
o Rule 8: Except in the most unusual and unforeseen circumstances, which the lawyer must justify,
a lawyer who withdraws or authorizes the withdrawal of funds from a trust account by cheque
undertakes that the cheque (a) will be paid, and (b) is capable of being certified if presented for
that purpose
o If you as a lawyer issue a cheque from trust account, you are undertaking to pay that money out.
If you authorize the withdrawal of funds, are undertaking those will be paid
- Real estate transactions
o Rule 8.1: If a lawyer acting for a purchaser of real property accepts the purchase money in trust
and receives a registrable conveyance from the vendor in favour of the purchaser, then the
lawyer is deemed to have undertaken to pay the purchase money to the vendor on completion of
registration.
1.7 Effect of Breach of Undertaking
- Trouble with the Law Society. Other legal action can be taken against you, if it results in damages to
your client and/or the other party
- Client may be able to bring the action in negligence
1.8 Guidelines for Giving Undertakings
- Never give an undertaking to do something beyond your absolute control at the time the undertaking is
given.
- Try not to give undertakings.
- Get irrevocable client instructions.
- Do not give open-ended undertakings.
- Do not impose conditions after undertakings are settled.
- Confirm oral undertakings in writing.
- Take care with undertakings imposed by others.
- Give self-determining undertakings.
- Draft undertakings precisely.
- Do not impose undertakings that modify or conflict with the contract.
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2. Risk Management
2.1 Electronic Filing
- Identity fraud is drastically on the increase and the Law Society still thinks it can be reduced by using efiling. So they are pushing this, as ultimately electronic filing will lead to better client service and reduce
the risk of loss of client documents.
2.2 Picture Identification – Keep Copies
Law Society Rules 3-91 to 3-102 – client identification and verification
- This is for new clients, set out new procedures to identify the clients
- You need to see corporate and personal documents of new clients, have to verify the identity and be
satisfied that they are who they say they are.
2.3 Mortgage Discharges from Institutional Lenders
- Often when you are acting for a bank, they will ask you to provide undertakings which you are not able
to give.
- For example insure that the purchaser has adequate home insurance. You can only undertake to verify
that they have insurance, but cannot assess whether it is adequate.
- Important to ensure that you are able to professional take them on, your action and in your realm of
professional expertise.
Curbing Risk in Real Estate Practice
- E-filing can be seen as a risk management technique. One case where courier was late so party refused
to close. Another where by the time the problems got resolved, LTO closed
- If there is no specific time requirement that registration has to happen by 4pm, then e-filing can be done
up to 8pm
o Reduces the risk of late documents, get faster service, reduce costs
- Obtaining photo ID is a critical step in both value and identity fraud.
o You want proof that ID was sought, so copy it
- When looking at mortgages pay attention to:
o Instructions that ask you to take steps that are not party of your usual practice
o Require services in areas outside your legal expertise
o Require you to notify the lender of facts or circumstances which you have no knowledge of
o Impose an obligation you cannot met
o Ask you to accept liability for your own actions or actions of others
o Impose an obligation on you
- Whether you are asked to accept instructions, or have in fact already accepted instructions, deal
proactively with these risks by taking the following steps:
o Read each and every provision of the mortgage instructions carefully and thoroughly.
o Identify any instructions that you are unable or unwilling to comply with, as well as any
ambiguities.
o Raise these issues with the lender, explaining your position that the particular service cannot be
provided by a lawyer (or anyone), or address the cost of so doing and who will bear it.
o Confirm the revised instructions in writing.
Real estate fraud — A Prevention Primer
Value fraud — inflating the property price for a larger loan
- Involves a fraudster who agrees to purchase real property and flips it to a complicit purchaser at an
artificially inflated price.
- This step positions the new purchaser to deceive a mortgage lender as to the true value of the property
when obtaining a mortgage loan. While lending institutions make their own decisions to lend money on
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any particular matter, lawyers can play a role in fighting fraud.
Tips on fighting value fraud
- Make it a team effort: Review the common characteristics of value fraud with your conveyancing staff.
Direct them to advise you if they notice that a transaction has more than a couple of the characteristics.
- Consider asking for cancelled charge: Instruct any staff conducting Land Title Office searches to
order, if appropriate, searches that show all of the cancelled charges, not just the current charges. Such
searches will disclose a rapid turnover of mortgages.
- Be cautious about flips: Although “flips” are relatively common in the current active real estate market,
be particularly careful whenever you encounter one. If the seller under the Contract of Purchase and Sale
is not the same as the registered owner on title, ask your purchaser client questions to get a sense of
whether the transaction is legitimate.
- Copy picture ID: Obtain and keep a photocopy of picture identification of buyers / borrowers to protect
yourself from potential negligence claims. Simply recording the driver’s licence number is probably not
sufficient protection. If you are receiving instructions from anyone other than the buyer / borrower, it is
prudent to obtain a copy of that individual’s identification as well.
- Inform a lender client of a flip and obtain instructions: When acting for a lender and the buyer /
borrower in a “flip” situation, advise the lender that the transaction is a flip. Give the lender the amount
of the purchase price under the original contract, and ask for further instructions.
- Consider consent to use of a power of attorney: If a transaction involves the use of a power of
attorney, consider obtaining the lender’s consent to accepting mortgage security signed pursuant to a
power of attorney.
- Consider the payee: If a large percentage of the mortgage proceeds are to be paid out to a borrower
directly, or to parties other than the existing mortgagee or seller, make further inquiries.
- Insist on the evidence you need: If presented with any circumstances that just do not pass the “smell
test,” insist on the evidence required to put you at ease.
- Consider doing historical searches: If suspicions are raised, consider doing historical searches to see if
the property has been flipped at higher prices or mortgaged repeatedly.
Identity fraud — impersonating an owner
- In an identity scam, the fraudster finds a property and poses as the owner. He or she then either secures
mortgage financing from a lender or sells the property to an innocent third party. Once the mortgage
funds or property proceeds are received, the rogue disappears.
- The scams may be perpetrated by a person:
o using forged or fake documents
o having a name that is identical to or “close enough” to that of the registered owner so that the
identification appears legitimate or
o convincing the lawyer to forego the need for identification for some seemingly plausible reason
(“I left my wallet in my sister’s car” or “my wallet was stolen two days ago and I’m still waiting
for my replacement ID”).
- In the competitive world of mortgage lending, the traditional adage of “know your client” unfortunately
no longer holds true — and the lack of a relationship between the parties increases the risk of identity
fraud.
o As borrowers shop from lender to lender for better deals and as those lenders streamline and
speed up their business practices through mortgage brokers and by outsourcing mortgage
administration, there are more opportunities for a person to pass themselves off as someone else.
Tips on fighting identity fraud
- Get picture ID: Insist on picture identification (unless you are certain of the client’s identity through
your own personal knowledge). If there is more than one client, insist that each produce separate photo
identification. Avoid making accommodations requested by the client that result in variations to your
standard procedure for checking identity.
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Keep a copy: Keep a photocopy of any picture identification that you take in the file, and ensure that it
is legible. As noted, simply recording the driver’s licence number is probably not sufficient.
Obtain instructions if you have concerns: If you have any concerns, advise the lender to satisfy itself
as to the borrower’s identity and give you instructions to proceed or not.
Watch for urgency: Be aware that there may be a heightened sense of urgency on the part of a
fraudster, who wants to complete the fraud before it’s discovered.
Consider meeting separately with the registered owner: If the registered owner is accompanied by an
individual who is to benefit from the loan, consider meeting separately with the registered owner to
satisfy yourself as to that person’s capacity and instructions.
Provide only the assurances you can: Be careful as to the nature and extent of any assurances sought
by the lender. Lawyers are increasingly being asked to go beyond the officer certifications contained in
ss. 41 to 48 of the Land Title Act. Under those provisions, in taking someone’s signature, you are not
warranting that the individual is in fact the person named in the instrument. You are simply certifying
that you believe that the person signing is who they say they are.
Take steps to protect against corporate identity fraud: If the borrower is a company, avoid the
possibility of corporate identity fraud — the fraudster impersonating the authorized signatory of the
company — through these further steps:
o Obtain your own updated copy of the corporate search. Do not rely on the client’s old search;
o Follow the same steps with respect to obtaining picture identification for individuals signing on
behalf of corporations that you would for individuals signing on their own behalf;
o In any solicitor’s opinion you are asked to provide, always include an assumption as to the
genuineness of the signatures and material that you have relied upon, and a qualification of your
opinion to that extent;
o Satisfy yourself that the individual signing on behalf of the corporation is authorized to do so,
and that the requirements for executing a document on behalf of a company are met, particularly
the requirement for multiple signing officers as provided in the by-laws of the company.
Insist on the evidence you need. As previously noted, if presented with any circumstances that do not
pass the “smell test,” insist on the evidence required to put you at ease.
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