Webb (Re), 2011 ABQB 89

Court of Queen ’ s Bench of Alberta Citation: Webb (Re), 2011 ABQB 89 Date: 20110216 Docket: BK03 105390 Registry: Edmonton In the Matter of the Bankruptcy of Franklin Araya Webb In the City of Spruce Grove in the Province of Alberta (Self-employed) _______________________________________________________ Memorandum of Decision of the Honourable Madam Justice D.L. Shelley _______________________________________________________ Introduction Background Facts [ 1 ] On June 21, 2001, Mr. Franklin Webb signed a promissory note in favour of Mr. Karafiat, and purported to grant Mr.

Karafiat a secured interest in the matrimonial home of Mr. Webb and Ms. Carmen Webb (the "Property"), which was then registered solely in Mr. Webb's name. Mr. Karafiat registered a caveat on the Property. [ 2 ] On October 17, 2001, the Webbs became owners in joint tenancy of the Property. [ 3 ] On November 19, 2001, after receiving a request through the Webbs’ lawyer, Mr. Karafiat executed a postponement of his caveat in favour of an Alberta Treasury Branches’ mortgage that the Webbs had granted on the Property. [ 4 ] On Oct. 31, 2003, the Webbs filed for bankruptcy.

[5] On October 13, 2004, Alberta Treasury Branches foreclosed on the Property. There were surplus monies of $57,808.97realized from the sale. On October 21, 2004, the surplus was paid to the Webbs' Trustee in Bankruptcy. [6] In November 2004, the Trustee in Bankruptcy disallowed Mr. Karafiat’s secured claim to the surplus proceeds because thedisposition with respect to the promissory note had not complied with the consent and acknowledgment requirements set out in theDower Act, R.S.A. 2000, c. D-15. [7] The Registrar in Bankruptcy directed a trial to determine whether the encumbrance registered by Mr.

Karafiat was invaliddue to non-compliance with the Dower Act. Issues [8] The main issue raised in this

summary trial is the validity of the caveat which was registered by Mr. Karafiat. To determinethis issue, I must address:

a) the effect of non-compliance with the Dower Act on a transaction which requires such compliance;

b) the effect on Ms. Webb’s dower rights of Mr. Webb transferring the Property into joint tenancy; and

c) whether the disposition in this case, if it was initially unenforceable due to non-compliance with Dower Act requirements, wasrehabilitated by other subsequent conduct so as to become enforceable. Analysis A. Non-Compliance with the Dower Act [9] In the recent case of Charanek v. Khosla, 2010 ABQB 202, 27 Alta. L.R. (5th) 191, the parties entered into a real estatepurchase agreement for the Khoslas’ matrimonial home. Prior to the closing date of the transaction, the Charaneks alleged, among otherthings, that the agreement was not binding due to non-compliance with the Dower Act.

The basis of the Charaneks’ argument was that,although Ms. Khosla later provided her dower consent with the transfer documents tendered to close the sale, the agreement was voidbecause she had not provided dower consent, in the form required by the Dower Act, with the earlier purchase agreement andamendment to the purchase agreement. The Court undertook a review of the law on dower rights in Alberta in order to determine on thesummary judgment application whether or not the agreement was void.

The Court made the following comments that are germane to thiscase, with reference to the Supreme Court of Canada decision in Senstad v.

Makus, (SCC), [1978] 2 S.C.R. 44: 41 Martland J. then noted at paragraphs 33-40, the significant changes in the legislation that occurred in 1948, including: the extensionof dower rights to husbands instead of wives only; the specification of the nature and form of the written consent; the replacement ofdispositions being null and void for all purposes with a prohibition of dispositions without written consent, on penalty of an action indamages by the non-owning spouse; and the cessation of the homestead characterization upon the registration of a transfer of landto a third party. 42 These features of the Dower Act that were new in 1948 remain in the legislation to this day.

[Emphasis added] [10] The Court also held that the mandatory consequence sought by the Charaneks was not a foregone conclusion. The Court citedthe decision in Schwormstede v. Green Drop Ltd. (1994), 1994 ABCA 259 , 155 A.R. 302, [1994] 9 W.W.R. 574 (CA), andheld: 51 There is no indication in the Dower Act that a breach of the consent requirements will render an agreement void, and as noted, the"null and void" language has been removed from the legislation. Further, the Court of Appeal has confirmed in Schwormstede v.

GreenDrop Ltd. that this is not the result and the statute itself provides for a consequence of an action in damages where dispositions withoutconsent result in a transfer of title to a third party. The object of the statute is to protect the interests of non-owning spouses in homesteadproperty. The consequence of affirming the validity of the Agreement in circumstances where the non-owing spouse was aware of andintended to give up her dower rights in signing the Agreement may be seen as consistent with the purpose behind the legislation.

It isarguable that the effect of automatic and inevitable invalidation of the Agreement, which was consented to by Mrs. Khosla with fullawareness and intent to give up her dower rights, does not operate to protect those rights. [11] The Court then went on to consider a number of decisions that had concluded that an agreement was void due tonon-compliance, and in doing so, referred to the decision in Worton v. Sauve (1977), (AB KB), 80 D.L.R. (3d) 382,[1977] A.J. No. 799 (QL) (Alta. D.C.).

In Worton, the Court had held that, even though the wife participated in sales discussionsregarding the homestead and had voiced no objections, this was not enough to prove implied consent to the release of her dower interests.The Court found that there was nothing in the evidence to indicate that she intended to give up her dower rights. The Court stated: “Inany event, I am satisfied that for the Plaintiffs to succeed in this action they must prove more than implied consent by Mrs. Sauve.

Theymust prove that she actually signed her dower consent in writing.” [12] In Charanek, the Court concluded that: As noted by the Court of Appeal in Schwormstede v. Green Drop Ltd., the consequence of non-compliance with the consentrequirements of the Dower Act remains an open question. The authorities show that the law has evolved to permit a flexible judicialresponse to non-compliance in certain circumstances.

Whether that will be the result in the context of this case is a matter to bedetermined by a trial judge, and is not appropriately determined summarily in chambers on affidavit evidence. [Emphasis added] [13] There is no question that, at the time Mr. Webb signed the document purporting to grant security in his matrimonial home, therequirements of the Dower Act were not complied with and Ms. Webb did not provide her written consent to the disposition. There is noevidence that she was aware of Mr. Webb’s dealings with Mr. Karafiat at that time. Mr.

Karafiat concedes that the Dower Act was notcomplied with at the time of his June 2001 dealings with Mr. Webb. The Webbs and the Trustee in Bankruptcy concede, however, thatinitial non-compliance with the requirements of the Dower Act does not automatically render the transaction void. I must thereforedetermine whether subsequent events rendered this voidable transaction enforceable. B. Effect of transfer into Joint Tenancy on Dower Rights [14] Mr. Karafiat argues that Mr.

Webb’s act of transferring the matrimonial home from sole ownership into joint tenancy with hiswife caused that home to cease to be the couple’s homestead under the provisions of the Dower Act. He argues that this transfer thereforeended Ms. Webb’s dower rights. In support of this argument, Mr. Karafiat relies on s. 3(2)(

a) of the Dower Act, which states: 3(1) When land becomes the homestead of a married person it continues to be the married person’s homestead within the meaning ofthis Act until the land ceases to be a homestead pursuant to subsection (2), notwithstanding the acquisition of another homestead or achange of residence of the married person.

(2) Land ceases to be the homestead of a married person

(

a) when a transfer of the land by that married person is registered in the proper land titles office, (

b) when a release of dower rights by the spouse of that married person is registered in the proper land titles office as provided for insection 7, or (

c) when a judgment for damages against that married person is obtained by the spouse of the married person pursuant to sections 11 to17 in respect of any land disposed of by the married person and is registered in the proper land titles office. Mr. Karafiat argues that the transfer from sole ownership to joint tenancy was a transfer for the purposes of s. 3(2)(a). [15] The Respondents argue that a transfer from sole ownership by one spouse into joint tenancy of both spouses cannot be atransfer as contemplated by s. 3(2)(a), as the transfer to joint tenancy would not result in the loss of dower rights.. To support thisposition, the Respondents refer to s. 25(2) of the Dower Act, which states:

(2) When a married person and the married person’s spouse are joint tenants or tenants in common in land, the execution of a dispositionby them constitutes a consent by each of them to the release of their dower rights and no acknowledgment under this Act is required fromeither of them. The case of Bank of Montreal v. Pawluk (1994), (AB KB), 158 A.R. 97, [1994] 10 W.W.R. 75 (QB), supports theposition that dower rights continue to exist in a joint tenancy of spouses. The Court concluded that: 52 It was first argued by Counsel for the Bank that dower does not apply to a joint tenancy. I disagree.

Section 25(2) and the McNeillcase make it clear that dower does apply in the case of a joint tenancy, but that a consent separate from execution of a transfer is notrequired. [16] The Charanek decision is also helpful on this point. In her thorough review of the law on non-compliance with the DowerAct, the Master refers to Martland J.’s comment in Senstad v.

Makus: “... the cessation of the homestead characterization upon theregistration of a transfer of land to a third party.” Of course in Senstad the Court was dealing with a transaction involving a third partyand arguably Martland J.’s comment should be construed in the context in which it was made.

Senstad is also relevant to thisapplication, however, because of the comments made by the Court in relation to the purpose of the legislative changes effected when thepredecessor Act was replaced by the 1948 Act, to strike a balance between protecting the dower rights of a spouse and the legitimateinterests of a bona fide purchaser who acquires title reasonably believing that there are no dower rights involved (for example, by dealingwith an unscrupulous transferor who swears a false affidavit deposing that he or she is not married).

There is no innocent third partypurchaser for value without notice in the case before me. Mr. Karafiat entered into his dealings with Mr. Webb months before Ms. Webbbecame a joint owner of the property. There is no evidence to suggest that Mr. Webb obtained the loan and signed the documents bymisrepresenting his marital status or otherwise deceiving Mr.

Karafiat into believing the Dower Act did not apply. [17] Therefore, whether or not Martland J.’s comment was intended to apply only to the circumstances of the case in which it wasmade, it makes good sense to interpret it in the same manner as the Court suggested in Charanek. That is, the transfers referred to in ss.4(2)(

a) of the Dower Act must be transfers to third parties because it is innocent third parties for value without notice who were intendedto be protected by that provision of the Act when it was introduced in 1948. The comments in Bank of Montreal v. Pawluk (and theMcNeill case referred to in that case), as well as s.25(2) of the Dower Act, make it clear that dower rights continue to exist in a jointtenancy situation. I therefore reject the

interpretation suggested by Mr. Karafiat. The better view is that the matrimonial home remains ahomestead until it is transferred to a third party. Dower rights continue, but no separate dower consent in required where both spousesparticipate in the disposition (as, for example, when the Webb’s both executed a mortgage in favour of Alberta Treasury Branches). C. Was the Initially Unenforceable Disposition Rehabilitated by Other Subsequent Events?

[18] Mr. Karafiat argues that there was conduct by Ms. Webb which had the effect of rehabilitating the voidable disposition by Mr.Webb, thereby rendering his caveat (and the underlying security interest) enforceable as a charge on land. He argues that when shebecame registered as a joint tenant with Mr. Webb, Ms. Webb knew or ought to have known (by virtue of the knowledge of the solicitorwho acted for both she and her husband in connection with this transaction) of Mr. Karafiat’s encumbrance on the title.

Furthermore, hesuggests that she knew, or ought to have known (again because one lawyer acted for her and her husband in connection with thissubsequent transaction), by virtue of the request made on her behalf for a postponement of Mr. Karafiat’s encumbrance in connectionwith the Treasury Branches’ financing. Mr. Karafiat also suggests that, because his claim was listed as a creditor’s claim in thebankruptcy proceedings, Ms. Webb must have known about his claim as a secured creditor with a charge over the matrimonial home.Mr. Karafiat asks that, by virtue of these transactions, I conclude that Ms.

Webb had either actual or imputed knowledge of his interest.He further argues that Ms. Webb ought to be deemed to have consented to his charge because she took no steps to challenge hisencumbrance, such steps being taken for the first time when the Trustee in Bankruptcy disallowed Mr. Karafiat’s secured claim in thebankruptcy proceedings. Finally, he suggests that Ms.

Webb ought to be estopped from challenging his secured claim and his caveat. [19] Charanek and the cases cited by the parties confirm that there are some circumstances where a disposition, undertakenwithout fulfilling the requisite consent and acknowledgment provisions of the Dower Act, can become enforceable. However, theseappear to be limited to situations in which the spouse in question explicitly consents to the disposition later on. The problem with theenforceability of Mr. Karafiat’s charge on the Property is that there is no evidence that Ms.

Webb explicitly consented, at any time, to therelease of her dower rights in respect of this encumbrance. [20] In Schwormstede, the Court held: 39 While a number of decisions (including Shopsky) have held such transactions void, in my opinion, the better view is that thetransaction is voidable. That would mean...that if a spouse failed to consent in proper form, a consent could be later produced andregistered to make the transaction proceed validly. This could not, in law, be done if it were void. [21] However, Schwormstede is tempered by the law concerning what constitutes proper consent.

Specifically, consent must begiven explicitly, not implicitly, as held in Worton. Additionally, the Court in Charanek referenced the decision in Gibraltar MortgageCorp. v. Korner (1983), (AB KB), 27 Alta. L.R. (2d) 31, 45 A.R. 14 (Q.B.). In Gibraltar, the Court dealt with anowner who alleged that her mortgage was unenforceable due to her husband’s lack of consent in the form required by the Dower Act.The Court held: 9 It appears to me on reading the whole of the judgment of the Supreme Court of Canada [in Senstad v.

Makus] that the requirementsof the Dower Act do not apply if consent can be proven even though there is no consent in the form contained in the Dower Act itself. Ithink the situation is analogous to a case where it is proven at trial or admitted by the spouse that he or she did consent with fullknowledge of his or her rights and, therefore, upon that proof being accepted the provisions of the Dower Act satisfied and the evil whichthe Act, was set up to prevent no longer exists in that case. [22] Gibraltar states that, so long as consent is proven, it need not be in the form required by the Dower Act.

However, consentmust still be proven, and on the facts in this case, there is no evidence that Ms. Webb had turned her mind to her dower rights, much lessconsented to their release in connection with the Karafiat’s transaction, during any of the subsequent events, including the transfer intojoint tenancy, the postponement of Mr. Karafiat’s caveat, the foreclosure proceedings, or the assignment in bankruptcy. Not only is thereno evidence that Ms. Webb explicitly consented to the release of her dower rights in connection with Mr. Webb’s purported granting ofsecurity in favour of Mr. Karafiat, Mr.

Karafiat does not allege that she did. Rather, he relies on the fact of the subsequent events tosuggest that she either implicitly consented by not challenging Mr. Karafiat’s encumbrance earlier or that she is estopped from doing sofor the same reason. This does not satisfy Mr. Karafiat’s burden of proving Ms. Webb’s consent. Similarly, the evidence before me doesnot meet the test for estoppel, if the doctrine applies at all in the case of dower rights (Martens v. Burden, (AB KB),[1974] 3 W.W.R. 522, 45 D.LR. (3d) 123; Maritime Elec. Co. v. Gen.

Dairies Ltd., (UK JCPC), [1937] A.C. 610, [1937] 1 W.W.R. 591 (P.C.); Nicholson v. Nicholson, (1994), (AB KB), 153 A.R. 200, 4 R.F.L. (4th) 69 (ABCA)). [23] Accordingly, the Trustee in Bankruptcy was correct to disallow Mr. Karafiat’s claim as a secured creditor. Conclusion

[ 24 ] In the result, I conclude that Mr. Karafiat’s caveat is not valid and I order that it be discharged from title to the Property. Heard on the 17 th day of November, 2010. Dated at the City of Edmonton, Alberta this 16 th day of February, 2011. D.L. Shelley J.C.Q.B.A. Appearances: R.M. Gold for the Applicant, G. Karafiat K. Power for the Respondents: F. Webb, C. Webb, and the Trustee in Bankruptcy