Part 2 Security Interests in Land Section III – IV Registration and Priorities.

Part 2Part 2Security Interests in LandSecurity Interests in Land

Section III – IVSection III – IVRegistration and Registration and

PrioritiesPriorities

Land v Personal PropertyLand v Personal Property

Priority rules relating to land tend to Priority rules relating to land tend to be simpler than those relating to be simpler than those relating to personal propertypersonal property

But land registration system tend to But land registration system tend to be less efficient than the PPSAsbe less efficient than the PPSAs

Land v Personal PropertyLand v Personal Property The land registration system is an ownership The land registration system is an ownership

registry as well as a registry of security interestsregistry as well as a registry of security interests This simplifies priority contests between ownership and security This simplifies priority contests between ownership and security

interestsinterests

Land transactions are almost always costly, so Land transactions are almost always costly, so fewer exceptions are needed to accommodate fewer exceptions are needed to accommodate low value transactionslow value transactions

Ie, no special rules about “ordinary course of business” or “pmsi”Ie, no special rules about “ordinary course of business” or “pmsi”

The land registries are asset searchableThe land registries are asset searchable It is always possible to find encumbrances against a It is always possible to find encumbrances against a

parcel, regardless of whether they were granted by the parcel, regardless of whether they were granted by the present owner or a prior ownerpresent owner or a prior owner

Land v Personal PropertyLand v Personal Property

Land registration systems are generally more Land registration systems are generally more complex than the PPSA, for two main reasonscomplex than the PPSA, for two main reasons There are two systems of registration of landThere are two systems of registration of land

Land TitlesLand Titles RegistryRegistry

We are in transition in N.B., OntWe are in transition in N.B., Ont Probably soon in N.S., Nfld, PEIProbably soon in N.S., Nfld, PEI

Land systems, including land titles, have not Land systems, including land titles, have not been subjected to comprehensive reform been subjected to comprehensive reform since the land titles system was first since the land titles system was first introduced more than a century agointroduced more than a century ago

RegistrationRegistration

Providing Good TitleProviding Good Title

The Registry Acts are a modification of The Registry Acts are a modification of common law conveyancingcommon law conveyancing

V wishes to sell land to P. How can P be sure V wishes to sell land to P. How can P be sure that V actually owns the land he is purporting that V actually owns the land he is purporting to sell?to sell?

V proves ownership by producing a deed from V proves ownership by producing a deed from his immediate predecessor in title (”A”)his immediate predecessor in title (”A”) How does P know that A owned the property?How does P know that A owned the property?

Deed from A’s immediate predecessor, BDeed from A’s immediate predecessor, B How does P know that B owned ...How does P know that B owned ...

Result: a chain of titleResult: a chain of title

Providing Good TitleProviding Good Title

Non-possessory interests in land are Non-possessory interests in land are common in modern timescommon in modern times At one time a mortgagee would take At one time a mortgagee would take

possessionpossession Now the mortgagor is almost always in Now the mortgagor is almost always in

possessionpossession How does P know that all the deeds How does P know that all the deeds

have been included in the chain of title?have been included in the chain of title? Answer: A registry systemAnswer: A registry system

Registry SystemRegistry System

A registry system ensures that all A registry system ensures that all relevant documents are publicizedrelevant documents are publicized 19(1) All instruments may be registered in 19(1) All instruments may be registered in

the registry office for the county where the the registry office for the county where the lands lie, and if not so registered, shall, lands lie, and if not so registered, shall, subject to the provisions of subsections (3), subject to the provisions of subsections (3), (4) and (5), be deemed fraudulent and void (4) and (5), be deemed fraudulent and void against subsequent purchasers for valuable against subsequent purchasers for valuable consideration whose conveyances are consideration whose conveyances are previously registered. previously registered.

Registry SystemRegistry System

Registration does Registration does notnot give legal effect to the give legal effect to the instrumentinstrument Instruments must be examined to ensure that Instruments must be examined to ensure that

they are effectivethey are effective A registry system solves the problem of A registry system solves the problem of

secret prior conveyancessecret prior conveyances It does not eliminate the need for It does not eliminate the need for

duplicative titles searches on duplicative titles searches on each each conveyanceconveyance The chain of title must be searched by the The chain of title must be searched by the

lawyer for the purchaser on each transactionlawyer for the purchaser on each transaction

Land Titles SystemLand Titles System

A land titles system eliminates A land titles system eliminates duplicative title searchingduplicative title searching

Rather than having the lawyer for Rather than having the lawyer for each purchaser examining every each purchaser examining every conveyance, the Registrar of Land conveyance, the Registrar of Land Titles examines the transfer once, Titles examines the transfer once, when it is registered when it is registered

Why can a purchaser rely on the Why can a purchaser rely on the Registrar’s opinion?Registrar’s opinion?

Land TitlesLand Titles Because the Land Titles Act says that whoever is Because the Land Titles Act says that whoever is

registered as owner, is the owner: registered as owner, is the owner: 16 Notwithstanding anything in any other enactment, 16 Notwithstanding anything in any other enactment,

the owner who is shown by the title register to be the the owner who is shown by the title register to be the owner of a parcel of land described therein holds the owner of a parcel of land described therein holds the land in fee simple subject, in addition to the overriding land in fee simple subject, in addition to the overriding incidents implied by this Act, to such encumbrances incidents implied by this Act, to such encumbrances [shown by the title register] free from all other [shown by the title register] free from all other encumbrances, liens, estates or interests whatever, encumbrances, liens, estates or interests whatever, except in case of fraud wherein he has participated or except in case of fraud wherein he has participated or colluded.colluded.

Title to the land depends on the register, not on Title to the land depends on the register, not on the validity of prior conveyancesthe validity of prior conveyances

Land TitlesLand Titles

The title of the owner is subject to The title of the owner is subject to “overriding interests:“overriding interests:

17(4) Unless the contrary is 17(4) Unless the contrary is expressly declared in the title expressly declared in the title register, all registered land is, by register, all registered land is, by implication and without any special implication and without any special mention in the title register, subject mention in the title register, subject to the following overriding incidents:to the following overriding incidents:

Land TitlesLand Titles Overriding interestsOverriding interests

(a)(a) [reservations in the Crown grant] [reservations in the Crown grant] (b) (b) the right of a lessee under a subsisting lease or the right of a lessee under a subsisting lease or

agreement for a lease for a period not exceeding three agreement for a lease for a period not exceeding three years where there is actual occupation of the land under years where there is actual occupation of the land under the lease or agreement;the lease or agreement;

(c)(c)any right of a spouse of the registered owner to occupy any right of a spouse of the registered owner to occupy the land under the the land under the Marital Property ActMarital Property Act;;

(d)(d)any right granted by or under an enactment of Canada any right granted by or under an enactment of Canada or the Province [including expropriation and zoning]or the Province [including expropriation and zoning]

(e) (e) any lien under the any lien under the Mechanics' Lien ActMechanics' Lien Act where the time where the time within which the claim of lien is required to be filed has within which the claim of lien is required to be filed has not expired.not expired.

Land TitlesLand Titles

The owner’s interest is also subject to various The owner’s interest is also subject to various over-riding interests, as well as building code over-riding interests, as well as building code by-lawsby-laws E.g. if the house does not satisfy set-back E.g. if the house does not satisfy set-back

requirements it may have to be modifiedrequirements it may have to be modified If the previous owner built a deck that is in violation If the previous owner built a deck that is in violation

of the building code, it may have to be removedof the building code, it may have to be removed The land titles assurance fund will not provide The land titles assurance fund will not provide

compensation in either casecompensation in either case Alternative protectionAlternative protection

Title insuranceTitle insurance

Fraud in Land TitlesFraud in Land Titles

Title to the land depends on the register, not Title to the land depends on the register, not on the validity of prior conveyanceson the validity of prior conveyances

This means that a person can become the This means that a person can become the owner of the property despite a fraudulent or owner of the property despite a fraudulent or otherwise invalid conveyance between otherwise invalid conveyance between predecessorspredecessors

This means that the “true” owner can be This means that the “true” owner can be displaced by a fraudulent or negligent displaced by a fraudulent or negligent conveyanceconveyance Compare the registry system, in which this Compare the registry system, in which this

cannot happencannot happen

Four TheoriesFour Theories RegistryRegistry

No interest passed by fraudulent conveyanceNo interest passed by fraudulent conveyance No subsequent party gets interestNo subsequent party gets interest

Immediate IndefeasibilityImmediate Indefeasibility A BFPFV gets a good interest as soon as registeredA BFPFV gets a good interest as soon as registered

Deferred IndefeasibilityDeferred Indefeasibility A BFPFV dealing with person shown on the title A BFPFV dealing with person shown on the title

register to be the owner ("registered owner", gets a register to be the owner ("registered owner", gets a good interest when registeredgood interest when registered

‘‘Ontario’ Deferred IndefeasibilityOntario’ Deferred Indefeasibility A BFPFV dealing with the registered owner in A BFPFV dealing with the registered owner in

possession gets a good interest when registeredpossession gets a good interest when registered

ExamplesExamples

(1) F, posing as O, conveys to P by (1) F, posing as O, conveys to P by forged deed, which A registers.forged deed, which A registers.

(2) A conveys to B(2) A conveys to B Under each of the four theories:Under each of the four theories:

Does A/B or O get title? Does A/B or O get title?

Fraud in Land TitlesFraud in Land Titles

Two GoalsTwo Goals Protection for innocent partyProtection for innocent party

Assurance principleAssurance principle The money or the mudThe money or the mud

Prevention of FraudPrevention of Fraud Verification of identity of registered Verification of identity of registered

ownerowner Verification of possession by registered Verification of possession by registered

ownerowner

Protection for Innocent Protection for Innocent PartyParty

The interests of the “true” owner are protected by The interests of the “true” owner are protected by an an assurance principleassurance principle

73(1) Any person who suffers damage by reason of 73(1) Any person who suffers damage by reason of the rectification of the title register, an error or the rectification of the title register, an error or omission in the title register which is not rectified, omission in the title register which is not rectified, an error or omission in a certificate of registered an error or omission in a certificate of registered ownership or the loss or destruction of any ownership or the loss or destruction of any document lodged at a land titles office for document lodged at a land titles office for inspection of safe custody is entitled to be inspection of safe custody is entitled to be indemnified except in the following cases:indemnified except in the following cases: (a) (a) where the claimant has himself caused or where the claimant has himself caused or

substantially contributed to the damage by his fraud or substantially contributed to the damage by his fraud or negligence;negligence;

ExamplesExamples

(1) F, posing as O, conveys to P by (1) F, posing as O, conveys to P by forged deed, which A registers.forged deed, which A registers.

(2) A conveys to B(2) A conveys to B Under each of the four theories:Under each of the four theories:

Does A/B or O get compensation?Does A/B or O get compensation? Should it matter whether A/B is bank Should it matter whether A/B is bank

(SP) or purchaser?(SP) or purchaser?

Assurance PrincipleAssurance Principle

Is the assurance principle adequate?Is the assurance principle adequate? Two problemsTwo problems

True owner wants the property, not True owner wants the property, not cashcash The money or the mudThe money or the mud

How good is the assurance fund?How good is the assurance fund?

The money or the mud?The money or the mud?

Under the Registry system the “true” owner Under the Registry system the “true” owner retains the property, while the purchaser is retains the property, while the purchaser is compensated by an action against their compensated by an action against their lawyer for negligence in the conveyancelawyer for negligence in the conveyance

True owner –> mudTrue owner –> mud Purchaser –> moneyPurchaser –> money

Under Under mostmost Land Titles system the “true” Land Titles system the “true” owner is compensated by the Registrar owner is compensated by the Registrar while the purchaser retains the propertywhile the purchaser retains the property

True owner –> moneyTrue owner –> money Purchaser –> mudPurchaser –> mud

The money or the mud?The money or the mud?

In N.B. the owner In N.B. the owner in possessionin possession is entitled is entitled to the land, while an innocent victim to the land, while an innocent victim notnot in possession will get compensationin possession will get compensation

Land Titles Act ss. 68(c), 71Land Titles Act ss. 68(c), 71

SP would be entitled to compensationSP would be entitled to compensation O entitled to propertyO entitled to property

Is the NB system sound in policy?Is the NB system sound in policy? Why / why not?Why / why not?

Is the NB system necessary?Is the NB system necessary? Why / why not?Why / why not?

Assurance FundAssurance Fund In some jurisdictions, e.g. Ont and Alta the In some jurisdictions, e.g. Ont and Alta the

assurance fund is a fund of “last resort”assurance fund is a fund of “last resort” 57(1) A person wrongfully deprived of land. . .by 57(1) A person wrongfully deprived of land. . .by

reason of some other person being registered as reason of some other person being registered as owner through fraud. . .is entitled to owner through fraud. . .is entitled to recover. . .damages, from the person. . .who recover. . .damages, from the person. . .who acquired the title through the fraud. . acquired the title through the fraud. .

(4) If the person so wrongfully deprived is unable (4) If the person so wrongfully deprived is unable by such means . . .to recover just compensation for by such means . . .to recover just compensation for the person's loss, the person is entitled to have the the person's loss, the person is entitled to have the compensation paid out of the Assurance Fund. . .compensation paid out of the Assurance Fund. . .

Ont Land Titles ActOnt Land Titles Act


Director of Titles in Ont requires Director of Titles in Ont requires victim to victim to Pursue wrongdoer to judgment and Pursue wrongdoer to judgment and Evidence that the judgment cannot be Evidence that the judgment cannot be

satisfiedsatisfied Full costs of action against wrongdoer Full costs of action against wrongdoer

normally cannot be satisfiednormally cannot be satisfied Alternative protectionAlternative protection

Title insuranceTitle insurance


In NB assurance fund is fund of first In NB assurance fund is fund of first resortresort Applicant need not get judgment Applicant need not get judgment

against fraudsteragainst fraudster Director of Titles may pay out and get Director of Titles may pay out and get

subrogated rights against fraudstersubrogated rights against fraudster In view of this, is title insurance a In view of this, is title insurance a

good idea in NB?good idea in NB?

Fraud PreventionFraud Prevention

Recall three Land Titles theoriesRecall three Land Titles theories Immediate IndefeasibilityImmediate Indefeasibility Deferred IndefeasibilityDeferred Indefeasibility Ontario Deferred IndefeasibilityOntario Deferred Indefeasibility

What steps would a purchaser / bank What steps would a purchaser / bank be advised to take to protect itself be advised to take to protect itself under each of these approaches?under each of these approaches?

Ontario ApproachOntario Approach

Wright never took valid title to the Property Wright never took valid title to the Property because he obtained it by fraud. He was, because he obtained it by fraud. He was, therefore, not a registered owner. In therefore, not a registered owner. In accordance with s. 68(1) of the Act, only a accordance with s. 68(1) of the Act, only a registered owner may give valid charges on registered owner may give valid charges on land. Maple Trust is the intermediate owner land. Maple Trust is the intermediate owner of an interest in the Property. It had an of an interest in the Property. It had an opportunity to avoid the fraud. It did not take opportunity to avoid the fraud. It did not take from a registered owner.from a registered owner. Lawrence v Maple TrustLawrence v Maple Trust

Should SP be able to get compensation?Should SP be able to get compensation?

PrioritiesPriorities

Registry ActRegistry Act

Basic rule:Basic rule: 19(1) All instruments may be registered 19(1) All instruments may be registered

in the registry office for the county in the registry office for the county where the lands lie, and if not so where the lands lie, and if not so registered, shall, subject to the registered, shall, subject to the provisions of subsections (3), (4) and (5), provisions of subsections (3), (4) and (5), be deemed fraudulent and void against be deemed fraudulent and void against subsequent purchasers for valuable subsequent purchasers for valuable consideration whose conveyances are consideration whose conveyances are previously registeredpreviously registered

Registry ActRegistry Act Exception for short term leases with lessee in Exception for short term leases with lessee in

possessionpossession 19(3) No lease for a term not exceeding three 19(3) No lease for a term not exceeding three

years, where the actual possession goes along years, where the actual possession goes along with the lease, need be registered, nor shall such with the lease, need be registered, nor shall such lease be deemed fraudulent and void merely by lease be deemed fraudulent and void merely by reason of its not being registered; but this reason of its not being registered; but this subsection does not extend or apply to any lease subsection does not extend or apply to any lease for a greater term than three years, nor to any for a greater term than three years, nor to any lease where the actual possession does not go lease where the actual possession does not go along with the leasealong with the lease

Why does this exception exist?Why does this exception exist?

Land Titles ActLand Titles Act 19(1) Instruments and interests or claims 19(1) Instruments and interests or claims

thereunder in respect of or affecting the same thereunder in respect of or affecting the same land shall be entitled to priority, the one over the land shall be entitled to priority, the one over the other, according to the order of the registration other, according to the order of the registration numbers, dates and times assigned to the numbers, dates and times assigned to the instruments by the registrar and not according to instruments by the registrar and not according to the date of their execution. the date of their execution.

17(4) ...subject to the following overriding 17(4) ...subject to the following overriding incidents:incidents: (b) (b) the right of a lessee under a subsisting lease or the right of a lessee under a subsisting lease or

agreement for a lease for a period not exceeding three agreement for a lease for a period not exceeding three years where there is actual occupation of the land under years where there is actual occupation of the land under the lease or agreement;the lease or agreement;

Doctrine of Actual NoticeDoctrine of Actual Notice

Under the doctrine of actual notice, Under the doctrine of actual notice, a registered interest in land is a registered interest in land is subordinate to a prior unregistered subordinate to a prior unregistered interest if the person taking the interest if the person taking the registered interest had actual notice registered interest had actual notice of the prior unregistered interest of the prior unregistered interest before taking their interestbefore taking their interest


There is no doubt that such doctrine as to There is no doubt that such doctrine as to all contractual relations and particularly the all contractual relations and particularly the law of real prperty has been firmly based in law of real prperty has been firmly based in our law since the beginning of equity. It was our law since the beginning of equity. It was the view of those courts, and it is my view, the view of those courts, and it is my view, that such a cardinal principle of property that such a cardinal principle of property law cannot be considered to have been law cannot be considered to have been abrogated unless the legislative enactment abrogated unless the legislative enactment is in the clearest and most unequivocal of is in the clearest and most unequivocal of terms.terms.

United Trust Co. v. Dominion Stores Ltd.United Trust Co. v. Dominion Stores Ltd.


Why is this doctrine so fundamental, Why is this doctrine so fundamental, in the view of the majority of the in the view of the majority of the Supreme Court?Supreme Court?

If it is so fundamental, why would a If it is so fundamental, why would a legislature want to reverse it?legislature want to reverse it?

What is the difference between What is the difference between “actual fraud” and “constructive “actual fraud” and “constructive fraud”?fraud”?


To reverse this doctrine the legislation must To reverse this doctrine the legislation must be “in the clearest and most unequivocal of be “in the clearest and most unequivocal of terms.”terms.”

What terms are clear enough?What terms are clear enough? 19(1) Instruments and interests or claims 19(1) Instruments and interests or claims

thereunder in respect of or affecting the same thereunder in respect of or affecting the same land shall be entitled to priority, the one over the land shall be entitled to priority, the one over the other, according to the order of the registration other, according to the order of the registration numbers, dates and times assigned to the numbers, dates and times assigned to the instruments by the registrar and not according to instruments by the registrar and not according to the date of their execution. the date of their execution.

Registry ActRegistry Act

Doctrine of Actual NoticeDoctrine of Actual Notice 61(1)(b) Notwithstanding any rule of law or equity 61(1)(b) Notwithstanding any rule of law or equity

to the contrary, a person contracting or dealing to the contrary, a person contracting or dealing with or taking or proposing to take a transfer of or with or taking or proposing to take a transfer of or interest in registered land from the owner thereof is interest in registered land from the owner thereof is not, except in the case of fraud by such person, not, except in the case of fraud by such person, affected by notice direct, implied or constructive, of affected by notice direct, implied or constructive, of any unregistered instrument or interest or claim any unregistered instrument or interest or claim affecting the land.affecting the land.

61(2) Knowledge on the part of any such person 61(2) Knowledge on the part of any such person that any unregistered instrument or interest or that any unregistered instrument or interest or claim is in existence shall not of itself be imputed as claim is in existence shall not of itself be imputed as fraud.fraud.

Land Titles ActLand Titles Act

Future AdvancesFuture Advances

The rule in The rule in Hopkinson v RoltHopkinson v Rolt is that is that a future advance financier is a future advance financier is subordinated to the extent of all subordinated to the extent of all advances made after acquiring advances made after acquiring actual knowledge of an intervening actual knowledge of an intervening security interest.security interest.

Future AdvancesFuture Advances The rule in H v R is codified by s.73 of the Ontario The rule in H v R is codified by s.73 of the Ontario Registry Registry

ActAct S.73. A registered mortgage is,... a security upon the land S.73. A registered mortgage is,... a security upon the land

comprised therein to the extent of the money or money's comprised therein to the extent of the money or money's worth actually advanced or supplied under the worth actually advanced or supplied under the mortgage. . .although the money or money's worth, . . . was mortgage. . .although the money or money's worth, . . . was advanced or supplied after the registration of a advanced or supplied after the registration of a [different] . . . mortgage . . .affecting the mortgaged land, . . . [different] . . . mortgage . . .affecting the mortgaged land, . . . and registered subsequently to the first-mentioned and registered subsequently to the first-mentioned mortgage, unless before advancing or supplying the money mortgage, unless before advancing or supplying the money or money's worth, the mortgagee in the first-mentioned or money's worth, the mortgagee in the first-mentioned mortgage had actual notice of the execution and registration mortgage had actual notice of the execution and registration of such [different] mortgage . . . and the registration of of such [different] mortgage . . . and the registration of such . . . mortgage . . .after the registration of the first-such . . . mortgage . . .after the registration of the first-mentioned mortgage, does not constitute actual notice. mentioned mortgage, does not constitute actual notice.


The future advance financier is The future advance financier is subordinated in respect of any subordinated in respect of any advances made after receiving advances made after receiving actual notice actual notice And, to complete the rule...And, to complete the rule...

At the same time, the future advance At the same time, the future advance financier is relieved of any financier is relieved of any contractual obligation to make such contractual obligation to make such further advancesfurther advances


The rule in H v R is the default rule: it The rule in H v R is the default rule: it applies unless statutorily reversed. applies unless statutorily reversed.

If the relevant Act abolishes the If the relevant Act abolishes the doctrine of actual knowledge, then the doctrine of actual knowledge, then the intervening security interest must also intervening security interest must also be registeredbe registered In which case the rule that actual notice of In which case the rule that actual notice of

unregisteredunregistered interest is does not apply interest is does not apply because this is a question of priorities because this is a question of priorities between registered interests.between registered interests.


Contrast the rule in H v R with the Contrast the rule in H v R with the PPSA rulePPSA rule What are the arguments in favour of the What are the arguments in favour of the

rule in H v R?rule in H v R? What are the arguments in favour of the What are the arguments in favour of the

PPSA rule?PPSA rule? Is there any difference between land Is there any difference between land

and personal property which justifies and personal property which justifies different rules?different rules?

Part 2 Security Interests in Land Section III – IV Registration and Priorities.

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Transcript of Part 2 Security Interests in Land Section III – IV Registration and Priorities.