Part 2 Security Interests in Land Section III

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Part 2Security Interests in LandSection III
IVRegistration and Priorities
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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

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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

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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

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Registration
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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 As immediate predecessor, B
• How does P know that B owned ...
• Result a chain of title

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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

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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.

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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

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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 Registrars
  opinion?

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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

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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

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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.

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Land Titles

• The owners 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

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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

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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

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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?

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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

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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

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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?

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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?

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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 gt mud
• Purchaser gt money
• Under most Land Titles system the true owner is
  compensated by the Registrar while the purchaser
  retains the property
• True owner gt money
• Purchaser gt mud

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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?

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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

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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

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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?

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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?

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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?

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Priorities
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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

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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?

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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

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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

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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.

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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?

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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

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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

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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.

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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.

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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

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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.

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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?