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

1. Part 2Security Interests in LandSection III – IVRegistration and Priorities

2. Land v Personal Property • Priority rules relating to land tend to be simpler than those relating to personal property • But land registration system tend to be less efficient than the PPSAs

3. Land v Personal Property • The land registration system is an ownership registry as well as a registry of security interests • This simplifies priority contests between ownership and security interests • Land transactions are almost always costly, so fewer exceptions are needed to accommodate low value transactions • Ie, no special rules about “ordinary course of business” or “pmsi” • The land registries are asset searchable • It is always possible to find encumbrances against a parcel, regardless of whether they were granted by the present owner or a prior owner

4. Land v Personal Property • Land registration systems are generally more complex than the PPSA, for two main reasons • There are two systems of registration of land • Land Titles • Registry • We are in transition in N.B., Ont • Probably soon in N.S., Nfld, PEI • Land systems, including land titles, have not been subjected to comprehensive reform since the land titles system was first introduced more than a century ago

5. Registration

6. Providing Good Title • The Registry Acts are a modification of common law conveyancing • V wishes to sell land to P. How can P be sure that V actually owns the land he is purporting to sell? • V proves ownership by producing a deed from his immediate predecessor in title (”A”) • How does P know that A owned the property? • Deed from A’s immediate predecessor, B • How does P know that B owned ... • Result: a chain of title

7. Providing Good Title • Non-possessory interests in land are common in modern times • At one time a mortgagee would take possession • Now the mortgagor is almost always in possession • How does P know that all the deeds have been included in the chain of title? • Answer: A registry system

8. Registry System • A registry system ensures that all relevant documents are publicized • 19(1) All instruments may be registered in the registry office for the county where the lands lie, and if not so registered, shall, subject to the provisions of subsections (3), (4) and (5), be deemed fraudulent and void against subsequent purchasers for valuable consideration whose conveyances are previously registered.

9. Registry System • Registration does not give legal effect to the instrument • Instruments must be examined to ensure that they are effective • A registry system solves the problem of secret prior conveyances • It does not eliminate the need for duplicative titles searches on each conveyance • The chain of title must be searched by the lawyer for the purchaser on each transaction

10. Land Titles System • A land titles system eliminates duplicative title searching • Rather than having the lawyer for each purchaser examining every conveyance, the Registrar of Land Titles examines the transfer once, when it is registered • Why can a purchaser rely on the Registrar’s opinion?

11. Land Titles • Because the Land Titles Act says that whoever is registered as owner, is the owner: • 16 Notwithstanding anything in any other enactment, the owner who is shown by the title register to be the owner of a parcel of land described therein holds the land in fee simple subject, in addition to the overriding incidents implied by this Act, to such encumbrances [shown by the title register] free from all other encumbrances, liens, estates or interests whatever, except in case of fraud wherein he has participated or colluded. • Title to the land depends on the register, not on the validity of prior conveyances

12. Land Titles • The title of the owner is subject to “overriding interests: • 17(4) Unless the contrary is expressly declared in the title register, all registered land is, by implication and without any special mention in the title register, subject to the following overriding incidents:

13. Land Titles • Overriding interests • (a) [reservations in the Crown grant] • (b) the right of a lessee under a subsisting lease or agreement for a lease for a period not exceeding three years where there is actual occupation of the land under the lease or agreement; • (c)any right of a spouse of the registered owner to occupy the land under the Marital Property Act; • (d)any right granted by or under an enactment of Canada or the Province [including expropriation and zoning] • (e) any lien under the Mechanics' Lien Act where the time within which the claim of lien is required to be filed has not expired.

14. Land Titles • The owner’s interest is also subject to various over-riding interests, as well as building code by-laws • E.g. if the house does not satisfy set-back requirements it may have to be modified • If the previous owner built a deck that is in violation of the building code, it may have to be removed • The land titles assurance fund will not provide compensation in either case • Alternative protection • Title insurance

15. Fraud in Land Titles • Title to the land depends on the register, not on the validity of prior conveyances • This means that a person can become the owner of the property despite a fraudulent or otherwise invalid conveyance between predecessors • This means that the “true” owner can be displaced by a fraudulent or negligent conveyance • Compare the registry system, in which this cannot happen

16. Four Theories • Registry • No interest passed by fraudulent conveyance • No subsequent party gets interest • Immediate Indefeasibility • A BFPFV gets a good interest as soon as registered • Deferred Indefeasibility • A BFPFV dealing with person shown on the title register to be the owner ("registered owner", gets a good interest when registered • ‘Ontario’ Deferred Indefeasibility • A BFPFV dealing with the registered owner in possession gets a good interest when registered

17. Examples • (1) F, posing as O, conveys to P by forged deed, which A registers. • (2) A conveys to B • Under each of the four theories: • Does A/B or O get title?

18. Fraud in Land Titles • Two Goals • Protection for innocent party • Assurance principle • The money or the mud • Prevention of Fraud • Verification of identity of registered owner • Verification of possession by registered owner

19. Protection for Innocent Party • The interests of the “true” owner are protected by an assurance principle • 73(1) Any person who suffers damage by reason of the rectification of the title register, an error or omission in the title register which is not rectified, an error or omission in a certificate of registered ownership or the loss or destruction of any document lodged at a land titles office for inspection of safe custody is entitled to be indemnified except in the following cases: • (a) where the claimant has himself caused or substantially contributed to the damage by his fraud or negligence;

20. Examples • (1) F, posing as O, conveys to P by forged deed, which A registers. • (2) A conveys to B • Under each of the four theories: • Does A/B or O get compensation? • Should it matter whether A/B is bank (SP) or purchaser?

21. Assurance Principle • Is the assurance principle adequate? • Two problems • True owner wants the property, not cash • The money or the mud • How good is the assurance fund?

22. The money or the mud? • Under the Registry system the “true” owner retains the property, while the purchaser is compensated by an action against their lawyer for negligence in the conveyance • True owner –> mud • Purchaser –> money • Under most Land Titles system the “true” owner is compensated by the Registrar while the purchaser retains the property • True owner –> money • Purchaser –> mud

23. The money or the mud? • In N.B. the owner in possession is entitled to the land, while an innocent victim not in possession will get compensation • Land Titles Act ss. 68(c), 71 • SP would be entitled to compensation • O entitled to property • Is the NB system sound in policy? • Why / why not? • Is the NB system necessary? • Why / why not?

24. Assurance Fund • In some jurisdictions, e.g. Ont and Alta the assurance fund is a fund of “last resort” • 57(1) A person wrongfully deprived of land. . .by reason of some other person being registered as owner through fraud. . .is entitled to recover. . .damages, from the person. . .who acquired the title through the fraud. . • (4) If the person so wrongfully deprived is unable by such means . . .to recover just compensation for the person's loss, the person is entitled to have the compensation paid out of the Assurance Fund. . . • Ont Land Titles Act

25. Assurance Principle • Director of Titles in Ont requires victim to • Pursue wrongdoer to judgment and • Evidence that the judgment cannot be satisfied • Full costs of action against wrongdoer normally cannot be satisfied • Alternative protection • Title insurance

26. Assurance Principle • In NB assurance fund is fund of first resort • Applicant need not get judgment against fraudster • Director of Titles may pay out and get subrogated rights against fraudster • In view of this, is title insurance a good idea in NB?

27. Fraud Prevention • Recall three Land Titles theories • Immediate Indefeasibility • Deferred Indefeasibility • Ontario Deferred Indefeasibility • What steps would a purchaser / bank be advised to take to protect itself under each of these approaches?

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

29. Priorities

30. Registry Act • Basic rule: • 19(1) All instruments may be registered in the registry office for the county where the lands lie, and if not so registered, shall, subject to the provisions of subsections (3), (4) and (5), be deemed fraudulent and void against subsequent purchasers for valuable consideration whose conveyances are previously registered

31. Registry Act • Exception for short term leases with lessee in possession • 19(3) No lease for a term not exceeding three years, where the actual possession goes along with the lease, need be registered, nor shall such lease be deemed fraudulent and void merely by reason of its not being registered; but this subsection does not extend or apply to any lease for a greater term than three years, nor to any lease where the actual possession does not go along with the lease • Why does this exception exist?

32. Land Titles Act • 19(1) Instruments and interests or claims thereunder in respect of or affecting the same land shall be entitled to priority, the one over the other, according to the order of the registration numbers, dates and times assigned to the instruments by the registrar and not according to the date of their execution. • 17(4) ...subject to the following overriding incidents: • (b) the right of a lessee under a subsisting lease or agreement for a lease for a period not exceeding three years where there is actual occupation of the land under the lease or agreement;

33. Doctrine of Actual Notice • Under the doctrine of actual notice, a registered interest in land is subordinate to a prior unregistered interest if the person taking the registered interest had actual notice of the prior unregistered interest before taking their interest

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

35. Doctrine of Actual Notice • Why is this doctrine so fundamental, in the view of the majority of the Supreme Court? • If it is so fundamental, why would a legislature want to reverse it? • What is the difference between “actual fraud” and “constructive fraud”?

36. Doctrine of Actual Notice • To reverse this doctrine the legislation must be “in the clearest and most unequivocal of terms.” • What terms are clear enough? • 19(1) Instruments and interests or claims thereunder in respect of or affecting the same land shall be entitled to priority, the one over the other, according to the order of the registration numbers, dates and times assigned to the instruments by the registrar and not according to the date of their execution. • Registry Act

37. Doctrine of Actual Notice • 61(1)(b) Notwithstanding any rule of law or equity to the contrary, a person contracting or dealing with or taking or proposing to take a transfer of or interest in registered land from the owner thereof is not, except in the case of fraud by such person, affected by notice direct, implied or constructive, of any unregistered instrument or interest or claim affecting the land. • 61(2) Knowledge on the part of any such person that any unregistered instrument or interest or claim is in existence shall not of itself be imputed as fraud. • Land Titles Act

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

39. Future Advances • The rule in H v R is codified by s.73 of the Ontario Registry Act • S.73. A registered mortgage is,... a security upon the land comprised therein to the extent of the money or money's worth actually advanced or supplied under the mortgage. . .although the money or money's worth, . . . was advanced or supplied after the registration of a [different] . . . mortgage . . .affecting the mortgaged land, . . . and registered subsequently to the first-mentioned mortgage, unless before advancing or supplying the money or money's worth, the mortgagee in the first-mentioned mortgage had actual notice of the execution and registration of such [different] mortgage . . . and the registration of such . . . mortgage . . .after the registration of the first-mentioned mortgage, does not constitute actual notice.

40. Future Advances • The future advance financier is subordinated in respect of any advances made after receiving actual notice • And, to complete the rule... • At the same time, the future advance financier is relieved of any contractual obligation to make such further advances

41. Future Advances • The rule in H v R is the default rule: it applies unless statutorily reversed. • If the relevant Act abolishes the doctrine of actual knowledge, then the intervening security interest must also be registered • In which case the rule that actual notice of unregistered interest is does not apply because this is a question of priorities between registered interests.

42. Future Advances • Contrast the rule in H v R with the PPSA rule • What are the arguments in favour of the rule in H v R? • What are the arguments in favour of the PPSA rule? • Is there any difference between land and personal property which justifies different rules?