Ric New Brunswick Inc. v., 2012 ABQB 213

Court of Queen ’ s Bench of Alberta Citation: Ric New Brunswick Inc. v. 1301725 Alberta Ltd., 2012 ABQB 213 Date: 20120330 Docket: 0903 03666 Registry: Edmonton Between: Ric New Brunswick Inc. and 1460518 Alberta Ltd. Plaintiff - and - 1301725 Alberta Ltd., 702348 Alberta Ltd., 1198030 Alberta Ltd., 1219358 Alberta Ltd., 1301761 Alberta Ltd., Guild Developments Inc., Roanex Homes Ltd. and Harman Kullar Defendant(

s) And Between: 1219358 Alberta Ltd. Plaintiff by Counterclaim - and - Ric New Brunswick Inc. and 1460518 Alberta Ltd. Defendant by Counterclaim _______________________________________________________ Memorandum of Decision of L. Smart, Master in Chambers

_______________________________________________________ Background [ 1 ] The Plaintiffs (RIC) seek to enforce a mortgage granted by 1301725 Alberta Ltd., 702348 Alberta Ltd., 1198030 Alberta Ltd. and 1301761 Alberta Ltd. (Guild Developments) on lands currently owned by 1219358 Alberta Ltd. (Capital Steel). Guild Developments wished to develop certain lands some of which it owned and some of which it was to acquire.

To assist in its proposed development it entered into a financing arrangement with RIC to borrow $7.5 million on terms set out in a Mortgage Commitment Agreement executed by RIC and Guild Developments as well as the defendant guarantors Guild Developments Inc., Roanex Homes Ltd., and Harman Kullar on September 24, 2007. [ 2 ] In order to create a contiguous parcel for the proposed development, Guild Developments entered into negotiations with Capital Steel which would see Guild Developments acquire certain nearby lands (the 72 nd Avenue Lands) and after subdivision exchange a portion of those lands for the Adjacent Lands then owned by Capital Steel.

Those parties signed a Binding Letter of Intent to Purchase Lands (Swap Agreement) on August 20, 2007 setting out that arrangement. The Swap Agreement stated that the consideration for the Adjacent Lands would be the transfer of 2.06 acres more or less subdivided from the 72 nd Avenue Lands. It also provided that Guild Developments would transfer the whole of that parcel to Capital Steel to be held for itself and Guild Developments until subdivided.

At that point in time, Guild Developments did not own the 72 nd Avenue Lands nor had the Mortgage Commitment been entered into between Guild Developments and RIC. [ 3 ] RIC ’ s representative in his affidavit stated that RIC had a copy of the Swap Agreement prior to preparing the Mortgage Commitment Agreement. In Clause 4 of the Mortgage Commitment, the Property over which security is to be taken is described. The relevant parcels are described as follows: Property 3 Owner: 1198030 Alberta Ltd.

Municipal Address: 6208 72 A Avenue, Edmonton Legal Description: Approximately 5.02 acres vacant land ( “ 72 nd Avenue Lands ” ) legally described as Block 3, Lot 10, Plan 0321747, Edmonton, Alberta Use of the Property: Vacant land, to be severed into two parcels as follows. Parcel 1 with approximately 2.06 acres to be exchanged with Property 5 as hereinafter defined, and Parcel 2 with approximately 2.96 acres to be sold and the proceeds used to repay this Facility. The Property shall at all times be used for this and no other purpose. Property 5 Owner: 1301761 Alberta Ltd.

Municipal Address: 9518 54 Ave, Edmonton Legal Description: Approximately 2.06 acres vacant land ( “ Capital Steel Lands ” ) legally described as Lot 7B, Block 19, Plan 9824895, Edmonton, Alberta [ 4 ] Clause 9.1 provides that RIC would obtain a first ranking mortgage and charge in the amount of $7,500,000 charging that Property; subject to Clause 4 above. [ 5 ] Guild Developments with the funds advanced by RIC did acquire the 72 nd Avenue Lands subject to the RIC mortgage on October 9, 2007. On October 30, 2007 the 72 nd Avenue Lands were transferred by Guild Developments to Capital Steel.

On November 5, 2007 Capital Steel by transfer of land dated October 15, 2007 transferred the Adjacent Lands to Guild Developments. At that point

Capital Steel was the registered owner of the 72nd Avenue Lands subject to the RIC mortgage and Guild Developments was theregistered owner of the Adjacent Lands with no financial encumbrances registered against it. RIC registered a caveat claiming anAgreement Charging Lands on September 1, 2008 and on March 20, 2009 it registered its mortgage.

On October 19, 2010 Capital Steel completed subdivision of the 72nd Avenue Lands and on November 29, 2010 it retained 2.02 acres more or less (the Subdivided Lands)as contemplated by the Swap Agreement and transferred the balance of 2.96 acres to Guild Developments (the Remaining Lands). Whenrequested, RIC declined to discharge its security from the Subdivided Lands and subsequently foreclosure proceedings were commenced. Discussion [6] RIC takes the position that it has valid mortgage security registered against the Subdivided Lands.

Its mortgage, althoughproviding for partial discharges in other circumstances, provides no mechanism for the discharge of its security in relation to those lands.Not surprisingly, it takes the position that the issue over the obtaining of clear title to the Subdivided Lands was a matter as betweenGuild Developments and Capital Steel. RIC was not a party to the Swap Agreement nor was Capital Steel a party to the mortgage.

Norepresentations or even discussion with respect to the Subdivided Lands took place between RIC and Capital Steel until after there wasdefault under the mortgage. [7] Capital Steel argues that on a plain reading of the Mortgage Commitment, it is clear that RIC was not to obtain security overthe Subdivided Lands. It is true that Capital Steel is not a party to any agreement with RIC, and even though there is no express languagein that regard, the Court should compel RIC to discharge its security. Capital Steel has counterclaimed seeking rectification of themortgage to reflect the true intention of the parties.

Furthermore, it alleges that RIC is not bona fides, that is, not without knowledge andit has acted in bad faith amounting to what is sometimes described as land titles fraud. As a consequence RIC cannot simply rely on theconcept of certainty of title provided by the Land Titles Act. [8] The often cited decision of Gates v. Trainer, (PE SCTD), 1979 CarswellPEI 50, 61 APR 331 providessome guidance with respect to these circumstances.

At paragraph 7 Justice McDonald states: 7 The principle upon which the rectification of a document exists is that the document as written is not evidence of the contract asmade and when the mistake is recognized by both parties the Court will proceed to reform the document in accordance with the commonintent of both parties. Lee v. Arthurs, (NB CA), 48 D.L.R. 78 (N.B.C.A.).

Whether or not there must be an actualconcluded contract between the parties, before rectification may be granted, is not necessary for determination in this matter becausethere was never any form of agreement between Nancy Ann Gagne and the defendants and therefore there is nothing to rectify. In orderto have rectification there must be shown to have been some common intention between the parties to the action. There can be norectification of a document when the person seeking to rectify was not a party to the original document. Campbell v. Edwards, (1876) 24Gr. (Ont. C.A.) Hart v.

Boutilier, (SCC), [1921] 56 D.L.R. 620, (S.C.R.) [9] Capital Steel cites Itco Properties Ltd. v. Mohawk Oil Co. (1988), 1988 ABCA 285 , 62 Alta L. R. (2d) 42 (CA) asauthority for the proposition that where someone is “intimately tied” but not a party to a document that is sufficient to give standing toseek rectification. RIC points out and I agree that Itco only decided that the right to seek rectification may in the proper circumstances beassignable. The difficulty Capital Steel faces is that it had no discussions with RIC before Guild Developments granted its mortgage andno agreement with RIC.

What Capital Steel relied upon was the representations from and agreements with Guild Developments. [10] It is also necessary to consider the affect of sections 60 and 203 of the Land Titles Act, RSA 2000, c.L-4 in relation to thesecircumstances.

Obligation affecting land 60(1) The owner of land in whose name a certificate of title has been granted shall, except in case of fraud in which the owner hasparticipated or colluded, hold it, subject (in addition to the incidents implied by virtue of this Act) to the encumbrances, liens, estates andinterests that are endorsed on the certificate of title, absolutely free from all other encumbrances, liens, estates or interests whatsoeverexcept the estate or interest of an owner claiming the same land under a prior certificate of title granted under this Act or granted underany law heretofore in force and relating to title to real property.

(2) Such priority shall, in favour of any person in possession of land, be computed with reference to the grant or earliest certificate of title under which the person claiming priority or any person through whom that person derives title has held possession. RSA 1980 cL-5 s64;1988 c27 s29 Protection of person accepting transfer, etc. 203(1) In this section, (a) “interest” includes any estate or interest in land; (b) “owner” means (

I) the owner of an interest in whose name a certificate of title has been granted, (ii) the owner of any other registered interest in whose name the interest is registered, or (iii) the caveator or transferee of a caveat in whose name the caveat is registered.

(2) A person contracting or dealing with or taking or proposing to take a transfer, mortgage, encumbrance, lease or other interest from an owner is not, except in the case of fraud by that person, (

a) bound or concerned, for the purpose of obtaining priority over a trust or other interest that is not registered by instrument or caveat, to inquire into or ascertain the circumstances in or the consideration for which the owner or any previous owner of the interest acquired the interest or to see to the application of the purchase money or any part of the money, or (

b) affected by any notice, direct, implied or constructive, of any trust or other interest in the land that is not registered by instrument or caveat, any rule of law or equity to the contrary notwithstanding.

(3) The knowledge of the person that any trust or interest that is not registered by instrument or caveat is in existence shall not of itself be imputed as fraud.

(4) This

section is deemed to have been in force since the commencement of The Land Titles Act , SA 1906 c24 , in place of

section 135 of that Act and similar sections in successor Acts. RSA 1980 cL-5 s195; 1994 c23 s26

[11] The proper

interpretation of these provisions is set out in the well-known decision of Holt Renfrew and Co. v. Henry SingerLtd (1982), 1982 ABCA 135 , 20 Alta L.R. (2d) 97 (CA). In that decision the court was unanimous in its rejection of theproposition that knowledge of existence of an registered interest coupled with knowledge that the unregistered interest will be defeatedby registration of a transfer is fraud. There must be an additional element or dishonesty of some sort before a transfer will be denied theprotection of the indefeasibility provisions of the Land Titles Act.

RIC acknowledges that it had knowledge of the Swap Agreementbetween Capital Steel and Guild Developments. The officer of RIC states that it did not take its security over any of the lands forpurposes of defeating the interest of Capital Steel, but took its security for purposes of securing repayment of its loan advanced to GuildDevelopments in good faith.

It made no representations nor is there anything in its agreements with Guild Developments that provide fordischarge of its mortgage over the Subdivided Lands subsequently registered in the name of Capital Steel under the Swap Agreement.There was no questioning of the representatives of RIC on their affidavits and there is no evidence from Capital Steel that showsotherwise. Decision [12] Both Capital Steel and RIC seek

summary judgment. RIC has established its claim such that Capital Steel my show that thereis a genuine issue for trial, that is, to show that their defence is not doomed to failure or that it has a reasonable prospect of success.(Murphy Oil Company Ltd. v. The Predator Corporation Ltd., 2006 ABCA 69). [13] Capital Steel is not a party to the document which it seeks to have rectified. It had no agreement of any kind with RIC. Thereis no evidence of an additional element or dishonesty of some sort which would deny RIC the protection afforded by The Land TitlesAct.

Despite a valiant effort and excellent argument by counsel for Capital Steel, in my view, it has been unable to show that there is agenuine issue for trial. Accordingly, the application for

summary dismissal of the action against Capital Steel and

summary judgmentunder its counterclaim for rectification and discharge of the RIC mortgage is dismissed. RIC will have its declaration that it has validsecurity over what was described above as the Subdivided Lands. [14] Costs under the appropriate column of

Schedule C including reasonable disbursements are granted in favor of RIC. Dated at the City of Edmonton, Alberta this 30th day of March, 2012. L. Smart M.C.C.Q.B.A. Appearances: Schuyler V. Wensel, Q.C., Witten LLP for the Plaintiffs/defendants by Counterclaim Timothy D. Wallis, Peterson Krochak for the Defendant/plaintiff by Counterclaim