COURT FILE NO.: CV-12-444635
DATE: 20120628
SUPERIOR COURT OF JUSTICE - ONTARIO
RE: 719083 Ontario Ltd.
2174112 Ontario Inc.
BEFORE: Justice Moore
COUNSEL: Jane Sirvedan, for the Applicant
Bernard Gasee, for the Respondent
HEARD: 25 June 2012
E N D O R S E M E N T
[1] 719083 Ontario Ltd. (“719”) seeks an order directing the Land Registrar to delete the Transfer registered on 5 August 2008 to 2174112 Ontario Inc. (“217”) for a commercial condominium unit (“the subject unit”) and to amend the description of the property in the Transfer registered on 16 May 1994 from L. Chung Development Co. Ltd. (“Chung”) to 719 to include the subject unit.
[2] 217 opposes this application on the basis that it is entitled to the protection of indefeasibility of title which is the essence of the land titles system.
[3] 217 insists that it is a bona fide purchaser of the subject property for value and without notice of any defect in the title as registered. 719 insists that 217 was not a bona fide purchaser at all, as there was no agreement between it and Chung for the purchase and sale of the subject unit in favour of 217 and no consideration for the 2008 transfer of that unit to 217.
The Facts
[4] In February of 1987, 719 (by its assignor) entered into an Agreement of Purchase and Sale (“APS1”) with Chung to purchase condominium units on three levels of a building at 2347 Kennedy Road in the City of Scarborough. The units included the subject unit.
[5] The condominium was not registered until 1993 and so 719 took occupancy under an interim occupancy agreement and from 1987 to the present, 719 has occupied the subject unit and has operated a medical clinic there.
[6] APS1 closed on 16 May 1994. Through inadvertence on the part of the lawyer for 719, the Transfer registered on closing as Instrument No. D422756 failed to include the subject unit in the description of the property conveyed.
[7] The shareholders of 719 were not made aware of the fact, for some seventeen years, that title to the five units it purchased did not include registered title to the subject unit. In the interim, 217 purchased all of Chung’s remaining units in 2008.
[8] On 24 May 2008, Chung entered into an Agreement of Purchase and Sale (“APS2”) with 217 that did not specifically list the units that Chung still owned in the building but referred to the units to be transferred as described in Schedule B to APS2 and referred to a purchase price for all units of $12,000,000. There is no specific reference in Schedule B to the subject unit. APS2 did not allocate the purchase price to individual units.
[9] The purchase price was based on the actual rent or the expected rental income (if the units were vacant at that time) for the units purchased.
[10] Chung and 217 exchanged documents known as rent rolls in which rental income was listed with reference to units Chung owned that were rented out. There was no mention of the subject unit in these rent rolls.
[11] There is no evidence on this application of any negotiations or agreements reduced to writing that confirm that Chung intended to sell the subject unit to 217 along with eighty eight other units that were transferred to 217 in 2008.
[12] Prior to closing, 217’s lawyer requested that the units each be purchased and conveyed separately, rather than in one conveyance, in order to reduce the land transfer tax that would otherwise be payable on the purchase. The parties agreed to that request.
[13] The draft transfer agreements prepared by 217’s lawyer included a draft transfer for the subject unit. A search of title would have shown Chung as the registered owner of the subject unit at that time.
[14] The lawyers for 217 and for Chung realized that the subject property was registered to Chung and Chung’s lawyer asked for instructions via email to Tony Chung as to whether the subject property was to be transferred to 217 as part of the August 2008 closing or not.
[15] Tony Chung testified that he did not receive that email. In any event, he did not discuss or authorize the subject unit’s transfer to 217 then or at any time. Further, I accept that, at all times, Tony Chung understood that Chung had conveyed the subject unit to 719 by Transfer registered on May 16, 1994.
[16] The Chung/217 sale closed on 5 August 2008 and as part of that overall transaction, the transfer of the subject unit from Chung to 217 was registered as Instrument AT1855373.
[17] 719 did not know of the 2008 transfer until November 2011. Upon learning of this and in response to requests from 217 to pay rent and/or to purchase the unit from 217, 719 brought this application for rectification.
The Law
[18] Section 78(4) of the Land Titles Act states that:
When registered, and instrument shall be deemed it to be embodied in the register and to be effective according to its nature and intent, to create, transfer, charge or discharge, as the case requires, the land or estate or interest therein mentioned in the register.
[19] Sections 159 and 160 of the Land Titles Act provide:
Subject to any estates or rights acquired by registration under this Act, where a court of competent jurisdiction has decided that a person is entitled to an estate, right or interest in or to registered land or a charge and as a consequence of the decision the court is of opinion that a rectification of the register is required, the court may make an order directing the register to be rectified in such manner as is considered just.
Subject to any estates or rights acquired by registration under this Act, if a person is aggrieved by an entry made, or by the omission of an entry from the register, or if default is made or unnecessary delay takes place in making an entry in the register, the person aggrieved by the entry, omission, default or delay may apply to the court for an order that the register be rectified, and the court may either refuse the application with or without costs to be paid by the applicant or may, if satisfied of the justice of the case, make an order for the rectification of the register.
[20] In Spencer[^1], Cornell J. stated:
It is noteworthy that both of these sections begin with the words "Subject to any estates or rights acquired by registration under this Act." This is consistent with the very basis of a Torrens land titles system which fundamentally provides that an owner is entitled to rely upon the title abstract as an accurate reflection or mirror of the state of title. This approach stands in stark contrast to the registry system of title which is designed to simply provide notice….. Unlike the registry system, the parcel register in land titles is deemed to be conclusive and indefeasibility of title is a consequence of, or incident of, registration.
[Even if a party can be characterized as innocent] the interests shown in the title register prevail and there is no jurisdiction to rectify title or balance the interests of various innocent parties.
[21] Spencer was decided after and relied upon Durrani,[^2] where the plaintiffs had their house sold out from under them as the result of a fraud perpetrated upon them by someone they had never met. In addition, a mortgage was placed on the property in favour of a bank.
[22] The court in Durrani explained the purpose of the land titles system, in place in Ontario since 1885, at paragraphs 41 and following:
The essential purpose of land titles legislation is to provide the public with security of title and facility of transfer…. The notion of title registration establishes title by setting up a register and guaranteeing that a person named as the owner has perfect title, subject only to registered encumbrances and enumerated statutory exceptions.
The philosophy of the land titles system embodies three principles, namely, the mirror principle, where the register is a perfect mirror of the state of title; the curtain principle, which holds that a purchaser need not investigate the history of past dealings with the land, or search behind the title as depicted on the register; and the insurance principle, where the state guarantees the accuracy of the register and compensates any person who suffers loss as the result of an inaccuracy. These principles form the doctrine of indefeasibility of title and is the essence of the land titles system…
The significance of all of this is that while principles of equity remain relevant to the determination of issues under the Act, the opening words of ss. 159 and 160 cannot be overlooked. In keeping with the overall objectives of the legislation, the court’s ability to invoke or apply equitable doctrines is limited by the rights innocent people acquire under the Act.
[23] At paragraphs 55 & 56, the predicament of the plaintiffs was described as follows:
The Durranis acquired the property for valuable consideration and were the registered owners of the land in fee simple with an absolute title prior to Mr. Augier’s fraudulent registration of a security interest and his eventual fraudulent transfer of the title of the property to himself as instrument number C961567. This instrument would be absolutely void if unregistered, since it is fraudulent. While it would create a good route of title to a bona fide purchaser for value, the registration does not give Mr. Augier an interest in the property when he has none…. Mr. Augier never had and never acquired a legitimate interest in the property.
[24] The court then compared the plaintiffs’ rights at law to those of the Zettlers, who bought the property from Mr Augier and those of the bank, which advanced funds to the Zettlers and took back a registered mortgage. The Zettlers were found to have had actual knowledge, through their real estate agent, that Mr Augier’s title was invalid; as such, they were found not to have been bona fide purchasers for value without notice and did not acquire an interest in the property notwithstanding that it had been registered in their names. In the result, the court did what equity demanded and rectified the register to show that the Durranis have title to the property. The court then turned to a comparison of the position of the Durranis relative to that of the bank.
[25] At paragraphs 76-79, the comparison was stated this way:
By reason of my finding that the bank is a bona fide encumbrancer for valuable consideration without notice, I do not have the authority to order rectification of the register in relation to the bank’s mortgage. While this may seem unfair to the Durranis, who are innocent people who have lived in their home for a long time and have done absolutely nothing to deserve this injustice, the bank is also an innocent party that relied on the register. The bank therefore continues to have a valid charge against the property in the form of its mortgage registered as instrument number C961569.
Herein lies the conundrum. The Durranis are entitled to unencumbered ownership of the property. The bank is entitled to its mortgage registered against the property. This situation is exactly the type of problem that the act is designed to resolve.
Through the doctrine of deferred indefeasibility of title, the land titles registrations system reflects a policy choice to protect the security of title of those who are innocent parties who rely on the title. It follows that there may be those who will be deprived of legitimate interests in land under the operation of the Act.
The innocence principle of a title registration system is recognized in Ontario by the establishment and maintenance of the Land Titles Assurance Fund…
The Positions of the Parties
[26] The parties agree that Sections 159 and 160 of the Land Titles Act, R.S.O. 1990, c. L.5 apply and that the title of a registered owner in Ontario who is a bona fide purchaser for value without notice is indefeasible under the Land Titles Act.
[27] The parties agree also that the court has no jurisdiction to rectify the register if to do so would interfere with the registered interest of a bona fide purchaser for value in the interest as registered, regardless of the equities at stake.[^3]
[28] But, only bona fide purchasers (or mortgagors) for value without notice obtain the protection of indefeasibility of title which is the essence of the land titles system.[^4]
[29] 217 submits that 719 should get its relief or compensation from Chung or from the negligent lawyers involved in the 1994 and 2008 transfers at issue and that the priority of the registered transfer to 217 in 2008 should prevail on an interim and permanent basis and that 217 should get what it bargained for and paid for.
[30] 217 points to the Land Titles Compensation Fund as an alternate source of recovery for 719 if it has been wrongly deprived of land and unable to recover just compensation for its loss by other means, such as a claim against Chung and/or lawyers involved in the 1994 transaction.
[31] 719 submits that this is a proper case for the exercise of the discretion given to this court by the Land Titles Act to rectify the title registered for the subject unit in favour of 719.
Analysis
[32] As happened in Durrani, the real owner of the property here was not aware of the registration of a transfer in the land titles system and the Transferor had no legal right to transfer the property to the Transferee. Unlike the situation in Durrani, however, the Transferor here did not knowingly or intentionally transfer the property.
[33] Key to my determination of the proper outcome of this case are findings on the question of whether 217 was or was not a bona fide purchaser of the subject unit for valuable consideration and without notice.
[34] The cases relied upon by the parties have this in common: the rights of a bona fide purchaser trump those of an innocent party deprived of an interest in the property by registration in the land titles system where there is a meeting of the minds between buyer and seller and an agreement supporting the registration of title at issue.
[35] In the instant case, 217 is not a bona fide purchaser for value of the subject unit as there was no agreement between Chung and 217 regarding the purchase and sale of the subject unit and there was no consideration for the conveyance of the subject unit. APS2 does not reflect that the subject unit was included in the transaction or that the $12,000,000 purchase price identified was applicable to, or included the subject unit. The agreement included a global price for the group of units specifically incorporated by reference in the agreement and the schedules to it, none of which identify, either by municipal address or legal description, or include the subject unit.
[36] Quite apart from the written agreement[^5], there is no evidence that Chung offered the subject unit for sale to 217 or that 217 accepted an offer of sale specific to the subject unit.
[37] I agree with the submission of 719 that the principals of Chung did not know that Chung remained the registered owner of the subject unit after 1994 and have not exercised any voting rights regarding the subject unit since at least 1994. In addition, there is no question but that the “consideration” stated on the Transfer document regarding the subject unit was nothing more than the product of a mathematical exercise of dividing the number of units transferred by the global purchase price. Accordingly, the evidence put forward by 217 does not demonstrate that Chung accrued any benefit or that 217 suffered any detriment regarding the registered transfer of the subject unit.
[38] There was no meeting of the minds to include the subject unit in APS2 or the 2008 sale, no intention on the part of Chung to sell the subject unit again (having already sold its interest in the unit to 719 in 1994), no written agreement, no consideration and therefore no sale transaction supporting the transfer of the subject unit recorded in land title records on 5 August 2008.
[39] As for the submission that 217 intended to purchase all of Chung's units, including units registered to Chung whether Chung held any beneficial interest in their ownership in 2008 or not, I reject that submission for two reasons. First, the evidence does not support that contention factually. Second, I reject the probability that 217 would reasonably anticipate buying or would seek out a windfall acquisition of that which Chung did not offer to sell and that Chung had no remaining interest in nor legal right to sell; particularly is this unlikely since 217 has come before this court asserting its innocence of any wrong doing in reference to the 2008 transfers.
Disposition
[40] 719 shall therefore succeed in this application and recover:
• A declaration that 719083 Ontario Ltd. is the legal and sole owner of the property described as Unit 95, Level 4, Metro Toronto Condominium Plan No. 1067 and its appurtenant interest, City of Toronto, PIN 12067-0402 (LT);
• An order directing the Land Registrar of the Land Titles Division of the Land Registry Office at Toronto (No. 66) to delete the Transfer registered as Instrument No. AT1855373 against the above unit on 5 August 2008 from the register;
• An order directing the Land Registrar of the Land Titles Division of the Land Registry office at Toronto (No. 66) to amend the description of the property in the Transfer registered as Instrument No. D422756 on 16 May 1994 to include the above unit;
• An order that the monies paid into court by 719083 Ontario Ltd. pursuant to the 10 February 2012 Order of Mr. Justice Grace and currently remaining in court to the credit of this application be paid out of court to 719083 Ontario Ltd.; and,
• Its costs of this application on a partial indemnity basis, fixed below.
[41] Section 24 of the Land Titles Act[^6] provides that costs of an application such as this may be determined as this court would in any other case. Having considered the parties’ submissions on costs and the concession from counsel for 217 that if the court is inclined to award costs to 917, the costs claimed by 917 are not unreasonable, I fix the costs recoverable by 917 at $18,591.25, inclusive of fees, disbursements and H.S.T.
Moore J.
Released: 28 June 2012
[^1]: Spencer v. Salo, 2012 ONSC 337, [2012] O.J. No. 202 (ONSC), at paras. 16 to 20
[^2]: Durrani v. Augier, 2000 22410 (ONSC)
[^3]: Moisan v. Antonio Sanita Land Development Limited, 2010 ONSC 3339, at para. 36
[^4]: Mutual Trust Co. v. Creditview Estate Homes Ltd., 1997 1107 (C.A.) at para. 32; Durrani v. Augier, 2000 22410 (ON SC)[4] at paras. 48 to 54; & Moisan, supra, at para. 36
[^5]: Absent which there can be no enforceable sale of lands: Statute of Frauds, R.S.O. 1990, c. S-19, s. 4
[^6]: R.S.O. 1990, c. L.5, s. 24 (1) &(2)