Carnahan v Builders Capital, 2022 ABKB 697

Court of King’s Bench of Alberta Citation: Carnahan v Builders Capital 2019 Ltd, 2022 ABKB 697 Date: 20221021 Docket: 2101 00792;2101 04848 Registry: Calgary Between: 2101 00792 Heather Carnahan and Ian Huycke Plaintiffs/Respondents - and - Builders Capital 2019 Ltd and 2278755 Alberta Ltd Defendants/Appellants Between: 2101 04848 2278755 Alberta Ltd Plaintiff/Appellant - and - Ian Huycke and Heather Carnahan Defendants/Respondents

_______________________________________________________ Reasons for Decision of the Honourable Justice R.J. Hall _______________________________________________________ Appeal from the Order by J.T. Prowse KC, The Honourable Applications Judge Filed on the 14 th day of April, 2022 Dated the 24 th day of March, 2022 Overview [ 1 ] This appeal arises from an order of Applications Judge (then Master) Prowse, dismissing an application by 2278755 Alberta Ltd (“227”), a numbered company, for

summary judgment and a redemption order by listing, on property known herein as “Lot 19”, against the respondents Ian Huycke and Heather Carnahan (“Owners”). Applications Judge Prowse dismissed the application and found that there was nothing owing under the mortgage by the Owners, either due to issue estoppel and/or res judicata. Facts [ 2 ] The Owners owned two lots of land in Calgary, Lot 2 and Lot 3. Lot 2 was mortgaged with a Royal Bank of Canada Mortgage (the “RBC Mortgage”) dated September 2009, while Lot 3 had a mortgage from the Bank of Nova Scotia dated from February, 2005.

Another mortgage was granted by the Owners to Builders Capital (“Builders”) in April 2013 to Lot 3. [ 3 ] In 2016 these lots were subdivided into Lot 19, Lot 20 and Lot 21. The mortgages followed the subdivision. Lot 19 and Lot 20 were charged by the RBC mortgage, and the Bank of Nova Scotia and the Builder’s Capital mortgages were charged against to Lots 20 and 21. [ 4 ] The Registrar incorrectly placed the Builders Capital mortgage on all three lots.

This error was recognised and rectified in July 2019. [ 5 ] In October 2019, Builders commenced foreclosure proceedings on its mortgage against the Owners and a corporate guarantor. In July 2020 Applications Judge Farrington pronounced an Order for Sale and Deficiency Judgment, also known as a Rice order, to Builders.

This deficiency judgment was in the amount of $742,908.60, being the amount unpaid on the Builders mortgage after credit was given for all of the amounts owing under the Bank of Nova Scotia and Royal bank of Canada mortgages. [ 6 ] Lot 20 and Lot 21 were then registered in the name of Builders in September 2020, and were subject to the prior Bank of Nova Scotia and Royal Bank of Canada mortgages, which remained on title. [ 7 ] Sandy Loutit, the President of Builders then caused to be incorporated 227 so as to purchase the RBC mortgage.

As described by the appellants, “[t]he purpose of purchasing the RBC Mortgage was to ensure that the Defendants remained liable to pay the RBC mortgage”. (Brief of Plaintiffs, at para 25) [ 8 ] After purchasing the RBC mortgage, 227 transferred it to itself, discharged the mortgage from the Lot 20 property, and then brought proceedings against the Owners to pay the outstanding amount owed under the RBC Mortgage, which remained registered against title to Lot 19.

By doing so, 227 sought to recover on the RBC mortgage against Lot 19, even though Builders never held a mortgage over Lot 19. [ 9 ] Applications Judge Prowse dismissed the proceeding finding that Builders was barred from seeking to make the Owners pay under the mortgage and that nothing was owing under it. Applications Judge Prowse in his oral reasons stated this was due to either res judicata or issue estoppel. [ 10 ] 227 appeals this order by Applications Judge Prowse. Standard of Review

[11] On an appeal from an Application’s Judge, the appropriate standard of review is correctness: Bahcheli v Yorkton SecuritiesInc, 2012 ABCA 166 at paragraph 30. Law [12] The present case involves the analysis and

interpretation of

section 58 of the Land Titles Act, RSA 2000.

It states: Implied covenants in transfer 58(1) In every instrument transferring land for which a certificate of title has been granted, subject to mortgage or encumbrance, thereshall be implied the following covenant by the transferee both with the transferor and the mortgagee: That the transferee will pay theprincipal money, interest, annuity or rent charge secured by the mortgage or encumbrance, after the rate and at the time specified in theinstrument creating it, and will indemnify and keep harmless the transferor from and against the principal sum or other money secured bythe instrument and from and against the liability in respect of any of the covenants contained in the instrument or under this Act impliedon the part of the transferor.

(2) If a transferee declines to register any such transfer, the transferor or the mortgagee may by notice call on the transferee or any otherperson or persons that a judge may direct to show cause why it should not be registered, and on the return of the notice the judge mayorder the registration of the transfer within a time named or make any further or other order and on any terms as to costs and otherwisethat to the judge seem proper. (Emphasis added) [13] This

section has received significant judicial and academic commentary, particularly as its essentially identical previousiteration as

section 62 of the previous Land Titles Act, RSA 1980, c L-5. [14] The Appellant argues that the issue of whether the implied covenant of

section 58 would apply had already been determinedby Guaranty Trust Company of Canada v Bailey, 1985 ABCA 116 , 38 Alta LR (2d) 262) Alberta Court of Appeal 1985.[“Bailey”] In that decision it was found that a purchaser following a Final Order for Foreclosure is not liable to the first mortgagee. Thecurrent situation, however, relates to an Order for Sale to Plaintiff. [15] The question of whether an Order for Sale to Plaintiff is covered within the implied covenant of

section 58 is very ablycanvassed by Applications Judge Schlosser in Servus Credit Union Ltd v Miller, 2012 ABQB 765. [“Miller”] [16] Applications Judge Schlosser highlights that the determination of whether the indemnity of

section 58 applies requires a moresubtle

interpretation, drawing on both Bailey and the foundational text Mortgage Actions in Alberta, Price and Trussler, Carswell 1985,chapter 10: Miller at para 16. [17] Applications Judge Schlosser found that in the case of a Rice order, the implied covenant would apply, stating that: [37] However, a mortgagee who takes title by way of a court ordered sale to the Plaintiff is in a different position, and ought not tobe treated any differently from any other purchaser.

The vital difference between an Order for Sale to the Plaintiff and a Final Order forForeclosure is that when there is a court ordered sale to the Plaintiff, the foreclosing mortgagee takes the land and a judgment. Otherwisethere is no point to it. In determining the value of the judgment, the value of the encumbrances remaining against title are taken intoaccount as if they had to be paid. This is essentially no different from a purchaser being given credit for not getting clear title.

In thissense an Order for Sale to the Plaintiff is not just a mechanism to put title into the name of the mortgagee and extinguish the equity ofredemption. Because the lender who takes by way of Order for Sale gets 'credit' for the encumbrances on title, the equitable principle ofWaring v. Ward applies, as does the plain meaning of

section 58. (Emphasis in original) [18] Another argument raised by the Appellant is that the current situation is the same as one of the general exceptions outlined in“Mortgage Remedies in Alberta”, Report No 70, June 1994, Alberta Law Reform Institute and referred to by Applications JudgeSchlosser at paragraph 19: (1) the transferor transfers less than his or her entire interest in the land or transfers only some of the land charged by the mortgage,(However, if the transferor transfers by one instrument of transfer the entire interest in all the lands charged by the mortgage to severaltransferees, each transferee is jointly liable for the covenant of indemnity arising from

section 62.) [...] (Emphasis added, citations removed) [19] The

interpretation of

section 58 is a subtle exercise and requires a contextual analysis to determine whether courts of equitywould have found the implied covenant to apply. Application to the Present Case [20] It is necessary to consider where the equities lie in the present case. From the evidence provided by the parties, it is apparentthat 227 and Builders were preparing to purchase the mortgage from the Royal Bank of Canada months before the order by ApplicationsJudge Farrington. [21] Builders had sent letters to the Royal Bank of Canada in January 2020 to inquire about a transfer of mortgage.

In September2020, after the order of Applications Judge Farrington, Builders sent another letter requesting transfer of the mortgage insisting “WE DONOT WANT YOU TO DISCHARGE THIS MORTGAGE”: Exhibit “D” of the Affidavit of Sandy Loutit, November 3, 2020. [22] As transcribed in the hearing before Applications Judge Farrington, Builders noted that it could not pursue the Owners as

individuals and would instead have to take the properties. The lawyer for the Owners kept insisting that the only issue of importance forthe Owners was that the debt of the mortgage be discharged. [23] The exception to the application of

section 58, regarding not having the entire interest in the land be transferred, was firstestablished in Macdonald Estate (Re), (AB CA), [1925] 2 DLR 748, Alberta Court of Appeal.

Most of the subsequentcases that are cited under the exception, are easily distinguishable as involving the transfer of mortgages charged on condominiums. (SeeAMIC Mortgage Investment Corporation v Abacus Cities Ltd (1987), 1987 ABCA 215 , 56 Alta LR (2d) 282 (Court ofAppeal); Fidelity Trust Company v Signature Finance Ltd and Radostits Investment Ltd (1990), 1990 ABCA 105 , 73 AltaLR (2d) 289 (Court of Appeal)) In any event, it requires determining what the equities suggest in this case. [24] Looking beyond the surface, this was an attempt by Builders to enforce the RBC mortgage against Lot 19 when Builders hadalready received full credit for it in the Rice Order in respect of Lots 20 and 21.

As expressed in Miller, the “Courts of Equity do notallow litigants to have their cake and eat it too.” (at paragraph 38) [25] Further, as was highlighted by Applications Judge Prowse, in the present case, although the parties are not the same, the issuehad been decided when Builders acquired the mortgaged properties via a Rice order.

As noted by Applications Judge Schlosser in Millerabove, a Rice order provides the foreclosing mortgagee with the land and a judgment. [26] As set out in Sullivan v Ferguson, 2017 ABCA 192, the test for issue estoppel is as follows: [14] A successful issue estoppel claim requires that: (1) the issue be the same as the one decided in the prior judicial decision, (2)the prior judicial decision must have been final, and (3) the parties or their privies to both proceedings must be the same: Toronto (City)at para 23. [27] As Applications Judge Prowse found, and similarly to the case in Miller, Builders had assumed the mortgage and the impliedcovenant under

section 58 applies. Builders received credit for the amount of the RBC mortgage to obtain a deficiency judgment againstthe guarantor. Builders’ nominee company cannot again recover on that credited amount. Conclusion [28] If the appeal was granted by me, it would mean that, even though the Appellant received a credit for the full amount of theRBC mortgage when obtaining its Rice order and deficiency judgment, it would be able to collect that full amount in the subsequentforeclosure of Lot 19.

That is not right in law or in equity. [29] The appeals of 227 and Builders are dismissed. [30] If the parties cannot agree as to costs, they may address me in writing within 60 days. Heard on the 10th day of August, 2022. Dated at the City of Calgary, Alberta this 21st day of October, 2022. R.J. Hall J.C.K.B.A. Appearances: Shaun T. MacIsaac, KC, for the Appellants/Plaintiffs/Defendants, 2278755 Alberta Ltd and Builders Capital 2019 Ltd Bradley Findlater for the Respondents/Plaintiffs/Defendants, Heather Carnahan and Ian Huycke