Torrens Elusive Title

TORRENS' ELUSIVE TITLE

BASIC LEGAL PRINCIPLES OF AN EFFICIENT

TORRENS' SYSTEM

Thomas W. Mapp

Professor of Law University of Alberta

Alberta Law Review Faculty of Law, University of Alberta

Copyright, 1978 by the Alberta Institute for Law Research and Reform. All rights reserved.

For further information, please contact:

Alberta Law Review Faculty of Law, University of Alberta Edmonton, Alberta T6G 2E1

Printed by The University of Alberta Printing Department, The University of Alberta

ISBN 0-9690908-0-3

ALBERTA LAW REVIEW BOOK SERIES, Volume I The Editorial Board, 1978/79, Alberta Law Review

Editorial Board 1978/79

Editor-in-Chief Doris I. Wilson

Managing Editor Case Comment, Notes, Elizabeth Johnson Book Review Editors

Clarke Hunter Articles Editors Eva M. Stutz June M. Enzle Barry Galbraith Business A. Barry McLaren Mark D. Tims

Copy Editors Members at Large Jean K. Coutts Glen M. McDonnall Richard W. Myers (University of Calgary)

Tony de Jong Circulation Helen Greaves Duncan C. Thompson Patricia A. Parsons

Associates

John Blair Arlene Kwasniak Stan J. Blythe Peter L. Miller John Gill Denis R. Noel Jennifer Head Ray Purdy Felicity C. Hunter Jay Thygesen Barry M. King

vii

Table of Contents

Page

PREFACE . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . xiii

CHAPTER 1 . INTRODUCTION ......................................... 1

Section

a . Origins of the Torrens System ....................................... 1 b . Classification of Title Registration Systems .......................... 3 c . Reform and Extension of Title Registration .......................... 3 d . Purpose of Study ..................................................... 4 e . Alberta Land Titles Act a s Representative

Torrens System Model ............................................... 5

CHAPTER 2 . CONVEYANCING UNDER THE ENGLISH COMMON LAW 7

Section

a . Some Fundamental Principles ........................................ 7 b . Evaluation of All Known Transfers .................................. 8 c . Extrinsic Validity of Transfers ....................................... 9

(1) Lack of intent that transfer take effect ............................ 10 (2) Transfer by person under legal disability ......................... 11 (3) Involuntary transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 (4) No transferee .................................................... 14

d . Lost Instruments Supporting a Claimed Interest ...................... 14 e . Unknown Legal Interests Superior to the Claimed

Legal Interest ........................................................ 15 f . Unknown Equities ................................................... 17

(1) The Court of Chancery; equity .................................... 17 (2) The trust ......................................................... 17 (3) The bona fide purchaser for value . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20

(a) Acquisition by donee .......................................... 20 (b) Acquisition not bona fide ..................................... 22

(4) Equitable interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 (5) Mere equities ..................................................... 29 (6) Priorities between interests ....................................... 31

g . Ownership and Adverse Possession .................................. 35

(1) Possession and relative ownership ................................ 35 (2) Acquisition of ownership by adverse

possession ....................................................... 37

h . Summary of Common Law Problems ................................. 41

CHAPTER 3 . INSTRUMENT REGISTRATION: RECORDING ........... 45

Section ......................................................... . a Introduction

b . Unknown Prior Interests ............................................. c . Lost Instruments Supporting Seller's Ownership ...................... d . Vulnerability of Equities ............................................. e . Unknown Equities Binding Donee ................................... f . Summary ............................................................

CHAPTER 4 . FUNDAMENTAL ELEMENTS OF A TORRENS' SYSTEM

Section

a . Method of Analysis .................................................. b . Objective of a Torrens System ........................................ c . Strategy of a Torrens System ........................................

(1) Registered interests .............................................. (2) Nonregistered interests ........................................... (3) Overriding interests .............................................. (4) Administration of the system .....................................

d . Inherent Elements of a Torrens System .............................. ............................................................. (1) Error

..................................................... (2) Defeasibility (3) Power of Registrar ...............................................

............................................. e . Compensation for Loss ............................................................ f . Summary

CHAPTER 5 . CONFERRING OWNERSHIP BY REGISTRATION ....... 73

Section

a . Introduction ......................................................... 73 b . Limitations Related to the Recipient of the

................................................... Registered Interest 74

................................ (1) Recipient a recognized legal entity 74 ............................ (2) Recipient not a recognized legal entity 74

.................................. c . Termination of Registered Interests 76 ......................... d . Land in Which the Registered Interest Exists 76

(1) Erroneous ownership decree resulting from ................................... a mistake in a legal description 77

(2) Ambiguous legal descriptions ..................................... 79

(a) Ambiguous legal description defining ......................................... both adjacent parcels 80

(b) Ambiguous legal description defining ................................... one of two adjacent parcels 80

(3) General boundaries under the English system ........................................................... 84

e. Limitations Related to the Type of the ................................................... Registered Interest

(1) Legal interests in land recognized by the general law . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

....................................... (a) The fee simple absolute (b) Legal interests defined by statutory

.................................................. instruments ......................................... (2) Undefined legal interests

................................................... (3) Contract rights ................................. f. Interests Qualifying for Registration

(1) Limit the risk of creation of interests ................................. inconsistent with the general law

(2) Limit the number and complexity of permitted interests in land ..................................................

(3) Disadvantages of limiting legal interests . . . . . . . . . . . . . . . . . . . . . . . . .

CHAPTER 6. DEFEASIBILITY OF OWNERSHIP CONFERRED BY REGISTRATION ..........................................

Section

......................................................... a. Introduction b. Current Statutory Provisions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . c. Defeasibility Required by Principles of the

General Law Independent of a Torrens System ....................... (1) Defeasibility of a registered interest to

give effect to overriding interests not entered in the register ............................................

(2) Defeasibility of a registered interest to give effect to other interests to which i t is subjected by entries in the register . . . . . . . . . . . . . . . . . . . . . . . . . . . . .

(3) Defeasibility of a registered interest to permit the execution of a transaction a s mutually intended by the relevant parties .........................

(4) Defeasibility of a registered interest obtained by an owner through knowing participation in fraud . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (a) Independent fraudulent conduct ............................... (b) Knowing participation in the fraudulent

conduct of another . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (c) Acquisition of an interest with knowledge

that a conflicting prior nonregistered interest does exist .............................................

(d) Acquisition of an interest with knowledge suggesting that a conflicting prior nonregistered interest may exist ..............................

(5) Defeasibility of a registered interest obtained through error by an owner who was not a purchaser for value .........................................

........................................................ (6) Summary

d. Defeasibility Required by Principles of Law Necessary Under a Torrens System . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 129

(1) Defeasibility of a registered interest based on a n invalid transfer from the immediately preceding registered owner .......................... 129

(2) Defeasibility of a prior registered interest to the extent that conflicting legal rights are (a) erroneously registered to an intermediate

owner, and (b) registered to a subsequent owner who

was a purchaser without fraud under a valid transfer . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 135

(3) Defeasibility when conflicting legal rights have been registered to different persons, all of whom were purchasers without fraud under valid transfers . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 140

e. Summary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 141

CHAPTER 7. PROTECTING NONREGISTERED INTERESTS THROUGH CAVEATING .............................................. 143

Section

a. Introduction ......................................................... 143

(1) Equitable interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 143 (2) Interests based on revision of the register ......................... 144

b. Should Nonregistered Interests be Recognized? ....................... 145 (1) Enforcement of nonregistered interests

between the immediate parties .................................... 146 (2) Enforcement of nonregistered interests

against a successor registered owner .............................. 146

c. Benefits Secured Through Caveating System ......................... 147

(1) Benefits secured by caveating a prior nonregistered interest ............................................ 147

(2) Benefits secured by one who acquires a subsequent interest in reliance on the register .......................................................... 148

d. Caveating Requirements ............................................. 150

(1) Interests qualifying for protection ................................ 150 (2) Authority of Registrar to reject caveats ........................... 150 (3) Description of interest sought to be

protected by caveat ............................................... 153

e. Removal of Caveats .................................................. 155 (1) Basic policy issues . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 155 (2) Benefits secured by removal of caveats ........................... 156 (3) Summary adjudication of validity of nonregistered

interests . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 157 (4) Adequacy of safeguards for valid caveated

interests ......................................................... 158

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . CHAPTER 8 . REMEDIES 161

Section ......................................................... a . Introduction 161

................................................... b . Types of Remedies 161

....................... (1) Obtaining possession by a registered owner 161 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (2) Specific performance 162

(3) Revision of register in order to require ............................................. registered ownership 162

............................... (4) Compensation from assurance fund 164

(a) Comparative benefits of registration .............................................. and of caveating 164

.................................... (b) Fees under the Alberta Act 167 . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . (c) Obtaining compensation 169

................................................ c . Limitation of Actions 172

....................... (1) Obtaining possession by a registered owner 172 ............................................. (2) Specific performance 173

(3) Revision of register in order to acquire ............................................. registered ownership 174

............................... (4) Compensation from assurance fund 176

............................... CHAPTER 9 . OVERRIDING INTERESTS 179

Section

......................................................... a . Introduction 179 b . Justification for Overriding Interests ................................. 179

......................................... c . Typical Overriding Interests 181

(1) Interests protected by federal law in a .................................................... federal system 181

......................................................... (2) Tax liens 184 ............................................... (3) Leasehold interests 185

(4) Exceptions and reservations in original ..................................................... Crown grant 187

....................................................... (5) Easements 191 (6) Charges based on writs of execution of

................................................... judgment debts 192

........................................................ d . Expropriation 194

........................................... CHAPTER 10 . CONCLUSION 197

Section .............................. a . Summary of Fundamental Policy Issues 197

.......................................................... b . Conclusion 200

....................................................... TABLE OF CASES 201

. . . X l l l

Preface

This study was prepared in the course of the author's employment with the Alberta Institute of Law Research and Reform, and constitutes the initial phase of a fundamental review of both the basic legal principles and the operation of the Torrens system in Alberta which has been undertaken by the Institute.

Although the author's present work casts him in the role of a law reformer, a s the study progressed he found it impossible to suppress his more conventional habits a s a law professor. He is reminded of the many times that he told his law students that after the Judicature Act of 1873, a n English judge of the Supreme Court of Judicature could, depending on which hat he chose to wear, be a judge a t law, in equity, or in admiralty.

In keeping with its primary purpose, the study contains a n analysis of the basic legal objectives of a Torrens system, and presents a series of important policy issues which the author believes should be considered by any law reform body which contemplates proposing alterations to a Torrens system designed to facilitate the accomplishment of its maximum potential.

However, a s the legal objectives of a Torrens system could only be discussed relative to the body of law it sought to improve, it was necessary to summarize conveyancing under the English common law and under modern recording systems. In addition, in order to determine how well the Torrens system is achieving its goals, it was necessary to analyze many judicial decisions under the system. The study is, therefore, in many respects a n introductory textbook on conveyancing from common law through Torrens system.

The author anticipated that the study would be read by trained lawyers: those who are interested in what the author believes is a rather nonconventional description of the Torrens system as well a s those who are interested in improving it. However, he also consciously tried to produce a textbook for the use of law students in introductory courses on the Torrens system, and was continually mindful of his experiences as a teacher. And, because many laymen occupying legislative and business positions are vitally interested in the Torrens system, he hoped that they would find the study useful. Therefore, although he did not shy away from including frequently difficult materials in the study, he strove to utilize a s simple a presentation style a s seemed reasonably possible. If the study suffers because the author wore too many hats simultaneously, he can only apologize.

The organization used in the study will probably seem highly unorthodox to a reader familiar with Torrens literature. The author

xiv Torrens' Elusive Title

believes that a functional system depends on a sound conceptual foundation. For this reason, Chapter 5 is devoted to a n examination of the extent to which it is feasible for the state to confer rights of ownership by registration under a Torrens system. Because the author believes that it is misleading to suggest that ownership rights created by registration are indefeasible, Chapter 6 is entitled "Defeasibility of Ownership Conferred by Registration". Chapter 7, in turn, is concerned with the protection of rights in land which are characterized a s nonregistered interests because they are not created by registration a t all.

Although this study was written under the auspices of the Alberta Institute of Law Research and Reform, its content is solely the responsibility of the author, and no statements contained in it should be interpreted a s reflecting the position of the Institute on any issue. The author is, however, deeply grateful to the Institute for having made the production and publication of the study possible.

The author has many academic debts to acknowledge. His colleagues on the Institute legal staff, and in particular Professor W.H. Hurlburt, the Director of the Institute, and Mr. A.R. Hudson, provided him with invaluable assistance in research, and in formulating and organizing his thoughts. He thanks his secretary, Marlene Welton, who patiently typed the manuscript, through several drafts. He is most grateful to Doris Wilson, the Editor of the Alberta Law Review, for her expert editorial assistance with the manuscript, and to her and to her staff for reading the galley proof, and for publishing the study. The author, however, takes credit for all mistakes.

Thomas W. Mapp September 12,1978 Edmonton, Canada

CHAPTER 1

Introduction

a. Origins of the Torrens System 1.1 Who was Torrens, and what is a title? To what extent can a

jurisdiction confer secure titles to interests in land under a system designed to increase facility of transfer? Is Torrens' title a n elusive ideal? What are the basic legal principles of a n efficient Torrens system? This study will be addressed to these questions.

1.2 Sir Robert Richard Torrensl was born in Ireland in 1814, and died in England in 1884. The significant years of his life for our purposes were passed in South Australia, and they did not pass uneventfully. Upon his arrival in Adelaide in 1840, Torrens became collector of customs. In 1853 he was appointed registrar-general of deeds for South Australia, and in this position became intensely concerned with the problems individuals experienced in proving their ownership of interests in land under the English legal system a s exported to Australia.

1.3 Under the English system one who claimed ownership of land had to prove to a prospective purchaser that he had acquired what he claimed from a predecessor, who had acquired from a n earlier predecessor, and so the line of transferred claimed ownership had to be traced back to someone whose ownership no one could effectively challenge. William the Con- queror, from 1066, would clearly have furnished a n adequate source of ownership for anyone's derived ownership! Of course ownership was not traced to so mighty a source; before 1874 the general practice of conveyancers was to trace claimed ownership to an acceptable source a t least sixty years back. If one who contracted to sell could meet this burden, the purchaser would be bound by the c o n t r a ~ t . ~ In South Australia the original government grant was the source of all ownership, and no grants could have been made before the South Australia Act was passed in 1834.3 Nevertheless, within twenty years, proof of ownership to much of the land in the colony had become inordinately expensive, if not impossible.4 Land descriptions were inadequate because surveying was primitive where it existed, and was often not available a t all. Because so much land was held by speculators, the volume of land transactions was extremely large. Where trained lawyers were available their charges were so high relative to the value of the land concerned that they were avoided by poor settlers. Instruments such a s deeds, mortgages, wills, and even original government grants were often defectively drawn and executed. Moreover, they were frequently lost.

1.4 Robert Torrens advocated adoption of a different system common-

2 Torrens' Elusive Title

ly called 'registration of title'. Under this system the state maintains a register which contains the following information: (1) a description of every parcel of land covered by the system, and of any rights over other land which ownership of the parcel confers; (2) the name of the person who owns the parcel; and (3) a description of any rights over the parcel owned by someone other than the owner. This register is more than just a state maintained record; ideally it represents a conclusive decree by the state, the source of all rights in land, that the rights described by the register are all and the only rights the state recognizes as existing with respect to the parcel. This system elevates a claim of ownership, derived from the claims of predecessors, to a title granted by the state. Torrens was truly "In Search of Title".5

1.5 This idea was hardly the invention of Robert Torrens; systems of government sponsored titles had existed on the continent for centuries.6 Title systems were advocated by reformers in England early in the nineteenth century, and the movement actively surfaced in Australia by 1856.7 Although an outline of a draft Torrens Bill was published in The South Australian Register on October 17, 1856, a rival title registration bill was published within the m ~ n t h . ~ Land titles reform was one of the primary issues in the election which preceded self-government for South Australia in 1857, and as one of the most effective popularisers of the faith, Torrens topped the poll.9 Torrens introduced his Bill in the South Australia Legislature on June 4, 1857; he led the fight for adoption against strong opposition from the legal profession, and the Bill was passed and became law on January 27, 1858.1° We know that a copy of the Report of the English Royal Commissioners of 1857,11 which recommended the introduction of a land titles system in England, arrived in Adelaide in mid- November 1857.12 Torrens acknowledged not only the Report, but its help in neutralizing his opposition at a key point before the second reading of his Bill.13 Torrens denied using the substance of the English Report of 1857, but Professor Whalan submits that some very important concepts absent in the Bill when first introduced, but present when finally passed, came from the English Report of 1857.14 Moreover, there seems little reason to doubt that significant contributions were made by Torrens' colleagues, both to the 1857-58 Act, and to amending Acts of 1858,1860, and 1861.15

1.6 This need not tarnish the fame of Robert Torrens. Although not a lawyer, he led an attack which produced profound changes in one of the most complex branches of English law, real property conveyancing, in the face of bitter opposition from the legal profession. Acts based on the South Australian model, primarily the Act of 1861, were adopted throughout Australasia by 1874,16 and whereas the original English Acts were not successful, the Australasian Acts held firm.17 Professor Whalan discusses many reasons for the immediate success in Australasia; in some respects the Australasian Acts were functionally superior to the early English Acts, but he emphasizes the factor of public support. In England most of the land was held by a wealthy elite who wished to retain ownership. In Australasia the settlers wanted to do more than merely acquire land; each wanted to augment the size and value of his holdings by a process of purchase, improvement, sale, and further purchase of a larger tract. Land was a

Chapter 1 . Introduction 3

commercial commodity.18 The settlers were willing to support reforms which promised facility of transfer and security of title, and Torrens and his associates were quite willing to go to the public for support. Torrens, in particular, emerges a s a n aggressive, tenacious, and relatively uncompromising politician. His name has become so associated with the fruits of his political victory in South Australia that Simpson can write "Outside Great Britain the system of registering title . . . is widely known as the 'Torrens system'. . . . It spread throughout Australia and to many other parts of the world under his name . . . ."19 Indeed, in the United States, the registered title under the Torrens system is generally referred to a s a 'torrens title'.

b. Classification of Title Registration Systems 1.7 Dowson and Sheppard arranged the jurisdictions of the world with

title registration systems into "groups [to] indicate broadly the registration law upon which the various statutes have been founded or are most closely connected with."20 They warned, however, that "genuine classification of the variant statutes according to differences in system is possible".21 Thus, although Dowson and Sheppard used five groups; English, Torrens, German, Swiss, and Ottoman, these groups do not represent systems with significant consistent differences. Only some of the jurisdictions listed in the English and Torrens groups will be indicated here. The English group is categorized to connote the derivation of the various registration laws from the English Land Registry Act, 1862;22 the Land Transfer Act, 1875;23 and the Land Transfer Act, 1897.24 I t includes England, Ireland, Nova Scotia, and Ontario.25 The Torrens group includes jurisdictions whose statutes can be traced to South Australia: all of Australasia, all of the states of the United States that adopted title registration, Alberta, British Columbia, Manitoba, and Saskat~hewan.2~

c. Reform and Extension of Title Registration 1.8 With one exception, the author knows of no jurisdiction in which

title registration can be said to have failed. On the contrary, there appears to be a trend in the direction of strengthening and expanding existing systems.

1.9 The exception is the United States.27 Simpson observes that of nineteen states that adopted the Torrens system, five have repealed their Torrens statutes, and in only three states has the system enjoyed "any measure of success".28 Of course many reasons for this failure are cited in the literature on the subject, but two reasons are consistently stressed: (1) the high cost of initial registration through a judicial procedure, supposedly required by the United States Constitution; and (2) the opposition of groups in the United States with vested economic interests which would be adversely affected by success, such a s title insurance companies, private abstractors, and some 1awye1-s.~~ I t should be noted that neither of these reasons goes to the merits of a title registration system. There is reason to believe that constitutional doctrine in the United States has changed in recent years so that, with a carefully drawn statute,


initial registration could be greatly ~ i m p l i f i e d . ~ ~ The second reason reflects economic politics.

1.10 This study does not purport to cite all of the title registration reform projects recommended or underway in the world. A few examples must suffice. Of the author's jurisdiction, Alberta, it has been said "the landowners and the members of the legal profession of this province are so convinced of the merits of the Torrens system . . . that any suggestion to replace it would be met by solid opp~s i t ion" .~~ In Alberta, The Institute of Law Research and Reform has undertaken a fundamental review of the Torrens system, and plans to make such recommendations a s may be deemed necessary to improve it. The Ontario Law Reform Commission "recommends that a n improved land titles system should be the sole system for land registration in Ontario . . . ."32 The Three Maritime Provinces of Canada, New Brunswick, Nova Scotia, and Prince Edward Island, have established the Council of Maritime Premiers, and the Council has created a n agency, the Land Registration and Information Service (LRIS), charged with the responsibility of developing and implementing a unified land registration system for all three provinces to replace existing deed registration systems.33 The work of the LRIS is well advanced a t this time. In England, the Law Commission has published four working papers discussing problems which seem to arise under the land registration system, and giving the tentative views of the Commis- sion on some of them.34 However, expansion of the English system of land registration is not waiting upon statutory improvements. We are told that the policy is to extend the system "as fast a s the facilities of the Land Registry permit. I t now covers many of the principal urban areas of England and a number of counties also. Nearly half the work of conveyancing is estimated to concern registered land . . . ."35

d. Purpose of Study 1.11 The purpose of this study is to present a systematic organization

of the fundamental policy issues inherent in a Torrens system. Starting with the avowed goals of such a system, the object is to determine the extent to which these goals can be achieved, and the most efficient method of doing so. The study will, from purpose and necessity, raise many fundamental socio-economic policy issues. One need not be accused of demagoguery if he agrees with Torrens that the resolution of these issues through "'thorough law reform' is essentially 'the people's questi0n'".~6 The author, who is of their profession, believes that lawyers, with their experience in working with conflict resolution under legal systems, are in a uniquely advantageous position to organize the issues which will arise in the process of law reform, and to summarize the advantages and disadvantages of possible solutions to problems. Law is very much a creature of lawyers, and although Torrens' accomplishments in law reform have been exceptional, much remains to be done if his system is to achieve its potential. Lawyers will be essential; "set a thief to catch a thief."37 The study will, therefore, strive to present and discuss the basic policy issues which a society must resolve if i t is to have a functional system of title registration, and in terms comprehensive to a reasonably educated

Chapter 1 . Introduction 5

layman. I t will not, however, contain recommendations, for it is written for those who must make the value judgments for a society.

e. Alberta L a n d Tit les Act as Representat ive Tor rens Sys tem Model

1.12 Although systems of title registration, varying in detail, exist throughout the world, this study will focus primarily on the Torrens system as it now exists under The Land Titles Act of Alberta.38 Its principal historical predecessors are The Land Titles Act (Alberta) of 1906,39 The Land Titles Act (Canada) of 1894t0 and the Territories Real Property Act of 1886.41 The latter Act closely followed the Australasian mode1.42 As none of the Torrens acts have ever been thoroughly reviewed and revised, a t least to the author's knowledge, the Alberta Act may be taken a s fairly representative. Statutes of other jurisdictions will be discussed when they reflect solutions to basic policy issues differing from those in the Alberta Act.

FOOTNOTES 1. 22 Encyclopaedia Britannica 309 (1963). 2. Megarry and Wade, Real Property 578-79 (4th ed. 1975). 3. (Imp.) 4 & 5 Will. 4, c. 95; see Pike, Introduction of the Real Property Act in South Australia, (1961) 1

Adelaide L. Rev. 169,171. 4. Pike, supra, n. 3, at 172-76. 5. Payne, In Search of Title (Part I), (1961) 14 Ala. L. Rev. 11. 6. Whalan, The Origins of the Torrens System and its Introduction into New Zealand, The New Zealand

Torrens System Centennial Essays 1 (Hinde ed. 1971). 7. Id. at 2-3. 8. Id. 9. Pike, supra, n. 3, at 178-79.

10. Real Property Act (1858), 21 Vict., No. 15. 11. Report of the commissioners Appointed to Consider the Subject of the Registration of Title with

Reference to the Sale and Transfer of Land (1857, London C. 2215). 12. Whalan, supra, n. 6, at 4. 13. Torrens, The South Australian System of Conveyancing by Registration of Title vii (1859). 14. Whalan, supra, n. 6, at 5-9. 15. Id. at 9-10. 16. Simpson, Land Law and Registration 71 (1976). 17. Whalan, Immediate Success of Registration of Title to Land in Australasia and Early Failures in

England, (1967) 2 N.Z.U.L. Rev. 416. 18. Id. at 423. 19. Simpson, supra, n. 16, at 68. 20. Dowson and Sheppard, Land Registration 98 (2d ed. 1956). 21. Id. 22. (Imp.) 25 & 26 Vict., c. 53. 23. (Imp.) 38 & 39 Vict., c. 87. 24. (Imp.) 60 & 61 Vict., c. 65. 25. Dowson and Sheppard, supra, n. 20. 26. Id. 27. Fiflis, Land Transfer Improvement: The Basic Facts and Two Hypothesis for Reform, (1965-66) 38

Colo. L. Rev. 431,431-36; Simpson, supra, n. 16, at 86-90. 28. Simpson, supra, n. 16, at 88. 29. Id. 30. Fiflis, supra, n. 27.


31. Head, The Torrens System in Alberta: A Dream in Operation, (1957) 35 Can. Bar. Rev. 1. 32. Ontario Law Reform Commission, Report on Land Registration 23 (1971). 33. Carlin, Computerization of Land Records in the Maritime Provinces of Canada, (1974) 43 Cincinnati

L.R. 487. 34. The Law Commission, Working Paper: No. 32 (1970); No. 37 (1971); No. 45 (1972); and No. 67 (1976). 35. Megany and Wade, supra, n. 2, at 1055. 36. Torrens, supra, n. 13, a t 7. 37. Bartlett, Familiar Quotations 58 (13th ed. 1955). 38. The Land Titles Act, R.S.A. 1970, c. 198. 39. The Land Titles Act, S.A. 1906, c. 24. 40. The Land Titles Act, S.C. 1894, c. 28. 41. The Territories Real Property Act, S.C. 1886, c. 26. 42. Hogg, Registration of Title to Land Throughout The Empire 14 (1920).

CHAPTER 2

Conveyancing Under the English Common Law

2.1 Jurisdictions which received the English common law have adopted Torrens systems in an effort to improve, if not replace, the common law system of conveyancing. The English common law, like any legal system, was based on certain basic principles, or values, which were accepted by the society it served. I t evolved over a period of centuries, i t was dreadfully complex, it was inefficient, and its substantive elements were not completely consistent in terms of public policy. But it was sufficiently comprehensive to provide solutions for most conflicts concerning property rights. The complexity of the common law made Torrens' task as a law reformer far from easy. To measure the effectiveness of his new system, one must determine whether or not its solutions for old problems improved on the system i t replaced. The possibility that the new system swept with so broad a broom that i t eliminated old solutions without clearly providing new ones must be investigated. A new system may excise so deeply into its predecessor system that i t eliminates former problems by altering accepted principles. The question then becomes, has the new system created an entirely new set of problems, and are solutions provided for them? In fact, if a new 'system' leaves significant gaps in the law, it falls short of being a 'system'. Before we can analyze the Torrens system, we must understand how the common law system of conveyancing operated and what practical functions it served. Through a series of relatively simple examples, this chapter will summarize the difficulties inherent in conveyancing under the common law. Indeed, it will introduce a presentation style which would justify titling the entire study 'The A, B, Cs of Conveyancing from Common Law to Torrens System'. Of necessity, this summary will review a considerable part of English property law. However, as jurisdictions which received the common law retain that law until i t is changed by judicial or legislative action, most of the subjects to be discussed remain relevant to significant current problems in the Alberta Torrens system.

a. Some Fundamenta l Principles 2.2 Under the common law system of conveyancing one had to prove

his ownership of a n interest in land derivatively, through his predecessors. This requirement reflected some very fundamental principles of English law.

2.3 (1) T h e volitional na tu re of conveyancing. The historical


source of one's derived ownership was usually the original grant from the sovereign. The qualifying 'usually' is required because one may acquire a n original ownership of land under the doctrine of adverse possession, and functionally this procedure differs significantly from acquiring land by means of a grant from the state.l If one could prove his ownership of a n interest in land, his rights under the common law were a s secure a s any legal system could make them. An owner could voluntarily transfer his ownership to another by following legal procedures designed to furnish proof that the transfer was intentional; that it reflected the owner's volition. An owner could, of course, lose his ownership 'involuntarily', but only through voluntary conduct which would produce this result under laws deemed necessary for reasons of public policy. Thus, if one incurred more debts than he could pay, his interest in land might be sold by a public official, such a s a sheriff, to raise money to satisfy a judgment obtained by a creditor of the debtor-owner. Or, if one chose to ignore his land for a number of years, he might lose it to another who adversely possessed it for that period. However, the legal procedures which resulted in a n 'involuntary' loss of ownership contained significant safeguards for the landowner. The point is that unless a n owner's voluntary transfer was intended to be effective, or unless a n involuntary transfer was effected by a court or public official with jurisdictional power to accomplish the result, the transfer was void.

2.4 (2) The transfer of interests at a time chosen by the parties. This principle is inherent in that just discussed; a voluntary transfer would not take effect until intended by the owner, and it would take effect a t the moment selected by the owner.

2.5 (3) The passive role of the state. Common law conveyancing is often referred to a s a system of private conveyancing. Law defined the private rights in land which could be enforced through the power of the state, and the procedure for securing the enforcement of those rights; access to this power was usually through the courts, the judicial arm of the state. But rights in land could be transferred many times, over the course of decades, without judicial intervention. The state intervened only when its courts were called upon to resolve disputes concerning the ownership or use of land.

b. Evaluation of All Known Transfers 2.6 Suppose that B, who is in possession of Blackacre and who claims

to be the owner in fee simple absolute, wishes to sell Blackacre to C. Fee simple absolute is the legal terminology for the maximum bundle of rights which an individual can own in a parcel of land under the common law; what is commonly thought of a s 'absolute ownership'. The owner of the parcel is said to own in fee simple absolute (hereafter FSA). Obviously, B must demonstrate that he owns Blackacre. Assume that B's ownership claim is derived from A. I t may be based on A's will, on intestate succession from A, on a sale incident to foreclosure of a mortgage given by A, or on a deed executed by a n agent of A. C must insist that B provide him with all relevant transfers disclosing how B acquired ownership from A, and how A acquired ownership from his predecessors. These instruments, collectively,

Chapter 2 . English Common Law 9

are often referred to a s the 'title deeds', or the 'title instruments', or the 'chain of title'. They do not, however, constitute a title; they are simply evidence of B's claim that he owns Blackacre. All of the title instruments which B submits to C can be conveniently described as known transfers, and they must be evaluated in terms of three primary issues: extrinsic validity, intrinsic effect, and adequate legal description. If we assume that the latest transfer in B's title instruments is a deed from A to B, we can introduce these three issues in relation to this deed.

2.7 (1) Extrinsic validity. C must determine that the deed was extrinsically valid a s a matter of law. Normally, the deed was valid if it satisfied the legal requirements designed to ensure that it reflected A's intention that something pass to B. Although the concept that the deed must express A's volition may be easily stated, the problems it presents are so numerous, and so complex, that they will be reserved for the following section. If the deed was valid, C will know that B may have acquired something from A.

2.8 (2) Intrinsic effect. C must determine that the deed was intrinsically effective to transfer the FSA from A to B. A simple example should underscore the problem. Suppose that A's deed purported to grant Blackacre "to B, in fee simple absolute, forever". Everyone is presumed to know the law, and every common law lawyer would know that a deed to "B and his heirs" was necessary to express A's intent that B receive a n interest in land that could pass by inheritance to B's heirs upon his death, that is, the FSA. In the example given the words "and his heirs" are omitted, so manifestly A did not intend to transfer the FSA to B! The deed, although valid, would transfer only a life estate to B. Therefore, C must not only determine that the deed from A to B was extrinsically valid, he must also determine that it was properly drawn; that it was intrinsically effective to transfer the FSA to B.

2.9 (3) Adequate legal description. C must determine that the deed contained a legal description of Blackacre adequate to make it possible to actually locate the land. True, many inhabitants of the locale may know precisely where "Blackacre" is; many may be able to trace the customary boundaries of "The Sutton Place"; and, "No. 13 Bridgenorth Road" may be adequate. But, frequently, C would purchase a lawsuit on the basis of these descriptions. C or his surveyor should inspect Blackacre and locate the physical monuments which delineate its boundaries; and should ascertain that the deed accurately described the physical location of Blackacre.

2.10 All of the relevant title instruments must be evaluated in terms of the foregoing issues. Similarly, if C is satisfied as to B's ownership and decides to purchase Blackacre, he must evaluate B's deed to him with the same care a s required for the title instruments. Moreover, if C acquires Blackacre and subsequently decides to sell a n interest to D, D must repeat the procedure followed by C.

c. Extrinsic Validity of Transfers 2.11 We must now examine, in more detail, some uncommon

situations which pose problems as to the extrinsic validity of transfers. The


examples given cannot be exhaustive of all possible problem areas, but they are representative. They are all based on the same set of facts; C wished to acquire Blackacre in FSA from B, who, unless otherwise stated, was the owner. Where fraud was present, it was committed by X; B and C were innocent, although their conduct was unduly trusting or negligent, or both.

(1) Lack of intent that transfer take effect 2.12 Forgery. X was B's real estate broker. X forged B's name to a deed

to C, induced C to make a cheque for the purchase price payable to X, received the cheque, delivered the deed to C, and absconded. No interest passed to C, for a forged deed is void.2

2.13 Nondelivery. X was B's lawyer. B executed a deed to C, and gave it to X with instructions that X deliver the deed to C upon receipt of a cheque for the purchase price payable to B. X induced C to make a cheque for the purchase price payable to X, received the cheque, delivered the deed to C, and absconded. A deed is not legally delivered until it has been both physically delivered, and by delivery was intended by the grantor to become effective. In the example delivery was to be made through an agent, called an escrow agent in this context. Because B stipulated that the deed not be delivered, i.e., not become effective, until X received a cheque for the purchase price payable to B, and because this condition was not satisfied, the deed remained inoperative and no interest passed to C.3

2.14 Purported agent. X was B's agent under a general power of attorney authorizing X to do anything on behalf of B which an agent could lawfully do. B was killed in an automobile accident while on holiday in France. Shortly thereafter, and before B's death was known to either party, X sold Blackacre to C. X delivered a deed to C, received a cheque for the purchase price payable to X, and absconded. No interest passed to C, for a power of attorney is revoked by, and a t the time of, the death of the p r in~ ipa l .~

2.15 Mistake as to nature of instrument. X was B's spouse. B was illiterate. X procured B's signature on a deed to C by telling B the document was needed to verify B's entitlement to pension benefits. X induced C to make a cheque for the purchase price payable to X, received the cheque, delivered the deed to C, and absconded. It is doubtful that any interest passed to C for B had no intention to execute a n effective deed.5

2.16 Improper execution of company deed. B was an incorporated company. Its articles of association required that deeds conveying company real property be specifically authorized by a resolution of its board of directors, that the corporate seal be affixed to each deed in the presence of the secretary of the company and one director, and that the secretary and witnessing director sign the deed. X was the secretary of B company. Without any authorizing resolution of B company, X prepared a deed from B company to C, affixed the corporate seal in the presence of Y, and signed the deed "X, secretary". Although not a director, Y signed "Y, director". X induced C to make a cheque for the purchase price payable to "X, secretary", received the cheque, delivered the deed, blotted out the word "secretary" on the cheque, cashed it, and absconded. I t is doubtful that any

Chapter 2. English Common Law 11

interest passed to C. If B was a company with general authority to acquire and dispose of land, and C was a good faith purchaser, the lack of an authorizing resolution would not make the deed i n ~ a l i d . ~ However, the deed must still be executed by the company's officers, and in the manner prescribed by the articles of association, in order to be valid.7

2.17 Common law dower. B transfered Blackacre to C. B believed that he had a valid divorce from W, and assured C that he was not married. In fact the divorce was invalid, and W neither knew of nor joined in the deed to C. Common law dower, which does not exist in Alberta, is extremely complex, but in its general application, a widow is entitled to a life estate of one-third of all the freehold estates (usually FSA) the husband possessed a t any time during the marriage. In the example above, if W survived B and became his widow, Blackacre would be subject to her dower right. The FSA passed to C, but a s W neither joined in the deed nor released her dower right, Blackacre remained subject to it. As W's dower right was limited to one-third of the realty owned by B during the marriage, a t B's death a court might be able to satisfy her claim entirely out of land owned by B a t death, without imposing any life estate on Blackacre. The point is that until B dies, or until some earlier event such as W's death or a valid divorce from B terminates the dower right, Blackacre will remain encumbered by it, and C may not even be aware that his ownership is vulnerable to partial divestiture should W actually be awarded a life estate in all or part of B lacka~re .~

(2) Transfer by person under legal disability 2.18 In the following two examples, B may have intended that the

transfer take effect. The law, however, reflects a public policy determination that persons under legal disability lack the maturity or mental capacity to formulate an intent which is likely to result in prudent property dispositions.

2.19 Mental incapacity. B was judicially found to be of unsound mind, and a receiver of his estate was appointed. X was B's spouse. X was hostile to B's family, and especially to the court appointed receiver, who was B's brother. C had no knowledge that B had been found to be of unsound mind. X procured B's signature on a deed to C, induced C to make a cheque for the purchase price payable to X, received the cheque, delivered the deed to C, and absconded. Even if B signed the deed in a lucid moment, no interest passed to C, for a deed from a person for whom a receiver of the estate has been appointed is void.9

2.20 Minority. B was 19 years old. Blackacre is in a jurisdiction in which the age of majority is 21 years. B assured C that he was 22 years old, contracted to sell Blackacre to C, executed a deed to C, delivered it to C, and received the purchase price. Shortly after attaining age 21, B learned that because of a planned highway relocation, the value of Blackacre had trebled over the price C paid. B promptly notified C that he repudiated the sale, and tendered the purchase price with interest back to C. Although the deed to C was valid when made, i t remained voidable by B, and could be repudiated by B within a reasonable time after his attaining the age of majority.1°


(3) Involuntary t ransfers 2.21 As noted in paragraph 2.3, B's conduct can leave him vulnerable

to legal procedures which, without his actual volition, can result in a transfer of Blackacre to C. A summary of the most common situations must suffice to underscore the dimension of the problem for one checking the extrinsic validity of transfers.

2.22 The execution sale must be discussed separately because in most common law jurisdictions it is conducted by a non-judicial public official. If C obtained a judgment against B, he could obtain a writ of execution from the proper court authorizing a public official, usually a sheriff, to sell property of B to raise money to satisfy the judgment. Although the public official acts under a judicial writ, he conducts the sale and executes the transfer under direct statutory power.ll

2.23 Most involuntary transfers, however, can be characterized as judicial transfers, for they result from judicial proceedings and are either accomplished directly by a court vesting order, or indirectly by means of a deed executed by a court official, such a s a master, under authority of a court order. In this category we can include transfers resulting from sales under mortgage foreclosures, builders and mechanics liens, tax liens, partition actions, and bankruptcy proceedings.12

2.24 The statutory procedures governing involuntary transfers, whether by non-judicial public officers or judicial officers, will vary between jurisdictions. They will also vary within jurisdictions according to the type of proceedings, that is, a mortgage foreclosure sale as contrasted with a tax lien sale. We can, however, identify some basic principles which are pervasively applicable to involuntary transfers, and are of vital significance in terms of the extrinsic validity of those transfers. The functional key is the fact that they are involuntary; if they are successful B will be divested of his ownership of Blackacre. The power to produce this result is conferred on officials by the state, usually through statutes which define not only the external scope of the powers conferred but the internal method for their proper execution. What if a n official acts either beyond the scope of his conferred powers (in excess of his jurisdiction as it is frequently expressed), or fails to comply with a 'substantive' or 'material' procedural requirement of the governing statute when acting within his conferred powers? The general doctrine is that any transfer resulting from actions under supposed statutory power is void.13 Two basic examples will be used to demonstrate the practical implications of this doctrine.

2.25 Tax lien sale. X was a municipal corporation which purported to sell and transfer Blackacre to C under statutory power to enforce a lien for nonpayment of taxes. Four situations in which such a transfer was held to be void will be presented. (1) Assume that the statute required X to signify by separate warrant to the tax assessors the sums to be raised by taxes for each municipal purpose, and that X issued only one warrant stating a total sum to be raised for all municipal purposes. As the taxes were invalidly assessed, X had no valid tax lien, and no statutory power (jurisdiction) to sell Blackacre for nonpayment of taxes.14 (2) Assume that there were taxes validly assessed, but that B had in fact paid them. As there were no unpaid


taxes, X had no valid tax lien, and no statutory power to sell Blackacre for nonpayment of taxes.15 (3) Assume that there was a valid tax lien, that the statute required a transfer from X, and that the transfer was executed in the form "T, as treasurer of X, to C". As T had no statutory power to execute the transfer as transferor, the transfer was void.16 The transfer should have been executed in the form "X, by T a s treasurer of X, to C". (4) Assume that there was a valid tax lien, that the statute required that the tax lien sale be confirmed by a district court judge and that the confirmation order be dated in order to establish the beginning of the period within which the defaulting taxpayer could redeem, that the statute provided that the confirmation order would operate as the tax transfer, and that the confirmation order failed to indicate its effective date. As the lack of a n effective date constituted a material deviation from the procedural requirements of the statute, the confirmation order purporting to transfer Blackacre to C was void.17

2.26 Mortgage foreclosure. B mortgaged Blackacre to X to secure a loan of $20,000. Blackacre is in a jurisdiction with a statue providing that a mortgage constitutes a charge or lien on land, and does not operate a s a transfer of the land from the mortgagor to the mortgagee. B defaulted in payment of the debt, and X instituted a foreclosure action. Blackacre was sold to C a t public sale for $40,000, the sale was confirmed by the proper court, the confirmation order recited that all requirements of relevant statutes were complied with, and declared that Blackacre was vested in C. In fact, B was not made a party to the action, either by personal service of process, or by constructive service, such as notice by publication. The general doctrine is that any judicial proceeding under these circumstances is invalid a s to the interest of a person not made a party,ls and this rule is clearly applicable to a mortgage foreclosure.lS As the mortgage foreclosure was void a s to B's interest in Blackacre, and a s Blackacre is located in a jurisdiction following the lien or charge theory of mortgage, B remained the owner of Blackacre. If the court's vesting order did not confer ownership of Blackacre on C, what did C obtain? As X brought the foreclosure action, and as C became a party by purchasing a t the judicial sale, the net effect of the proceeding was that C succeeded to the interest of X. B was unaffected by the proceeding and remained the owner and mortgagor of Blackacre. The mortgage debt owed to X, and costs, would be paid from the $40,000, and the balance would be restored to C. C, then, became the mortgagee by judicial assignment from X, but subject to all preexisting rights of B.

2.27 Expropriation by municipal corporation. Expropriation results in a n involuntary transfer, but it differs from those previously discussed because it is not based on any particular conduct of B. Any property owner is always vulnerable to expropriation procedures taken under authority of government. Assume that C was a municipal corporation. Having been unable to negotiate a purchase from B, C decided to expropriate Blackacre. The statute conferring C's power of expropriation required that the council of the corporation pass a by-law expropriating any land required for the purposes of the corporation. C's council passed a resolution, rather than a by-law, purportedly expropriating Blackacre from B. No interest passed to

14 Torrens ' Elusive Title

C, for a n expropriation not conforming to the requirements of the authorizing statute is void.20

(4) No transferee 2.28 So far, transfers which were either void or voidable for reasons

related to the lack of intent or power of the transferor to make the transfer effective have been discussed. With the exception of the voidable transfer from a minor, and the dower example, the ownership of Blackacre never left B. By analogy to North American football, the ball never left the passer's hand. But what if the pass were beautiful, but there was no receiver? A deed is void if the grantee is not a legal entity, or is an unborn or fictitious person.21

2.29 Transfer to unincorporated club or association. B executed a lease of Blackacre for a five-year term to the C club and delivered the lease to P, the president of the club. C was a n unincorporated club with a fluctuating group of members. If the lease could be judicially construed a s having transferred the term to P, as president of the club, in trust for its members, or to the members themselves, it could be valid, for there would be a person or persons capable of receiving the leasehold interest in Blackacre. But if C is the intended lessee, the lease is void, for C is not a legal entity. In short, no interest in Blackacre passed from B to any0ne.2~

2.30 An important point should be stressed before we leave the subject of the extrinsic validity of transfers. C must make certain that he obtains a valid transfer from B, and he will seldom have difficulty in determining that B is of age, that he is mentally competent, and that he has delivered the deed. But what of the transfer from A to B? As has been emphasized, C must examine the instruments which carried ownership of Blackacre from A to B, and from A's predecessors to him. There is seldom a feasible way for C to determine whether or not A's transfer to B was extrinsically valid. Indeed, all of the examples discussed in paragraphs 2.12-20 demonstrate what are known a s hidden defects, for they will not be disclosed from examination of the title instruments. The defects shown in the examples in paragraphs 2.25-27 might or might not be disclosed by the relevant judicial records available for examination.

d. Lost Instruments Supporting a Claimed Interest 2.31 Suppose that B has all of the instruments supporting his claim of

ownership of Blackacre back a t least 60 years, except for the deed from A to B. There was a valid deed from A to B, and, a s B swears, it was destroyed in a fire a t his home years ago. How is C to know that this is so? Such a break in the 'chain of title' can be an expensive nuisance. In order to be safe, C must insist that B obtain a new deed from A, or if A is dead, deeds from his successors by will or by intestate succession. A's successors may be difficult to locate, and obstructive when found. In many cases, lost instruments seriously impede transfers of interests in land.


e. Unknown Legal Interests Superior to the Claimed Legal Interest

2.32 Suppose that B offered to sell Blackacre to C free of any encumbrances, and that after examining the title instruments, C decided to purchase the property. C paid the purchase price, and received a deed conveying Blackacre from B to C, with B's covenant that there were no encumbrances. Although it was B's deed which conveyed his interest in Blackacre to C, B also gave C the title instruments; C was entitled to them for they will be essential should he in turn wish to sell Blackacre. Assume that B had a t one time owned Blackacre, but that he had previously transferred it to X. Normally X would have obtained the title instruments upon completion of his purchase, but there are trusting folks in the world; B might have convinced X that the title instruments were with his solicitor in London, and would be delivered shortly. Or, B might have given the title instruments to X, and then reacquired them by theft. Did C acquire any legal interest in Blackacre through B's deed? The answer is It is simply axiomatic in the common law that B could convey no more than he owned, and if he had previously conveyed Blackacre to X, he retained nothing to convey to C. The rule is caveat emptor.

2.33 Suppose that, prior to his deed to C, B had mortgaged Blackacre to Y to secure a loan from Y to B. At common law the usual legal mortgage conveyed the FSA to the mortgagee and included a covenant that the mortgagee would reconvey the property to the mortgagor if the loan were repaid on time. Having already conveyed Blackacre to Y by the mortgage, B retained no legal property interest which could pass by his deed to C.

2.34 The common law recognized a limited number of legal interests in land which could be owned by persons other than the owner of the basic FSA. Even if B owned Blackacre in FSA before his deed to C, B or one of his predecessors in title might previously have granted one of the common subsidiary legal interests to someone else. A leasehold interest of a cottage and of its immediate grounds on Blackacre for a term of five years might be owned by a tenant T. A neighbor E, through his ownership of adjacent Greenacre, might own a n easement, such a s a right to use a private road across Blackacre. A profit a prendre in Blackacre, such a s a right to dig and remove gravel, or pump and remove oil and gas, might be owned by P. Such legal interests a s a leasehold, a n easement, and a profit a prendre, are frequently referred to a s rights in rem to emphasize that they are property interests in the land itself. Although these subsidiary legal interests would encumber B's ownership of Blackacre, they would not be inconsistent with it; B would still own in FSA. Consequently, the owners of these subsidiary legal interests would have no right to possess B's instruments of title. Moreover, the instruments creating these legal interests would not be necessary links in B's chain of title; B could simply conceal them from C if he were dishonest. Assume that T, E , and P did own the property interests in Blackacre illustrated above, and that B nevertheless conveyed Blackacre to C by a warranty deed including the customary covenant that Blackacre was subject to no encumbrances. The deed transfered the FSA to C, but C took Blackacre subject to the legal interests of T, E, and P. B breached his covenant that there were no encumbrances, and he would be


liable to C in damages for breach of contract. But B's warranty deed could not cut off the outstanding legal interests of T, E, and P, and whether or not C was a n innocent purchaser for value with neither knowledge nor notice of the outstanding interests is irrelevant. B simply lacked the power to convey more than he owned.

2.35 One further significant peril faced by C remains for consideration. Suppose that, prior to B's deed to C, Z had been in possession of Blackacre adversely to B for the period required by the limitation of actions act of the jurisdiction concerned. If B were the true owner of Blackacre, he (and anyone claiming under him) would be barred by the act from bringing an action to recover possession of Blackacre from Z. In reality, Z would have acquired ownership of Blackacre, and C would obtain no interest in Blackacre through B's deed.

2.36 In summary, B might b v e wrongfully retained or obtained possession of the title instruments for Blackacre even though he had conveyed Blackacre in FSA to X absolutely, or to Y a s a mortgagee; Z might have acquired ownership of Blackacre by adverse possession under a limitation of actions act; and T, E, and P might own, respectively, a leasehold, a n easement, and a profit a prendre in Blackacre. None of these legal interests would necessarily be disclosed in the title instruments for Blackacre.

2.37 What should C do to increase the odds that he will obtain what he intends to buy? Most people inspect property they contemplate purchasing to determine if they like it. Prudence dictates that an inspection be extended to include a n investigation into the possibility of unknown legal interests inconsistent with the interest one wishes to purchase. If Z is in adverse possession to B, his possession must be "open and notorious", so such a claim should be rather easy for C to discover. Similarly, X as a prior purchaser, or T as a leasehold tenant, would likely be in possession and available for questioning. Although some easements, such a s underground drains, might not be disclosed by surface observations, others might be apparent. For example, if a private road across Blackacre extended onto Greenacre, C would have a strong clue that there might be a n easement in favor of Greenacre. I t would not be an excessive burden for C to question neighbors a s to possible easements, both of the visible and invisible variety. If a profit a prendre were being exploited by P, that fact would be easily discernible by C; oil wells and gravel pits are rather obvious. An unexploited profit a prendre is quite another matter. Perhaps the most serious problem is a possible legal mortgage held by Y, for a mortgagee will seldom have a right to possession. One concluding remark on this subject should be made. When C inspects Blackacre to look for clues a s to possible legal interests inconsistent with what B offers to sell, he does so to increase his knowledge of the ownership of Blackacre. However, C will obtain no more than B owns a t the time of B's deed, whether or not C discovers inconsistent legal interests.


f. Unknown Equities

(1) T h e Cour t of Chancery; equity 2.38 So far we have studiously avoided using the words 'equity',

'equitable interest' or 'mere equity'. From now on 'equity' will be almost pervasively with What does it mean? A brief answer must compress the relevant scholarship of volumes of English legal history into a few paragraphs. There were common law courts in England long before the development of equity, but for historical reasons which are beyond the scope of this study, the system of law which they administered had become relatively inflexible by the thirteenth century. The number of wrongs for which the common law courts could provide a remedy was limited. If one complained of a new wrong, his recourse was an appeal to the King, and such appeals were increasingly referred to the King's Chancellor. As the volume of work increased, the Chancellor retained assistants, and by the sixteenth century the Chancellor supervised the Court of Chancery, whose judges dispensed a system of justice called equity. Throughout the seventeenth century the Chancellors developed equity into a code of principles, or 'equitable maxims' a s they are often called. Although equity moved in the direction of inflexible rules to a degree, it never abandoned its foundation principle that its remedies were discretionary and would evolve to suit the justice required for new situations. Two distinct court systems thus existed in England for centuries, the common law courts administering law, and the Chancery courts administering equity, until the two were merged into the Supreme Court of Judicature by the Judicature Act, 1873.25 However, this Act merely merged the courts; it did not abolish the substantive rights and remedies of law and equity, which remain distinct.26 A judge of the Supreme Court of Judicature simply became both a law judge and a n equity judge. This merger pattern has been followed in virtually all jurisdictions in which the legal system is based on the English common law, with the result that a judge of a superior court of record has both legal and equitable power. The phrase 'English common law' just used, as in the title of this chapter, means in the broad sense 'English law and equity'. No special word in the legal vocabulary exists to denote 'common law' when it is intended to mean 'law' a s distinct from 'equity'; one must depend on the context in which the word appears.

(2) T h e t rus t 2.39 I t is imperative that we understand how rights and remedies in

equity differ from those a t law, and why this difference has so profoundly affected the law of real property. Both historically and functionally, the concept of the trust is the essential starting point for our inquiry. Historically, the development of the trust in equity produced the initial division between legal (at law) and equitable (in equity) interests in land. Functionally, the very nature of equitable interests in land depends on the trust. When the Chancellor began to enforce trusts in the fifteenth century,27 the legal terminology was quite different from that in use today, but for simplicity the modern terminology will be used. Law students have a tendency to look a t the trust a s a mystical concept; it is almost a s though


they wanted to see it a s the creation of strange creatures called Chancellors dressed in outlandish robes who arrived from outer space making 'blip' and 'bleep' noises. Actually, the basic functional elements of a trust are as simple a s the primitive agrarian society which produced it.

2.40 Suppose that B was the feudal owner of Blackacre, that he had a wife and young children, and that he wanted them supported from Blackacre after his death. In the fifteenth century B had no power to make a will disposing of real property. Subject to his wife's dower interest, a t B's death Blackacre would descend to his eldest son by intestate succession, and in the process various feudal obligations, onerous to B's family, would arise in favor of B's overlord, frequently the King himself. B could, however, convey Blackacre to several trusted friends a s joint tenants, to hold the legal ownership in trust for B while he lived, and then for B's wife and children on terms B would communicate to them. (Hereafter, in trust examples the legal owner(s) in trust, the trustee(s), will be T, and the person(s) for whom the hold in trust, the beneficiary(s), will be E.) B would retain the right to occupy Blackacre during his life, a t his death no feudal obligations would arise for B would not have owned Blackacre a t death, and B would obtain the benefits of a will through his instructions to T; in this way favoring younger sons and daughters over a n elder son if he chose to do so. Moreover, T could be instructed to manage Blachacre for B's wife, and for B's children until they came of age. A trust today will frequently be created to accomplish very similar purposes. With a trust B can avoid the expense and delay involved in the administration of property he would otherwise own a t death, he may be able to reduce estate taxes, and he can obtain competent trustees to manage property for members of his family, with income payable to them, until they are mature enough to assume legal ownership and management themselves.

2.41 What if T refused to carry out B's instructions? At law, T owned Blackacre. Professor Maitland emphasized, however, that T would have acquired Blackacre on the basis of a n express or implied agreement with B; T would have promised B to faithfully carry out his directions a s to who should be entitled to occupy Blackacre and receive the income produced from the land.28 The courts of law refused to enforce such agreements during the fifteenth century, and the Court of Chancery filled the gap. There were doctrinal obstacles to the enforcement of trusts under legal theory which did not exist in equity. The promise of T was addressed to B, and it was uncertain that B's conveyance of Blackacre to T in reliance on that promise was adequate consideration to render it enforceable a t law even by B. Moreover, B owned the benefit of the promise, and even if he had been permitted to enforce it a t law, the members of his family would not have been able to do so after his death.

2.42 The important point, however, is that the remedy a t law would have been inadequate even if it had been available, and that can be demonstrated by a relatively simple example in a modern setting. Assume that B transferred Blackacre, a farm which had been in B's family for four generations, in trust to T. Under the trust B was entitled to occupy Blackacre for his life, and B's wife, W, was entitled to occupy the farm home for her life if she survived B. T was to manage the farm and to pay


the income to W for her life, and a t W's death was to transfer Blackacre to B's then surviving children, with living issue of any deceased child of B to take the share of a deceased child by representation. T had no authority to sell Blackacre. B, W, and B's descendants were the beneficiaries of this trust. Law is frequently described a s operating in rem, that is, legal rights exist in property, and legal remedies are enforced through property. Assume that, after B's death, T sold Blackacre to C. Because T owned Blackacre, T had the power to sell to C, even if the sale was not authorized by the terms of the trust. Law has no remedy to prevent breach of contract; it can only aivard damages for breach of contract. Consider the practical nightmare this remedy raises. How does one determine the damages B's family suffered? Were the damages merely the sale value of Blackacre? After all, Blackacre had a unique value to B, and presumably to his family. How is that loss to be valued in money? Who should receive the damages? How much should go to W, to B's living descendants, and to his possible unborn descendants? Moreover, B probably created the trust to obtain mature business management for Blackacre, and to secure income for a n inexperienced family. If the damage award were $100,000, and if T were compelled to pay this sum to the beneficiaries, they would be left with the financial responsibility of investing this liquid capital.

2.43 The Chancellor did enforce trusts on behalf of beneficiaries a s early as the fifteenth century. Professor Maitland says that the principle is very simple indeed; persons who receive property on the strength of promises are obliged to carry out those promise~.~g Perhaps the promise enforced in equity was something less than a contract a s law would view the matter. But whether express or implied, there was surely a n understanding which B trusted T to honor. Because equity would enforce the promise of T on behalf of E, the latter had substantive equitable rights which were not recognized by law. I t is the equitable remedy, however, which is of primary importance. I t is said that equity acts in personam, against a person, rather than in rem, through property, a s does law. Equity does not wait until a breach of contract has occurred, and then try to redress the balance by a reallocation of property rights. Rather, equity strives to prevent wrongs before they have occurred, through direct orders addressed to the relevant persons. In the example under consideration, equity might have issued a negative order to T, a n injunction directing him to refrain from selling Blackacre to C. Or, if the problem is that T was not complying with affirmative trust duties, such a s paying the income from Blackacre to W, equity would order him to carry out that obligation. Such a n affirmative order is referred to a s a decree of specific performance. One who declines to obey a n equitable order is guilty of contempt, and the conventional punishment is imprisonment. There need be no mystery concerning the in personam nature of equitable orders if it is remembered that the Court of Chancery was the Chancellor's court, and that historically orders of the Chancellor were issued in the name of the King's Coun~il.~O In effect, they were orders from a monarch to his subject.

2.44 The rights of T and E in the trust example under consideration can now be summarized. T owned Blackacre a t law, and law to this day does not recognize the trust. In equity, however, T held his legal ownership


in trust, for the benefit of E, and for this reason, a s between T and E, we frequently say that E was the equitable owner of Blackacre. Why do we say this? I t comes perilously close to saying that E had a property interest in Blackacre, albeit recognized only in equity, and equity was just described a s exercising its power through personal orders. Moreover, in paragraphs 2.32-37 it was emphasized that only legal interests, the FSA, a lease, a n easement, and a profit a prendre, are property interests in the land itself. If C, or anyone else in the world, purchased Blackacre from B, the resultant ownership would be subject to any outstanding legal interests already owned by someone else. Whereas legal interests are based on a conveyance, any 'equitable interest' of E in Blackacre is based on the willingness of equity to require T to specifically perform his promises and to prevent T from breaching his trust obligations. Whether the interest of a trust beneficiary is better characterized a s a contract right specifically enforceable against a trustee only in equity, or a property right in a n asset owned by a trustee and recognized only in equity, is a theoretical issue which has vexed and divided legal scholars for generati0ns.3~ The author takes the view that characterization of rights i s a means to a n end, and not a n end in itself. Consequently, the appropriate characterization of the right of a trust beneficiary should depend on the pragmatic public policy issue which requires characterization. In some situations, the property interest characterization is functionally sound, that is, where the issue concerns the taxation of E's interest, or the application of the Rule Against Perpetuities to it, or to its transfer by E during life or upon death. However, our problem is to determine the circumstances in which a third person, C, will be bound by the trust obligations of T through the acquisition of trust assets from him. As to this issue, it is suggested that the rules which equity evolved can be more rationally understood by focusing on the desire of equity judges to enforce promissory trust obligations.3"

(3) The bona fide purchaser for value 2.45 Because T was the legal owner of Blackacre, and because law

does not recognize trust obligations, C would acquire legal ownership of Blackacre from T even though T had no authority under the terms of his trust to transfer Blackacre to anyone except E. Assume that C did become the legal owner of Blackacre, but contrary to the terms of T's trust. Would equity interfere with C's ownership by imposing T's promissory trust obligations regarding Blackacre upon him? The initial answer is 'no', for C is the legal owner, with the qualifying 'unless there is some reason to do so consonant with equity, justice, and conscience'. The reasons for in- terference are based on the manner in which C acquired his legal ownership of Blackacre.

(a) Acquisition by donee 2.46 Before the end of the fifteenth century it was held that a n heir of a

trustee inherited trust property subject to the t r ~ s t . 3 ~ The broader principle quickly developed, that any gratuitous transferee of a legal interest from a trustee takes subject to the trust, and this principle applies to one who receives trust property under the will of a or by means of a gift

Chapter 2. English Common Law 2 1

transfer made during the lifetime of the trustee, that is, an inter vivos transfer.35 The gratuitous transferee i s frequently referred to a s a 'volunteer'. I t is quite important to emphasize that this rule is unrelated to the doctrine of fraud. If C inherited Blackacre from T under the law of intestate succession, equity could hardly have held that T breached his trust by dying! If T transferred Blackacre to C by inter vivos conveyance or by will, T would be in breach of trust, but C would clearly not be tainted with any fraud if he had no reason to know of the existence of the trust. Nevertheless, C would still hold Blackacre subject to the trust. The rule under consideration is a simple manifestation of the equitable doctrine of unjust enrichment. If T held Blackacre on trust for E, then it is E who was entitled to the beneficial enjoyment of Blackacre or of its profits; if C were permitted to take Blackacre free of the trust, without paying value, C would be unjustly enriched a t the expense of E.36

2.47 It is not always easy to determine what consideration will satisfy the requirement that a transferee be a purchaser for value in order to avoid the imposition of trust obligations. I t is clear that the consideration given can be less than the adequate, or full value of the trust property obtained.37 However, Professor Scott states the view that where the consideration is nominal in relation to the actual value of the trust property acquired, the circumstances evidence that the transaction is a gift rather than a negotiated purchase, and the transferee is a donee.38 If Blackacre were transferred to C on the strength of C's contract to pay the purchase price in the future, the contractual promise would not constitute value, for E could compel C to restore Blackacre to the trust. If E took this course, the consideration for C's promise would have failed, C could not be required to perform his contract, and consequently C would have suffered no l0ss.39 The same principle would apply if C paid T with a negotiable instrument, such a s a promissory note or a cheque. The instrument would not constitute value until it was paid, or negotiated by T to a holder in due course, and thus made enforceable against C.40 Even if C paid part of the purchase price, the partial payment would not constitute value, although E could not compel C to restore Blackacre to the trust until C was reimbursed for the payments actually made.41

2.48 Assume that T owed C $100,000, and that T transferred Blackacre to C pursuant to C's agreement to accept Blackacre a s satisfaction of this antecedent, or existing debt. Release of a n antecedent debt does constitute value under English law.42 This rule seems to make good sense. If it did not exist, T could still borrow $100,000 from X for a few days, pay his debt to C, sell Blackacre to C, receive the same $100,000 back as the purchase price, and pay the debt to X. Why should equity require two steps to achieve a permitted result when one step is more efficient? In contrast, assume that T granted C a mortgage of Blackacre to secure T's antecedent debt to C. In this situation, a s C improved his position by moving from the status of a n unsecured creditor to that of a secured creditor, and gave no value for the mortgage, he would take subject to the t r u ~ t . 4 ~ However, if C had agreed to extend the due date of T's debt in consideration for the mortgage, this agreement would have constituted value.44

2.49 One of the most troublesome situations regarding the issue of


purchaser for value concerns the judgment lien. Assume that C obtained a judgment against T based on the $100,000 antecedent debt. In most common law jurisdictions C could obtain a writ of execution from a court authorizing a sheriff to sell sufficient property of T to satisfy the judgment debt. Moreover, the writ of execution would give C a legal lien over all of T's property in the jurisdiction. Assuming that C had neither knowledge nor notice that T held Blackacre in trust for E, would C be a purchaser for value of his judgment lien over Blackacre? The answer is 'no'.45 But why? There are several reasons given in the cases and texts, and they shade almost imperceptibly together. Most simply stated, the previously unsecured creditor gave no new consideration for his judgment lien. Even if we assumed that the creditor's effort and expense incurred in obtaining the judgment lien constituted value, the lien was still not obtained from the debtor. If a creditor negotiated with his debtor to obtain a n interest in specific property to secure a debt, in complete innocence that the property was held in trust, then the policy of promoting facility of transfer by protecting a good faith acquisition might argue for favoring the creditor. But this policy does not apply where the creditor seized property of his debtor under judicial process.46 In truth, the judgment lien is a gift from the state to aid creditors in collecting their debts. Consequently, a s a matter of public policy, the judgment lien is held to attach to the debtor's beneficial interest in property he owns, and not to interests he holds in trust for someone e l ~ e . 4 ~

(b) Acquisition not bona fide 2.50 Even if C purchased Blackacre from T for value, might there still

be reasons consistent with equity, justice, and conscience for imposing T's promissory trust obligations regarding Blackacre upon C? If all purchasers for value of trust property took free of the trust, the Chancellor's practical ability to specifically enforce trust obligations would have been seriously jeopardized. In our example, T could be compelled to hold the sale proceeds in trust for E, if T had not absconded with the proceeds, but a unique parcel of land, Blackacre, would have been lost to the trust, and hence to E.

2.51 Breach of trust. Why did the Chancellor enforce trusts? Professor Maitland said because it would be "scandalous dishonesty" if the trustee disregarded his trust.48 Just a s the trustee, in whom confidence was placed, would be bound by his trust, so it was held a s early a s 1453 that a transferee who expressly agreed to perform the trust would also be liable in equity, for in him also confidence had been p la~ed .4~ Consequently, if C promised to honor T's trust obligations when C purchased Blackacre from T, C would hold Blackacre subject to the trust.

2.52 Participation in breach of trust. However, what if C made no promise to honor T's trust obligations? One of the most important principles of equity must now be discussed, and a t the outset we should reiterate that the rights of a trust beneficiary are equitable, not legal.50

Legal rights are good against all the world; equitable rights are good against all persons except a bona fide purchaser of a legal estate for value without notice, and those claiming under such a purchaser.

Thus, even though C purchased Blackacre from T for value, he will take


subject to the trust unless he was 'bona fide' and 'without notice'. Megarry and Wade define 'bona fide' in this manner:51

The purchaser must act in good faith. Any fraud or sharp practice will forfeit the privileges of a purchaser in the eyes of equity. But this requirement of good faith mainly serves to emphasize that the purchaser must be innocent as to notice. . . .

A purchase is 'bona fide', that is, he acts in good faith, if he is innocent a s to 'notice'. Professor Scott explains just what 'notice' will deprive a purchaser of 'bona fide' status.52

As we have seen, where a trustee in breach of trust transfers trust property to a person who takes with notice of the breach of trust, the transferee takes the property subject to the trust. . . . Even if the transfer is made in breach of trust and the transferee has notice of the existence of the trust, he does not take subject to the trust if he paid value for the property, unless he had notice that the trustee was committing a breach of trust in making the transfer. It is only where the transferee for value knows or ought to know that he is participating in a breach of trust that he takes the property subject to the trust.

The fundamental public policy supporting the equitable rule may be simply stated. A purchaser is not bona fide, and hence will take subject to a trust, if he participates in a breach of trust by purchasing trust property with knowledge that the trustee's sale is in breach of trust. As Maitland put it, such a purchaser "has been guilty of fraud, or something very like fraudW.53 Thus, if C knew that T held Blackacre in trust, and nevertheless took a mortgage of Blackacre from T as security for a loan to T for T's personal benefit, C would have knowingly participated in T's breach of trust.54 This basic principle is demonstrated by the rule that C will not be regarded a s bona fide if he received notice of the breach of trust before he actually obtained a legal interest, even if he had previously paid the purchase

2.53 The Court of Chancery was, however, faced with a dilemma. Assume that C desired to purchase Blackacre from T. C might not know that T held Blackacre on trust for E. Even if C knew of the existence of the trust, he might not know its terms, and that T was not authorized to sell to anyone. If C closed his eyes and asked no questions, he would not likely have learned that the sale to him was in breach of trust, and hence he would not have knowingly participated in that breach of trust. Equity chose not to tolerate such conduct, and its solution was not only simple, but quite practical in terms of the conveyancing system in which it developed. If he is a prudent purchaser, C will certainly have his lawyers examine T's instruments of title for Blackacre to verify T's claim of ownership. If prudent, C will visit Blackacre and make diligent inquiries of persons in possession in a n effort to determine if there are any existing legal interests inconsistent with what T offers to sell. All this C will do for his own protection, and the more thorough he is, the safer he will be. In effect, the Court of Chancery simply required that any purchaser search for prior equitable interests, such a s the interest of a trust beneficiary, with the same diligence with which a prudent purchaser would search for outstanding legal interests. If, on the basis of a diligent search, the purchaser did not obtain knowledge that the sale to him was in breach of trust, he would be bona fide, and would take free of a trust even if the sale was in breach of trust. However, if the purchaser did not make a diligent


search, he would be deemed to have acquired whatever knowledge such a search would have produced. This equitable doctrine, that a purchaser is treated a s knowing what he may not have known, but in the view of equity should have known, is generally referred to as 'constructive notice'. In terms of actual conduct, the purchaser may have chosen to take the risk of a superficial search. He may have been careless, or. his lawyer may have been negligent. A moralist would hardly characterize such conduct a s fraudulent. But if a proper search would have disclosed that the purchase involved participation in a trustee's breach of trust, and if the purchaser is deemed to have had this knowledge, then through a doctrine of equity carelessness is rewarded with the consequences of fraud. Equity had chosen to protect trust insofar a s reasonably possible, and the doctrine of constructive notice, which imposed a relatively high standard of commercial morality on a purchaser of a legal interest in land, was the method selected to accomplish this goal. If equity solved its dilemma, it certainly created one for the purchaser, for he could never be sure when his search met the measure of proper diligence required for his protection. The extent of the burden equity cast on a purchaser can be shown through a general sketch of how the doctrine of constructive notice operated.

2.54 A prudent purchaser would check the title instruments. Assume that the last instrument in the 'chain of title' was a deed from B to T. C should determine that the deed was intrinsically effective to transfer the FSA in Blackacre to T, and not a lesser legal interest. Consequently, C should study the deed, and not merely a n abstract of it. If the deed were to T in trust for E, and contained the terms of the trust, C would have actual knowledge of the existence of the trust, and of T's authority. The deed might well contain equivocal language leaving C and his lawyer uncertain a s to whether or not T had authority to sell Blackacre. If C purchased on the advice of his lawyer that the sale was authorized, and a court later construed the language a s not authorizing a sale, C would not be bona fide.56 If C failed to examine the deed a t all, he would have constructive notice of its contents, and if T's sale were in breach of trust, C would not be bona fide.57 If the deed disclosed that T held in trust, but failed to state the terms of the trust, C would have constructive notice of the trust terms if he failed to make prudent inquiries concerning them.58 Although the attitude in equity was strict, it was based on reasonable prudence. If C called for the title instruments and was deceived by reasons for their non-availability which would have satisfied a prudent purchaser, he would not be affected by constructive notice of their contents.59 This exception, however, only applied to one who actually made the required diligent inquiries; C would not prevail on the argument that he would have been deceived by falsehoods if he had made diligent inq~ir ies .~ 'J In a famous English case, Pilcher v. Rawlins,61 a mortgagee was not bound by constructive notice of a trust which was disclosed by two deeds which were in fact part of the mortgagor's 'chain of title', but which were concealed from the mortgagee under circumstances that made detection of the fraud virtually impossible.

2.55 A prudent purchaser would make inquiries as to any legal rights of persons in possession before he completed a purchase. By analogy, C would have constructive notice of any equitable rights of a person in

Chauter 2. English Common Law 25

possession which diligent inquiries would have disclosed; if E were in possession under a trust, and if T had no authority to sell to C by the trust terms, C would not be bona fide.'j2

2.56 Obviously, a purchaser will usually employ a lawyer in a land transaction, and will frequently utilize other agents. Any actual knowledge or constructive notice of a breach of trust received by a n agent of the purchaser will be imputed to the purchaser, who will be treated a s though he had obtained the knowledge or notice.'j3

2.57 A purchaser's formal search for outstanding legal interests would concentrate on the title instruments and on the persons in possession of the property being purchased. However, a prudent purchaser would pursue a clue garnered from any source if the information seemed reasonably credible. He must, therefore, do the same with regard to equitable interests as a condition precedent to obtaining bona fide status.'j4

2.58 Professor Fratcher has written this pointed summary of the impact of the bona fide purchaser doctrine on property transactions in the United States:65

No matter how broad his powers may be, a trustee cannot enter into transactions involving third parties unless the third parties are willing to deal with or assist him. The comprehensive trustees' powers statutes proposed or in force in this country fail to grapple with the great barrier to third party participation and assistance in trustees' transactions - the duty of inquiry with its corollary that the third party who engages or assists in a transaction with a trustee is bound a t his peril to guess correctly how the courts will interpret the law a n d the terms of the trust. The Uniform Fiduciaries Act and the Uniform Commercial Code have abolished the duty of inquiry in virtually all transactions concerning negotiable instruments and investment securities, but little h a s been done a s to other types of transactions. One who purchases half a million dollars worth of corporate bonds from a trustee need not inquire into his powers to sell and to give a receipt for the price, but one who buys a pig or a rocking chair a t a trustees' auction is bound to study the terms of the trust and determine a t his peril their correct legal meaning. The duty of inquiry is especially onerous in land transactions because, if notice of a trust appears in the chain of title, not only the original purchaser from the trustee but every subsequent purchaser must diligently inquire into his powers. Might it not be better to eliminate the duty of inquiry in all transactions with trustees and make third parties who engage or assist i n such transactions liable to the cestui que trust only when they have actual knowledge tha t the trustee is committing a breach of trust? The duty of inquiry is rarely of real value to the cestui, yet i t impedes the effective administration of every trust by delaying necessary transactions and discouraging dealings with and assistance to trustees.

With regard to the situation in England, Professor Fratcher states:66 English legislation gives purchasers almost complete protection against the possibilities of trustees lacking powers by conferring on trustees statutory powers to conduct virtually all normal transactions. I t also gives them a great deal of protection against the possibility that a trustee has exercised his powers in a n improper manner or under circumstances which did not warrant such exercise.

The problem with the English legislation protecting purchasers in dealing with trustees is that it is not complete, i t is extremely complex, and it is contained in the three separate property statutes of 1925, with results not always consistent.'j7 The solution recommended by Professor Fratcher, which is really a synthesis and modernization of the English provisions, was adopted by the Commissioners on Uniform State Laws as section 7 of the Uniform Trustees' Powers Act:'j8


5 7. [Third Persons Protected in Dealing with Trustee]

With respect to a third person dealing with a trustee or assisting a trustee in the conduct of a transaction, the existence of trust powers and their proper exercise by the trustee may be assumed without inquiry. The third person is not bound to inquire whether the trustee has power to act or is properly exercising the power; and a third person, without actual knowledge that the trustee is exceeding his powers or improperly exercising them, is fully protected in dealing with the trustee a s if the trustee possessed and properly exercised the powers he purports to exercise. A third person is not bound to assure the proper application of trust assets paid or delivered to the trustee.

Section 7 has been quoted because of its relevance to the same problem under a Torrens system. This statute protects a purchaser up to the point where he has actual knowledge that his dealing with a trustee will involve a breach of trust.

(4) Equitable interests 2.59 The interest of the beneficiary of a trust can be considered an

equitable interest in the property held in trust because the promissory obligations of the trustee will be enforced against any subsequent owner of the property who is neither a bona fide purchaser for value himself (hereafter a BFP), nor one who has acquired ownership from a BFP. Equitable interests in property may be less secure than legal interests, which are good against anyone, but they are much more than mere contractual rights against the promisor. Having established the fundamental principles of equity in the context of the trust, we can readily describe all of the equitable interests of practical relevance, for their development simply reflects an extension of basic equitable trust doctrine.

2.60 (a) ZYust. The interest of the beneficiary of a trust has been adequately covered; it is included a t this point to make the list complete.

2.61 (b) Sale Contract. 69 Assume that B made an enforceable contract to sell or lease Blackacre to E. The contract might be of the short-term variety, with the closing date set a few weeks after the making of the contract to give E time to check B's title and to raise the purchase money. On the closing date the contract will be executed, or carried out; B will transfer legal ownership of the FSA or leasehold to E, and E will pay the purchase price. Or, the contract might be of the long-term instalment- purchase variety, with the closing date set years after the making of the contract. Under such a long-term contract, E will take possession and make periodic payments, often until the entire purchase price is paid, before he will be entitled to a transfer of legal ownership. If B were to breach his sale contract of either type, E could bring an action at law to obtain damages for breach of contract. Recall the willingness of equity to specifically enforce the promissory obligations of a trustee by an in personam order because the trust beneficiary has no remedy a t law, which does not recognize trust obligations. Equity will also specifically enforce a contract when it considers the damage remedy at law inadequate. Why are not damages a t law a n adequate remedy for E? Because equity considers every parcel of land unique; E has a contract right to acquire a legal interest, the FSA or a leasehold, in Blackacre, and no award of fungible money was deemed a n adequate substitute for a specific portion of that fair island kingdom, England. Why this equitable philosophy continues to be


applicable to wheat land in Alberta, corn fields in Illinois, and sheep range in New South Wales is not immediately evident, but it is! Thus, unless the case is one of those rare ones in which equity exercises its direction to refuse the remedy, E will be entitled to specific performance of his binding contract. Moreover, as E has a right to acquire his legal interest in Blackacre from the moment the contract is made, and as equity considers that a s done which ought to be done, in equity E becomes the beneficial owner of the property which is the subject of his contract right from the date of the contract. Even the language of trusts is used to describe the status of the parties, for B is said to hold his legal title on trust for E, who as the beneficiary of the trust relationship has an equitable interest in Blackacre to the extent of his contract right. If B has no authority under the contract, or otherwise from E, to sell the legal interest held on trust for E, but B does sell to C in breach of the trust, then C will acquire his legal interest subject to the trust obligations of B unless C is a BFP. What does this mean functionally? Simply that E will be entitled against C to specific performance of B's contract unless C is a BFP. I t is a peculiar trust, for B (or C) will be permitted to occupy Blackacre and receive its benefits until the closing date, unless the contract provides otherwise. And, unless E is actually entitled to specific performance, and approves the title tendered so as to accept the contract as binding on him, the trust relationship will never be relevant.

2.62 (c) Equitable Mortgage. There are three basic situations in which a n equitable mortgage will be recognized.

2.63 Promise to hold as security. Assume that B borrowed $10,000 from E, and executed a written agreement promising to hold Blackacre a s security for the debt. Such agreements are common today, for they eliminate the need for the formal transfer of a legal mortgage to E, and it is factually unlikely that the parties intended that B ever execute a legal mortgage. Nevertheless, in equity such an arrangement is considered as a contract to create a legal mortgage, and because equity regards that as done which it will compel to be done, equity will treat E as a mortgagee to the limit of his contract rights.70 In England, if B merely deposited his title instruments for Blackacre with E, with the intention of securing the debt, an equitable mortgage would be created without any written agreement?' In a jurisdiction in which a legal mortgage gives the mortgagee a legal lien or charge over property, by analogy an equitable mortgage creates a n equitable lien or charge.

2.64 Defective legal mortgage. If B attempted to transfer a legal mortgage to E, but the instrument were defective to create a security interest at law for some reason, equity would treat the legally defective instrument a s a n agreement to execute a valid legal mortgage, and, again by virtue of the doctrine of specific performance, E would be a n equitable mortgagee.72

2.65 Mortgage of equitable interest. Suppose that B had an equitable interest in Blackacre a s the beneficiary of a trust, or as the purchaser under a sale contract. Lacking any legal interest himself, B could not create a legal mortgage in someone else. If B gave E a mortgage of an equitable interest, E's mortgage would of necessity be an equitable mortgageJ3

28 Torrens' Elusive Title -

2.66 Assume that in each of the three equitable mortgage situations outlined above, B promised E that E's mortgage would be the first mortgage against Blackacre. If B subsequently transferred a legal mortgage to C to secure a loan from C to B of $30,000, B would have breached his promissory obligation to E; for if C were a BFP, C's legal mortgage would be superior to the equitable mortgage of E, and in any judicial foreclosure proceedings, C's debt would be satisfied first out of Blackacre. However, if C were not a BFP, his legal mortgage would rank after E's earlier equitable mortgage in order of payment. In functional terms, this means that B's promise that E will have the first mortgage will be enforced against C in equity unless C is a BFP.

2.67 (d) Vendor's lien. Assume that E, a s the vendor, transferred Blackacre to B pursuant to a sale contract before B paid the full purchase price, and without obtaining a mortgage (legal or equitable) to secure B's promise to pay the remaining balance of the price. In this situation B would not have made a promise to hold Blackacre a s security for his debt to E, but equity will imply such a promise in favor of an unpaid vendor, and will give E a n equitable lien to secure the unpaid purchase price.74 If C purchased Blackacre from B, his ownership would be subject to E's equitable lien unless C were a BFP.

2.68 (e) Restrictive covenant. Assume that E owned Blackacre and adjoining Greenacre, that E sold Blackacre to B, that the transfer included a covenant that B, by accepting the transfer, promised that neither he nor his heirs and assigns would ever use Blackacre otherwise than for private dwelling purposes, that the covenant was made for the benefit of E and his heirs and assigns of Greenacre, and that the covenant could a s a matter of law benefit Greenacre and its successive owners. If B breached his promise and took up the business of frying and selling fish and chips from a stand in the front yard on Blackacre, E could bring a n action a t law for damages for breach of contract, a t least if B had signed the transfer. It is not likely that E would consider this remedy as adequate for although money would give him some comfort, it would not eliminate the noise, confusion, and smell of the fish and chips stand adjacent to his once tranquil home on Greenacre. Equity would agree, and would specifically enforce B's restrictive or negative promise by an injunction ordering B to cease and desist from his commercial use of Blackacre.75 At this stage equity would merely have enforced B's promise against him. In the famous case of Tulk v. M0xhay,~6 in 1848, it was held that a purchaser of land would be bound by a restrictive covenant unless he were a BFP. If C purchased Blackacre from B, his ownership would be subject to the burden of the restrictive covenant, and unless he were a BFP, he could not use Blackacre for commercial purposes. It is E, however, the owner of Greenacre, who has the benefit of and the right to enforce the restrictive covenant; how should we describe his equitable interest? In functional terms, E, a s the owner of Greenacre (the dominant parcel), has a right in equity that the owner of Blackacre (the servient parcel), unless a BFP, observe the covenant. E's interest can be described a s a n equitable negative easement; a right that B (or C) not use Blackacre in violation of the covenant.

2.69 There is a consistent element in all of the equitable interests just


discussed, that is, a n actual or implied promise made by the legal owner of Blackacre which, if observed, will confer substantial beneficial rights in Blackacre on someone else. The trustee promised to confer all of the benefits of Blackacre on the beneficiaries, the vendor promised to sell Blackacre to a purchaser, the equitable mortgagor promised to hold Blackacre a s security for a debt owed to his creditor, the purchaser promised (by implication) to hold Blackacre a s security for the purchase price owed to his vendor, and the purchaser of Blackacre promised to refrain from using Blackacre in a way prejudicial to the enjoyment of adjacent Greenacre retained by his seller. In all of these cases, a sale of Blackacre by the promisor in a manner which would prejudice the equitable rights of the promisee is a breach of equitable obligation. Anyone who participates in such a breach of equitable obligation by acquiring Blackacre from the promisor, unless he is a bona fide purchaser for value, will be bound by the equitable obligation.

2.70 The promisee must, of course, prove the contract or other promissory obligation which he seeks to have enforced, and is governed by the conventional rules of equity in civil cases. Having proved the contract, the remedy of specific performance, which is the source of his equitable interest, follows almost as a matter of course against the original promisor. One who seeks to escape imposition of the equitable obligation carries the burden of proving that he is a bona fide purchaser for value.77

(5) Mere equities 2.71 One might immediately ask how a mere equity differs from a n

equitable interest. Initially, we can say that a mere equity depends on a n equitable remedy other than specific performance, and hence the practical way of describing the mere equities is within the context of the equitable remedy upon which each is based.

2.72 (a) Rectification based on mistake. Although the equitable remedy of rectification applies to any written instrument, only its application to a legal conveyance will be discussed. Assume that E contracted to sell Blackacre to B, that the contract provided that mines and minerals (hereafter M & M) were to be excepted from the conveyance, that the lawyer who prepared the conveyance neglected to include the exception, and that the conveyance of Blackacre with no exception was executed by E and delivered to B. In this example, the factual prerequisite to rectification, mutual mistake, has been stipulated. If E brought his suit for rectification within a reasonable time after discovering the mistake, the court would grant a n order rectifying the conveyanceJ8 No conveyance of the M & M from B back to E would be required, for through the effect of the equitable order, the conveyance would be read a s though it had been originally drawn in its rectified f0rm.7~ The conveyance was not voidable by E under any rule of law, such a s that applicable to a voidable transfer from a minor. Rather, B obtained ownership of the M & M under the conveyance, and the effect of rectification would be to restore to E the legal interest he had lost under his conveyance.80

2.73 Rectification, in common with all equitable remedies, is discretionary. However, its requirements are more stringent than those


applicable to specific performance, which is really a n equitable remedy concurrent with the legal remedy of damages. When rectification is granted, it contravenes legal doctrine. Under a n accepted rule of law, if parties have made a contract which is to be carried out by a subsequent conveyance, the contract is deemed to be merged in the subsequent conveyance, or more accurately, to be superseded by the conveyance.sl As parties not infrequently change some terms of their agreement between the time of contract and conveyance, the conveyance is treated a s the conclusive evidence of the final agreement insofar a s it could be carried out through a conveyance. When equity grants specific performance, it merely orders the performance of a contract. When equity rectifies an instrument, it may alter the terms of a written agreement, and in the case of a conveyance, it may divest ownership of a legal interest in land. In both cases the par01 evidence rule is violated, for even if the conveyance is rectified to reflect the terms of the original written agreement, i t will usually require oral evidence that the parties did not change their original written agreement prior to the c0nveyance,8~ which is presumed to be the final written agreement. For this reason the burden of proof for rectification is heavy; in the case of a conveyance there must be no reasonable doubt that the deed does not embody the final intention of the parties.R3 Rectification is available to correct an instrument so that i t will reflect the actual intentions of the parties a t the time it was executed; it is not available to correct their agreement so that it will reflect intentions they probably would have had had they been aware of a problem or been better advised.84 If C acquired Blackacre from B, C would not be subject to E's equitable right of rectification if C were a BFPF5 Functionally, this means that any right of rectification E might have had would be lost, for rectification in this example would necessarily divest C of the M & M he acquired a s a BFP.

2.74 (b) Cancellation based on fraud. Assume that E granted a legal mortgage of Blackacre to BB to secure a loan of $50,000, that under the law of the jurisdiction a mortgage gives the mortgagee a legal lien or charge over the mortgaged property, that the mortgage gave BB a power to sell Blackacre if the mortgagor failed to pay the debt when due in order to satisfy the debt, that E defaulted on payment of the debt, and that BB fraudulently exercised the power of sale by selling and transferring Blackacre to its wholly owned subsidiary, B. In this example, the factual prerequisite to cancellation, fraud, has been stipulated. The sale by BB to a wholly owned subsidiary was tantamount to a sale by BB to itself, and constituted a fraudulent exercise of the power of sale. The legal ownership of Blackacre, however, passed to B. If E brought his suit for cancellation of the transfer within a reasonable time after discovering the fraud, the court would grant a n order canceling the transfer.86 As with the previous example concerning rectification, no reconveyance from B to E would be required; the transfer would be treated a s though it had never taken place, and E would once again own Blackacre, but still subject to the mortgage. If C, however, acquired Blackacre from B a s a BFP, E's equitable right of cancellation would be lost.

2.75 The equitable right to have a transfer canceled, or rectified, has


been described a s a mere equity in this subsection a s a matter of convenience in order to differentiate these two equities from the equitable interests previously discussed. The term 'mere equity' is probably the most commonly used descriptive phrase, but others, such a s 'preliminary equity', 'lesser equity', 'equity', and even 'equitable interest' are also used. The important point is that the right to the equitable remedy of rectification or cancellation has a lower status in equity for some purposes than the equitable rights which are uniformly described a s equitable interests, and which are based on specific p e r f o r m a n ~ e . ~ ~ This subject will be discussed in the following subsection.

(6) Pr ior i t ies be tween in teres ts

2.76 To a lawyer, the title of this subsection may be adequate to indicate the problems to be discussed. For others, a n example may be helpful. The example will, in fact, draw together much of what has been covered in section 2.f. Blackacre is located in a jurisdiction in which a mortgage creates a lien or charge over the mortgaged property. Initially, E l was the owner of Blackacre. E l granted a mortgage of Blackacre to BB to secure a $150,000 loan from BB, and under the mortgage, BB held a power to sell Blackacre if E l defaulted on payment of the debt. E l did default on payment of the debt, and BB fraudulently sold Blackacre to its own subsidiary, B, for $150,000, the principal amount and unpaid balance of the debt. This transaction, which occurred a t time 1 to begin a chronological sequence of events, and subsequent transactions entered into by B, are shown on the following table:

Time sequence Event

1 B purchased Blackacre by fraud from BB.

2 B contracted to hold Blackacre as security for a $100,000 loan from E2.

3 B contracted to sell Blackacre to E3 for $250,000 free of encumbrances.

4 B granted a mortgage to C to secure a $100,000 loan.

Interest created E l has an equitable right to regain ownership through cancellation of the conveyance to B.

E2 has an equitable mortgage through specific performance of B's contract.

E3 has an equitable right to become the owner through specific performance of B's contract.

C has a legal mortgage.

Priority of interest

E2, E3, and C all acquired their interests a s BFPs should this be relevant. Blackacre is a marvelous and unique parcel of land, but it cannot simultaneously support all of these conflicting interests under any legal system. The interests must be enforced in some rank order; each must be allocated a priority of recognition.


2.77 The legal mortgage of C will be the first charge against Blackacre. The reasons for this were concisely summarized by Lord Hardwicke L.C. a s follows: "As courts of equity break in upon the common law, when necessity and conscience require it, still they allow superior force and strength to a legal title to estates."88 As C has a legal mortgage of Blackacre, and is a BFP, there is no reason in conscience to enforce B's equitable obligations in favor of E l , E2, and E3 against C.89

2.78 The equitable mortgage of E2 will be the second charge against Blackacre. Deferring consideration of E l for a moment, why should E2 rank over E3? Both of them are dependent upon the willingness of equity to specifically enforce B's contracts against him. This equity would do if it could, but equity cannot enforce both E3's right to purchase Blackacre free from encumbrances, and E2's right to a n equitable mortgage, a t the same time. Equity must make a choice. In Phillips v. Phillips, Lord Westbury ~ a i d : ~ ' J

I take it to be a clear proposition that every conveyance of an equitable interest is an innocent conveyance, that is to say, the grant of a person merely entitled in equity passes only that which he is justly entitled to and no more. . . . The subsequent grantee takes only that which is left in the grantor. Hence grantees and encumbrancers claiming in equity take and are ranked according to the dates of their securities. . . .The first grantee. . . has a better and superior - because a prior - equity.

This statement is frequently quoted or pa raphra~ed?~ The first part of the statement, however, seems worthy of critical comment for it borrows too heavily from the language and doctrine applicable to legal interests. First, a n equitable interest is not created by a n immediately effective conveyance, a s is a legal interest. In the example, both E2 and E3 acquired contract rights from B. Any equitable interest in Blackacre which either of them has depends on whether equity will grant specific performance of his contract against B, or whether it will leave him to his damage remedy a t law. Secondly, the statement suggests that the first interest in time must be preferred because once it was created, the second interest could take no more than what was left, that is, that equity had no choice in the matter. This is true as to legal interests; if B granted a legal leasehold to T, he could not subsequently transfer the FSA to C free of the lease. But equity will sometimes postpone a n earlier equitable interest to a later one. The last part of the statement does state the rule in equity, and the reason for it. I n Rice v. Rice, Kindersley V.C. said:92

To lay down the rule therefore with perfect accuracy, I think it should be stated in some form as this: 'As between persons having only equitable interests, if their equities are in all other respects equal, priority of time gives the better equity. . . .' 2.79 In the Rice case, the first equitable interest was a vendor's lien.

The vendor gave his purchaser both the title deeds and a signed receipt for the purchase money, even though the purchase price was unpaid. Armed with these documents, the purchaser was able to arrange a subsequent loan and to secure it with the second interest, a n equitable mortgage. Because the vendor's careless conduct had made it possible for his purchaser to create the second interest, it was deemed to be a better equity, and was given priority. In the example, however, no facts are given which would justify a holding that E3 has a better equity than E2, and a s both

Chanter 2. English Common Law 33

hold equitable interests and E2 is first in time, E2 will have priority. I t should be emphasized that E3 gains no advantage by being a BFP.g3 The contract right of E3 to purchase Blackacre will have third priority, but as Blackacre is subject to mortgage liens of $200,000, E3 would first have to have his contract rectified, by reducing the purchase price to $50,000, on the grounds of B's fraud.94

2.80 This leaves El 's equitable right to have the conveyance from BB to B cancelled for fraud in fourth and last priority. On this issue our example is based on Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd.,95 and to add reality, one might think of Blackacre as the Hotel Terrigal in New South Wales. Summarizing El 's legal and practical position if he obtains cancellation subject to the other interests will vividly demonstrate the loss he will suffer if he ranks last. Because the example is set in a jurisdiction following the lien theory of mortgage, before BB exercised the power of sale E l was the legal owner of Blackacre a s mortgagor, and BB had a legal lien a s mortgagee. Cancellation of the sale to B will restore legal ownership to E l , but it will remain subject to the legal mortgage; B will merely have replaced BB a s the mortgagee, and B's mortgage will still secure E's $150,000 debt. Insofar as E l is concerned, Blackacre will be subject to the collective mortgage debts in favor of C, E2, and B totaling $350,000. In short, El 's right of cancellation will be of slight practical value.

2.81 Why will El 's equitable right, which is first in time, probably rank after the equitable interests of E2 and E3? Under existing equitable doctrine, an earlier mere equity is inferior to a later equitable interest acquired by a BFP. The classic statement of the doctrine was made by Lord Westbury in a dictum in Phillips v. Phillips, as follows:g6

Thirdly, where there are circumstances that give rise to an equity as distinguished from an equitable estate - as for example, an equity to set aside a deed for fraud, or to correct it for mistake - and the purchaser under the instrument [creating the subsequent equitable interest] maintains the plea of purchaser for valuable consideration without notice, the Court will not interfere.

In the Hotel Terrigal case, B acquired his ownership through BB's exercise of the power of sale in November 1958. At that time E l had sufficient knowledge of the fraud to seek cancellation of the transfer to B. In March 1960, E2 acquired the equitable mortgage a s a BFP. The suit for cancellation was brought by E l in October 1963, almost five years after El's cause of action for relief in equity arose. Three justices of the High Court of Australia heard the appeal, and all three wrote opinions.

2.82 Kitto J. seemed inclined to disregard the technical distinction between mere equity and equitable interest and to focus on more functional principles of equity to decide which claim was more meritorious, for he said:g7

But where the merits are unequal, as for instance where conduct on the part of the owner of the earlier interest has led the other to acquire his interest on the supposition that the earlier did not exist, the maxim [first in time is first in right] may be displaced and priority accorded to the later interest. In the present case it seems to me that thereis much to be said for holding that, since during the long period of the mortgagor's delay in setting up the invalidity of the purchaser's title persons were induced to lend money on debentures in the belief that an unencumbered fee simple in the subject property formed


part of the security under the trustee's floating charge, the mortgagor ought not to be allowed to insist upon its equity of redemption a s against the equitable interest of the trustee.

He held, however, that apart from any question of estoppel of E l by conduct, E2 had a better equity because he held a n equitable interest a s a BFP, and E l had only a 'preliminary equity' to have a transfer cancelled. Although Taylor J. said that he would describe El 's right a s a n 'equitable interest', his analysis was similar to that of Kitto J. in considering El 's right of cancellation a s preliminary to obtaining a true equitable interest, or a s a prerequisite necessary to remove the impediment to El 's title. Taylor J. said:98

In such cases it seems that the court will not interfere and to me it does not seem to matter much whether it be said that this is because, a s Lord Westbury's observations suggest, that a plaintiff seeking to set aside a deed for fraud or to reform it for mistake is, a t that stage, asserting an equity a s distinguished from an equitable estate, or, because a plaintiff in such cases will be denied the assistance of a court of equity to remove the impediment to his title if, before he seeks that assistance, an equitable interest in the subject property has passed to a purchaser for value without notice of the plaintiffs prior interest. I prefer the latter as a more precise statement of the law and, indeed, I think this is the true meaning of Lord Westbury's observations.

Both justices stressed that one seeking cancellation of a legal conveyance required the assistance of a court of equity. This is obviously true. Not only must the fraud be proved, but equity must be convinced that its discretion should be exercised to cancel the conveyance; E l could be left to his damage remedy a t law, and if so he would have no equity in Blackacre. However, the same analysis is applicable to the holder of a n equitable mortgage. E2 must not only prove his contract right, he must satisfy equity that specific performance is appropriate, that no equitable defense such a s laches or unconscionable conduct bars his remedy; E2 could be left to his damage remedy a t law, and if so he would have no equity in Blackacre. Both Kitto J. and Taylor J. said that if equity declined to interfere and assist E l , then E2 would prevail with his equitable interest. With respect, E2 could not prevail unless equity chose to assist him. Neither justice stated any public policy reason a s to why equity should favor a n equitable mortgage over a n equitable right to cancellation.

2.83 Menzies J. wrote a n opinion clearly demonstrating that there are two lines of authority on the question of whether a n equitable right to cancellation is a n equitable interest or a mere equity. The cases show that the answer depends on why characterization is required. If the issue is whether or not the owner of the equity of cancellation can transfer his right, it is a n equitable interest. If the issue is one of priority between the equity of cancellation and a subsequent equitable interest acquired by a BFP, the latter prevails, and the former is a mere equity. On the basis of authority, all three justices held that the subsequent equitable interest of a BFP was entitled to priority over a n earlier equity of cancellation. We are left with the conclusion that the only reason for the rule is the logic of history.


g. Ownership a n d Adverse Possession

(1) Possession a n d relat ive ownership

2.84 The tedious problem of proving unencumbered ownership of land under the common law has been the theme of this chapter. Based on the practice of English lawyers, one in possession of land in England could feel relatively secure of his ownership if he could derive his claim through title instruments for a t least 60 years. Certainly in a land so long-settled a s England, one in possession of land would seldom have title instruments originating from a Crown grant. What if he had no title instruments a t all? We began this chapter with a statement of three fundamental principles inherent in common law conveyancing; transfer a t the volition of the owner, transfer a t a time selected by the owner, and the passive role of the state in the transfer process. We near the end of this chapter with a fourth principle even more basic; the transcendent importance of possession.

2.85 Having read this chapter, the notion of attempting to purchase Blackacre with hard-earned money in a n effort to join the English land- owning establishment ceased to be attractive to S. He found a delightful, wild acreage in Devonshire (Greenacre) apparently unoccupied. After building a cob and thatch cottage, S took possession of Greenacre. He was neither a tenant, a guest, a servant, nor a n agent of anyone; S was a squatter occupying Greenacre in defiance of any other ownership. Alas, shortly thereafter X ousted S by force and took possession of Greenacre. What are S's rights? The fact of S's possession is prima facie evidence of his ownership of Greenacre, and the law accords him full rights of ownership against everyone in the world except someone who can prove a better ownership.99 Thus, S could make any transfer of his possessory ownership of Greenacre permitted by law while alive, a t his death Greenacre will pass by his will or by intestacy, and in the situation in issue S can recover Greenacre from X in a n action at law unless X can prove a right to Greenacre superior to S's naked possession. Why is S given this protection? Unless S's possession were protected, anyone with sufficient force or guile could expel him from Greenacre, and a chain of violence would be tolerated until someone with a n ownership recognized by law chose to assert it.loo In the meantime, Greenacre would be subject to anarchy rather than law. The crucial question is, what ownership could X prove which would give him a right of possession better than that which S enjoyed? The answer is, a right of possession based on a possession prior to that of S, or based on a grant from the Crown. If X had been a stranger to Greenacre before he ousted S, he would have had no defense to S's action. Could X plead and prove, not only that S was a squatter, but that A had effective possession long before S did? No. This is known as pleading the jus tertii; pleading in defense that a third person has a better right to possession than did the plaintiff. As between S a s plaintiff and X as defendent, X can prevail only by proving that he, not A, has a right of possession prior to and hence superior to that of S.lO1 This sample example has demonstrated the importance of possession in a context where neither adversary had title instruments.

2.86 In the typical situation, however, one or both contestants will


claim under title instruments. How do title instruments prove that a plaintiff has a better ownership based on a possession prior to that of a defendant in actual possession? Assume that S is in possession of Blackacre a s a squatter, that C alleged a right to recover possession based on a prior actual possession of A, that C's case is based on a transfer of Blackacre under A's will to B and on a deed from B to C, and that C can prove his allegations. If A had possession, and if S now has possession a s a squatter, A obviously lost possession; S might have ousted A, or A might have vacated Blackacre and S might have taken possession peacefully. Because S is a squatter, his possession is inconsistent with C's ownership, and it is this inconsistency which is a crucial element.102 When S took inconsistent, or adverse possession, is equally crucial, for that determines the time when the right to recover possession, which C now has, first arose.lo3 One with a superior right to possession is presumed to have possession; consequently A had constructive possession until S took adverse possession.104 Phrased more directly, A had no legal cause of action to recover possession until there was someone in adverse possession. With actual possession, S is the owner of Blackacre relative to everyone in the world except someone with a superior right to possession, and that someone was A a t the moment when S took adverse possession. At common law there is no absolute ownership, there is only relative ownership. A was the owner of Blackacre relative to S, and a s long a s A could recover possession from S, A had the better ownership.lO5 Just a s S could transfer his possessory ownership, inter vivos or a t death, so A could transfer his nonpossessory ownership. In short, C acquired A's right to recover Blackacre from S through A's will and B's deed.

2.87 The previous example was cast in terms of a n English Blackacre, with C's right to recover possession based upon A's prior possession. Now assume that Blackacre is in Australia, that A's ownership was based on a grant from the Crown, and that no one in the A, B, C group had ever set foot on Blackacre. Referring to C's right a s one to 'recover possession' of Blackacre provides a realistic description of the legal situation in England. It is not a functional expression in the Australian example, for in reality C's right is to acquire a possession of Blackacre which neither he nor any of his predecessors ever had. However, the law remains the same in all respects, for C's ownership based on a Crown grant to his predecessor A is superior to S's ownership based on actual possession.lo6

2.88 The object of C's action is to recover (acquire) possession of Blackacre. However, as a necessary prerequisite he must prove the superiority of his ownership derived from A through title instruments. For this reason, the generally accepted doctrine is that an action for a 'declaration of title' or otherwise brought to judicially verify one of C's title instruments is in legal reality an action to recover land.lo7 S can defend his possessory ownership by proving a fatal defect in C's chain of title. For example, S might prove that A's will was forged, or a s properly construed, left Blackacre to X; or that B conveyed Blackacre to X before the deed to C, or that B's deed to C was invalid. In this situation S would be proving a jus tertii. However, S has possessory ownership. If X had acquired ownership of Blackacre under A's will or through a n earlier deed from B, or if B's deed


to C were void, then C would have no ownership a t all. The jus tertii can be proved when it demonstrates that C acquired no ownership under title instruments.lo8 I t should be emphasized that C must prove that he is the owner of Blackacre relative to S in order to recover possession from S. Suppose that the critical issue in the case concerns the delivery, and hence the validity, of B's deed to C. The court might hold that the deed was either valid or invalid, but in so doing it would neither confer an ownership which C lacked, nor deprive C of one which he had. The litigation and court determination would merely judicially recognize and confirm the status quo in fact and in law a s it was created by the parties. A was the legal owner of Blackacre relative to S, and if the deed in issue were delivered, C succeeded to that legal ownership a t the time of delivery. The practical right which C's ownership confers is the right to recover (acquire) possession of Blackacre from S, and this right arose when S took possession adverse to A.

2.89 The following example contains a significant distinction from the previous example. Assume that pursuant to a contract for the sale of Greenacre, A executed and delivered a deed to X covering both Greenacre and Blackacre, and that X took possession of both parcels under the deed. The area was wild and undeveloped, and X might not have been aware of the misdescription error in the deed. If so, A had a right in equity to have the deed rectified and thus to reacquire his lost legal ownership of Blackacre based on the mutual mistake of the parties. Or, X might have knowingly prepared the deed with the misdescription in the hope that A would not discover the error. A's remedy would still be rectification, but in the latter situation based on X's fraud. In accordance with the Hotel Terrigal case,lOg A had a preliminary equity, or a mere equity. Although A's right of rectification is considered a mere equity insofar a s his relation with X is concerned, it is treated a s an equitable interest to permit its transfer by A by inter vivos conveyance, will, or intestate succession.110 Assume, therefore, that through A's will and a deed from B, C acquired A's equitable right of rectification, and that C has the same status relative to X that A had. The crucial point, however, is to identify what C does not have. C has no legal ownership of Blackacre, for X is the only owner, and X's possession as owner cannot be inconsistent with or adverse to any legal ownership of C. As C has no legal ownership of Blackacre, he has no right to recover possession of Blackacre. Such a right will arise, if ever, only if and when C obtains rectification in equity. After rectification C will be the owner of Blackacre relative to X with the right to recover possession, and S's possession will then become adverse to, because inconsistent with, C's ownership.

(2) Acquisition of ownership by adverse possession 2.90 Consider the previous example in which S, a s a squatter, had

possessory ownership of Blackacre, and in which C, through valid title instruments, had acquired A's right to recover possession. How long should C be permitted to delay before he seeks to enforce his legal right? Statutes limiting the time available for bringing a n action to recover possession of land were enacted a s early a s the year 1275. The statutes


passed before that of 1623 all limited the number of years one could reach back, from the time of his action, to prove his prior possession, or that of a predecessor.ll1 The very language of the early statues demonstrated that possession was the true root of ownership in England; if the most recent possession one could prove occurred earlier than the effective time limit, the proof was prohibited, leaving the owner in possession a s the best owner. The operative language of the basic section of the Real Property Limitation Act, 1833,112 was different. With a reduction of the limitation period from 20 to 10 years, it has been carried forward to The Limitation of Actions Act of Alberta,l13 which provides a s follows:

18. No person shall take proceedings to recover land except

(a) within 10 years next after the right to do so first accrued to such person (hereinafter called the "claimant"), or

(b) if the right to recover first accrued to a predecessor in title, then within 10 years next after the right accrued to such predecessor.

I t can be observed that this statute, rather than preventing reliance on a n excessively old prior possession, directly bars a n action to recover land unless brought within 10 years after the right of action accrued. However, the words 'recover land' disclose their origin in English statutes drafted when superior ownership was based on prior possession, and when one therefore brought a n action to recover possession of his land. Before 1833 limitation statutes merely barred the legal remedy of a superior owner, leaving his better right intact should he be able to recover his possession peaceably.114 The Real Property Limitation Act, 1833115 extinguished the formerly superior ownership a t the end of the limitation period, and so does the present Alberta Act.l16

2.91 What public policy justifies extinguishing a superior ownership in favor of a possessory ownership? As suggested earlier, both contestants will frequently rely on title instruments, and the competing chains will often link a t a common source. In our example, C claims through B, and B claimed under A's will. Assume that R also claimed under A, and that S claims under a deed from R. There are many possibilities, but three will suffice. Perhaps R claimed under a deed from A delivered before A died, or under a will of A alleged to have revoked the will under which B claimed, or on the grounds that A died intestate and that R was A's heir. S has possession of Blackacre, but he can never be sure that, in a system of relative ownership, he has the best ownership. With the passage of time evidence is lost, and although both C and S are equally vulnerable to this risk, it is S who will be uprooted after long possession if he is the ultimate loser. Moreover, the public policy favoring facility of transfer is served if old claims are barred, and if prospective purchasers can deal more securely with a possessory owner. I t has been said that a statute of limitation is "an act of peace. Long dormant claims have often more cruelty than of justice in them."ll7 Mr. Justice Holmes elaborated on this theme a s f0llows:~l8

The true explanation of title by prescription seems to me to be that man, like a tree in a cleft of a rock, gradually shapes his roots to his surroundings, and when the roots have grown to a certain size, cannot be displaced without cutting at his life. The law used to look with disfavor on the Statute of Limitations, but I have been in the habit of saying it is one of the most sacred and indubitable principles that we have, which used to lead my


predecessor Field to say that Holmes didn't value any title that was not based on fraud or force.

2.92 Limitation of actions, however, is not a panacea for all the ills which inhibit facility of transfer. Assume that C brought a n action to recover Blackacre from S, that C proved a superior ownership based on A's prior possession and on title instruments originating with A, but that C could not prove when his cause of action had accrued because he had no evidence on this point. C's cause of action accrued when someone took possession adverse to him or to his predecessors. If the limitation period is 10 years, C's action had to be commenced within 10 years of the time when his cause of action arose. Must C prove that his action is timely, or must S prove that it is not? The Alberta statute quoted above, which is typical, certainly seems to cast the burden of proof on the plaintiff when it says that no person shall take proceedings to recover land except within 10 years after the right to do so first accrued. Moreover, C must prove his superior ownership, and if his action is not timely, the statute of limitation will have extinguished his ownership completely. Functionally, the timeliness of C's action may be established through a n extremely important presumption. Once C proved A's prior possession, A and his successors are presumed to have retained possession, that is, they had constructive possession.11g This means that even if A's successors were never in actual possession, they were in constructive possession when Blackacre was vacant, and anyone else in actual possession was presumed to occupy on their behalf. Hence when C brought his action for possession, it was to recover from S who was presumed to hold possession under C. In order to rebut this presumption, S must prove that C's right of action accrued more than 10 years earlier by proving that S and his predecessors occupied adversely to C and his predecessors for a t least that period. The net result is the rule that the statute of limitation is a defense, and that one who relies on it must prove he is entitled to its protection.lZ0

2.93 The elements of S's burden of proof can be quickly summarized. Any continuous period of 10 years adverse possession will suffice. If R occupied adversely for five years, and transferred his possessory ownership to S who continued in adverse possession for five more years, the two periods can be cumulated, or 'tacked' together.1z1 However, tacking is only permitted when the successor acquires possession by a disposition from a predecessor. The adverse possession must be visible, open, and notorious,122 which simply means that it cannot be secretive. The adverse possession must be inconsistent with the rights of the superior owner,lZ3 but it need not be knowingly hostile.lZ4 In the example under consideration, R and S claim under title instruments, and might be innocent of any knowledge that their possession is in fact adverse to C's superior ownership. I t is often contended that innocent adverse possession performs a benign function in boundary disputes. Suppose that S's fence enclosed a portion of C's land, and that neither of them knew that the fence was not on the legal boundary. Upon discovery of the problem, absent adverse possession, C and S could litigate the location of the true legal boundary for weeks in court. If S, behind the fence, openly, exclusively, and continuously possessed a strip of C's land for 10 years, and if neither of them even knew


that S was in possession of C's land, the argument is that the strip could not have been that important to C. At any rate, under adverse possession, the fence becomes the true legal boundary!

2.94 Assume that R and S, successively, were in open, exclusive, and continuous possession of Blackacre for 30 years, ever since the death of A. Can S look out upon his Blackacre in peace, secure in his ownership? Bliss remains a state for the ignorant. Two very important problems remain; future interests and disabilities. Making a slight change in the facts, assume that A's will left B a life estate in Blackacre, remainder to C, that B died exactly 30 years after A died (at the same moment as S was serenely contemplating his domain), and that a t the same moment C was of unsound mind and 40 years old. This situation will be analyzed in terms of the present Alberta Act,125 which is typical. Under section 23, C's right to recover Blackacre did not accrue until he had a right to possession, and that was a t the death of B. If C were not under the disability of unsound mind, he would have five more years in which to bring his action under section 24. However, under section 46(1), because C's right to recover Blackacre actually accrued while he was of unsound mind, it will be deemed to accrue when he ceases to be under disability, or dies, and under section 46(2), the normal 10 year limitation period will begin to run then. Section 46(3) then imposes a n outside limit, and bars C's right of action 30 years after it actually accrued. On these facts, S may not be sure of his ownership of Blackacre based upon his adverse possession for another 30 years. Suppose that S desired to sell Blackacre to P. It should now be clear why an English lawyer representing P before 1874 would normally have insisted that S furnish proof that he and his predecessors had continuous possession of Blackacre under instruments of title for a t least 60 years. Even this requirement would not guarantee that all superior claims had been barred by limitation, but it brought the risk within acceptable commercial limits.

2.95 The equitable doctrine of laches remains for consideration. In paragraph 2.89 a n example was presented in which A, intending to transfer Greenacre to X, delivered a deed covering both Greenacre and Blackacre. The transfer either reflected a mutual mistake of the parties or was procured by X through his fraud. In either event, relative to X, A was left with a mere equity to have the deed rectified. At least in England, under the Limitation Act, 1939,126 there is no statute of limitations applicable to such equitable remedies as specific performance, rectification, and ~ancellation.12~ Moreover, A's remedy could not be characterized as an action to recover land, because with a mere equity he had no legal right to possession. The equitable doctrine of laches is analogous to statutory limitation of actions. Under this doctrine, A and his successors will be denied equitable relief unless action is commenced within a reasonable time after the right to seek rectification is discovered, or could with reasonable care have been discovered.128 This means that although A's right to seek rectification arose a t the time of the delivery of the deed to X, the doctrine of laches does not begin to apply until actual or constructive knowledge of the right is acquired by A or his successors. It is said that equity will seldom grant more time under laches than the analogous


limitation period.129 However, it would be an extraordinary case if equity allowed A the full limitation period for an action to recover land after his discovery of the mistake or fraud; laches would likely be applied to deny relief much sooner. The statute of limitations, however, could not begin to run against A and his successors until they obtained legal ownership through rectification, for the right to recover Blackacre would not arise until that time.

h. Summary of Common Law Problems 2.96 The important problems inherent in common law conveyancing

will now be summarized in order to provide a comparative base for our ultimate evaluation of a Torrens system's solution for these problems. It is frequently said that there are two primary defects: insecurity of ownership, and impaired facility of transfer. However, insecurity of ownership is not a problem. If B has both possession of Blackacre and the best legal right to possession, his ownership is a s secure a s law can make it, and is far more secure than it would be under a Torrens system. The problem is the difficulty of proving ownership under the common law system. If B cannot determine with any reasonable certainty that he is the best owner of Blackacre, it is unlikely that he will feel secure a s to his ownership, even if he is the best owner. The difficulty of proving ownership also seriously impairs facility of transfer, but emphasizes its adverse consequences to the public in terms of economic cost. Before a sale of Blackacre from B to C can be completed, the parties must shoulder the expense of ascertaining with relative certainty that B owns what he wishes to sell. Multiplied by tens of thousands of real estate transactions, this imposes a n enormous financial burden on society. In most transactions there will be no serious defects in B's ownership, and in spite of the expensive investigations, if C buys he will still not be sure that he is the best owner. Why was it so difficult to prove ownership under the common law system? The answer was demonstrated by the examples in this chapter. The virtue of the common law was that it provided security of ownership to a very high degree, and the vice was that it did so a t the expense of facility of transfer.

2.97 The specific problems inherent in the common law system are listed below: Problem 1. Adequacy of all transfers (title instruments) relevant to seller's derived ownership. The purchaser should evaluate all of the title instruments relevant to the seller's derived ownership of the interest sought to be purchased. See sections 2.b. and 2.c. Problem 2. Adequacy of immediate transfer to purchaser. The purchaser should evaluate the adequacy of the seller's transfer to him. See sections 2.b. and 2.c. Problem 3. Lost instruments supporting seller's ownership. The purchaser should require the seller to account for any gap in the chain of title, or to procure necessary transfers to fill the gap. See section 2.d. Problem 4. Unknown legal interests superior to seller's claimed ownership. The purchaser can acquire no larger legal interest than his seller owned. He should visit the land and attempt to determine if there are


outstanding legal interests inconsistent with the interest sought to be purchased. See section 2.e. Problem 5. Unknown equities binding purchaser. The purchaser for value will be bound by any equities binding his seller unless he acquires a legal interest, or a superior equity, and is bona fide. The crucial problem is that because of the doctrine of constructive notice, the purchaser can never be certain that he is bona fide. See section 2.f. Problem 6. Vulnerability of equities. This is the correlative of problem 5. The owner of an equity will not be able to enforce his equity to the prejudice of a subsequent bona fide purchaser for value of a legal interest, or of a superior equity. The owner of the prior equity has no certain method of preventing a subsequent purchaser from being bona fide. See section 2.f. Problem 7. Unknown equities binding donee. A donee of any interest, legal or equitable, will be bound by any equity binding his donor. The donee has no method of securing protection. See section 2.f.

2.98 As the remainder of this study is devoted to legislative solutions for the problems just listed, they will frequently be referred to by the problem number assigned in paragraph 2.97 in order to provide a cross- reference to the section in chapter 2 in which the problem is discussed.

FOOTNOTES 1. See subsection 2.g.(2) infra. 2. 11 Halsbury's Laws 360-61 (3d ed. Simonds 1955); R. Patton and C . Patton, Patton on Land Titles 5 62

(2d ed. 1957). 3. Battersby, Williams on Title 659-60 (4th ed. 1975). 4. Id. at 427. 5. See Saunders v . Anglia Building Society [I9711 A.C. 1004 (H.L.). 6. County of Gloucester Bank v. Rudry Merthyr Steam and House Coal Colliery Co. [I8951 1 Ch. 629

(C.A.). 7. Ruben v . Great Fingall Consolidated [I9061 A.C. 439 (H.L.); Re Land Registry Act 1911 (1916) 28

D.L.R. 354,lO W.W.R. 634 (B.C. S.C.). 8. See R. Patton and C. Patton, supra, n . 2, at 5 593 for a general discussion o f common law dower, and

the title problems it creates i n states o f the United States where the interest is still recognized. 9. Battersby, supra, n . 3, at 407.

10. Id. at 250. 11. See R. Patton and C . Patton, supra, n. 2, at 5 462. 12. Id. 13. Id. at @ 464, 471. 14. Violette v. Violette [I9481 2 D.L.R. 208, 22 M.P.R. 231 (N.B. A.D.). 15. Pelletier v . Municipal District o f Opal [I9251 2 D.L.R. 717, [I9251 1 W.W.R. 973 (Alta. A.D.). 16. Id. 17. Sutherland v. Rural Municipality o f Spruce Grove 44 D.L.R. 375, [1919] 1 W.W.R. 274 (Alta. A.D.). 18. R. Patton and C . Patton, supra, n. 2, at 55 468-71. 19. Osbome, Mortgages $5 305A, 328 (2d ed. 1971); Rayner and McLaren, Falconbridge on Mortgages

5 25.3 (4th ed. 1977). 20. Trustees o f Grosuenor St. Presbyterian Church v . Toronto (1918) 45 D.L.R. 327 (S.C.C.). 21. R. Patton and C . Patton, supra, n. 2, at 55 336-37. 22. Henderson v . Toronto General Trusts Corp. 62 O.L.R. 303, [I9281 3 D.L.R. 411 (Ont. C.A.). 23. Northern Countries o f England Fire Insurance Co. v . Whipp (1884) 26 Ch. D. 482 (C.A.). 24. Sir Robert Torrens would probably have said 'perversely', but we shall explore that later. 25. Supreme Court o f Judicature Act, (Imp.) 36 & 37 Vict. c. 66.


26. Salt v . Cooper (1880) 16 Ch. D. 544, at 549 (C.A.).

27. Maitland, Equity 28-29 (2d ed. Brunyate 1936).

28. Id.

29. Id.

30. Id. at 3. 31. 2 Scott, Law o f Trusts 5 130 (3d ed. 1967).

32. Maitland, supra, n. 27, at 112.

33. 4 Scott, supra, n. 31, at 5 289. 34. Swanson v. Smith [I9461 3 D.L.R. 431, [I9451 2 W.W.R. 469 (B.C. C.A.).

35. G.L. Baker Ltd. v . Medway Building & Supplies Ltd. [I9581 3 All. E.R. 540 (C.A.). 36. 4 Scott, supra, n. 31.

37. Basset v . Nosworthy (1673) Rep.t.Finch 102. 38. 4 Scott, supra, n . 31, at 5 298.4 & n . 4.

39. Hardingham v . Nicholls (1745) 3 Atk. 304.

40. 4 Scott, supra, n. 31, at 5 302.4.

41. Tourville v. Naish (1734) 3 P. Wms. 307.

42. Thorndike v. Hunt (1859) 3 De G. & J. 563.

43. 4 Scott, supra, n. 31, at Q: 305.

44. Rice v. Rice (1853) 2 Drew. 73.

45. Whitworth v. Gaugain (1846) 1 Ph. 728.

46. 4 Scott, supra, n . 31, at 5 308.

47. Jellett v . Wilkie (1896) 26 S.C.R. 282. 48. Maitland, supra, n. 27, at 30.

49. 4 Scott, supra, n. 31, at 5 284 & n. 1. 50. Megarry and Wade, Real Property 114 (4th ed. 1975).

51. Id. at 116.

52. 4 Scott, supra, n. 31, at 5 296 (emphasis added).

53. Maitland, supra, n. 27, at 113; see Le Neue v. Le Neve (1747) 1 Ves . Sen. 64.

54. Bank of Montreal v . Sweeny (1887) 12 App. Cas. 617 (P.C.).

55. Taylor v. Russell [I8921 A.C. 244 (H.L.); Newlon v. Newton (1868) L.R. 4 Ch. App. 143.

56. Thompson v. Simpson (1841) 1 Dm. &War. 459.

57. Re Nisbet and Potts' Contract [I9061 1 Ch. 386 (C.A.).

58. Stroughill v . Anstey (1852) 1 De G. M. & G. 635. 59. Agra Bank v . Barry (1874) L.R. 7 H.L. 135.

60. Jones v. Williams (1857) 24 Beav. 47.

61. (1872) L.R. 7 Ch. App. 259.

62. Hodgson v . Marks [I9711 Ch. 892 (C.A.); Mumford v. Stohwasser (1874) L.R. 18 Eq. 556.

63. Jared v. Clements [I9031 1 Ch. 428.

64. Lloyd v. Banks (1868) L.R. 3 Ch. App. 488.

65. Fratcher, Trustees' Powers Legislation, (1962) 37 N.Y.U. L. Rev. 627, 662-63 (footnotes omitted). 66. Fratcher, Probate Can Be Quick and Cheap: Trusts and Estates in England 31 (1968).

67. For a n analysis of this legislation see Fratcher, supra, n. 66, at 30-34; and Maudsley, Hanbury's Modern Equity 512-26 (9th ed. 1969).

68. This Act was approved by the National Conference of Commissioners on Uniform State Laws and by the American Bar Association i n 1964. As o f 1977, 5 7 had been enacted in eight states.

69. See Lysaght v . Edwards (1876) 2 Ch. D. 499 in support o f the text i n this paragraph.

70. Rogers v. Challis (1859) 27 Beav. 175. 71. Russel v. Russel (1783) 1 Bro. C. C. 269.

72. Parker v . Housefield (1834) 2 My. & K . 419. 73. Cave v. Cave (1880) 15 Ch. D. 639.

74. Mackreth v . Symmons (1808) 15 Ves. 329. 75. Doherty v . Allman (1878) 3 App. Cas. 709 (H.L.).

76. (1848) 2 Ph. 774. 77. Re Nisbet and Potts' Contract [I9061 1 Ch. 386, at 404,409-10 (C.A.).


78. Bealr v. Kyte [I9071 1 Ch. 564. 79. Craddock Bros. v. Hunt [I9231 2 Ch. 136 (C.A.). 80. Law v. Warren (1843) Dr.t.Sugd. 31. 81. Knight Sugar Co. v. Alberta Railway and Irrigation Co. [I9381 1 A11 E.R. 266 (P.C.). 82. Thompson v. Hickman [I9071 1 Ch. 550. 83. Fowler v. Fowler (1859) 4 De G. & J. 250. 84. Public Trustee for Alberta v. Pylypow [I9731 6 W.W.R. 673 (Alta. A.D.). 85. Smith v. Jones [I9541 2 All E.R. 823 (Ch. D.). 86. Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (1965) 113 C.L.R. 265 (Aust. H.C.). 87. Phillips v. Phillips (1862) 4 De G.F. & J. 208; Megarry and Wade, supra, n. 50, at 119. 88. Wortley v. Birkhead (1754) 2 Ves.Sen. 571, a t 574. 89. Cave v. Cave (1880) 15 Ch. D. 639. 90. (1862) 4 De G.F. & J. 208, at 215. 91. Megarry and Wade, supra, n. 50, a t 117. 92. (1853) 2 Drew 73, at 78. 93. Cave v. Cave (1880) 15 Ch. D. 639. 94. Megarry and Baker, Snell's Principles o f Equity 684 (26th ed. 1966). 95. (1965) 113 C.L.R. 265 (Aust. H.C.). 96. (1862) 4 De G.F. & J. 208, at 217. 97. Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (1965) 113 C.L.R. 265, a t 276 (Aust. H.C.). 98. Id. a t 286. 99. Perry v. Clissold [I9071 A.C. 73 (P.C.); Asher v. Whitlock (1865) L.R. 1 Q.B. 1.

100. Id. 101. Smith v. Ontario and Minnesota Power Co. (1918) 44 O.L.R. 43,45 D.L.R. 266 (A.D.). 102. Piper v. Stevenson (1913) 28 O.L.R. 379, 12 D.L.R. 820 (A.D.). 103. Agency Company Ltd. and Templeton v. Short (1888) 13 App. Cas. 793 (P.C.). 104. Id. 105. Ocean Estates Ltd. v. Pinder [I9691 2 A.C. 19 (P.C.). 106. Agency Company Ltd. and Templeton v. Short (1888) 13 App. Cas. 793 (P.C.). 107. Vandeleur v. Sloane [I9191 1 I.R. 116 (C.A.); Walters v. Webb (1870) L.R. 5 Ch. App. 531; Franks,

Limitation of Actions 116-17 (1959). 108. Roe d. Haldane v. Harvey (1769) 4 Burr. 2484. 109. Latec Investments Ltd. v. Hotel Terrigal Pty. Ltd. (1965) 113 C.L.R. 266 (Aust. H.C.). 110. Id. at 289-91,per Menzies J. 111. Laskin, Cases and Notes on Land Law 613 (rev. ed. 1964). 112. (Imp.) 3 & 4 Will. 4, c. 27, s 2. 113. The Limitation of Actions Act, R.S.A. 1970, c. 209, s 18. 114. Doe d. Burrough v. Reade (1807) 8 East 353. 115. (Imp.) 3 & 4 Will. 4, c. 27, s 34. 116. The Limitation of Actions Act, R.S.A. 1970, c. 209, s 44. 117. A' Court v. Cross (1825) 3 Bing. 329 at 332, per Best C.J. 118. Lemer, The Mind and Faith o f Justice Holmes 417 (1953). 119. Agency Company Ltd. and Templeton v. Short (1888) 1.1 App. Cas. 793 (P.C.). 120. McConaghy v. Denmark (1880) 4 S.C.R. 609. 121. Id. 122. Id. 123. Piper v. Stevenson (1913) 28 O.L.R. 379,12 D.L.R. 820 (A.D.). 124. McGugan v. ZLrner [I9481 O.R. 216, [I9481 2 D.L.R. 338 (H.C.). 125. The Limitation of Actions Act, R.S.A. 1970, c. 209 126. (Imp.) 2 & 3 Geo. 6, c. 21, s 2(7). 127. Megarry and Wade, supra, n. 50, a t 1022 128. Beale v. Kyte [I9071 1 Ch. 564. 129. Re Maddever (1884) 27 Ch. D. 523 (C.A.).

CHAPTER 3

Instrument Registration: Recording

a. Introduction 3.1 Legislative efforts to facilitate conveyancing under the common

law can be traced to statutes enacted centuries before the Torrens system developed. These statutes introduced a system variously known a s 'deed registration', 'instrument registration', and 'recording'. Instrument registration is relevant to all but the first two common law problems summarized a t paragraph 2.97, and is extremely important to a study of the Torrens system for a basic reason all too often ignored: to achieve its objectives a Torrens system must incorporate many elements of instrument registration. This was recognized by Hogg, one of the classic Torrens authorities, when in 1920 he wrote:'

Registration, then, being divided into title and deed registration, it becomes necessary in the case of every system to decide to which class it belongs. The two classes shade off into each other, and it is a matter of some difficulty to distinguish with complete accuracy between registration of title and registration of deeds. Any dividing line between the two must be to some extent arbitrary, and each division will contain systems closely resembling systems on the other side of the line.

Because both systems must provide some solution for problems 3 through 7 a t paragraph 2.97, both must grapple with identical public policy issues. If one could identify the 'best' solution for one of these problems, that solution, both a s to substance and procedure, might well be the appropriate solution under both systems. Moreover, with even a superficial study of instrument registration, one can garner some practical insights from legislative attempts to find a 'best' solution stretching over centuries.

3.2 The basic strategy of instrument registration is simple enough: to publicize the transfer of interests in land. Consider our basic example, in which C desires to purchase Blackacre from B. Even if B could establish that he and his predecessors had possession of Blackacre under title instruments for over 60 years, C could not be certain that there were no outstanding legal or equitable interests inconsistent with what B offers to sell; for example, B might previously have conveyed Blackacre to X. If all transfers of interests in land were registered at a public office, C could examine the public records and determine whether or not B or one of his predecessors had made a n earlier transfer inconsistent with the ownership offered for sale.

3.3 Under instrument registration the state provides facilities for the registration of documents affecting the ownership of interests in land. The records are normally kept on a county basis, and modest registration fees


are charged. Obviously, the registration of hundreds of thousands of instruments in a public office would serve no useful purpose unless they were indexed so that a searcher, such a s C, could locate which instruments might affect Blackacre. The administrative efficiency of a n instrument registration system, and its indexing in particular, is of enormous consequence to lawyers, other professional title searchers, and the public. Although systems vary in efficiency, this important subject is left to professional systems analysts. With instrument registration, the state does interject itself into the conveyancing process, but its role remains largely passive. The state merely provides a public office and public servants to make it possible for individuals to register instruments, and a s part of this service, it undertakes to index them as required by statute.

3.4 Subject to one exception vital to the operation of the system, which will be explained shortly, registration does not give validity to a n instrument which is invalid because it does not manifest the intention of the transferor, or results from a judicial proceeding without jurisdictional foundation, or lacks a transferee. Suppose that C discovered a prior registered instrument purporting to be a conveyance of Blackacre from B to X which, upon investigation, proved to be forged. Such a conveyance remains void. "Indeed, in some areas little attention is paid to the instruments themselves, and one wag tells of the county clerk who would put a menu on record if a fee were tendered."2 There is no evidence that the fare would be improved.

3.5 The crucial issue in instrument registration, and the one which has most divided jurisdictions relying on the system, is how to resolve the contest between a prior transferee who has not registered, and a subsequent transferee of an inconsistent interest. Assume that B conveyed Blackacre to X by a perfectly valid deed, that X did not register his conveyance, and that B subsequently purported to convey Blackacre to C by a deed which would have been effective if B had still owned Blackacre. Some form of instrument registration exists in all common law countries, including those which have incorporated its features into a Torrens system. It is a matter of no slight fascination that all existing statutory solutions for the problem posed above fall into one of three basic categories, i.e., 'race' statutes, 'notice statutes', and 'race-notice' statutes, and that each category can be traced to one of three 'granddaddy' s t a t ~ t e s . ~

3.6 The first was the Statute of Enrollments, 1535: which provided that "no . . . lands . . . shall pass . . . from one to another. . . by reason of any bargain and sale thereof, exept the same . . . be . . . enrolled in one of the Kings courts. . . ." Legal historians conclude that Henry VIII had a personal reason for pressing this Statute upon Parliament, not related to the protection of purchasers from concealed prior transfers. For centuries land in England had been transferred by means of a ceremony called 'livery of seisin' or, in modern terminology, delivery of possession. The transferor, the transferee, and usually witnesses would go upon the land, the transferor would physically deliver a rock or a clod of dirt to the transferee and utter appropriate words signifying a transfer of possession, the transferor would retire from the land, and the transferee would be left in possession. In a primitive agrarian society with a nonmobile population,

Chapter 3 . Registration 47

livery of seisin gave effective publicity to a transfer of what was usually the best ownership, possessory ownership. By the time of Henry VIII, however, written conveyances called bargain and sale deeds had become common, and they facilitated the covert transfer of land ownership. Henry VIII was the paramount overlord in England, and he was entitled to feudal dues (revenue) when one of his vassals transferred any land held in tenure under him. Hence the Statute of Enrollments; Henry VIII wanted no transfer to take effect unless it was enrolled so that he could collect his feudal dues.5 The Statute was quickly rendered obsolete by a new form of written deed, the lease and release, which the enrollment mandate failed to cover.

3.7 As a legislative model, the Statute of Enrollments remains quite significant. Literally, it stipulates that no ownership shall pass under a conveyance until it is regi~tered.~ Applying this model to our example, the prior but unregistered conveyance from B to X was in abeyance. This means that B retained ownership of Blackacre, he conveyed it to C by a valid deed, and C need only register before X registers in order to acquire Blackacre. Notice is irrelevant; the first conveyance registered gains priority. For this reason, registration statutes based on this model are known a s 'race' statutes, and the most notable surviving example is that of North C a r ~ l i n a . ~ Although C must be a purchaser, even actual knowledge of the prior conveyance to X required by C before his purchase will not deprive him of the victory gained if he wins the race. However, the Statute of Enrollments failed to accomplish this result in England, for reasons that might have been predicted. As stated above, under a pure race statute the prior unregistered conveyance from B to X was in abeyance. As between B and X, however, X was intended to obtain legal ownership of Blackacre, and in England equity considered X the beneficial owner. The equity courts applied standard equitable doctrine and held that, notwithstanding the words of the statute, C would be bound by the prior equitable interest of X unless C acquired his legal ownership through registration a s a purchaser for value without notice?

3.8 The second statute for consideration, following a chronological sequence, was enacted in the Massachusetts Bay Colony in 1640: and provided that "no . . . graunt . . . of any. . . lands. . . shalbee of force against any other person except the graunter & his heires, unlesse the same bee recorded. . . ." This statute is significantly different from the Statute of Enrollments, for whereas that Statute provided that a nonregistered conveyance passed nothing, the Massachusetts statute left the conveyance effective as between the grantor and his heirs, and the grantee, even if i t were not recorded. Applying this model to our example, X acquired Blackacre through his prior unrecorded conveyance from B. If that is so, and if B retained no interest in Blackacre, how could C ever acquire anything? The generally accepted explanation is that B was left with a statutory power to divest X's ownership by a conveyance to one who satisfied the requirements of the statute.1°

3.9 What requirements are imposed on C by a typical statute based on the Massachusetts model? As X's ownership would not be divested in favor of an heir of B, the courts held that i t would not be divested in favor of


anyone who took from B a s a donee. Therefore, C must be a purchaser for value. As well, C must be innocent of any notice of the prior unrecorded conveyance to X when he purchases. The Massachusetts court used statutory construction, rather than the equitable doctrine relied on by the English courts with respect to the Statute of Enrollments. Because the conveyance was valid in favor of X a s against B, his heirs and his donees, the court reasoned that the legislature must have intended that it be effective against B's assigns who had notice of the prior conveyance to X.11 There is absolutely no race feature in a statute based on this model. By recording before C purchases, X can give C statutory notice and prevent him from purchasing without notice. But if C does acquire his conveyance from B a s a purchaser without notice, C's conveyance gains priority. Subsequent recording is irrelevant as between X and C. For this reason, statutes based on the Massachusetts model are known as 'notice' statutes.

3.10 The third historic statute is the English Registry Act for Middlesex County, 1708,12 which provided that "A memorial of all . . . conveyances . . . whereby any . . . lands . . . may be any way affected in law or in equity, may be registered . . . and . . . every such . . . conveyance . . . shall be adjudged fraudulent and void against any subsequent purchaser.. . unless such memorial thereof be registered . . . before the registering of the memorial of the. . . conveyance under which such subsequent purchaser. . . shall claim. . . ." Applying this model to our example, X acquired Blackacre through his prior unregistered conveyance from B, for the Act expressly states that a conveyance is void only against a subsequent purchaser who first registers his conveyance. The English courts of equity quickly held that the Act was designed to prevent fraud; that it was just a s fraudulent for one to gain legal ownership by registering a subsequent conveyance with notice of a prior conveyance a s i t was to fail to register a prior conveyance a t all; and that the Act was not intended to divest a prior unregistered conveyance in favor of a subsequent conveyance acquired with notice.13 Thus although the Act was drafted as a race statute, the English courts added a notice feature, and subsequent statutes based on the Middlesex model have incorporated the notice requirement. Under such a statute, C must acquire his conveyance from B as a purchaser without notice of X's interest, which of necessity means before X registered, and C must also register before X registers. Because of the double requirement imposed upon C, statutes based on the Middlesex model are known as 'race- notice' statutes.

3.11 To this point, the words 'enrollment', 'registration', and 'recording' have been used interchangeably. The Statute of Enrollments required enrollment, and the Middlesex Act required registration. Both of these procedures are the same and are satisfied by a memorandum or memorial included in the public records stating the names of the grantor and of the grantee of the instrument, and the interest purportedly transferred. Recording requires that a complete copy of the instrument be included in the public records. In North America, the change from registration to recording occurred in Massachusetts in 1647, and remains the uniform practice, so that statutes titled 'Registry Acts' are functionally recording statutes.14 Originally recorded instruments were copied in script into great

Chapter 3. Registration 49

books kept in a public office, but today copies are made by various photostatic processes. Henceforth the term 'recording' will be used to describe the system discussed in this chapter, for two reasons. First, 'recording' is a more accurate expression for the system as it actually operates in Canada and in the United States. Secondly, using 'recording' to describe this system leaves 'registration' available for exclusive use in subsequent chapters devoted to title registration under the Torrens system. However, with regard to the central issue under consideration, the relative rights of a prior and of a subsequent transferee, it makes no difference whether the statute provides for registration or recording.

b. Unknown Prior Interests 3.12 This section will consider recording systems in terms of two of the

problems stated in paragraph 2.97; problem 4, unknown legal interests superior to the seller's claimed ownership, and problem 5, unknown equities which might bind a purchaser. These problems can be discussed together because few modern recording systems draw any distinction between legal and equitable interests. A subsequent interest, whether legal or equitable, if held by one who satisfies the requirements of the statute, will take priority over a prior unrecorded interest, whether legal or equitable.

3.13 Every issue discussed in this study will involve two fundamental goals of public policy, security of ownership and facility of transfer. Unfortunately, they are inherently inconsistent. Society can opt for either of two legal regimes concerning land ownership: hard to come by, hard to lose; or easy come, easy go. More likely some rough balance will be sought. In percentage terms, there are only 100 points: if one concluded that the common law gave 90% to security of ownership, then 10970 remained for facility of transfer. All recording systems seek to move the balance towards facility of transfer, and the three statutory categories previously discussed, race, notice, and race-notice, simply reflect different degrees of movement.

3.14 The race statute is the most productive of facility of transfer. If C desires to purchase Blackacre from B, C can rely on the public records as disclosing all of the instruments relevant to B's claim of ownership. If C receives an instrument from B a s a purchaser for value, C need only promptly record in order to establish his position conclusively. In a contest with X, the holder of a prior instrument, victory goes to the holder of the first instrument recorded. The race statute operates mechanically, but the mechanism is available to both parties on even terms. Even if C had knowledge of X's prior interest before C purchased, C could gain priority by recording first. Even if C neither had knowledge of X's prior interest nor could have obtained knowledge by a n reasonable search, X could gain priority by recording first. Neither of these results is just. The race statute trades justice for simplicity and certainty. The system is economical for the entire society, except the rare loser, for thousands of person in the position of C are spared the expense of looking for a usually nonexistent X.

3.15 A race statute also promotes facility of transfer if D wishes to purchase Blackacre, for he can deal safely with X or C, whoever recorded first, even if both of their conveyances are recorded. This is so because a s


both conveyances are from B, D knows that the first one recorded has priority. Litigation can arise only on the purchaser issue, for although priority depends upon the fact of recording, this fact is not only objective, but proven by public records.

3.16 Should a society which has offered X a means of protection a s close as the county recording office, and for a few dollars, be concerned if he fails to help himself? Laws tend to be created by persons in a socio- economic class with above average education and commercial experience; they can usually take care of themselves. Assume that X was a relatively uneducated man of below normal intelligence, that he and his family were living on and farming a quarter-section under a long-term installment-sale contract made with B, that X had not recorded his contract, and that C knew these facts. If C purchased Blackacre from B and recorded, he would extinguish X's equitable interest under a race statute. This horror example is presented to underscore the reality that facility of transfer is acquired a t the expense of security of ownership.

3.17 The notice and race-notice statutes are a draw in terms of facility of transfer if C desires to purchase Blackacre from B, and they will be initially analysed together. They improve C's position relative to what it would have been under the common law in two respects. First, becauseX is vulnerable to losing his interest if he does not record, he is induced to record. This prophylactic effect makes it more likely that the public records will disclose all instruments relevant to B's claim of ownership. Secondly, with no more than a n equitable interest, C can gain priority over any interest held by X, whether legal or equitable. Thus if C does acquire his interest a s a BFP, he can obtain complete protection. However, the burden imposed on C in order to achieve BFP status is the same as it was under classic equitable doctrine in most jurisdictions. This means that the two systems based on notice are neither simple nor certain. They are not simple because C cannot rely on the public records; he must still make a diligent search for outstanding interests in order to protect himself from the doctrine of constructive notice. They are not certain because C can never be sure that he did not have constructive notice when he acquired his interest. Moreover, the uncertainty inherent in constructive notice is a standing invitation to litigation. I t is most unlikely that C would risk a purchase if he had actual knowledge of X's prior interest. If actual knowledge were the crucial factual issue, and if C gave credible testimony that he had no knowledge of X's interest, X would have a difficult burden of persuasion to rebut C's case. Constructive notice tends to encourage litigation, for i t might be much easier for X to establish that a prudent searcher would have discovered his interest.

3.18 On other issues, the notice and race-notice systems part company. The public policy upon which the notice system is based is fairness. Recording provides X with a simple method of protecting his interest by notifying the world of it. If X neglects to record, and if C acquires his interest with the diligent care required of a BFP, it seems but just that C should gain priority over X. Once C has acquired his interest a s a BFP, the rights of X and C are fixed; X cannot reverse the outcome by subsequently recording after his indifferent conduct has set the snare for C. No duty to


record is imposed on C in order to preserve his status relative to X. If C fails to record, he assumes the risk of a subsequent sale by B, who will still appear as the record owner, to D. However, under a race-notice system, even if C has acquired his interest a s a BFP after making a diligent search which includes the public records, X is permitted to record first and obtain priority. Failure on the part of the holder of the prior interest to give timely notice by recording is forgiven if he wins the race. I t is otherwise if C records first, for C does not gain priority unless he is also a purchaser without notice of the prior interest of X. Failure on the part of the holder of the subsequent interest to make a diligent search for the prior interest i s not forgiven if he wins the race. If X records first, C loses his opportunity to establish that he purchased without notice. If C records first, X retains his opportunity to establish that C purchased with notice. The race system may produce a n unjust result for either X or C, but a t least it does not discriminate between them on the basis of the time when the conflicting interests were acquired. The notice system does provide for a just resolution of a contest between the holders of a prior and of a subsequent interest. In contrast, the race-notice system provides more security of ownership for the holder of the prior interest, and sacrifices just treatment for the holder of the subsequent interest.

3.19 The notice and race-notice statutes are not a draw in terms of facility of transfer if D desires to purchase Blackacre, and finds two conveyances from B, one to X and one to C, both recorded after the date of B's conveyance to C. There is no problem under a race statute; D can rely on the records and deal with the holder of the conveyance first recorded. Under a notice statute, D cannot deal safety with either X or C, for priority between them is determined by whether or not C acquired his conveyance a s a purchaser without notice of X's prior conveyance. The two recordings are irrelevant on that issue, but they do give D notice of the conflicting claims, and prevent him from being a purchaser without notice if he deals with the wrong party. Under a racenotice statute, D can deal safely with X if X recorded first, for the race feature of the statute controls. However, if C recorded first, the notice feature of the statute controls, and D is in the same position he would have been in under a notice statute. In short, the race-notice statute enhances facility of transfer a t the expense of the holder of the subsequent conveyance, but not a t the expense of the holder of the prior conveyance. The anomalous results of the race-notice system may reflect that fact that it did not originate from purposeful design. Rather, it developed from the judicial addition of a notice requirement to the Middlesex Act, which was drafted as a race statute, and the system thus created was copied in subsequent statutes.

3.20 Given the multitude of registration and recording systems in the common law world, it i s beyond the scope of this study to analyse any subtle distinctions that might exist between such existing systems a s those in New Brunswick, New York, and New South Wales. One proposed act will be examined. It is of particular interest as it attempts to ameliorate all of the common law problems summarized in paragraph 2.97 without resort to title registration, whereas most common law jurisdictions are moving towards adopting or reforming Torrens systems to solve these problems.


The proposed act is the Uniform Simplification of Land Transfers Act, approved by the Commissioners on Uniform State Laws (United States) in 1976.15 Because of its sweeping objectives, the Uniform Act (US) contains many unique features in addition to its recording provisions. The latter provisions will be briefly outlined here in order to show what value judgments the Commissioners, representing all states of the United States, made in a n effort to produce a recording system appropriately balancing the goals of security of ownership and facility of transfer.

3.21 The recording system proposed is in the race-notice category, but constructive notice is closely pruned to eliminate elements which most impede facility of transfer. In order to understand the functional operation of a recording statute, one must remember that under the common law, the prior interest entered the contest with priority because it was first in time. A recording statute does not change this. If the holder of the prior interest complies with the statutory requirements imposed on him, his initial priority is preserved. If he fails to do so, his priority becomes vulnerable, but it is not lost unless the holder of the subsequent interest satisfies the statutory requirements imposed on him to gain priority. Based on this functional explanation, the following outline summarizes the requirements for priority imposed on the holders of conflicting prior and subsequent interests under a typical race-notice statute, and under the Uniform Act (US). Typical race-notice statute: (1) Prior interest must be:

(a) recorded before the subsequent interest is recorded. (2) Subsequent interest must be acquired by:

(a) a purchaser for value, who was (b) without notice of the prior interest (which includes constructive

notice), and must be (c) recorded before the prior interest is recorded.

Uniform Act (US) 3 3-202: l6

(1) Prior interest must be: (a) recorded before the subsequent interest is recorded, or (b) a n interest of a person using or occupying the real estate, whose

use or occupancy i s inconsistent with the record title, to the extent the use or occupancy would be revealed by reasonable inspection or inquiry.

(2) Subsequent interest must be acquired by: (a) a purchaser for value, who had (b) no knowledge of the prior interest, and must be (c) recorded before the prior interest is recorded.

3.22 Requirement (l)(b) of the Uniform Act (US) marks a significant change. Instead of requiring the subsequent purchaser to inquire concerning possible rights of persons in possession of property a s part of his overall burden under constructive notice, rights of persons in possession are singled out and given affirmative protection. In terms of facility of transfer, determining whether a person is in possession of land and claiming rights inconsistent with the record title is probably the least


onerous of the purchaser's slippery duties under constructive notice. In terms of security of ownership, the rights of persons using or occupying land have historically been accorded unique protection under English law. Consider the example a t paragraph 3.16 of farmer X in possession of a family farm under a land-sale contract, whose rights would be destroyed under a race statute literally applied. It is suggested that few courts would tolerate this result. A statute which anticipates the problem and which carefully circumscribes the perimeter of possessory rights is unlikely to seriously impede facility of transfer. A judicially created solution is likely to create a n ill-defined hole in a statute and result in uncertainty to the detriment of facility of transfer.

3.23 Requirement (2)(b) of the Uniform Act (US) is a radical deviation from the conventional notice provision. The subsequent purchaser is not required to have been 'bona fide', or in 'good faith', or 'without notice' of the prior interest. Rather, he must not have had knowledge of the prior interest, and according to Uniform Act (US) $5 1-202 and 3-205, knowledge means actual knowledge acquired by the purchaser, or by his counsel or agent while acting for the purchaser in the immediate transaction. The shift from general phrases such a s 'bona fide', 'good faith', and 'without notice', to 'without actual knowledge' sharply curtails the impact of constructive notice, but it does not eliminate the doctrine. In order to understand why this is so, we must quickly review two important topics covered in chapter 2. First, what conduct would prevent a subsequent purchaser from being bona fide, and secondly, how is constructive notice related to the bona fide issue. At paragraph 2.52, Professor Scott was quoted a s saying that a subsequent purchaser is not bona fide if his conduct is fraudulent; it is not fraudulent if he purchases with mere knowledge of a prior interest, but it is fraudulent if he purchases with knowledge that his purchase involves participation in fraud.

3.24 It is the equitable doctrine of constructive notice which so seriously impedes facility of transfer, for it imposes three magic-escalator steps to fraud. On step 1 the purchaser is innocent; we assume that he has no knowledge of any prior interest. However, through constructive notice, the purchaser is deemed to have knowledge of any prior interest a diligent investigation would have discovered. In practice, if there is a prior interest, the purchaser will probably either acquire knowledge of it through a search, or will be deemed to have acquired knowledge of i t through constructive notice. This will raise the purchaser to step 2, on which he has knowledge of the prior interest. We assume, for it is possible, that the purchaser still has no knowledge that his purchase will involve participation in fraud. Constructive notice i s again applicable, and the purchaser will be deemed to have knowledge of any substantive rights of the holder of the prior interest against the seller which a diligent investigation would have discovered. In practice, if the sale will involve fraud, the purchaser will probably either acquire knowledge of this fact through his inquiries, or will be deemed to have acquired this knowledge through constructive notice. This will escalate the purchaser to step 3, on which he has knowledge that his purchase will involve participation in fraud. We can now point out exactly where the Uniform Act (US) eliminates constructive


notice. The subsequent purchaser is protected unless he has actual knowledge of the prior interest, and this eliminates the application of constructive notice between steps 1 and 2; the purchaser is not deemed to have knowledge of a prior interest merely because a diligent search would have discovered it. There are, of course, two exceptions: the purchaser will not obtain priority over prior interests protected by either recording or possession. However, between steps 2 and 3 constructive notice remains applicable; if the purchaser has actual knowledge of the prior interest, he will not obtain priority if his purchase does in fact involve participation in fraud.

3.25 Would the retention of this part of the doctrine of constructive notice materially affect facility of transfer? In the case of a n express trust it would have a serious adverse effect. Suppose that C had knowledge that T held Blackacre in trust for E. Knowledge that E had a n equitable interest in Blackacre under a modern trust i s a country mile from knowledge that T had no authority to sell Blackacre, for a modern trust will usually confer this authority on a trustee. Nevertheless, the application of constructive notice in this situation would require C to ascertain the terms of the trust, and to interpret them a t his peril, in a n effort to make certain that his purchase would not involve participation in a breach of trust by T. For this reason, under modern legislation a s discussed in paragraph 2.58, the express trust is handled by specific provisions which protect C from the prior equitable interest of E unless C had actual knowledge that his purchase would involve participation in fraud.

3.26 With regard to most prior interests, however, it seems unlikely that the requirement that the subsequent purchaser have no actual knowledge of the prior interest would materially affect facility of transfer. Suppose that C had actual knowledge that B had conveyed Blackacre to X, and that X had not recorded. I t i s possible that the conveyance had not been recorded deliberately, that B was X's broker, that B was authorized to sell on behalf of X, and that B had been left with record title to facilitate this purpose. Or, suppose that C had actual knowledge that B had granted a mortgage of Blackacre to X, and that X had not recorded. I t is possible that X had agreed to subordinate his mortgage to a subsequent mortgage to be granted by B, and that the first mortgage had not been recorded to facilitate this purpose. In reality, the odds against these possibilities are overwhelming. In a situation other than that of the express trust, if a potential purchaser has actual knowledge of a prior interest, he is a gnat's ankle (rather than a country mile) away from knowledge that his purchase will involve participation in fraud. Perhaps i t would be more conceptually sound to disqualify the purchaser only if he had actual knowledge that his purchase would involve participation in fraud. Because knowledge of the prior interest and knowledge of participation in fraud are likely to be concurrently present in the great majority of cases, it seems improbable that the choice would affect facility of transfer. However, the disqualification based on actual knowledge of the prior interest could be somewhat more effective in discouraging potential fraud for i t would provide a more objective standard for purposes of proof. Because actual knowledge of the prior interest is so likely to include knowledge that the purchase will be

- - - - -

fraudulent, in terms of functional operation, a statute such a s the Uniform Act (US) is really a race-fraud statute, rather than a race-notice statute. If the prior interest is protected by neither recording nor possession when the subsequent interest is recorded, the latter interest has priority if purchased without fraud.

c. Los t Ins t ruments Support ing Seller's Ownership 3.27 For all practical purposes, this problem (problem 3 a t paragraph

2.97) is solved by recording systems. Occasionally a n instrument forming a vital link in chain of title will not be recorded promptly after the completion of a transaction. Such a n omission, rare in itself, will virtually always be cured at the time of the next succeeding transaction. Assume that A was the record owner of Blackacre, that B was in possession of Blackacre, and that B had a valid but unrecorded deed conveying Blackacre from A to him. Before C purchased, C would require that B record the A to B deed, and of course C would record B's deed to him. The important point is that once a n instrument is recorded, the original is rarely more than a n object of sentimental value, to be framed and hung on the gameroom wall. For example, under 5 2-306 of the Uniform Act (US), recording creates a presumption that the original existed in the form recorded, and this is usually adequate to solve the lost instrument problem. Consequently, under recording systems, a n owner will not keep a safety deposit box full of title instruments; the public records serve this purpose. This does not mean that recording creates a presumption of validity, for the instrument must stand on its own merits under most existing recording systems.

d. Vulnerabili ty o f Equit ies 3.28 This problem (problem 6 from paragraph 2.97) is also solved by

recording systems. Recall that the holder of a prior equity had no convenient method of preventing a subsequent purchaser of a superior interest from taking this interest free of the prior equity by achieving bona fide status. Recording statutes with a notice requirement simply incorporate the equitable philosophy of constructive notice. A purchaser must make a diligent search for outstanding equities, under a recording system this search must include the public records, and this means that a purchaser has notice of any recorded instrument. In fact, recording statutes take a more direct approach and by-pass the constructive notice route. Under § 3-202 of the Uniform Act (US), if the prior instrument is recorded, the subsequent purchaser takes subject to the prior interest. I t is simply a matter of legislative fiat. The peremptory nature of the statutory approach is even clearer if the prior interest is legal, but operates in reverse. At common law a prior legal interest could not be prejudiced by a subsequent interest, even if the holder were a BFP. Under recording, a prior legal interest is vulnerable to being divested by a subsequent interest unless the former i s recorded. Again, the result is produced by statute.

3.29 Older recording statutes leave other bothersome problems which can be solved readily by a more comprehensive statute. Suppose that E took possession of Blackacre under a n oral contract to purchase from B, and made improvements. Without a n instrument creating his rights, E had


nothing recordable under some statutes, and because his interest was equitable, it could not be protected. Suppose that L acquired legal ownership of Blackacre by adverse possession, that B remained the record owner, and that C purchased Blackacre from B. Without a n instrument creating his ownership, L had nothing he was required to record under some statutes, and because his interest was legal, it was not divested in favor of C even if C were a BFP. The Uniform Act (US) solves both problems. Section 2-301 permits the recording of any document which can be processed by the equipment available in the recording office, and which contains the required indexing information. Both E and L could record affidavits evidencing and protecting their interests. Under 5 3-202, both interests are vulnerable if they are not protected by recording.

e. Unknown Equities Binding Donee 3.30 The fact that a donee is not protected from prior equities is not

generally perceived a s a problem, although it is listed a s problem 7 in paragraph 2.97. The author is aware of only one recording system, that of Colorado,17 which protects a subsequent interest acquired by one who was not a purchaser for value. Under equitable doctrine, the donee would be unjustly enriched a t the expense of the owner of the prior interest, and the fact that the prior interest was not recorded does not alleviate the unjust enrichment problem. In addition, the basic object of a recording statute is to provide a system upon which individuals can rely when engaging in land transactions. A purchaser who had notice of a prior unrecorded interest is not protected because he did not rely on the system. Similarly, a donee is not protected because he does not acquire his interest in reliance on the system; he receives, usually with joy, what his donor had to give.

f. Summary 3.31 Based on the analysis in this chapter, we can safely conclude that

a modem recording system can readily solve all but the first two common law problems summarized in paragraph 2.97. The extent to which a Torrens system can maintain this progress and also solve problems 1 and 2 is the subject of the remainder of this study.

FOOTNOTES 1. Hogg, Registration of Title to Land Thruughout the Empire 2 (1920). 2. Cribbet, Low of Property 280 (2d ed. 1975). This anecdote is quoted in respect to its possible author,

who also taught his students that law is a jealous mistress. Neither he nor w e would keep her i f she weren't fun.

3. 4 American Law of Property 5 17.5 (Casner ed. 1952). 4. 27 Hen. 8, c. 16. 5. 4 American Law of Property, supra, n . 3. 6. The remarkable similarity of Torrens legislation is discussed in chapter 5. 7. 4 American Law of Property, supra, n . 3, at 5 17.5 n. 25. 8. Le Neve v. Le Neve (1747) 1 V e s . Sen 64.

9. 4 American Law of Property, supra, n . 3, at 5 17.4. 10. Cribbet, supra, n . 2, at 282. 11. Marshall v. Fisk (1809) 6 Mass. 24. 12. 7 Anne, c. 20.

13. Blades v. Blades (1727) 1 Eq. Cas. Ahr. 358 , s 12. 14. 4 American Law of Property, supra, n. 3, a t 5s 17.4 n. 8, 17.5; Feeney, Registration and Land Titles in

the Common Law (1964) 2 Col. I. Dr. Comp. 18. 15. As of 1978, no state had adopted this act. 16. Because of the complex organization of the Uniform Act (US), the author has extracted and

summarized (at his peril) only those provisions deemed relevant for a comparison with a typical race- notice statute.

17. Eastwood v. Shedd (1968) 166 Colo. 136,442 P.2d 423.

CHAPTER 4

Fundamental Elements of a Torrens' System

a. Method of Analysis 4.1 The Alberta Torrens systems has its statutory base in the Land

Titles Act.' Because the remainder of this study will be devoted primarily to this Act, future references in the text will be to sections of the Alberta Act.

4.2 One might logically assume that the fundamental objectives and elements of a system created by statute could be determined through inductive reasoning from the statute itself. Why not start with the sections of the Alberta Act, and from those provisions move from the specific to the general; determine the problems of the system, their solutions, the inherent elements of the system required for those solutions, the basic strategy of the system, and finally its general objective? Unfortunately, on the basis of over 100 years of complex litigation concerning the meaning of various key provisions of the Alberta Act and of similar statutes, the author believes that the inductive method is not feasible. The multitude of cases evidence not only problems which had to be resolved, but scores of related problems left unresolved. In seeking solutions, the courts have been faced with statutes which frequently either contain ambiguous and inconsistent provisions, or are devoid of relevant provisions.

4.3 The courts themselves have quite generally reached appropriate solutions through deductive reasoning, a s will become apparent a s this study progresses. This means that a s a legal system, contrasted with an administrative system, the Torrens system today is substantially a judicial creation. Although the same deductive method will be used in this study, the author can be more open in his approach. Judges may use deductive reasoning in their private deliberations, but faced with what appears to be a governing statute, they are under a pressure dictated by the nature of the judicial process to articulate their decisions in terms of the statute before them. Writing a judicial opinion harmonizing a decision demanded by the perceived objectives of the Torrens system with the language of a particular statute not infrequently stretches the judicial skill of the most competent judge beyond the breaking point.

b. Objectives of a Torrens System 4.4 We can postulate that the goal of a Torrens system is to solve all of

the common law problems summarized a t paragraph 2.97. To accomplish this goal it must establish a new relationship between security of


ownership and facility of transfer, in favor of the latter. Insofar a s problems 3 through 7 are concerned, a Torrens system need be no more innovative than a modern recording system. Problems 1 and 2 present the real challenge; under common law and recording system conveyancing, the transferee has the risk of determining not only the adequacy of the immediate transfer to him (problem 2), but the adequacy of all transfers (the title instruments) relevant to the transferor's derived ownership (problem 1). Curing these problems involves a radical shift in favor of facility of transfer, and requires strong state-prescribed medicine.

c. S t ra tegy of a T o r r e n s Sys tem 4.5 There are two deliberate fundamental elements in a Torrens

system; one is administrative, and the other is legal. They are intimately related and together they constitute the strategy of the system. The administrative element i s a comprehensive set of records maintained by the state disclosing all possible interests in any lands covered by the system. The legal element is the limitation of legal interests to those conferred by the state. How these elements operate to produce enhanced facility of transfer can best be explained through a n example based on the most common real estate transaction. Suppose that Robert Torrens, alias C, desires to purchase Blackacre from B free from any inconsistent interests, legal or equitable, and that he wants to be able to go to a government office to determine conclusively whether or not he can safely do so. If there is a n outstanding interest, such a s a mortgage, a lease, or a n easement, C wants to know what i t is and who owns it. Under a Torrens system the state assumes administrative responsibility for maintaining comprehensive records disclosing most types of possible interests in any lands covered by the system. The base of the system is land, and the records are kept with respect to parcels of land. A parcel of land may be a quarter-section, the mines and minerals under it, or a condominium unit on it. What any given jurisdiction chooses to use as a parcel for the base of its records depends on the needs of the society the system serves. For purposes of this study, the official responsible for maintaining the records will be called the 'Registrar', and all official records relevant to the ownership of a parcel or of any interest in it will be referred to as the 'register' for that parcel.

(1) Registered in teres ts 4.6 First, C wants to be able to establish that B owns Blackacre in

FSA. Assume that B claims to have acquired Blackacre by a deed from A, and that A claimed under a Crown patent from South Australia. It is precisely these title instruments supporting B's derived ownership under the common law that C does not wish to be obliged to evaluate a t his peril. Hence, to serve the needs of B and C, under a Torrens system the Registrar does more than keep records of claims of interests in land, a s he does under a recording system. With respect to each parcel of land under a Torrens system, the Registrar, exercising the sovereign power of the state, confers ownership by decree. Suppose that, before the establishment of the system, B was in possession of Blackacre and claimed ownership under the Crown

Chapter 4 . Elements of a Torrens' System 61

patent and the deed referred to above. The Registrar, a t B's request, would evaluate B's claim of ownership, and if reasonably satisfied that it was valid, would decree that B owned Blackacre in FSA. The decree conferring ownership is called 'registration', and with like meaning, by 'registering' his claim B becomes the 'registered' owner of Blackacre. Under a Torrens system, legal ownership of land or of a n interest therein can only be obtained through registration; private conveyancing of legal interests is abolished. If B became the legal owner of Blackacre through registration, C need only read the register for Blackacre to establish this fact; if the register states that B owns Blackacre, he does. It is not necessary for C to evaluate A's deed to B, or any earlier instruments which constituted the chain of title under older systems of conveyancing.

4.7 How, then, could B sell and convey Blackacre to C? Heretofore in this study 'transfer' has been used a s a generic word to express any common law method which would effectively pass a legal interest from one person to another. Under a Torrens system 'transfer' has a technical meaning. It is a n instrument executed by the registered owner of a legal interest, the 'transferor', authorizing and directing the Registrar to alter or cancel his registration a s owner in favor of the 'transferee' named in the transfer. Assume that C presented a transfer of Blackacre to the Registrar, purportedly executed by B and naming C a s the transferee, with a sworn affidavit of attestation by a witness to the execution of the transfer. If satisfied that these instruments were authentic, the Registrar would cancel B's registration a s owner of Blackacre in FSA and would confer ownership on C in FSA by registration. What interest in Blackacre did C have while driving to the office of the Registrar? If his instruments were valid, C was the equitable owner of Blackacre.

4.8 Secondly, and of equal importance, C wants to be able to determine what other legal interests exist in Blackacre. For example, assume that B mortgaged Blackacre to R to secure a debt B owed to R, and that B leased Blackacre for a ten-year term to L. These interests, if they are to exist as legal interests, must be created by the same procedure described above for the FSA. Both would be initiated by a transfer from B, and both would be created through registration. Legal interests are terminated by a reverse procedure. We have just seen that B's transfer of the FSA to C authorized the Registrar to terminate B's ownership by canceling his registration. Similarly, the Registrar would be authorized to terminate R's mortgage if he received a discharge executed by R, and to terminate L's lease if he received a surrender executed by L. Insofar a s C is concerned, the crucial point is that whether or not these interests exist as legal interests depends solely on whether or not they are registered.

4.9 The operation of the Torrens system in terms of its two deliberate fundamental elements can be readily summarized. The legal element is the foundation of the grand strategy. Legal interests are created by the state through registration, and not by private persons. Upon this foundation, in theory, the administrative element could provide a register comprehensive of all legal interests recognized in any parcel of land. Equitable interests, however, remain unaccounted for.


(2) Nonregistered interests 4.10 Perhaps the original strategy of the Torrens system was to limit

interests in land to legal interests acquired by registration, and to abolish equitable interests. Whether or not this remains a viable option is discussed in chapter 7. Equitable interests are currently recognized, and it is necessary to introduce them in this overview of the operation of a Torrens system in order to show how the original strategy has been modified to accommodate them. At common law and under recording systems there is no state decree of ownership; owners of interests in land, whether legal or equitable, are in reality only claimants. The equitable interest remains a mere claim under a Torrens system. How can the state guarantee, for C's benefit, that the register for Blackacre discloses all claims of equitable interests? For this purpose, the Torrens system simply incorporates a recording system.

4.11 Assume that B executed a contract for the sale of Blackacre to E. E can secure protection for this equitable interest a s a contract purchaser by filing an instrument with the Registrar called a 'caveat'. The Registrar, in turn, is required to enter the caveat in the register for Blackacre. Unless E files a caveat to protect his equitable interest, it will not be enforceable against C if C purchases a n interest in Blackacre without fraud and has his interest entered in the register first. The requirement that one be a purchaser without fraud i s typically imposed upon one in C's position under a Torrens system; this requirement will be considered further in chapter 6. A provision of law which precludes E from securing enforcement of his interest against C because E failed to have a caveat entered in the register operates with negative force. What affirmative benefit will E's interest obtain if i t is caveated? If E's contract were unforceable because i t was forged and therefore extrinsically invalid, it would not be improved by being caveated. The position of a caveated interest is enhanced in one respect, for if E's interest were caveated, C would take any subsequently acquired interest subject to E's interest to the extent that the latter was valid under the general law.

4.12 Under a typical system the caveat would include either a summary of the contract upon which the claim is based, or a copy of the contract itself a s a n attachment. The caveat in its entirety becomes part of the Registrar's official records, and is therefore accurately described a s entered in the register for Blackacre. Similarly, under a recording system, either the contract or a summary of i t must be recorded.

4.13 A caveated interest has carefully been described a s entered in the register, but not a s registered, for a very important reason. There are two methods of having a n interest entered in the register, and they have significantly different legal consequences. A legal interest is created by registration; ownership is to some extent conferred by the state, a s will be discussed in chapter 5. Only the priority of a n equitable interest, for whatever the claim may be worth under the general law, is preserved by caveating. A caveated interest is, therefore, characterized in this study a s a nonregistered interest. This subject is discussed in chapter 7.


(3) Overr id ing in t e re s t s 4.14 Unfortunately, even with the incorporation of a recording system

through the caveat procedures, the Torrens system cannot achieve its administrative goal of providing a register for Blackacre disclosing all possible interests, legal and equitable. Most grand strategies fail, a t least in part, because they are grandiose; they require too much government commitment to the solution of one problem relative to the other problems also vying for attention. The basic strategy fails in part because of what can conveniently be described a s overriding interests. An overriding interest is a n interest in land which exists independently of the Torrens register; it overrides the register. I t is frequently said that 'the register is everything'. This means that it is everything a s to interests required to be entered in the register. Assume that B granted a mortgage to R, that the mortgage was registered a s a charge against Blackacre, and that it was prematurely discharged by error. If C purchased Blackacre without fraud, and had his interest entered in the register, either by a caveat protecting his contract, or through registration of his subsequent transfer, his interest in Blackacre would not be subject to R's terminated mortgage. Although C can rely on the register to disclose all interests, such a s mortgages, within the scope of the system, he cannot rely on the register to disclose overriding interests. The categories of overriding interests vary among Torrens jurisdictions, but they typically include government tax liens, public easements, and rights under federal law in a federal system. Assume that C was registered a s the owner of Blackacre, subject only to those interests disclosed by the register a t the moment of his registration. In fact, a t that moment there was a county tax lien against Blackacre, and it was not entered in the register for Blackacre. Blackacre remained subject to the tax lien; C cannot rely on the register a s disclosing interests which the register does not purport to include. Overriding interests exist a s though the state had no Torrens system. Whether or not any given category of interests should be included in the system, or excluded a s a n overriding category, frequently involves a difficult public policy issue which can be more readily analysed after the Torrens system has been studied. Hence this subject is discussed in chapter 9.

(4) Adminis t ra t ion of the system

4.15 On the basis of this overview, one can observe that the objectives of a Torrens system are legal; everything done under the system affects the ownership of interests in land. In fact, the system reverses the three fundamental principles of English law discussed a t section 2.a. The state is no longer passive, legal interests are created for the state; they are not created a t the moment chosen by the parties, but a t a time dictated by the administrative procedures of the state; and they are created a t the volition of the parties only to the extent that registration actually reflects the intention of the parties.

4.16 However, the Torrens system is overwhelmingly administrative in operation, and whether or not i t achieves its legal objectives depends on its administrative efficiency. If relatively few errors are made, the system will survive, a s it has in most jurisdictions which have adopted it, even if it


fails to provide legal solutions for controversies resulting from errors or fair compensation for losses. Despite the system's dependence upon sound administration, this study will consider its administrative aspects only when they affect intended legal consequences, because the administrative system must be designed to achieve clearly defined legal objectives. The author firmly believes that these legal objectives should be established first, and that the administrative system should then be developed. Skilled lawyers should be involved while a n administrative system is being designed or reorganized in order to insure that it will not only accomplish necessary legal objectives, but will do so efficiently for users of the system. Lawyers are primary users; they act for the public and their need for a n efficient, flexible system can be said to encompass the needs of the public. But the legal objectives of the system should be determined first, and secondly the administrative means of accomplishing them.

d. Inhe ren t Elements of a Tor rens Sys tem 4.17 The state can maintain a comprehensive register of all existing

legal interests in any parcel of land by restricting legal interests to those currently recognized by the state through registration. If this is the strategy selected to make it possible for one to be able to rely on the register, the system will contain three inherent, inescapable and in- terrelated elements. They are not a matter of choice; one who buys a zebra takes it with stripes.

(1) E r r o r

4.18 Errare humanum est. The author has searched in vain for a definition of error under a Torrens system, in statutes, in cases, and in texts. His own functional definition is that a n error is an ownership decree inconsistent with the public policy embodied in the general law. Hereafter 'general law' will be used in this study to refer to the law of a jurisdiction, both statutory and of judicial creation, which exists independently of its Torrens system.

4.19 Assume that A was registered a s the owner of Blackacre, that subsequently B was registered a s the owner of Blackacre, and that the transfer from A to B upon which the Registrar acted would have been void if it had been a conveyance a t common law, for any of the reasons discussed in section 2.c. We can focus on the forged transfer for discussion purposes. Under the general law no interest would pass from A to B by a forged deed, for divesting A of his ownership without his intention under these circumstances is not a goal of public policy. If the forgery had been committed by a rogue intermediary between A and B, who had absconded with B's money, we would feel compassion for B. However, there could be no error; the common law conveyancing system could not malfunction for it simply manifests the general law. Under a Torrens system ownership was conferred on B through registration, and this reflects a change from the general law. Moreover, a s we shall see in chapter 6, B's registration may not be defeasible in this situation, and hence A may not regain his ownership. This does not mean, however, that divesting A of his ownership was a n object of, or was legitimized by, the system. Quite the contrary, the


Torrens system acknowledges that this result was not intended for its purports to relieve A of the financial burden of the error by providing compensation for his loss.

4.20 In invalid transfer situations the Registrar acts on the faith of a piece of paper called a transfer which he presumes authorizes him to divest A of ownership. Neither in fact nor in law is there a transfer authorizing this result. In fact the piece of paper does not represent A's intention, and in law it is not decreed to represent A's intention. The divestiture of A's ownership in these situations is neither an object of the system nor authorized by it, and that is exactly why it is a n error. This definition of error is neutral a s to fault. The Registrar, if honest, will invariably believe that the transfer is authentic. A Registrar could establish administrative procedures strict enough virtually to guarantee that only authentic transfers would be honored, but the resulting administrative bottleneck would strangle facility of transfer. Consequently, efficient operation of the system absolutely requires the Registrar to take the risk of error, and to do what in theory is not authorized. The point is that because errors do occur, the Torrens system substitutes a n entirely new set of problems which did not exist at common law in order to achieve its objectives.

4.21 Assume that A made a contract for the sale of Blackacre to B, that A's lawyer prepared a transfer including both Blackacre and Grayacre contrary to the intention of A and B, that A executed the transfer, and that B was registered as the owner of both Blackacre and Grayacre. At common law B would have acquired ownership of Grayacre if A's instrument had been a deed, but a s explained in paragraph 2.73, equity, recognizing that this result was erroneous because not intended by the parties, would have rectified the deed and thus restored ownership of Grayacre to A. Changing the above example slightly, assume that the transfer prepared by A's lawyer and signed by A properly only included Blackacre, but named B's brother BB a s the transferee contrary to the intention of A and B, and that BB was registered a s the owner of Blackacre. At common law BB would have acquired ownership of Blackacre if A's instrument had been a deed, but equity would have recognized that this results was also erroneous because not intended by the parties, and would have cancelled the deed to BB and thus restored ownership of Blackacre to A. There is no reason to believe that the remedies in these two examples are or should be changed in substance under a Torrens system. However, because the mistakes in the two examples were made by one of the parties, the problems were not created by the Torrens system.

4.22 Now, assume that in the two examples discussed above the transfers were correct, but that the Registrar misread them and registered B a s the owner of Grayacre in the first example, and BB as the owner of Blackacre in the second. There is no change in the substance of the problems created, and A's remedies will be the same. The difficulty is that the addition of one more step in the procedure for the creation of legal interests adds a further group of human beings in the Registrar's office who can make mistakes.

66 Torrens' Elusive Title - --

(2) Defeasibility 4.23 I t is essential that we recognize that because of the possibility of

error, potential defeasibility follows inevitably from the Torrens system strategy of legal ownership conferred by state decree. However, characterizing ownership under the system a s inherently defeasible is heresy; it is contrary to the received and almost universally accepted manner of describing a 'title' under the religion. The prophet himself described his first Act a s follows:2

Hence, as a first principle, the South Australian Real Property Act creates "independent titles;" retrospective investigation is cut off; each proprietor of the fee holds direct from the Crown subject to such mortgages, charges, leasehold or other lesser estates as may exist or be created affecting the land.

Indefeasibility of title.

Indefeasibility of the title created by registration follows of necessity as a corollary to the principle of "independent title," and out of this again arises the necessity of providing a fund from which rightful heirs and others may be compensated for the value of land which they are debarred from reclaiming against persons who have acquired title by registration a s purchasers, mortgagees, or otherwise through the operation of the law.

These requirements are provided for in the Act referred to.

In one of the early and classic cases under the system, Gibbs v. Messer, Lord Watson, in delivering the judgment of the Privy Council, said?

Their Lordships do not propose to criticise in detail the various enactments of the statute relating to the validity of registered rights. The main object of the Act, and the legislative scheme for the attainment of that object, appear to them to be equally plain. The object is to save persons dealing with registered proprietors from the trouble and expense of going behind the register, in order to investigate the history of their author's title, and to satisfy themselves of its validity. That end is accomplished by providing that every one who purchases, in bona fide and for value, from a registered proprietor, and enters his deed of transfer or mortgage on the register, shall thereby acquire an indefeasible right, notwithstanding the infirmity of his author's title.

The following statement by Edwards J. , of the New Zealand Court of Appeal, comes from Fels v. K n o w l e ~ : ~

The cardinal principle of the statute is that the register is everything, and that, except in cases of actual fraud on the part of the person dealing with the registered proprietor, such person, upon registration of the title under which he takes from the registered proprietor, has an indefeasible title against all the world. Nothing can be registered the registration of which is not expressly authorised by the statute. Everything which can be registered gives, in the absence of fraud, an indefeasible title to the estate or interest, or in the cases in which registration of a right is authorised, as in the case of easements of incorporeal rights, to the right registered.

The quotations from Lord Watson and Edwards J. were not selected a t random; they appear almost pervasively in the literature of the system, in judicial opinions, and in books and articles, which invariably attribute the quality of indefeasibility to a registered title. The author believes that the 'indefeasible title' usage is deceptive. He may not be completely alone in this belief.5 In their third edition, Megarry and Wade said:6

It will be seen that the principle of indefeasibility is by no means unqualified.

In their fourth edition, they altered their text to read:7 The so-called principle of indefeasibility is by no means unqualified.


Some comfort can be taken from the fact that the word 'indefeasible' never appears in the Alberta Act, which is typical of Torrens statutes.

4.24 The early quotations in the preceding paragraph are also significant because they disclose the historic environment in which the 'indefeasible title' tradition arose. They demonstrate quite clearly that the primary objective of the Torrens system was to eliminate the necessity of verifying the seller's derived ownership. Assume that A was the best owner of Blackacre a t common law, that B was subsequently registered a s the owner through error, and that C (still Robert Torrens) purchased from B without fraud and became the registered owner. Robert Torrens and others of his generation, based on experience, were haunted by the danger of a prior superior owners, and they wanted the state to give them protection from this risk originating in the past. Assuming a n adequate compensation system, the question posed by this example is, who gets the mud and who gets the money? It is obvious from the quotations above that the system was designed to give A compensation for his loss (the money), and to give C indefeasible title to the land (the mud). Assume that A had been the first registered owner under the Torrens system. Surely A would have been a s deserving of protection a s C, and perhaps more deserving because he was registered first, and still would be registered but for the error. First in time, first in right, is deeply embedded in the English legal culture. The object of the system was to save C the trouble and expense of investigating the history of B's derived title. Couldn't that be achieved by giving C the money and A the mud?

4.25 Robert Torrens was a n administrator, and there is no evidence to indicate that he suffered from modesty. His system did include a compensation fund, but one wonders if he seriously thought that there would be errors and that compensation would be necessary after all land was safely ensconced in the new system long enough for old system claims to have expired under statutes of limitation. The question posed above is important because errors do occur, and there is a very pragmatic reason for favoring C with the mud. C may have wanted to be certain that he would be entitled to keep Blackacre in a contest with a prior claimant; Blackacre may have had a unique commercial or sentimental value to C, or C may have distrusted the compensation system. Unless C were assured that he would be able to retain Blackacre, he would be compelled to 'go behind' the register before he purchased from B and to make a retrospective investigation of B's registered title. This means that in a contest between a registered owner (C), and one who was a registered owner but who was divested through error (A), the title of the registered owners must be protected if the system is to achieve maximum effectiveness.

4.26 As Robert Torrens and his colleagues were preoccupied with defects in derived titles which existed prior to first registration, it is understandable that they claimed indefeasibility for their registered title. I t is obvious, however, that every error resolved in favor of indefeasibility for C's registered title becomes a condition of defeasibility for A's formerly registered title. A registered title cannot be indefeasible against errors occurring both before and after its creation; no legislature can work this miracle. Torrens' title is a n elusive ideal; his title is subject to defeasibility


through error inherent in any human system. To whatever extent Torrens can acquire a n interest from a predecessor through error, he is vulnerable to losing that interest to a successor through the same error repeated after his registration. Assume that Torrens was the best owner of Blackacre before the establishment of his system. His ownership under the common law was a s indefeasible a s any legal system can make it. By becoming the registered owner of Blackacre, Torrens traded a n indefeasible title for a defeasible title.

4.27 One can purchase a zebra with the stripes painted over, but sooner or later the paint will wear off. However, by that time one may not only have become very fond of the beast, but may well have concluded that, stripes and all, he has worth the price. If Torrens had made a thorough title investigation a t common law before he purchased Blackacre, he probably would have obtained the best ownership. However, 'thorough title investigation' means expense, and 'probably' means that Torrens could never have been sure that he had more than possessory ownership. Under the Torrens system he can obtain a registered title with far less expense, and thereby can obtain protection from possible superior claims of predecessors. Torrens' registered title is potentially defeasible if an error occurs after his registration, but if the system is administered efficiently, the post registration risk of error is slight, probably far less than the common risk that he had only possessory ownership. Moreover, the expense of transactions is greatly reduced, and if the unlikely error occurs, Torrens will be entitled to compensation to the extent that the compensation system is established fairly.

(3) Power of Registrar 4.28 Under a Torrens system, the Registrar must have the power to

make errors; he must have the power to make a n ownership decree which is inconsistent with a t least some rules of the general law, and which is therefore unauthorized. To say that the Registrar must have the power to make unauthorized ownership decrees does not mean that he must have the power to do anything. The maximum scope of the Registrar's power (jurisdiction) is considered in chapter 5.

4.29 The basic example used throughout this chapter can serve to tie together the related inherent elements of error, defeasibility, and the power of the Registrar to make unauthorized ownership decrees. Assume that A was the registered owner of Blackacre, that B was subsequently registered a s the owner through error, and that C purchased from B without fraud and became the registered owner. In paragraph 4.25 it was suggested that in this situation, C's registered title should prevail. To achieve this result, A's registered title had to be defeasible through error, and for this example it makes no difference how the error occurred. It might have resulted from the negligence of A, B, or the Registrar; or from fraud on the part of B, the Registrar, or another rascal. As the purpose of this example is to emphasize that it is essential that the Registrar have power to accomplish the unauthorized, the worst will be assumed. The Registrar had grown restive, because of the heavy responsibility he had carried over the years, and because of the unreasonably low salary his cares had earned. He registered


his accomplice B as the owner of Blackacre, B sold to C, and the fraudulent couple absconded with the sale proceeds. The registered title of C must still be preserved.

4.30 I t serves only confusion to characterize B's registration as void. 'Void' is defined as "Having no legal force; legally null, invalid, or ineffect~al."~ Unless B's registration were effectual, C could not have purchased Blackacre from B a s the registered owner, for B would never have been the registered owner. This would mean that A was the former registered owner immediately preceding C, and a s will be seen in chapter 6, C's registered ownership may be defeasible in this situation. This serious and practical problem can be readily avoided if B's registration is both characterized and clearly recognized a s valid, but voidable until the transaction with C occurs. The necessary conclusion is that the Registrar must have the power to confer ownership of any legal interest in land recognized by the general law of the jurisdiction.

4.31 There is another problem closely related to that of the power of the Registrar to make unauthorized ownership decrees, and that is the conclusiveness of the register to the extent that it contains entries within the scope of the Registrar's powers. The Registrar must, of course, act through his staff. His ultimate responsibility, however is to maintain a register upon which the public can rely. Assume that B was a n employee of the Registrar, that he gained improper access to the register for Blackacre, and that he registered himself a s the owner. If C, perhaps a layman, purchased a photographic copy of B's certificate of title bearing the Registrar's seal, a s authorized by section 24 of the Alberta Act, could C purchase from B in safety relying on the register? Or, is C responsible for determining whether or not a n entry in the register was validly entered? Consider the following statement by Egbert J. in Turta v. Canadian Pacific Ry. Co. and Imperial Oil Ltd.:9

It should also be noted that sec. 174(2) confers the powers thereby created upon the registrar who is defined . . . as an inspector of land titles when acting as registrar; a registrar of titles; a deputy registrar, or an assistant deputy registrar. It seems not open to doubt that it was the wise intention to confine the wide powers contained in the section to a registrar as defined by the Act, and not to permit of their exercise by an official of lesser rank. There is no evidence whatsoever before me that the alterations made in certificate of title C.P.R. 424 were made by a registrar as defined by the Act.

It is essential to a Torrens system that the public be able to rely on the integrity of the register without inquiry as to the authority under which entries were made or removed.

e. Compensation for Loss 4.32 In a quotation a t paragraph 4.23, Torrens referred to the

necessity of providing a fund from which persons deprived of interests through the registration of others might be compensated. Such funds are a n almost universal feature of Torrens systems.10 Simpson, however, cites several jurisdictions which he states operate title registration systems quite satisfactorily without any provisions for compensation for loss." He also suggests that existing funds are frequently so guarded by statutory procedural hurdles which a claimant must surmount, and are so closely


defended by the state, that their existence is a mockery.12 Ruoff, on the other hand, considers that the 'insurance principle' is one of the three fundamental principles of registration of title.13 One can accept the proposition that a n indemnity feature is not essential to the effective operation of a system of title registration, and still conclude that the inclusion of compensation provisions strengthens the operation of the system.

4.33 In a jurisdiction such a s Alberta, where almost all land in private ownership has been covered by a Torrens system for decades, virtually the only remaining risk to a properly registered owner is defeasibility through error. One reason for applying the insurance principle to this risk is that it is a classic example of the type of risk generally distributed through insurance.14 (1) The registered owner has a n economic interest which can be valued in monetary terms. (2) That economic interest is subject to a defined peril, defeasibility through erroneous conflicting registration. (3) A large group of registered owners are subject to the same peril. (4) The peril will strike infrequently and randomly. (5) The economic loss inflicted on any single registered owner from the peril would frequently be disastrous. I t is believed that if the actual risk involved were generally known to the public, and if no compensation system existed to meet it, political pressure would develop urging the establishment of such a system. Because the risk is created by a state imposed title registration system, it seems imperative that the indemnity system designed to distribute that risk be provided by the state a s a n integral part of the title registration system.

4.34 A second reason for a compensation system based upon sound insurance principles is that such a system could contribute to the efficient administration of the registration process. The Registrar has the responsibility for determining whether or not transfers are authentic. There seems little doubt but that stringent registration procedures could reduce the incidence of errors. However, documentary requirements imposed on users of the system to insure the authenticity of transactions submitted for registration fall on all users. As most transfers are in fact authentic, the cost to the society of increased documentation could be far in excess of the cost of accepting risks and paying for them on a n insurance basis. In short, if the Registrar knows that a n insurance fund is available and will be utilized on sound insurance principles, he can tailor protective requirements to meet only risks of sufficient frequency to justify them.

f. Summary 4.35 This chapter has attempted to strip away some of the received

mythology of the Torrens system. The author believes that the system can a t least relieve a purchaser of the necessity of verifying his seller's derived ownership (problem 1 a t paragraph 2.97), and that the benefits in terms of facility of transfer justify accepting the relatively slight risk to security of ownership inherent in the potential defeasibility resulting from the power of the Registrar to make erroneous ownership decrees. Society can seldom derive benefits without paying a price. I t is, however, necessary that the inherent elements of the system discussed in this chapter be recognized in order to permit the enactment of a Torrens statute which accurately


informs lawyers, judges, and the public of the rights and liabilities of registered ownership.

FOOTNOTES 1. T h e Land Titles Act, R.S.A. 1970, c. 198. 2. Torrens, The South Australian System o f Conveyancing by Registration o f Title 9 (1859). 3. [I8911 A.C. 248, at 254. 4. (1906) 26 N.Z.L.R. 604, at 620. 5. T h e author does not wish to be burned at the stake as a heretic, but i f such should be his due, he would

like company.

6. Megany and Wade, Real Property 1066 (3d ed. 1966). 7. Megarry and Wade, Real Property 1084 (4th ed. 1975). 8. I1 The Shorter Oxford English Dictionary 2487 (3d ed. 1973). 9. (1952) 5 W.W.H. (N.S.) 529, at 563 (Alta. T.D.).

10. Simpson, Land Law and Registration 179-83 (1976). 11. Id. 12. Id. 13. Ruoff , A n Englishman Looks at the Torrens System 13 (1957). 14. Anderson, Vance on Insurance 1-7 (3d ed. 1951).

CHAPTER 5

Conferring Ownership by Registration

a. Introduction 5.1 To what extent is i t both possible and feasible for the state to

confer ownership by registration? What is the scope of the legal ownership acquired by registration? What substantive rights does somebody obtain if he is registered a s the owner of something, somewhere? Chapter 5 will consider these questions. Chapter 6 will then consider the circumstances in which conferred ownership is defeasible, and the related problem of compensation for loss. This organization is based on the proposition that until the extent of ownership conferred under a Torrens system is determined, it is impractical to discuss the subjects of defeasibility and compensation for loss.

5.2 Suppose that C wishes to purchase some legal interest in Blackacre from B, and that B claims to have acquired the interest in question from A. The interest is 'in question' under common law and under recording system conveyancing because C must make certain that B owns the interest. For simplicity, assume that A owned Blackacre, and that C's only concerns are the transfer from A to B, and possible unknown legal interests. As explained in chapter 2, C has four separate tasks.

5.3 (1) Extrinsic validity. C must assure himself that the transfer was extrinsically valid; that it was a legally valid conveyance to transfer some interest to B. If the transfer to B were void for any of the reasons discussed in section 2.c., C needn't pursue his inquiry any further, for B has no interest in Blackacre.

5.4 (2) Intrinsic effect. C must assure himself that the transfer was intrinsically effective; that the rights i t purported to transfer to B are valid under the general law, and that collectively they form the interest C wishes to purchase.

5.5 (3) Adequate legal description. C must assure himself that the legal description was adequate to transfer a n interest in Blackacre to B.

5.6 (4) Unknown legal interests. C must assure himself that there are no outstanding legal interests held by other persons which are inconsistent with and superior in priority to the interest C wishes to purchase (see section 2.e.).

5.7 In chapter 4 we concluded that under a Torrens system the state could decree, through registration, that somebody (B) owned something (the FSA) somewhere (in Blackacre), and that no other legal interests existed in Blackacre. Consequently, if C acquired Blackacre from B, C would obtain B's registered interest, the FSA in Blackacre, subject to no


inconsistent legal interests. There are, however, more difficult problems which must be explored. There are both absolute and practical limitations on the state's power to confer ownership by registration. To begin with a n obvious example, the state could confer ownership of Blackacre on B and C as concurrent owners, but it is beyond the power of the state to confer the same interest in the same land exclusively and contemporaneously on both B and C. One of the two registrations must of necessity be defeasible. In some situations it is not possible for the state to confer ownership by registration a t all, and it is not feasible for the state to confer ownership of certain types of interests through registration.

b. Limitations Related to the Recipient of the Registered Interest

(1) Recipient a recognized legal entity 5.8 Assume that B is a legal entity recognized under the general law of

the jurisdiction. I t is possible for the state to confer ownership of a n interest on B through registration, and such ownership decrees are necessary for they are a deliberate fundamental element in the strategy of the system. The difficulties related to the extrinsic validity of a transfer a t common law, referred to in paragraph 5.3, are tremendously ameliorated, for both B and C are assured that B owns the interest for which he is registered.

5.9 These difficulties are not, however, eliminated by a Torrens system. In theory, there was no problem a t common law. If the transfer were void, no interest passed from A to B, and that is precisely what the general law intended. Under a Torrens system, B does not receive his legal interest by a transfer from A; it is conferred on B by the state through registration. I t is, therefore, misleading to refer to registration a s curing a n otherwise void transfer, for B's registered ownership is not acquired through the transfer a t all. The Torrens system creates a new problem, for if the transfer would have been void under the common law system of private conveyancing, then B's registration is the result of error. The system has malfunctioned because it does not intend this result. The immediate problem is whether or not B's registered ownership will be defeasible. If C subsequently becomes registered a s the owner of the interest, the problem will be whether or not his registered ownership will be defeasible. If we assume, however, that C's registered ownership will not be defeasible in favor of A if C purchased without fraud from a registered owners, it can be seen how important it is that B was a registered owner.

(2) Recipient not a recognized legal entity 5.10 Assume that B is not a legal entity recognized under the general

law of the jurisdiction, such a s a fictitious person, a n unincorporated club, or a company not yet incorporated. A transfer from A to B would be void if B were not capable of receiving the interest under the general law, and this would leave the interest in A (see paragraphs 2.28-30). However, under a Torrens system A's registered ownership would presumably have been cancelled. Who would own the interests? A solution must be supplied for this problem if a Torrens system is to function efficiently. Although this

Chapter 5 . Ownership by Registration 75

study can neither present nor evaluate all of the possibilities, some suggestions will be offered.

5.11 Construction eliminates the problem under the general law in cases in which the facts make this remedy possible. For example, courts have frequently construed conveyances a s having been intended to transfer the interest to the officers of a club in trust for its members, or to the promoters of a n intended corporation in trust for those persons who furnished the consideration for the purchase. However, because the construction remedy is of limited applicability, it does not provide a n adequate solution for the problem under a Torrens system. Legislation is necessary.

5.12 Legislations could solve the problem in several different ways, of which the following are only examples. (1) Legislation could adopt the construction remedy a s a solution for all club and intended corporation cases. If so, the registration of B would mean registration of the officers of the unincorporated B club, or the promoters of the intended B corporation. (2) Legislation could change the general law, and a n unincorporated B club, or a n intended B corporation, could be recognized a s a legal entity, a t least for purposes of receiving a n interest in land. (3) Legislation could provide that the registration of any nonexistent recipient conferred the interest on the Crown in trust for whomever justice indicated the interest should be held. (4) Legislation could provide that the registration of any nonexistent recipient conferred the interest on the immediate prior registered owner in trust for whomever justice indicated the interest should be held. Solutions (1) and (2) come closest to carrying out the intention of the parties, but they furnish no solution if B were a fictitious person. Consequently, a n alternative solution along the lines of (3) or (4) would also be required.

5.13 The seriousness of the nonexistent recipient problem becomes even more obvious if C wishes to purchase the interest. Solutions (1) and (2) are adequate for the situations in which they are applicable. Normally the register would contain a n entry such a s 'B Club', or 'B Company'. This would warn C that he must obtain a valid transfer from the persons legally authorized to act for the registered owner. Assume that the interest was registered to the children of X, who was alive and who had had no children. Solution (3) is adequate for this situation, for C could deal with the Public Trustee as trustee for X's unborn children.

5.14 There appears to be no functional solution if B were a fictitious person. The situation will normally result from fraud. Assume that X forged a transfer from A to fictitious B, that B became the 'registered owner', that a second transfer was forged from B to C, and that C became the registered owner. Neither solutions (3) nor (4) would help, for neither A, C, nor the Crown would be aware of the true facts. The Crown or A would be the statutory registered owner, and C would be the immediately subsequent registered owner through error. This presents a classic defeasibility problem which will be discussed in chapter 6.


c. Termination of Registered Interests 5.15 It is possible for the state to terminate any legal interest in land

by canceling a registration. The termination of interests is, functionally, a n integral part of the creation of interests, and is therefore necessary in terms of the basic strategy of the Torrens system. Assume that B was registered a s the owner of Blackacre, and that L was registered a s the owner of a leasehold interest in Blackacre. If the Registrar canceled the registration of L's lease, L's legal interest would be terminated, and B's legal rights would be correlatively increased. The difficulties related to unknown legal interests, referred to in paragraph 5.6, are greatly ameliorated for C, for the register will disclose all legal interests which are inconsistent with and superior in priority to B's interest.

5.16 These difficulties are not, however, eliminated, for just a s a registered interest may have been erroneously created, so one may have been erroneously terminated. Assume that L was the registered owner of a leasehold interest in Blackacre, and that this interest was canceled by error before C purchased Blackacre and became the registered owner. The Torrens system creates a new problem, and the extent to which C's registered ownership will be protected is discussed in chapter 6.

d. Land in Which the Registered Interest Exists 5.17 Because the state creates legal interests in land through

registration under a Torrens system, the register constitutes a comprehensive record of all legal interests recognized by the state with respect to any given parcel of land within the system. Obviously, the state cannot confer ownership of a legal interest in land without describing the parcel of land in which the interest is to exist.

5.18 At common law, a s stated in paragraph 5.5, C must assure himself that the transfer from A to B contained a legal description adequate to describe Blackacre. If the legal description were so ambiguous that it could not identify any part of Blackacre, the transfer was void, and B acquired no interest in Blackacre. This reiterates the basic reality that no interest in land can be created without a description of the land to which the interest is to be attached. If the legal description unambiguously defined both Blackacre and adjacent Grayacre, B acquired his interest in both parcels if both were owned by A, and only in Blackacre if only Blackacre were owned by A. Legal descriptions are frequently ambiguous, but nevertheless susceptible to interpretation, often with the aid of rules of construction, making it possible for one to determine what land the parties intended to describe in the instrument.

5.19 In our example, C would like the register to disclose whether or not the interest B claims is in Blackacre. The Torrens system can accommodate this need because of the inherent legal consequences of the register created by the system. B cannot have any legal interest in land unless i t is created by the state through registration, and the territorial extent of any legal interest is defined by the description of the land in which it is created. Therefore, the register will of necessity disclose whether or not the legal interest B claims is in Blackacre.


(1) Erroneous ownership decree resulting from a mistake in a legal description

5.20 Assume that A was the registered owner of Whiteacre, that the easterly portion of Whiteacre was known in the community a s Blackacre, that a house existed on Blackacre and was rented to B, that the mailman could readily deliver mail addressed to B a t the street address for Blackacre, and that B desired to purchase Blackacre. While walking over the land, A and B decided precisely what portion was to be sold to B as Blackacre; part of the dividing line they selected was a n old fence, trees holding a stretched string carried their line further, and piles of rocks were used to delineate the remainder of the agreed boundary. Such crude and approximate markings, although adequate for A and B, would not be adequate as a legal description to serve future generations after the fence fell down, the trees were cut, and the rocks were scattered. A surveyor prepared a legal description of Blackacre, the transfer from A to B included this legal description, and B applied to be registered a s the owner of Blackacre so described. The Registrar under a Torrens system does not perform the neutral function of merely recording such a transfer a s B's claim of ownership for what it is worth. Rather, through registration the Registrar will confer ownership of the parcel of land identified by this legal description on B. If this legal description, being the product of a new survey, describes the exterior boundary of Blackacre in a manner differing from the old legal description of Whiteacre, the Registrar must satisfy himself that the new description does not conflict with the existing registered description of G's adjacent Greenacre. The Registrar must also terminate A's ownership of Blackacre, and this requires a new legal description for the portion of Whiteacre to be retained by A.

5.21 Assume that A and B were registered a s the respective owners of the newly described parcels, Whiteacre and Blackacre, and that one of the legal descriptions, although unambiguous, contained a mistake because it did not describe the parcel a s intended by the relevant parties. The error concerned a strip of land we shall now call Grayacre, and functionally Grayacre means a parcel of land which is the subject of an erroneous ownership decree. Grayacre could be included in the legal description of G's Greenacre, and also included by error a s part of Blackacre. If so, it can be assumed that G did not intend this result. Grayacre could be included by error as part either of Whitacre or of Blackacre, in either event a result inconsistent with the intentions of A and B with respect to the strip, or Grayacre could be included by error in the legal descriptions of both Whiteacre and Blackacre.

5.22 To sharpen the example, assume that Grayacre was included a s part of Blackacre by error, and that B was thus registered a s the owner of Grayacre contrary to the intentions of A and B. Grayacre was the subject of a n erroneous ownership decree resulting from a mistake in a legal description. Paragraph 5.9 focused on the problem of a n erroneous ownership decree resulting from a n invalid transfer; if a transfer from A to B were forged, and if the Registrar conferred title to Blackacre on B, then Blackacre was the subject of a n erroneous ownership decree. In effect, Blackacre was a Grayacre, for B's title to it was the result of error.


Grayacre would be the subject of a n erroneous ownership decree if B were registered a s the owner because of a mistake in a legal description, or because of an invalid transfer, or because of a mistake a s to the identity of the intended recipient of the interest, or because of a mistake a s to the nature of the intended interest. If the mistakes in all of these situations would result in a n erroneous ownership decree, is there any reason, insofar a s the functional legal elements of a Torrens system are concerned, to attempt to differentiate between mistakes originating in legal descriptions and mistakes originating in other areas of the administration of the system?

5.23 From the Registrar's point of view, there could be a practical reason for placing legal descriptions in a separate category for administrative purposes. Assume that B was erroneously registered a s the owner of Grayacre because of a mistake in a legal description, and that C purchased Grayacre from B without fraud. I t is most likely that C's ownership decree will not be defeasible, and that A will be entitled to compensation for his loss, a s will be seen in chapter 6. I t is probable that in the past most erroneous ownership decrees resulted from mistakes in legal descriptions, and that controlling this risk was one of the Registrar's most difficult tasks. If the state wished to develop a Torrens system in which the risk of an 'erroneous ownership decree resulting from a mistake in a legal description' would be carried by any party whose registration followed the mistake, it would be necessary to prepare a more accurate legal definition than the phrase used in this sentence. However, the author knows of no Torrens system based on the Australasian model which avowedly attempts to avoid this risk. Section 165 of the Alberta Act quite specifically provides for compensating any person deprived of a n interest in land by the registration of another person by 'misdescription'.

5.24 In point of fact, a Grayacre situation resulting from an error in a legal description would seldom occur in Alberta today. The inhabited part of the province is surveyed either in accordance with the rectangular grid system prevailing in Western Canada and most of the United States, or by autharized subdivisions.

5.25 Basically, the province is divided into quadrilateral townships, each containing 36 sections. Each section is approximately one mile square, containing approximately 640 acres, and sections are surveyed into quarter-sections of approximately 160 acres each. The units of the system are established by official survey monuments on the ground. In a n earlier era the survey monuments were posts, frequently marked by dirt mounds, or pits; today iron posts are used. Thus, a legal description of the southwest quarter (SW ]A) of section 35, township 24, range 2 west of the 5th meridian, is in law a reference to that quarter-section a s it is established on the ground by official survey monuments. As the SW 'A of a section is established relative to the SE lA of the section by the same monuments, it is impossible for any two defined units of the system to include the same land.

5.26 The example under consideration concerns a subdivision of Whiteacre into two new lots, lot Whiteacre and lot Blackacre. The new boundary between the two lots, a s well a s the exterior boundaries of both

Chapter 5. Ownership by Registration 79

lots, would be established by survey monuments on the ground and the new legal description of Blackacre would be 'lot Blackacre in subdivision plan number (here number)', which a s a matter of law would refer to the survey monuments. As the same survey monuments would establish Blackacre relative to Whiteacre, it would be impossible for the two defined lots to include the same land.

5.27 However, it remains possible for the Registrar to decree that A owns the W l/i of section 35, and that B owns the NYz of section 35. If this happened, the NW lA of section 35 would be a Grayacre. As well, the Registrar could decree that A and B both owned lot Blackacre, and lot Blackacre would be Grayacre. In both of these examples an erroneous ownership decree would have occurred because of a mistake in a legal description. Admittedly, the mistakes in these two examples were mistakes in linguistic expression rather than mistakes in surveying. However, the author is not aware of any functional reason why legal consequences under a Torrens system should depend on whether a mistake in a legal description was caused by a clerk, or a lawyer, or a secretary, a s opposed to a surveyor.

(2) Ambiguous lega l descriptions

5.28 Legal descriptions are often ambiguous, and whether or not there is a Grayacre a t all will frequently depend on how the legal description in the state's decree conferring ownership by registration is interpreted. The legal rules applicable to the construction of a legal description in a common law conveyance are also applicable to the construction of an instrument included in the Torrens register. Griffith C.J. emphasized this point in Overland v. Lenehan, as fo1lows:l

Before dealing with the facts of the case it is necessary, I think, in order to dispel a mistaken notion which seems to be the foundation of much of the argument addressed to the Court in this case, to point out that a certificate of title does not rest upon a pinnacle by itself, but is an ordinary written instrument, and that, although its operation is far- reaching, and in some respects exceptional, it must be construed in accordance with the ordinary rules for the construction of documents of title. Without extrinsic evidence to identify its subject matter it has no intelligible meaning. Extrinsic evidence is, therefore, admissible, and must be admitted, and, when admitted, must be applied in precisely the same way a s in the case of any other document of title. The doctrine expressed in the wordsfalsa demonstratio non nocet is just as applicable to it a s to any other instrument of title.

5.29 In order to analyze the operation of these legal construction rules, one might understand the purpose of a legal description, and the possible descriptive elements of a legal description. The purpose of a legal description is to provide a method of identifying land, and virtually all legal descriptions will be based on monuments which can be located on the ground. The typical descriptive elements in a legal description are as follows: (1) Natural monuments, such a s trees, rocks, and streams. (2) Artificial monuments, such a s surveyor's stakes, pipes, and mounds or pits, as well a s other man-made objects, such a s the side of the road, and the corner of a building. (3) Abutting boundaries, such a s the boundary of a n adjoining tract, described a s lot 17, or the Jones farm. (4) Courses. (5) Distances. (6) Statements of area, which refers to the quantum of land


purportedly enclosed by the legal description, such a s 160 acres, more or less.

5.30 A legal description will be ambiguous if it contains conflicting descriptive elements. However, it can often be rendered unambiguous if one of the conflicting elements is disregarded through judicial construction of the instrument. Although the actual intention of the parties is the ultimate test of the meaning of a legal description, there is a judicial presumption that the possible descriptive elements have a priority of reliability in the rank order stated in the preceding paragraph, with element (1) being the most reliable, and element (6) being the least reliable.2

5.31 In Burden v. Regi~trar,~ C purchased a parcel of land from B registered to B, in substance, a s all that portion of the NW l/4 of a certain section lying south of a river, and containing 27 acres. As the parcel contained only 17.9 acres, C sought compensation for his loss of acreage from the Alberta assurance fund. In denying the claim, the court held that the Registrar only certified title to the parcel, and not to its acreage. As the NW l/i of a section is established by survey monuments, the holding was quite consistent with the common law constructional preference that monuments on the ground control over statements of area. Under The Surveys Act (Alberta): survey monuments now control over statements of area and dimension a s a statutory rule.

(a) Ambiguous kgal description defining both adjacent parcels 5.32 Assume that A was the registered owner of that portion of section

35 lying south of the Bow River a s shown on a plan made by Deville, surveyor, and that B was the registered owner of that portion of section 35 lying north of the Bow River a s shown on the same plan. This was, in substance, the situation in Hextall v. P. Burns & Co.5 The problem arose from the f a d that the Bow River was considerably further north than a s shown on Deville's plan. The exterior boundary of section 35 presented no problem; that was established by the survey monuments. The issue concerned the interior boundary between the two parcels, and the legal descriptions of both parcels contained the identical two conflicting descriptive elements. One descriptive element was the Bow River, a natural monument. The conflicting descriptive element was not so obvious. Lines marking what the surveyor thought were the banks of the Bow River were drawn on the plan, and those lines were a descriptive element identifying the boundary between the parcels by courses and distances, regardless of where the river banks actually were. The court held that the descriptions identifying the boundary as the river, a natural monument, overrode the conflicting descriptions identifying the boundary by lines on the plan called the river bank. It should be seen that when an ambiguous legal description is common to the adjacent parcels, when it simultaneously defines both parcels, the ambiguity cannot create a Grayacre situation with two registered ownerships of the same land.

(b) Ambiguous legal description defining one of two adjacent parcels 5.33 In Overland v. Lenehan,G the controversy concerned the boun-

dary between two registered lots, 1B to the west, and 10 to the east. In the

Chapter 5. Ownership by Registration 8 1

registered description of lot 1 0 , its western boundary was stated to be the eastern boundary of lot 1B. In fact lot 10 had been sold a s part of a subdivision, and its four comers were marked by survey pegs. Although lot 1B was not part of the subdivision, its registered description stated its eastern boundary to be the western boundary of lot 10. So far, so good; the boundary between the two lots was identically described, and this boundary was established by survey pegs. But, the northern boundary of lot 1B was stated to be 250 links from lot 10 along Stanley Street to the western boundary of lot 1B established by the Boggo Road. In fact the distance between the western boundary of lot 10 and the Boggo Road was only 212% links. If the 250 links distance descriptive element in the legal description of lot 1B controlled, there would be a Grayacre of 37% links width registered as part of both lots 1B and 10. The court held that the description of the eastern boundary of lot 1B as the abutting boundary of lot 1 0 , which had been pegged, was more likely to have represented the true intention of the parties in the legal description than was the 250 links distance description. The latter descriptive element was thus eliminated by judicial construction, and that left a n unambiguous legal description of lot 1B with no possible overlap with lot 10 .

5.34 The case of Dempster v. Ri~hardson,~ decided by the High Court of Australia, was quite similar to the Overland case. The facts will be simplified in the following summary. The litigation resulted from a dispute concerning the boundary between two adjacent lots in a registered subdivision, lots 14 and 15, both of which were originally owned by A. He sold lot 15, and a border strip of lot 14, to B, and a new survey showing this alteration in the boundary between lots 14 and 15 was registered. Based on this transaction, A and B were registered a s the respective owners of lots 14 and 15, and the legal descriptions of their lots consisted of a plan on their certificates of title delineating the lot boundaries. Lot 14 was bounded on the north by another lot, on the west by Peltro Street, on the south by Main Street, and on the east by lot 15. The plan stated that lot 15 had a southern frontage on Main Street of 79' 9", and that lot 14 had a southern frontage on Main Street of 74' 9". In fact, the maximum possible frontage on Main Street for the two lots was 9" less than the combined total of their frontages a s shown on the plan. If the frontages of both lots on Main Street as shown on the plan overrode the conflicting description of the lots a s abutting, there was a 9" strip Grayacre registered a s included in both lots, and owned by both A and B.

5.35 Construing the legal description of lot 14 as retained by A after his sale and transfer of lot 15 to B would not have been difficult. As A's transfer stated that lot 15 as altered was to have a frontage of 79' Y' on Main Street, any ambiguity would have been resolved against A a s the transferor, and lot 14 would have retained the residue of frontage of only 74'. Moreover, a s the two lots a s altered were shown on a survey plan, the new abutting boundary must have been established by survey or other monuments on the ground, although the opinion is silent on this point. Assuming that the abuttal boundary was marked, under the normal constructional preference, reinforced by the fact that A was the transferor, a n established abutting boundary would have controlled over statements


of distance. As stated in the Overland case, a legal description in a registered Torrens title is subject to common law rules of construction, and this means that in the legal description in A's title for lot 14, the distance descriptive element was surplusage. As properly construed, there was no ambiguity in the legal description for lot 14, and there was no 9" Grayacre strip registered a s owned by both A and B.

5.36 Subsequently, A sold lot 14 to C, who in turn sold i t to D. D was registered a s the owner of lot 14 by the same legal description held by her predecessors, A and C. In litigation between D and B, it was held that B owned lot 15 with 79' 9" of frontage on Main Street.

5.37 D (the plaintiff Mrs. Dempster) then brought the action under consideration seeking damages for the Tasmania assurance fund for the loss of the 9" strip she claimed as a registered owner. In paragraph 5.19 it was stated that one in the position of D can rely on the Torrens register a s disclosing the territorial extent of the interest sought to be purchased. This is true, but a s the Dempster case illustrates, one relies a t her peril without sound professional advice. This may sound harsh, but whenever a legal description shows a boundary a s a n abuttal, one is on notice that this boundary must be established on the ground before the legal description can be relied on with safety. In fact, D could not rely on both of the conflicting descriptive elements in the legal description of lot 14. In truth, she did not want to. She wanted to be able to rely on the 74' 9" distance element, and not to be required to rely on the abutting boundary element. In substance, her contention was that under a Torrens system, one can rely on the descriptive element most favorable, and disregard the others. The court denied D's claim. Based on the facts, and on accepted legal principles, the holding was correct. There was no erroneous ownership decree; D owned lot 14 a s defined in her registered legal description which, on the basis of accepted construction rules, established the controverted boundary a s the abutting boundary of lot 15 where it could be identified on the ground. The foregoing analysis is based on modem pragmatic jurisprudence. One can look a t the facts and at the holding; if the latter is correct in terms of accepted legal principles, one need go no further. This means, of course, that the court's opinion need not be taken too seriously.

5.38 In commenting on the Dempster case, Simpson said? But surely the whole incident was the result of the error in the plan, and what can a 'guaranteed boundary' be really worth if a landowners cannot completely rely on what is shown on the plan actually drawn on his land certificate? In the event, Mrs. Dempster found, a t the cost of two lawsuits in the High Court, that the so-called 'guaranteed boundary' was just a snare and a delusion.

There is, unfortunately, considerable language in the opinion suggesting that the state, under a Torrens system, does not purport to define the land in which a registered interest is located. The following quotations are from the concurrent judgment of Rich and Dixon JJ.:9

We do not doubt that if there is less land between the true western boundary of lot 16 and the true comer of Peltro Street than the sum of the frontages given in the diagrams upon the plaintiffs and her neighbours' certificates, the deficiency must be ascribed to the plaintiffs title. The deficiency must be ascribed to that title because her neighbours derived their title through a transfer by the plaintiffs predecessor in title of land with a


frontage of 79 ft. 9 in. out of that predecessor's certificate of title to lots 14 and 15. If there is a deficiency it must therefore be in the residue of the land.

Upon these facts we think the plaintiff cannot fall within the description in secs. 125 and 128, "a person deprived of any land." She acquired and intended to acquire Pinkerton's [C's] land. This she got.

Starke J. made a statement even more inconsistent with fundamental Torrens system philosophy, a s follows:10

Assume, however, that the appellant [Dl only acquired title to 73 ft. l l l / z in., instead of 74 ft. 9 in., a s shown by her title - what omission, mistake, or misfeasance can be attributed to the Recoraer of Titles or his officers? The appellant acquired all the land which her transferor had any title to convey to her, and all she purchased, in point of fact, was the property situate a t the corner of the Main Road and Peltro Street, Glenorchy, belonging to the vendor. If the error or misdescription in the title be due to an error in measurement, that is an error in survey and not in title. Such an error is not due to any mistake, omission, or misfeasance on the part of the Recorder or his officers, but to a predecessor in title of the appellant, or his surveyor. . . . 5.39 The thrust of these statments appears to be that a s D's remote

predecessor A retained only the 'residue', D could acquire no more from her immediate vendor C. This is perfectly good analysis under the common law, where one's ownership must be derived from the ownership of his predecessors in title, but, with respect, i t does not recognize the true issue under a Torrens system. Obviously both D's predecessor C, and her neighbor B, could not own the 9" Grayacre strip simultaneously and exclusively; the state cannot work such magic. The state could, however, purport to decree that they both owned the 9" strip, and Torrens doctrine dictates that purchasers such a s D should be able to rely on such a decree, and should be assured that they will receive either the land or compensation for loss.

5.40 I t is one thing to say the D had the risk of interpreting the ambiguous legal description in C's title and of discovering on her own that the state did not purport to decree that C owned the 9" strip. But what if the eastern boundary of lot 14 had been described by a course and a distance, rather than by a n abuttal with lot 15? Then there would have been unambiguous state decrees purporting to confer ownership of the 9" strip on both B and C. I t is quite another thing to suggest that D had the risk of searching C's derivative title in order to discover whether or not a n historic mistake had been made in a legal description, and if so, of concluding that the state should not have decreed that C owned the 9" strip. At common law D would have assumed the risk of a mistake in a legal description in her chain of title, because legal descriptions would have determined what title had passed down the chain to her. Under a Torrens system, D acquired a n original title from the state, and it was the Registrar who was charged with the responsibility of determining whether or not a legal description he used was proper. I t is submitted that if the Registrar had conferred ownership of the 9" strip on both B and C by unambiguous legal descriptions, the Tasmania assurance fund should have been liable to compensate D for any loss she might have sustained.


(3) General boundaries under the English system 5.41 Some reference should be made to the English approach to legal

descriptions in title registrations. The very long period of settled land ownership in that country has resulted in the description of most parcels of land by means of such monuments a s hedges, walls, ditches, streams and roads. Precise surveyed boundaries are seldom available, and would be very costly to produce. Moreover, neighbors have lived peacefully with imprecise boundaries for generations. Simpson quotes the English Royal Commission Report of 1870 for the conclusion that the first English title registration system failed in large part because of the expense, and controversy among formerly happy neighbors, engendered by the attempt to fix precise boundaries.ll

5.42 Under the Land Registration Act, 1925,12 the historic practice is essentially retained, and no attempt is made to fix precise boundaries by survey. I t was in anticipation of this subject that the author referred, in paragraph 5.20, to a Blackacre known and identified in the community by a street address. When land is brought under the English system, it is usually described by a verbal description, such as a street address, and by reference to a filed plan or general map, based on a topographical ordinance map depicting physical features on the ground. The parcel is identified by lines on the map either coinciding with physical features or drawn relative to them. As Simpson points out,13 even the width of a line on the map at the scale used for urban lots represents a foot on the ground! This is of no real consequence, a s the English decree of title does not purport to define exact boundaries; they are generally left for resolution under the general law.

5.43 In the leading English case of Lee v. Barrey,14 the line on the plan on the defendant's land certificate (his registered title), deviated 10 feet a t a crucial point from the line on the transfer plan pursuant to which he purchased from his vendor. Relying on his land certificate, the defendant built a portion of his house on land claimed by the plaintiff, his adjacent neighbor. The court held that the boundary between the lots of the plaintiff and of the defendant was determined by the transfers received from their common vendor under the general law, and that the defendent had trespassed on the plaintiffs land. The court admitted that a 'boundary dispute' is conceptually a property dispute, for it involves the title to a strip of land. The court suggested that if the divergence between the land certificate plan and the actual boundary a s determined by the general law became too great, it would not longer be sensible to use the phrase 'boundary dispute'. At the point of some undetermined quantity of land, the English system, presumably, recognizes that one has been deprived of the title to registered land. The Lee case, however, is not a valid test of the English system, for the defendant was only entitled to the lot which he contracted to buy, and which was accurately described in his immediate transfer. Even if the defendent's registered title had been under a Torrens system fixing precise boundaries, it would have been defeasible in this situation.

5.44 The author subscribes to the view that it is logically impossible for the state to confer ownership of a n interest in land without precisely


defining the land in which the interest exists. Under a system in which the territorial extent of the parcel is defined by the transfer between the parties, the interest is created by that transfer, rather than by the state. This is a serious conceptual problem for anyone who takes conceptual problems seriously. However, the author knows of no scholar who has ever suggested that the English have any propensity to emulate Napoleonic administrative or legal precision. They are said to 'muddle through' with pragmatic solutions. The ultimate measure of a system is whether or not it works efficiently, and the evidence is all to the effect that the English system has peormed very well, and with extremely little litigation.

e. Limitations Related to the Type of the Registered Interest 5.45 The example introduced at paragraph 5.2 stated that C wishes

to purchase some legal interest in Blackacre from B. In the preceding sections of this chapter it has been established that C can rely on the register to determine whether or not B, if a legal entity, owns a legal interest, whether or not there are any other legal interests inconsistent with and superior in priority to B's interest, and whether or not B's legal interest is in Blackacre. However, C would like the register to disclose precisely what legal interest B owns, and precisely what legal interests exist which might conflict with B's interest. At common law, referred to in paragraph 5.4, C must ascertain the intrinsic effect of all instruments in B's chain of title relevant to the interest B claims. With regard to each instrument examined, C must determine what specific rights in Blackacre it purports to transfer, and whether or not these purported rights are valid under the general law. The problem is greatly simplified under a Torrens system, for C will not have to examine instruments evidencing expired interests. Quantitatively, C's task will be eased because the register will contain only instruments currently relevant to B's claimed legal interest. I t must be emphasized, however, that C must still evaluate the instruments included in the register! Is his qualitative task altered by a Torrens system?

5.46 I t is still necessary for C to determine what specific rights in Blackacre a registered instrument purports to create. Assume that B was the registered owner of a n Alberta Act Form 16 Lease. This form contains space for the addition of special covenants, and because the form itself contains only the tenant's covenant to pay rent, it is difficult to imagine a lease which would be adequate without special covenants. As a matter of elementary necessity, C must examine B's lease before he purchases it in order to determine precisely what rights it purports to confer and what duties it purports to impose.

5.47 The foregoing paragraph assumed that registered instruments are part of the register. Indeed, how could the Registrar confer ownership of a leasehold interest on B, through registration of an instrument of lease defining the interest, unless the instrument itself became part of the register? Moreover, if the instrument were not part of the register, C would be required to search outside the register in order to determine the precise nature of the registered interest. Most statutes based on the Australasian model contain a provision similar to section 57 of the Real Property Act, 1886-1969, South Australia:


Section 57. Every instrument shall, when registered, be deemed part of the register book.. . .

However, the Alberta Act contains no comparable provision. Does this mean that the Alberta Torrens system is intended to be fundamentally different from a conventional Torrens system?

(1) Legal interests in land recognized by the general law 5.48 After examining a n instrument in order to determine what

legal rights it purports to create, can C assume that, because the instrument is registered, all of these rights have been validated under the general law by registration?

(a) The fee simple absolute 5.49 The Registrar has the power to decree that B owns Blackacre

in FSA. Why, however, is it feasible for the state to grant the Registrar this power? The state, through its general law, defines the rights which it will permit persons, public or private, to own in land, and the maximum group of rights permitted under the general law in jurisdictions which received the English common law is the FSA. If the Registrar decrees that B owns Blackacre in FSA, the decree confers those rights which are included in the FSA under the general law. I t is feasible for the state to grant the Registrar this power because a FSA decree cannot possibly confer rights which are not permitted by the public policy of the state.

(b) Legal interests defined by statutory instruments 5.50 In recent years it has become reasonably common for

legislatures to enact statutory instruments designed to facilitate the transfer of interests in land. The statutory instrument is normally devised to accommodate high-frequency transactions, and the residential property mortgage furnishes a good example. A committee of competent lawyers selected to represent the interests of lenders and of borrowers could produce a recommended form fairly balancing the legitimate interests of both of these groups, and it is highly unlikely that such a form would contain any provisions contrary to the general law. Recommended forms have been widely accepted by the legal profession in many jurisdictions, and they contribute both to economy and to certainty in real estate transactions. However, they leave two problems. The instrument prepared for each transaction must physically incorporate the form, and doubtful lawyers may question the legal validity of some provisions of the form. The statutory instrument solves both of these problems. As the statutory instrument is created by a n act of the legislature, its provisions are legally valid, and the legislation will always authorize the statutory provisions to be incorporated by reference into the instrument executed by the parties.

5.51 Although statutory instruments are common in jurisdictions without a Torrens system, they have enhanced advantages in Torrens jurisdictions. Suppose that the statutory instrument were designated 'Province of Torrens Form 19 Mortgage'. I t would be feasible for the state to grant the Registrar the power to decree that B owned a Province of Torrens


Form 19 Mortgage in Blackacre because such a decree could confer only rights conforming to the general law a s defined by the statutory instrument.

5.52 Under the Alberta Act, the Form 19 Mortgage is not a statutory instrument of the type just described. It is a form designed for the creation of two distinct, but usually related, legal interests. First, the form contains printed text and blanks to accommodate the creation of a nonnegotiable promissory obligation. If only this part of the form were executed, the promisee would obtain a chose in action, a n unsecured contract right to recover a debt, enforceable a t law when the instrument was executed. Secondly, the form contains printed text and blanks to accommodate the creation of a mortgage in real property of the mortgagor to secure the promissory obligation presumably to be created by use of the same form. The execution of this part of the form would create a n equitable mortgage in the mortgagee. Upon registration of the instrument, the mortgagee would obtain a legal mortgage.

5.53 The Alberta Act Form 19 Mortgage is not a statutory instrument because it contains no substantive mortgage provisions beyond the creative words "I hereby mortgage to the said m y estate and interest in the land above described". There is a blank for "special covenants, if any". Hence the Form 19 Mortgage with no special covenants inserted merely incorporates the general mortgage law of Alberta to the extent applicable to any potential controversy. I t is feasible for Alberta to grant its Registrar the power to decree that B owns a Form 19 Mortgage in Blackacre if no special convenants are inserted because such a decree could confer only rights conforming to the general law. But, what if any special covenant were inserted?

(2) Undefined lega l in te res ts 5.54 Section 57 of the Alberta Act reads a s follows: 57. So soon as registered every instrument becomes operative according to the tenor and intent thereof, and thereupon creates, transfers, surrenders, charges or discharges, as the case may be, the land or the estate or interest therein mentioned in the instrument. (emphasis added)

Should the words "become operative according to the tenor and intent thereof' be construed a s impliedly qualified to mean "insofar as permitted by the general law"? If a n instrument contains a provision contrary to public policy a s reflected in the general law, does registration validate such a provision?

5.55 Assume that B was registered a s the owner of Blackacre in fee simple subject to a condition subsequent, and that A was registered a s the owner of a right of entry for condition broken. Also assume that under the general law of the jurisdiction the condition subsequent would be void, that B would have a FSA, and that A would have no interest. The condition subsequent which, if valid, would subject B's fee simple to potential defeasibility might impose a n unreasonable restraint on alienation of Blackacre, it might impose a n unreasonable restraint on marriage by B, or it might induce B to use Blackacre for a n immoral purpose. Did registration


validate the condition subsequent and create what would otherwise have been a prohibited interest in A? Assume that the registered instrument, according to its tenor and intent, gave B a contingent remainder in Blackacre and gave A a n alternate contingent remainder, and that under the general law both contingent remainders would be void under the Rule Against Perpetuities and A would have a reversion in Blackacre. Did registration validate the contingent remainders and override the Rule Against Perpetuities? No cases answering the above questions have been found, perhaps because it is the practice of many Registrars to refuse to register instruments containing possible invalid pr0visions.~5

5.56 In each of the following examples, assume that B was registered as the owner of a n interest in Blackacre as defined in a registered instrument, and that C purchased the interest and became the registered owner.

5.57 The interest was a lease with a term expressed to be for so long as the lessee holds shares in a company. In Re Lehrer and the Real Property Act,16 the issue was whether or not the Registrar could refuse to register a lease on the grounds that it was void because the term was not certain. The court ordered that the lease be registered, and stated its reasons as f0llows:~7

I do not consider that the Registrar-General ought to refuse registration of an instrument because he forms the view that in law it is a void instrument, unless by registration some validity could be given to the instrument which it would not otherwise have. . . . However, when the RegistrarGeneral registers a lease it is only the title which the parties by their words have themselves described which is thus registered and to which the RegistrarGeneral thus gives his certificate. The RegistrarGeneral by the registration cannot create a form of leasehold estate which is not known to the law. . . . The registration does not interfere with the ordinary effect of the instrument at law or in equity. . . . It follows, therefore, that, i f the RegistrarGeneral registers a lease which i s void for uncertainty of the term purported to be stated therein, no greater interest is conferred upon the purported lessee by the registration than he would have had apart from registration. I f the lessee purports to transfer the lease to a bona fide purchaser, the purchaser takes no more than the registered interest of the lessee, which is nothing.

5.58 The interest was a licence contained in an instrument titled 'easement'. In Re Ridgeway and Smith's Contract,l8 the court held that the contractual rights of the licencee did not constitute an interest in land under the general law, and did not become an interest in land through registration.

5.59 The interest was a mortgage. In Hoar v. MilZs,lg the mortgage contained a provision granting the mortagee a n option to purchase the mortgaged property for a specified price a t any time until the mortgage was discharged. The court held that the option was a void and unenforceable clog on the mortgagor's equity of redemption under the general law, and was not validated by registration.

5.60 The interest was a mortgage. In Smith v. National Trust Co.,20 the mortgage granted the mortgagee a power to sell the mortgaged property if the mortgagor defaulted on his secured obligations. The court held that because the power of sale granted rights to the mortgagee in excess of those permitted for a power of sale under the Real Property Act of Manitoba, the power of sale was void, and was not validated by


registration. In order to emphasize the nagging uncertainty which a provision such as section 57 of the Alberta Act creates, the dissenting opinion of Idington J. should be con~idered:~~

[Tlhe registration was not only a registration of the charge. . . but of that charge coupled with this power, and this latter became of the very essence of the transaction, duly recognized by the officers on whom was cast. . . the duty to pass upon and if need be reject what it is not within the provisions of the act, and also became part and parcel of that claim which the mortgagees tendered and had irrevocably placed on record and is for that reason a part of that to which the mortgagee thereof acquired an indefeasible title.

5.61 The interest was a mortgage. The mortgage was annexed to a written agreement for the purchase of a tractor by the mortgagor from the mortgagee, and the mortgage secured the mortgagor's promissory obligations under the purchase agreement. Section 106 of the Alberta Act provides that such a mortgage is void "not withstanding anything contained in any Act", and such a statutory provision creates a rule of general mortgage law quite independent of the Alberta Torrens system. Section 107 of the Alberta Act provides that if such a mortgage is by inadvertence registered under the Alberta Act, the registration is ineffective. If such a mortgage is void under the general law created by section 106, and if section 57 of the Alberta Act means that a registered instrument becomes effective only insofar as permitted by the general law, then section 107 is redundant. Is it possible, however, that section 57 means exactly what it says and was not intended to contain any implied qualification, and that section 107 was carefully enacted by the Alberta Legislative Assembly to create an exception to the general doctrine enunciated in section 57?

5.62 The interest was the benefit of a restrictive convenant registered against and expressed as burdening Greenacre for the benefit of Blackacre. In fact the restrictive covenant could not benefit Blackacre, and was therefore not capable of being annexed to Greenacre under the general law. Section 52(4) of the Alberta Act states that if a restrictive covenant cannot be annexed to land, registration does not "make it run with the land". Does the inclusion of this section in the Alberta Act add credibility to the suggestion that section 57 might have been intended to be read and applied literally, and that any provision in an instrument is validated by registration.

5.63 On balance, the author believes that sections 107 and 52(4) of the Alberta Act were enacted in an excess of caution, perhaps because of the ambiguity inherent in section 57, and that these sections reinforce the conclusion to be drawn from the cases cited at paragraphs 5.57-60, that the Registrar has the power to confer ownership by registration only of a legal interest in land recognized by the general law of the jurisdiction.

(3) Contract rights 5.64 The relationship between contract law and the Torrens system

has not been explored in any Torrens literature known to the author. Although legal interests in land are created by the state under the system, it has never been suggested that the Torrens system was intended to change the general law of contracts, and contract rights are created by the


parties to a contract. To what extent does the Registrar under a Torrens system have the power to create contract rights, which would not be recognized under the general law of contracts, by registering a n instrument which purported to create them? It may be helpful to approach this subject by first considering the 'real covenants' in a lease, and then the more difficult problem presented by the contractual obligation secured by a mortgage.

5.65 Under the general law, the fundamental effect of a lease is the transfer of a legal leasehold interest in land to the lessee. Of course a lease will always contain at least a covenant to pay rent, and many leases will 'bristle' with covenants. If a covenant in a lease 'touches and concerns' the leasehold estate, that is, if it affects the landlord-tenant relationship, it is a 'real covenant', and the rights and duties which it creates attach to and bind the reversion of the landlord and the leasehold of the tenant.22 Consequently, the 'real covenants' in a lease create property rights in land which derive their existence from and depend upon the creation of the leasehold estate in land. Under a Torrens system, if the Registrar creates a leasehold by registering an instrument of lease, he also has the power to create any 'real covenants' contained in the instrument which are recognized by the general law, because they too are interests in land.

5.66 The problem presented by the contractual obligation secured by a mortgage under a Torrens system is not only difficult, but likely to become increasingly important a s its dimension becomes recognized. Assume that A executed an instrument in the form of a n Alberta Act Form 19 Mortgage, that by it A both covenanted to pay $10,000 to B and mortgaged Blackacre to B to secure the debt, that no special covenants were included in the instrument, and that B was registered a s the owner of the instrument. Assume that subsequently B transferred his registered interest to C by a n Alberta Act Form 23 Transfer of Mortgage, that the transfer recited a consideration for the transfer of $9,000 paid by C and received by B, that C was registered a s the owner of the mortgage, and that at the time C purchased the mortgage from B and registered his transfer the remaining balance of the debt owed by A was $5,000.

5.67 It is clear that A's contractual promissory obligation, if supported by consideration, was created when A executed and delivered the Form 19 Mortgage instrument to B. It is also clear that B acquired a n equitable mortgage over Blackacre at that time. In short, contractual obligations, and equitable interests in land, are created by the parties. However, under a Torrens system legal interests in land are only created by the state through registration. For this reason, B did not acquire a legal mortgage, a legal charge over Blackacre to secure A's contractual obligation, until B was registered a s the owner of the instrument. Similarly, although C acquired B's contractual rights by means of the Form 23 Transfer of A's contractual obligation, it was not until C registered the Form 23 Transfer that he acquired a legal mortgage of Blackacre to secure A's promissory obligation, which was $5,000 a t that time. The question is, did the Registrar, who unquestionably conferred ownership of a legal mortgage on C through registration of the Form 23 Transfer, also enlarge A's contractual obligation from $5,000 to $9,000 (the amount of consideration

Chapter 5 . Ownership by Registration 9 1

paid by C to purchase the debt a s recited in the Form 23 Transfer), or to $10,000 (the original amount of A's covenant a s contained in the Form 19 Mortgage)?

5.68 In Falconbridge on Mortgages, the authors ~ a i d : ~ 3 The mortgage debt is a chosein action and in accordance with the general rule, applicable both to assignments in equity and to assignments under the statute, the assignee takes subject to the equities affecting the subject-matter, and subject to the state of the mortgage account between the original parties. Even though the assignee may get the conveyance of the legal estate he can hold it as security only for what is properly owing by the mortgagor at the date of the assignment. . . . It has been held that if nothing has ever been advanced upon a mortgage or the mortgage has been made without consideration, the assignee stands in no better position than the mortgagee. . . .

In Nioa v. Bell,z4 the court held that a registered assignee of a mortgage acquired no more than a charge to secure the actual debt of the mortgagor, and that the mortgagor was entitled to a credit for all payments made to the original mortgagee, not only before the assignment, but also before the mortgagor was notified of the assignment.

5.69 There seems to be no practical alternative to this legal rule. In order for the register to contain entries showing the current balance of a mortgagor's promissory obligation, the mortgagor would have to notify the Registrar of each periodic payment he made, and this would impose a severe administrative burden on both the mortgagor and the Registrar. Consequently, it is necessary that one make inquiries of the mortgagor a s to the actual balance of a secured promissory obligation before purchasing it.

5.70 Continuing the preceding example, but with this change, assume that the Form 19 Mortgage instrument was forged by X who impersonated A, and that both B and C were purchasers without fraud. B thought that he was dealing with A, and C took the risk that there was a $10,000 promissory obligation and did not request a n acknowledgement from A of the amount owing on the debt (if any) until after he purchased the Form 23 Transfer from B. This example states the basic facts present in Credit Foncier Franco-Canadian v. Bennett,25 a case decided by the British Columbia Court of Appeal in 1963.

5.71 In effect, C argued that the registration of the mortgage instrument and of its transfer to him created both a promissory obligation binding A, and a legal mortgage in Blackacre to secure the debt thus created. Quite naturally, C relied on the British Columbia counterpart of section 57 of the Alberta Act, quoted a t paragraph 5.54. The court held that this statute means that a registered instrument becomes operative according to its tenor and intent a s permitted by the general law. The court quoted both Flaconbridge on Mortgages and the Nioa case for the fundamental proposition that a mortgage creates a n interest in land in the nature of a charge to secure a promissory obligation, and that the validity and extent of a mortgage is derived from and depends upon the existence of a contract debt. The court said that if registration of an assignment of a mortgage debt under a Torrens system could not increase the balance of the contract debt under the decision in the Nioa case, manifestly


registration could not create a contract debt where one had never existed at all. The court held that a registered assignee of a mortgage acquired no more than the actual interest the mortgage conferred upon the mortgagee, and that under the general law no mortgage interest existed without a debt.

5.72 I t now becomes necessary to discuss an extremely important case decided by the Privy Council in 1967, Frazer v. Walker.26 In the existing literature, the importance of this case is based on the significance of both its holding and its dictum on the subject of defeasibility of title,z7 which will be discussed in chapter 6. The Frazer decision, however, also concerned the creation of contract rights by registration. The relevant facts of the case can be stated in terms of the example under consideration, with changes a s stated below. The instrument containing both A's purported promissory obligation of £3,000, and the securing mortgage, was forged by X who received the money loaned by B. The mortgage contained a power of sale over Blackacre, and when A (not surprisingly) failed to make any payments on the nonexistent debt, B exercised the power of sale and sold Blackacre a t auction to C for £5,000. B transferred Blackacre to C under authority of the power of sale, C was duly registered a s the owner of Blackacre, and C commenced proceedings to obtain possession from A. A counterclaim was filed by A seeking a declaration that the mortgage was void, and a n order that the entries in the register in favor of B and C be canceled and that A's ownership be restored.

5.73 The case arose in New Zealand, and in neither the Supreme Court,28 nor the Court of Appeal,29 nor the Privy Council, does there appear to have been any serious question but that C's ownership would prevail. It was quite within the power of the Registrar to register B a s the owner of a mortgagee's power of sale over Blackacre, for such provisions are valid under New Zealand law. Unlike the situation in Credit Foncier, C did not purchase a forged instrument purporting to create a debt secured by a mortgage. Rather, C purchased Blackacre from B in reliance on an entry in the register that B held a valid power of sale. Consequently, C's registered ownership was held to be indefeasible under the circumstances, and C was granted a n order for possession.

5.74 Although the Court of Appeal of New Zealand gave no decision as to the validity of B's registered mortgage, the Privy Council, in a judgment delivered by Lord Wilberforce,30 focused primarily on this question. In fact, the validity of B's mortgage involved two separate issues, and an example should demonstrate that these issues were significantly different.

5.75 One issue can be identified if we assume, for a moment, that A did borrow £3,000 from B, that A executed a nonnegotiable note for £3,000 payable to B to evidence the debt, that X, in order to induce B to make the loan but with no authority from A, forged A's signature on a mortgage of Blackacre to secure the note, and that B was registered as the owner of the mortgage. In this example, a s there was a valid contract debt, it was within the power of the Registrar to confer ownership on B of a mortgage interest in Blackacre to secure the debt, even though this ownership decree was erroneous because the mortgage was forged. The issue which this example presents is whether or not the registered ownership obtained by one who innocently purchased under a forged transfer (B) will prevail over the


registered ownership of the victim of the forgery (A). The basic doctrine enunciated by the Privy Council in the clasic decision of Gibbs v. M e s ~ e r , ~ l in 1891, is that the registered ownership obtained by one who purchased a forged transfer is defeasible in favor of the victim of the forgery. In Frazer, the Privy Council held that B's registered mortgage was valid, and not defeasible in favor of A. The judgment appears to reflect an unequivocal determination to reject the generally accepted interpretation of the Gibbs opinion. As the conflict between the two cases presents a defeasibility issue, this subject will be considered in chapter 6.

5.76 However, the Frazer case also involved another and more basic issue. As the promissory obligation of A was forged, there was no contract debt to support a mortgage under the general law unless registration of an instrument under a Torrens system was effective to create an 'independent personal covenant' binding A. The phrase 'independent personal covenant' is used deliberately to underscore the contrast between the real covenants in a lease which are dependent on the transfer of a leasehold interest in land, and the charge of a mortgage interest in land which is dependent on the existence of personal covenant to pay a contract debt. The issue decisive in Credit Foncier was inherently present in the Frazer case, and was in fact decided by the holding that the mortgage was valid. Unfortunately, it was neither identified nor discussed in any of the judicial opinions throughout the litigation.

5.77 The author believes that the issue of whether or not the registration of a n instrument under a Torrens system is effective to create a personal covenant, a contractual obligation not recognized by the general law as a real covenant, is extremely important and deserving of legislative attention.

f. Interests Qualifying for Registration 5.78 Section 56 of the Alberta Act embodies the fundamental Torrens

principle that legal interests in land are created by the state through registration. That section reads a s follows:

56. After a certificate of title has been granted for any land, no instrument is effectual to pass any estate or interest in that land (except a leasehold interest for three years or for a less period) or to render that land liable as security for the payment of money, unless the instrument is executed in accordance with the provisions of this Act and is duly registered thereunder, but upon the registration of any such instrument in the manner hereinbefore prescribed the estate or interest specified therein passes or, as the case may be, the land becomes liable as security in manner and subject to the covenants, conditions and contingencies set forth and specified in the instrument or by this Act declared to be implied in instruments of a like nature.

Private parties are not, however, given the right to direct either the creation of any legal interests they choose, or the creation of a legal interest in any manner they deem appropriate to a transaction. Unless a n instrument presented for registration is 'substantially in conformity with the proper form', it does not qualify for registration a t all, and therefore cannot serve as the basis for the creation of a legal interest. Section 54 of the Alberta Act establishes this principle a s follows:

54. (1) The Registrar shall decide whether any instrument or caveat presented to him


for registration is substantially in conformity with the proper form in the Schedule or not and may reject any instrument or caveat that he may decide for any reason to be unfit for registration.

(2) Where any instrument or caveat i s presented to the Registrar for registration subject to any condition, the Registrar shall reject the instrument or caveat for registration if the condition is not satisfied a t the time the instrument or caveat would otherwise be registered.

(3). . . .

Why, however, are legal interests limited to those which can be created on the basis of instruments 'substantially in conformity with the proper form'? Two possible answers to this question will be discussed below.

(1) Limit the risk of creation of interests inconsistent with the general law

5.79 The cases cited in paragraphs 5.57-60 demonstrate that when the issue has been presented for decision, the courts have uniformly held that registration does not validate a right or interest in real property which is contrary to the general law. Hence, if limiting legal interests to those which can be submitted to the Registrar in instruments in substantial conformity with a proper form was intended to limit the risk of the creation of interests otherwise contrary to public policy, the prophylactic exercise is futile, for registration does not involve this risk.

5.80 However, the fact that a traditional administrative practice is probably not required by a n obsolete objective does not solve the problem for the Registrar. Although the cases have held that registration will not validate a n interest which is inconsistent with the general law when the issue has been squarely presented, in dicta the courts have enjoined Registrars to guard against the registration of dubious instruments lest a n illegal provision be thereby validated. The following examples are merely representative. When considering the duties of the Master of Titles (Registrar), Riddell J. stated in Re Mutual Investments Ltd.:32

But it is said that the Master of Titles is a mere administrative officer, that he must register even a document which is a plain violation of the law and leave the person or company registering to take the consequences. I decline to accede to that argument: in view of the very great effect of registering such documents, I think that he may and, where necessary, should pass upon the legality of any document submitted to him.

Evidently his concern was that the 'very great effect' of registration could validate a provision which would otherwise be a violation of the general law. A similar definition of the duties of the Registrar was given by Stawell C.J. in the early Victoria case of Ex parte Bond, as follows:33

The judicial duty is imposed on him of examining into the validity of instruments presented to him for registration. He is to investigate them and all the facts presented to him, and say whether such instruments are valid or not.

In Re Spokane and Eastern Trust's Mortgage,34 the court directed the Registrar to refuse to register a mortgage not executed on the prescribed form and purporting to operate a s a conveyance of the entire estate of the mortgagor rather than a s a transfer of a charge. Such a mortgage would be contrary to the general law of Alberta, and the court expressed the fear that


registration would have a validating effect. DiCastri summarizes the position taken by Registrars a s follows:35

That special covenants and powers may in some way be said to be "registered" is evident from the care exerted by the registrars to keep these classes of covenants off the register.

(2) Limit the number and complexity of permitted interests in land

5.81 In a n article published in 1924, Thom ~ a i d : ~ 6 Registration under the Acts is accorded only to instruments in the form and executed in the manner required by the Acts. This was part of the very essence of the legislation, to secure simplicity by limiting the number and variety of instruments which would be registered.

Thirty-eight years later, DiCastri emphasized the goal of simplicity in these words?

While it may seem that the registrar's duty to prevent the registration of instruments containing objectionable clauses is difficult to reconcile with the view that registration gives these clauses no special effect, it is submitted that facility of transfer includes facility of registration and this cannot be achieved by the registrar if the door is opened wide to mortgages and leases, to mention only two classes of instruments, containing pages of special clauses which may or may not on close examination reveal a further interest in land capable of registration.

5.82 No author sensitive to the legitimate needs of the public would dispute the assertion that the creation of simple interests in land by clear expressive language, whenever permitted by a transaction, is a worthy objective. However, it is difficult to understand how limiting legal interests to those which are based on instruments substantially conforming to a proper form accomplishes anything beyond forcing the parties to create a n interest which cannot be registered a s a n equitable interest, and to protect it by means of a caveat entered in the register. If a desired interest is denied entry into the legal category, the parties have no practical alternative but to let it remain in the equitable category.

5.83 Torrens himself laid great stress on the need for plain and simple forms, for he ranked prescribed forms second in priority only to 'Indefeasibility of Title' in explaining his first Act98

Advantage of prescribed forms. A principle next in importance is, "that plain and simple forms be prescribed and

provided, by use of which persons purposing to deal may be enabled to express distinctly the intention to which effect is to be given by registration."

Without this provision proprietors would remain under the necessity of calling in the conveyancer upon the most ordinary transaction. It affords the best guarantee that the monopoly of business secured to the legal profession, whenever agency is employed in conducting transfers and other dealings, may not be availed of for the exaction of excessive charges, or the revival of circuitous and perplexing methods.

Whatever Torrens may have meant by the word 'prescribed', his text emphasizes forms a s a useful servant in ordinary transactions, and not a s a n uncompromising master in complex transactions. Statutory instruments have already been discussed in paragraph 5.50, and all available evidence indicates that they have been welcomed by both the public and the legal profession. The efficient course would seem to be for a


jurisdiction to enact a sufficient variety of modern statutory instruments to meet usual commercial needs, and to refrain from efforts to force unusual transactions into inappropriate or obsolete forms through the denial of legal status.

(3) Disadvantages of limiting legal interests 5.84 The author suggests that limiting legal interests not only fails to

achieve any objectives of a Torrens system, but hinders the realization of accepted objectives. Two disadvantages will be cited; both produce inefficiency.

5.85 The Registrar and the public he serves are given some flexibility under the system, for an instrument may be registered if it is 'substantially in conformity with the proper form'. How does either a lawyer or the Registrar determine what constitutes substantial conformity? An example of the confusion this inquiry engenders is furnished by the joint judgment of Isaacs and Gavan Duffy JJ., in Crowley v. T e ~ n p l e t o n : ~ ~

Slavish adherence to the forms is not demanded. Technical and immaterial departures from them do not deprive thedealing of efficacy. Substantial compliance is sufficient. But a document offered for registration must show at least substantial compliance on its face.. . .

The actual terms of the bargain are a totally different matter. These the parties are a t liberty to mould and settle for themselves; and, so long as the fair working of the Act is not impeded or embarrassed, the parties are left unfettered with respect to the stipulations they desire. Short provisions are framed with full elaboration of effect, suitable for ordinary occasions; implied terms are enacted which are to prevail in the absence of contrary provision, but contrary provision can always be made. The power to make it is specifically given . . . but in giving it the legislature requires it to be exercised in a particular form. . . .

We have therefore to distinguish between the substance of the transaction or bargain, which is left to the discretion of the parties, and the substance of the form in which the transaction is embodied, which is not left to the parties, but is insisted on by the legislature as one of the conditions of statutory operation.

One can only speculate a s to how many hours government officials and lawyers have consumed over the years arguing the issue of whether or not a change in the substance of a transaction from that prescribed in a form has a s well changed the substance of the form. No criticism of the Judges who delivered this judgment is intended, for the statute may be said to have forced them to attempt a n impossible clarification. However, one wonders if a lawyer, when told that he can mould the substance of a transaction to meet the needs of the parties, but that he cannot depart from the substance of the form, might not lapse into a quiet, repetitious mumbling of 'Catch-22'.

5.86 Stating the second disadvantage of limiting the creation of legal interests can serve a s a summary of this entire chapter. The Torrens system has been established and maintained by the state to serve the needs of the society by facilitating the transfer of interests in land to the advantage of all users of the system. Assume that A was the registered owner of Blackacre shopping center, that B was the registered owner of a complex long-term lease of unit five in the shopping center, and that C wished to purchase the leasehold interest from B. Because B was the


registered owner of the leasehold interest, it is unnecessary for C to evaluate the instruments in B's chain of title, for B has no chain of title. Specifically, a s B's ownership of the leasehold interest in unit five was conferred by the state, C need not evaluate either the extrinsic validity of the transfer of the lease from A to B, or the adequacy of the legal description of unit five in the transfer. C need only evaluate the intrinsic effect of the lease provisions to determine what rights and duties they purport to create, and to make certain that they comply with the general law.

5.87 Assume that B's lease was denied registration a s a legal interest because it did not substantially conform with the proper form, and that B had a caveat entered in the register to protect the leasehold interest. In this example, B does have a chain of title, and the only link is the transfer of the lease from A to B. If C wished to purchase B's leasehold interest, C would have to evaluate the extrinsic validity of the lease, and the adequacy of the legal description of unit five, a s well the intrinsic effect of the lease provisions. If C purchased the leasehold interest, and protected it by a caveat, there would be two links in C's chain of title, the transfer from A to B, and the transfer from B to C. If D wished to purchase the leasehold interest from C, D would have to evaluate C's chain of title back to A as the registered root. Limiting the creation of registered legal interests increased the number of equitable interests protected by caveats, and produces a n environment conducive to the development of chains of title for valuable equitable interests in land. It is believed that this is inimical to the efficient operation of a Torrens system.

FOOTNOTES 1. (1901) 11 Q.L.J. 59, at 60. 2. Grimes, Clark on Surveying and Boundaries 5 277 (4th ed. 1976). 3. (1913) 13 D.L.R. 813,5 W.W.R. 122. 4. The Surveys Act, R.S.A. 1970, c. 358, s. 27. 5. (1911) 38 W.W.R. 422. 6. (1901) 11 Q.L.J. 59. 7. (1930) 44 C.L.R. 576. 8. Simpson, Land Law and Registration 139 (1976). 9. (1930) 44 C.L.R. 576, at 586-87.

10. Id. at 590. 11. Simpson, supra, n. 8, at 134. 12. (Imp.) 15 & 16 Geo. 5, c. 21, s . 76. 13. Simpson, supra, n. 8, at 136. 14. [I9571 Ch. 251 (C.A.). 15. DiCastri, Thorn's Canadian Torrens System 88-95 (2d ed. 1962). 16. 119611 S.R. (N.S.W.) 365. 17. Id. at 376. 18. [I9301 Vict . L.R. 111. 19. [I9351 1 W.W.R. 433 (Sask. C.A.). 20. (1912) 45 S.C.R. 618,l U.L.R. 698,l W.W.R. 1122. 21. Id., 45 S.C.R. at 622,l D.L.R. at 701,l W.W.R. at 1138. 22. Laskin, Cases and Notes on Land Law 180 (rev. ed. 1964). 23. Rayner and McLaren, Falconbridge on Mortgages 5 11.4 (4th ed. 1977). 24. (1901) 27 Vict. L.R. 82. 25. (1963) 44D.L.R. (2d) 186,43 W.W.R. 545.


26. [I9671 1 A.C. 569. 27. Hinde, Indefeasibility of Title since Frazer v. Walker, The New Zealand Torrens System Centennial

Essays 33 (Hinde ed. 1971). 28. [I9661 N.Z.L.R. 331. 29. Id. 30. Viscount Llilhorne, Lord Denning, Lord Hodson, Lord Wilberforce and Sir Garfield Banvick. 31. [I8911 A.C. 248. The author's textual summary of the Gibbs doctrine is discussed in chapter 6. 32. 56 O.L.R. 29, at 31, [I9241 4 D.L.R. 1070, a t 1071-72 (H.C.). 33. (1880) 6 Vict. L.R. 458, at 462. 34. (1910) 15 West. L.R. 637 (Alta. T.D.). 35. DiCastri, supra, n. 15, at 249. 36. Thom, The Caveat in the Torrens System, (1924) 2 Can. Bar Rev. 327, a t 330. 37. DiCastri, supra, n. 15, at 250. 38. Torrens, The South Australian System of Conveyancing by Registration of Title 9 (1859). 39. (1914) 17 C.L.R. 457, a t 466-67 (Aust. H.C.).

CHAPTER 6

Defeasibility of Ownership Conferred by Registration

a. Introduction

6.1 Under what circumstances should ownership conferred by the state under a Torrens system be defeasible? The author's analysis of this question is based on the premise that the basic objective of a Torrens system insofar as legal interests are concerned is the maintenance of a register comprehensive of all legal interests in land in accordance with requirements of the general law. Based on this premise, the basic rule should be that ownership conferred under a Torrens system is defeasible whenever required by provisions of law existing independently of a Torrens system, and that this basic rule should be modified only to the extent required by a Torrens system.

6.2 Assume that A was the registered owner of Blackacre in accordance with provisions of the general law, and that subsequently B became the registered owner of more legal rights in Blackacre than were authorized by the general law. As defined in paragraph 4.18, B's ownership was erroneous because, and to the extent that, it was inconsistent with the general law. In this situation, unfortunately, either B's ownership is defeasible in order to make it possible for the Registrar to correct the register so that it will conform with requirements of law existing independently of a Torrens system, or A's ownership was defeasible through error in order to achieve a n objective of a Torrens system. This example merely reiterates the conclusion stated in paragraph 4.26, that ownership under a Torrens system is subject to defeasibility because of the possibility of error inherent in the system. Error will necessarily produce a potential dispute between persons claiming conflicting legal rights derived from registration. In this chapter we must consider when defeasibility should be based on principles of the general law existing independently of a Torrens system, and when defeasibility should be based on modifying principles of law required by a Torrens system.

b. Curren t S ta tu tory Provisions 6.3 The current statutory provisions of the Alberta Act will be

considered briefly in order to facilitate their subsequent discussion in connection with specific defeasibility problems. Section 63(1) will be quoted a t the outset in order to demonstrate the basic statutory approach to the subject of defeasibility.


63.(1) The owner of land in whose name a certificate of title has been granted shall, except in case of fraud wherein he has participated or colluded, hold it, subject (in addition to the incidents implied by virtue of this Act) to such encumbrances, liens, estates or interests as are notified on the folio of the register that constitutes the certificate of title, absolutely free from all other encumbrances, liens, estates or interests whatsoever except the estate or interest of an owner claiming the same land under a prior certificate of title granted under the provisions of this Act or granted under any law heretofore in force and relating to title to real property. (Emphasis added.)

The emphasized language discloses the statutory approach; the owner of land in whose name a certificate of title has been granted (which applies to the registered owner of a fee simple or of a lease) holds the land absolutely free from all other interests (has an indefeasible title) subject to specifically stated exceptions. As only three exceptions can be identified in section 63(1), which purports to be exhaustive, on the basis of this section one should be able to say that a registered owner of a legal interest in land is defeasible a s to that interest only: (1) a s a consequence of the existence of an encumbrance, lien, estate or interest to which the registered interest was stated to be subject, or (2) when the owner obtained registration by participating in fraud, or (3) when the same legal interest was held by another owner under a prior certificate of title.

6.4 The problem is that one cannot rely on section 63(1). There are several other sections of the Alberta Act which follow the same statutory approach; they are based on the 'indefeasible title' concept and state specific exceptions, but sometimes what might be the same exception included in section 63(1) is phrased differently (creating a n ambiguity a s to the meaning of the exception), sometimes an exception contained in section 63(1) is omitted, and sometimes a new exception not stated in section 63(1) is introduced. Because several of the sections purport to be exhaustive a s to the exceptions to indefeasibility, the fact that they contain different exceptions creates a potential conflict between the sections; perhaps the exceptions were intended to be cumulative, or perhaps some priority among the exceptions was intended.

6.5 Because the ultimate issue is what indefeasibility exceptions are necessary, the author will ignore the potential conflict between the sections, and will attempt to summarize the present statutory exceptions to indefeasibility, and to provide references to their statutory sources in the Alberta Act. As anyone familiar with Torrens legislation will immediately perceive, both the summarizing phraseology and the statutory sources reflect the author's judgment. Given the ambiguity within and the inconsistency between the sections, the effort is perilous; but it is believed that the list is accurate as to the meaning of the exceptions.

(1) Defeasibility of a registered interest to give effect to overriding interests not entered in the register. See sections 64; 65(1) and 183.

(2) Defeasibility of a registered interest to give effect to other interests to which it is subjected by entries in the register. See sections 63; 64(e); 180(l)(a)(b) and (c); and 185(l)(a)(b) and (c), and (4).

(3) Defeasibility of a registered interest to permit the execution of a transaction a s mutually intended by the relevant parties. See sections 50(1); and 185(l)(a)(b) and (c), and (4).

Chapter 6. Defeasibility of Ownership 101

(4) Defeasibility of a registered interest obtained by a n owner through knowing participation in fraud. See sections 63; 65; 167; 180(l)(d) and 185(l)(c) and (4); 203; and 204.

(5) Defeasibility of a registered interest obtained through error by a n owner who was not a purchaser for value. See sections 167; 180(l)(d); and 185(1) and (4).

(6) Defeasibility of a registered interest to the extent that a conflicting interest is held by another registered owner under a prior certificate of title. The prior certificate of title exception is variously defined in three separate sections, a s follows:

63.(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 he or any person through whom he derives title has held possession.

65.(2) For the purpose of this section that person shall be deemed to claim under a prior certificate of title who is holder of, or whose claim is derived directly or indirectly from the person who was the holder of, the earliest certificate of title granted, notwithstanding that the certificate of title has been surrendered and a new certificate of title has been granted upon any transfer or other instrument.

180.(l)(f) The case of an owner claiming under an instrument of title prior in date of registration under this Act, or under the provisions of any law heretofore in force in any case in which two or more grants, or two or more certificates of title, or a grant and certificate of title, are registered under this Act or under any such law in respect of the same land.

(7) Defeasibility of a registered interest a s to any land included in a certificate of title by misdescription of land or of its boundaries. Section 167 merely contains a reference to section 180(l)(e). The misdescription exception is contained in the following sections in the language quoted.

65.(1) ". . . except so far as regards any portion of land by wrong description of boundaries or parcels included in the certificate of title. . . ."

180.(l)(e) ". . . any land included in any. . . certificate of title . . . by misdescription of the. . . land or of its boundaries . . . ."

185.(l)(a) ". . . any misdescription of land or boundaries. . . ." 6.6 Having listed the statutory indefeasibility exceptions, one might

proceed immediately to analyze them in terms of the existing authorities. That procedure, however, will not be followed. Rather, the deductive method of analysis a s stated in paragraphs 4.2-3 will be used. Based on the postulated objectives of a Torrens system, the study will first attempt to identify the conditions of defeasibility which are functionally required for an efficient system, and will then analyze the current statutory provisions in an effort to determine to what extent they satisfactorily define the required defeasibility conditions.

c. Defeasibility Required by Principles of the General Law Independent of a Torrens System

6.7 If the basic objective of a Torrens system is the maintenance of a register comprehensive of all legal interests in land in accordance with requirements of the general law, then one could state a s a statutory rule that 'ownership conferred by the state under this act is defeasible when


required by principles of law existing independently of this act, except a s modified by this act'. The act would only have to include those additional rules of defeasibility modifying the general law, and depending upon how extensive those modifying rules were, one might find that a functional and efficient Torrens system, substantially improving facility of transfer, depends on relatively slight changes in the general law.

6.8 As has been pointed out a t paragraphs 6.4-5, most of the relevant sections of the Alberta Act are based on the principle that ownership conferred by the state is indefeasible, subject only to stated indefeasibility exceptions. Sections 63, 65, 167, and 180 all follow this pattern. This approach must have been politically expedient during the late nineteenth century, for broad statutory references to the general (common) law would probably not have helped to promote the new Torrens system. The difficulty with this approach is that i t imposes a severe drafting problem, for all situations in which one's initial indefeasible ownership is potentially defeasible must be specifically provided for. Because a registered owner has a n initial credit of all possible rights in Blackacre, the statute must provide for debits whenever someone else has a conflicting right in Blackacre.

6.9 In contrast, section 185 of the Alberta Act takes a different approach. The section is so bewilderingly verbose that quotation would only contribute to confusion. The author will risk summarization, and will conclude that the section authorizes the Registrar to complete or maintain the register by canceling or correcting any erroneous entry, "without prejudicing rights conferred for value". As a n erroneous entry is a n entry inconsistent with requirements of the general law, the section in fact provides that any ownership conferred by a n entry inconsistent with requirements of the general law is defeasible, except a s provided by the quoted clause, which hints a t a modifying rule of defeasibility required by a Torrens system.

6.10 The first five statutory indefeasibility exceptions contained in the Alberta Act, a s outlined in paragraph 6.5, will now be repeated and discussed in order to demonstrate that they all apply to situations encompassed by the broader basic rule of defeasibility required by principles of the general law existing independently of a Torrens system but incorporated into the system.

(1) Defeasibili ty of a registered in teres t t o give effect to overr id ing in teres ts n o t en tered i n the register

6.11 Overriding interests were discussed briefly in paragraph 4.14 in order to emphasize that the register cannot be comprehensive of all possible interests in land because it does not purport to include overriding interests. Section 64(1) of the Alberta Act provides that "The land mentioned in any certificate of title granted under this Act is, by implication and without any special mention therein, subject to . . ." certain specified interests. Overriding interests are mentioned here because a s a registered interest is subject to overriding interests, it will be defeasible to the extent that such a conflicting interest exists, and in accordance with principles of the general law applicable to the overriding interest. One


overriding interest specified in section 64(l)(b) is the government lien for unpaid taxes.

6.12 Example A. A was formerly the registered owner of Blackacre, which was sold to B under process of law to satisfy a government tax lien. In this example, the registered ownership conferred on A was defeasible in accordance with principles of the general law applicable to government tax liens.

(2) Defeasibility of a registered interest to give effect to other interests to which it is subjected by entries in the register

6.13 Section 63(1) of the Alberta Act, quoted a t paragraph 6.3, illustrates this situation, for i t provides that the registered owner of land holds it subject to such encumbrances, liens, estates or interests a s are notified on the register.

6.14 Example B. A was the registered owner of Blackacre, subject to a mortgage in favor of B securing a debt A owed to B. A defaulted in payment of the debt, B brought a proceeding to foreclose the mortgage, and the court issued a vesting order transfering Blackacre to B in satisfaction of the debt. I t seems somewhat incongruous to the author to think of A's ownership a s having been indefeasible, but subject to a condition of defeasibility. Rather, he finds i t more practical to say that the state never conferred more rights in Blackacre on A than ownership subject to the liabilities inherent in a mortgage in accordance with principles of the general mortgage law existing independently of a Torrens system.

(3) Defeasibility of a registered interest to permit the execution of a transaction as mutually intended by the relevant parties

6.15 Example C. A was the registered owner of Blackacre in 1909. In 1915, A executed and delivered a transfer of Blackacre to B, including mines and minerals (hereafter M & M), and the transfer expressed the intention of both parties. B presented the transfer to the Registrar, and requested registration a s the owner of Blackacre. What should the Registrar do? The reader is asked to tolerate this elementary question with patience, for fundamental principles can be best demonstrated by simple situations, and once understood, can be applied in more complex situations to which their relevance might otherwise not be apparent.

6.16 But for the Torrens system, A would have delivered a deed to B, who would thereupon have become the owner of Blackacre. No objective of the Torrens system requires the alteration of the general law principle that a n owner can voluntarily transfer his ownership of a legal interest to someone else; only the procedure for accomplishing this result is changed. Manifestly, therefore, a registered interest is defeasible in accordance with the general law in order to permit the Registrar to execute a transaction a s mutually intended by the relevant parties. Section 50(1) of the Alberta Act thus provides that "Upon every transfer of ownership, the certificate of title of the transferor . . . shall be cancelled . . . and a new certificate of title shall be granted to the transferee." Section 185 of the Alberta Act, a s


summarized a t paragraph 6.9, authorizes the Registrar to complete the register by canceling or correcting any erroneous entry. I s it not obvious that until the Registrar 'completes' the register by 'canceling' A's ownership and registering B as the owner of Blackacre, the register is 'erroneous' and requires 'correction'?

6.17 The subject of the Registrar's duty to execute a transaction as mutually intended by the relevant parties is a convenient context in which to consider the basic nature of the Registrar's function under a Torrens system. The Alberta Act utilizes a profusion of words to describe the Registrar's operations. He 'completes' and 'corrects' the register; by making 'entries', 'endorsements', 'memoranda', and 'additions', and by 'canceling' those made; and by 'issuing' instruments, and by 'canceling' those issued. Are all of these words descriptive of administrative acts performed by the Registrar on the register which have the legal effect of creating and terminating legal interests in land, hopefully in accordance with principles of the general law as modified by principles of law required by a Torrens system?

6.18 At common law legal interests in land were created and terminated by private individuals. However, there were exceptions through the equitable remedies of rectification and cancellation discussed a t paragraphs 2.72-74, and 4.20-22. If one's ownership of a n interest in land a t common law was erroneous, either because a conveyance was not intended by the relevant parties, or was procured by fraud, the court would normally rectify or cancel the conveyance, as appropriate, and thereby confer ownership of the legal interest on the party properly entitled thereto under the general law.

6.19 I t would appear that the exceptional intervention of equity to create and terminate legal interests in land through cancellation and rectification is the closest analogy to the Registrar's routine operations under a Torrens system. Perhaps the most accurate phrase available in the legal vocabulary to describe the Registrar's normal primary duty of continually creating and terminating legal interests in land in accordance with the general law as modified by a Torrens system would be 'statutory rectification of the register'. However, because'statutory rectification' could be confused with equitable rectification, the author believes that 'statutory revision of the register', which is both descriptive and simple, is a more appropriate phrase.

6.20 Where judicial direction is sought under sections 181,182 or 191 of the Alberta Act, the court exercises its power under sections 182, 187, 188 and 194 by means of a n order directing the Registrar (the same profusion of statutory words quoted a t paragraph 6.17 are used). Can we not say a n order directing the Registrar to revise the register a s directed by the court?

6.21 Continuing example C, two days after receiving the transfer from B the Registrar began to revise the register by carrying out the transaction. First he registered B as the owner of Blackacre including M & M. Secondly, and two minutes later, he canceled A's registration as the owner of Blackacre, but before he could complete the transaction by canceling A's separate registration a s the owner of the M & M, he was interrupted by a n absorbing telephone call. After the phone call, as before, there were two

Chapter 6 . Defeasibility of Ownership 105

certificates of title for the Blackacre M & M on the Registrar's desk, and under a literal reading of sections 65(2) and 180(l)(f) of the Alberta Act, quoted a t paragraph 6.5, A held the prior certificate of title. Does the prior certificate of title exception mean that because the Registrar chose to register B as the owner of the M & M before he canceled A's registration, he can no longer complete his revision of the register by doing so? Must the Registrar now seek judicial assistance? If a question is absurd, it is because there is a patently obvious answer. No legislature could conceivably have intended that the prior certificate of title exception apply in this situation, for no objective of a Torrens system would be served by barring the Registrar from executing a transfer intended by the parties and conflicting with no principle of the general law.

6.22 The Registrar, however, did not cancel A's prior certificate of title for the M & M; the matter slipped from his mind, and the Blackacre registers were returned to storage. If the Registrar remembered that the Blackacre M & M register remained erroneous two weeks later, is there any functional reason why he should not be permitted to revise the register by canceling A's registration as the owner of the M & M in accordance with A's transfer? What if the Registrar discovered the error in 1937, 22 years after it was made in 1915; is there any reason why the mere passage of time, with no other change in the relevant facts, should preclude the Registrar from revising the register in accordance with A's transfer? In 1937, B sold and tranferred Blackacre, including the M & M, to C, who was duly registered in accordance with this transfer. In 1960,45 years after the original transfer from A to B, C brought a n action seeking a declaration a s to who, A or C, owned the M & M in Blackacre. Example C now summarizes the relevant facts in Fellger v. Canada Trust Co.1

6.23 I s there any functional reason why the acquisition of B's rights by C should preclude the Registrar from revising the register in accordance with A's transfer? A asserted that i t had a n indefeasible prior certificate of title for the Blackacre M & M, and that C's registration was defeasible. The court ordered the Registrar to cancel A's prior certificate of title, but it did not utilize the analysis suggested above, that the prior certificate of title exception could not reasonably have been intended to make the registered ownership of B or C defeasible a s to a n interest A intended to transfer to B.

6.24 The Fellger case included these collateral facts. B claimed that she first purchased Blackacre from K (who was not registered) in 1907, and that K purchased from L (who was registered) around 1900. B filed a caveat against L's registered title to protect this claim in 1908, and when A obtained its certificate of title in 1909 pursuant to a transfer from L, B's caveat was endorsed on A's certificate of title. Based on these facts, the court said that A's certificate of title was blemished by B's caveat, and hence was "not the kind of a prior certificate of title envisaged by The Land Titles Act".2 With respect, the author fails to comprehend how these collateral facts were relevant to the basic issue in the Fellger case. If A acquired Blackacre subject to L's contract with K, and if B acquired K's contract rights, that would explain why A made the transfer to B. But whether or not A was contractually obligated to make the transfer to B, and whether or not A's prior certificate of title was 'blemished', A's prior


certificate of title must be defeasible in order to permit the Registrar to revise the register by executing the transfer mutually intended by A and B in 1915.

6.25 The Fellger case is merely the first case considered in this study in which the prior certificate of title exception was a burr under the saddle of a judge under pressure to reach a functionally sensible result under the Torrens system. As stated a t paragraph 5.7, it is beyond the power of the state to confer the same legal interest in Blackacre exclusively and contemporaneously on two different persons. In the Fellger case, it was metaphysically impossible for both A and B to own the M & M a t the same time. Perhaps the prior certificate of title exception was intended to resolve this conceptual problem, and clear resolution is required for both theoretical and functional reasons.

6.26 Theoretically, a title registration system should include rules making it possible for one to determine who owns any specified legal interest in land a t any given time. There is logic in a rule which provides that if A is the registered owner of a legal interest, he remains the owner until his registration is canceled, notwithstanding a subsequent conflicting registration. There is equal logic in a rule which provides that if B is registered a s the owner of a legal interest, his registration automatically cancels a prior conflicting registration. The prior certificate of title provisions of the Alberta Act certainly appear to select the first alternative, that the prior registration establishes the valid registered ownership. Both alternatives are arbitrary, however, for neither will necessarily give valid registered ownership to the party who must ultimately have i t on the merits. When there are contemporaneous conflicting registrations, why not define the valid registration a s the one which conforms with the general law as modified by rules required by a Torrens system, and thus define the valid registration a s the one which will ultimately prevail on the merits? The suggested rule would be just a s certain a s a n arbitrary one, for the system must provide clear rules for determining which of the conflicting registrations is defeasible.

6.27 A rule defining the valid registered ownership in a contemporaneous conflicting registration situation is required for functional reasons. First, a rule defining the valid registration is necessary in order to make it possible to identify the nature of the statutory revision of the register required to remedy the error. In example C, under the suggested rule C held the valid registration, and the appropriate remedy is the cancellation of A's registration which is a threat to C's valid registered ownership. I t is imperative that C obtain this remedy before A transfers the M & M to D, for if this happens, a new rule modifying the general law to achieve goals of a Torrens system may alter the situation and leave C with the defeasible registration. However, C would not need to request a n order conferring legal ownership on him, which would be the case if A's prior registered ownership were defined a s the valid ownership. The suggested rule would operate with equal ease if the error in example C were reversed. Assume that A excepted the M & M from his transfer of Blackacre to B, that the Registrar properly left A's registration a s the owner of the M & M intact, but erroneously registered B a s the owner of the M & M. Here the


appropriate remedy is the cancellation of B's registration which is a threat to A's valid registered ownership. It is imperative that A obtain this remedy before B transfers the M & M to C, for if this happens, a a new rule modifying the general law to achieve goals of a Torrens system will alter the situation and leave A with the defeasible registration.

6.28 A second functional reason for defining the valid registered ownership in a contemporaneous conflicting registration situation is to make it possible for the parties and the courts to identify a potential adverse possession situation, for unless the valid registered ownership is established, it is impossible to determine who might have a cause of action to obtain possession based on valid registered ownership, and who might have obtained ownership by adverse possession extinguishing the otherwise valid registered ownership. This subject is considered in chapter 8. The necessity of defining the valid registered ownership in a conflicting contemporaneous registration situation has been introduced a t this point to make it possible to test the efficiency of the rule suggested a s a solution to the problem raised in example C, and in further examples in this chapter which involve conflicting contemporaneous registrations.

6.29 Example D. A was the registered owner of Blackacre in 1903. In 1908, A executed and delivered a transfer of Blackacre to B, exceptingM & M , and the transfer expressed the intention of both parties. Upon receipt of the transfer, the Registrar canceled A's registration a s the owner of Blackacre, including M & M, and registered B a s the owner of Blackacre, including M & M. Example D summarizes the early relevant factors in a long sequence of events in Alberta which led to the famous case of Turta v. Canadian Pacific Ry. Co. and Imperial Oil Ltd.3 As this example presents the same substantive issue a s example C, the functional analysis is the same. B's registered ownership of the M & M was erroneous because it did not reflect the mutual intention of the parties to the transaction; it was inconsistent with the general law, and it was not required by any principles of a Torrens system.

6.30 Although B's registered ownership must be defeasible, statutory analysis is difficult because of the indefeasibility notion inherent in certain key sections of the Alberta Act. Section 185 supports the required solution for it authorizes the correction of erroneous registrations. Section 50 provides negative support, for it only authorizes the Registrar to cancel A's registration based on a transfer, and there was absolutely no transfer from A to B covering the M & M in this example. Sections 63, 65, and 180, however, introduce an analytical morass. As stated in paragraph 4.28, one of the inherent elements in a Torrens system is the Registrar's power to terminate and create legal ownership by unauthorized entries in the register. Example D does not present a contemporaneous conflicting registration situation; through erroneous entries in the register, A's registered ownership of the M & M was terminated, and registered ownership was conferred on B. The problem is that sections 63,65, and 180 all fail to acknowledge the functional reality that A's ownership was subject to divestiture through error. Moreover, B's registered ownership must be defeasible, and the same sections fail to recognize this functional necessity.


6.31 Nevertheless, every opinion written in the Turta case, from the Supreme Court of Alberta, Trial Division and Appellate Division, through the Supreme Court of Canada, which commented by dictum on the facts when only the rights of A and B were in issue, stated that the register could be corrected and that ownership of the M & M could either be restored to A (which was correct) or had never left A (which was incorrect for the reasons already set forth).

6.32 Example E. In 1907, A was the registered owner of Blackacre, pursuant to a transfer from the Canadian Pacific Ry. Co. (C.P.R.). Because the C.P.R. (and not the Crown) had owned the M & M, and had not excepted them from the transfer, A's registration included the M & M, even though the certificate of title did not specify this fact. In 1915, A executed and delivered a transfer of Blackacre to B, 'excepting M & M to the Crown'. The Registrar canceled A's registration in full, and registered B as the owner of Blackacre, 'excepting M & M'.

6.33 At this point no one was registered a s the legal owner of the M & M, and the substantive legal question was, "who should have been registered?" The answer depended on the intention of the parties. Assume that a court would conclude that the 'excepting M & M to the Crown' clause in A's transfer to B reflected A's belief that the Crown already owned the M & M, and was not intended as a transfer to the Crown; that the transfer of Blackacre to B, as properly construed, expressed A's intention to transfer all interests in Blackacre to B which A owned; and that B should have been registered a s the legal owner of the M & M.

6.34 In 1923, B executed and delivered a transfer of Blackacre to C, 'excepting M & M'. The Registrar canceled B's registration in full, and registered C as the owner of Blackacre, 'excepting M & M'. At this point there was still no one registered a s the legal owner of the M & M. The Registrar discovered this fact during a routine review of the Blackacre register in 1932. In order to correct all of his records, the Registrar made two revisons. First, he struck the 'excepting M & M' clause from B's canceled registration a s the owner of Blackacre, thus anticipating the previous assumption of what a court would conclude, but he left B's registration canceled in full. Secondly, he struck the 'excepting M & M' clause from C's registration a s the owner of Blackacre, thus interpreting the transfer from B to C a s though it had not contained the 'excepting M & M' clause, and conferred ownership of the M & M on C. In 1971, the Registrar filed a caveat against C's registration to prevent further transactions unless subject to any rights A and B might have in the M & M. Example E now summarizes the relevant facts in Public Trustee for Alberta v. P y l y p ~ w . ~ In both the trial court and on appeal i t was held, a s has been stated a s a n assumption, that the 1915 transfer from A to B, as properly construed, transferred the M & M to B.

6.35 The more important issue for this study concerns the controversy a s to whether or not the 1923 transfer from B to C, which excepted the M & M, correctly expressed the intention of the parties. Although none of the relevant parties were still alive, C's successors contended that had B and C known that B was the rightful 'owner' of the M & M, the transfer would not have excepted the M & M, and that the transfer should be rectified by the


court accordingly. In short, the court was asked to exercise its classic equitable jurisdiction, previously discussed in paragraphs 2.72-73, to rectify an instrument of the parties based on mutual mistake. Indeed, this is precisely what the Registrar had already done in 1932 when, in spite of the 'excepting M & M' clause in the 1923 transfer from B to C, he registered C as the owner of the M & M.

6.36 I n the Supreme Court of Alberta, Trial Division, Sinclair J. held that the 1923 transfer from B to C should be rectified, and that consequently C's registration a s the owner of the M & M was not erroneous. I t should be added that Sinclair J. stated that the Registrar had lacked the authority to rectify the transfer in 1932, and although he stated no reasons for this conclusion, they seem relatively obvious. Both the legal interpretation of the effect of the 'excepting M & M to the Crown' clause in the 1915 transfer from A to B, and the applicability of equitable rectification to the 1923 transfer from B to C, involved questions of law which should not have been decide by the Registrar.

6.37 The Pylypow case is very significant in terms of the defeasibility of a registered interest, and this may be seen more readily if we assume for a moment that the Registrar registered B as the owner of the M & M in 1932 pursuant to a court order interpreting the transfer from A to B, but left C's registration a s the owner of Blackacre, 'excepting M & M', unaltered. The register would then have accurately reflected the execution of the 1923 transfer from B to C, for the transfer excepted the M & M. However, in 1971 Sinclair J. held that the 1923 transfer from B to C did not correctly express the transaction mutually intended by B and C, and that the transfer should be rectified. This, it is worthy of reemphasis, was an exercise of the court's equitable jurisdiction to rectify a n instrument of the parties. Rectification of the transfer would have left the register erroneous, for a s B would still have been the registered owner of the M & M in 1971, the transaction intended by the parties in 1923 would not yet have been executed by the Registrar. The Registrar would not have made a mistake, for he would merely have executed the transfer a s it was tendered to him, and this emphasizes the point made in paragraph 4.20, that a functional definition of error should be neutral a s to fault. In fact, the Pylypow case is quite similar to the examples used in paragraph 4.21, and demonstrates that a registered interest, here B's ownership of the M & M, is defeasible to permit the execution of a transaction mutually intended by the parties, even when that mutual intention was not expressed in a transfer until the latter was equitably rectified decades after the transaction was to have taken place.

6.38 The decision of the trial court in Pylypow was reversed by the Appellate Division on the grounds that, although there was evidence to support the finding of fact that the parties would have intended that the M & M be transferred if they had known that B 'owned' them, there was no evidence to support a finding of fact that they had actually agreed to transfer them, and that for this reason the transfer which expressly excepted the M & M should not be rectified. The Appellate Division opinion assumed, however, that a registered interest would be defeasible if equitable rectification were applicable.


(4) Defeasibility of a registered interest obtained by an owner through knowing participation in fraud

6.39 Sections 63; 65; 180(l)(d) and 185(l)(c) and (4); and 203 of the Alberta Act all provide, in substance, that a registered interest obtained by a n owner through knowing participation in fraud is defeasible. Although sections 167 and 180(l)(d) say that the owner must be bona fide, it seems most unlikely that this phrase was intended to impose a higher standard of business morality on an owner than to refrain from knowingly participating in fraud, for as shown in paragraph 2.52, in equity the terms were synonymous; a purchaser of a legal interest was bona fide if he had not knowingly participated in a breach of trust or other fraudulent conduct.

6.40 Under the common law system of conveyancing, a prior equity would be enforced against the subsequent purchaser of a legal interest (see paragraphs 2.50-52, 2.69, and 2.73-74), and would be accorded priority of enforcement over a subsequently acquired but otherwise superior equity (see paragraphs 2.78-83), unless a t the time of acquisition of the subsequent interest the purchaser was not guilty of fraud. This means that a fraudulently acquired legal interest would be defeasible through the enforcement of the equitable remedies of specific performance, rectification, or cancellation, a s appropriate, and a fraudulently acquired equity might not be enforced a t all. Stating these equitable rules conversely, the holder of a subsequently acquired legal interest would not be subject to the enforcement of a prior equity, and a subsequently acquired superior equity would be accorded priority in enforcement over a prior equity, if the subsequent interest had been acquired by a bona fide purchaser for value.

6.41 Modern recording systems increase facility of transfer by enlarging the category of prior interests which will be subordinated to a subsequent interest acquired by one who satisfies the requirements of the relevant statute. A subsequently acquired legal interest will divest a prior legal interest to the extent that the legal interests are inconsistent, and any subsequently acquired equity will be enforced against the holder of a prior legal interest and will be accorded priority in enforcement over any prior equity, if the holder of the subsequent interest satisfies the requirements of the statute. The net effect is that any prior interest will be subordinated to the extent inconsistent with any subsequent interest acquired by one who satisfies the requirements of the statute. What are these requirements under recording statutes in common use? As the race statute i s infrequently used, it will be disregarded here. Under a race-notice statute, the subsequent interest must be recorded before the prior interest is protected by recording (see paragraph 3.18). Under both a race-notice and a notice statute, the subsequent interest must be acquired by a bona fide purchaser for value in accordance with generally accepted equitable principles, which of course include the doctrine of constructive notice (see paragraph 3.17).

6.42 Any common law jurisdiction, with or without a statutory system incorporating principles of conventional recording, could enact legislation substantially increasing facility of transfer by restricting the perimeter of fraud, and thus making it easier for the purchaser of a subsequent interest to achieve bona fide status. The recommendations contained in the Uniform Act (US) were discussed a t paragraphs 3.20-26 for two reasons.


First, they illustrate a modern attempt to decrease substantially the scope of the doctrine of constructive notice, without eliminating it completely. Secondly, they demonstrate that a statutory redefinition of fraud involves a n alteration in the general law quite distinct from any changes required by a Torrens system.

6.43 The sections of the Alberta Act which provide that a registered interest is defeasible if acquired through fraud were referred to a t paragraph 6.39. If the Alberta Act had stopped there, it would have merely incorporated generally accepted equitable principles defining fraud, and hence a registered legal interest would be defeasible under the same circumstances a s would a common law legal interest. The Alberta Act did not stop there; it includes section 203 which must, because of its extreme importance, be guoted in full:

203. Except in the case of fraud, no person contracting or dealing with or taking or proposing to take a transfer, mortgage, encumbrance or lease from the owner of any land in whose name a certificate of title has been granted shall be bound or concerned to inquire into or ascertain the circumstances in or the consideration for which the owner or any previous owner of the land is or was registered or to see to the application of the purchase money or of any part thereof, nor is he affected by notice direct, implied or constructive, of any trust or unregistered interest in the land, any rule of law or equity to the contrary notwithstanding and the knowledge that any trust or unregistered interest is in existence shall not of itself be imputed as fraud. (Emphasis added.)

There are two distinct questions to be answered. First, to what extent does section 203 alter the pre-existing judicial definition of fraud, and secondly, to what subsequently acquired interests does this new definition apply?

6.44 Beginning with the first question; to what extent does section 203 redefine fraud? Section 203 appears to provide that the fact that one who deals with a registered owner has knowledge of the existence of a prior unregistered interest shall not of itself be imputed as fraud. I n order to appreciate the probable functional meaning of this provision, the reader may wish to review paragraph 3.24 a t this point. Under accepted equitable principles, one was not fraudulent merely because he purchased with actual knowledge of the existence of a prior interest. When a purchaser with no more than actual knowledge of the existence of a prior interest was held to be fraudulent, it was because of the top aspect of the doctrine of constructive notice, which imputed knowledge to the purchaser of any substantive rights of the holder of the prior interest which a diligent investigation would have disclosed. If a diligent investigation would have disclosed that the holder of the prior interest had rights which would be prejudiced by the purchaser's acquisition of the subsequent interest, then knowledge that his acquisition would involve participation in fraud was imputed to the purchaser. But if a purchaser had no knowledge that his acquisition would involve participation in fraud, and if a diligent investigation would not have disclosed this fact, the acquisition was not fraudulent. I t seems reasonable to conclude, therefore, that section 203 eliminates the top aspect of the doctrine of constructive notice, which quite frequently imputed knowledge to a purchaser that his acquisition would involve participation in fraud, simply because he purchased with actual knowledge of the existence of a prior interest.

6.45 Section 203 also provides that one who deals with a registered


owner is not affected by constructive or direct notice of any prior unregistered interest. This provision eliminates the bottom aspect of the doctrine of constructive notice, which imputed knowledge to a purchaser of the existence of any prior interest which a diligent investigation would have disclosed. However, if section 203 eliminates the top aspect of the doctrine of constructive notice, so that knowledge that a purchase will involve participation in fraud will not be imputed from actual knowledge of the existence of a prior interest, then whether or not one is deemed to have knowledge of the existence of a prior interest is functionally irrelevant. Elimination of the bottom aspect of constructive notice leaves section 203 tidy; we can conclude that section 203 completely eliminates the doctrine of constructive notice.

6.46 Unfortunately, consideration of section 203 cannot stop here, for it also provides that one is not affected by direct notice of any prior unregistered interest. Suppose that one purchased a n interest from a registered owner with actual knowledge that the sale by the registered owner was fraudulent a s to the holder of a prior unregistered interest. Does section 203 mean that the purchaser of the subsequent interest cannot be held to have participated in fraud because to do so would affect him by his direct notice of the prior unregistered interest, which of necessity he had or he could not have known that the sale by the registered owner was fraudulent? Or, can the purchaser be held to have participated in fraud because to do so would affect him by his knowledge that the sale to him by the registered owner was fraudulent, and not by his mere notice of the prior unregistered interest?

6.47 With the exception of the problem discussed in the preceding paragraph, i t would seem that the statutory redefinition of fraud contained in section 203, and in similar statutes in other Torrens jurisdictions, presents no serious legal problem. However, whether or not this is so depends on how functionally the new definition has operated when applied by courts to complex facts in actual litigation. The author believes that the fraud cases can conveniently be analyzed in four categories, each reflecting a basic factual pattern. The factual patterns, and hence the categories, differ in terms of the nature of the conduct which might be considered fraudulent. The four categories, which will be used for the internal organization in this subsection, are a s follows: (a) Independent fraudulent conduct. (b) Knowing participation in the fraudulent conduct of another. (c) Acquisition of a n interest with knowledge that a conflicting prior

nonregistered interest does exist. (d) Acquisition of a n interest with knowledge suggesting that a conflic-

ting prior nonregistered interest may exist. 6.48 Organizing cases into basic factual patterns is, admittedly,

difficult, for not infrequently judicial opinions will leave reasonable doubt a s to what facts were found to exist. Hence, the category in which a case properly falls must sometimes involve a value judgment. The author also concedes that this method of legal analysis is highly pragmatic, for it focuses primarily on the facts and holding of a case, rather than on the reasons offered for the decision by the judicial opinions.5


6.49 Before examining the cases, however, the second question posed in paragraph 6.43 must be considered; to what subsequently acquired interests does the redefinition of fraud contained in section 203 apply? The title of this subsection refers to defeasibility of a registered interest obtained by a n owner through knowing participation in fraud. Section 203 contains no language limiting its application to the holder of a registered interest. Quite the contrary, the section says that no person contracting or dealing with a registered owner is affected by notice of an unregistered interest. One may contract with a registered owner and acquire an interest which he does not register, and as will be seen when the cases are discussed, the courts have applied the statutory redefinition of fraud to evaluate the conduct of holders of subsequent nonregistered as well as registered interests.

6.50 Example F. For purposes of simplicity and ease of comparison, the cases will be analyzed in terms of a basic model, and where relevant facts in any given case deviate from the model, those facts will be noted. The model cast of characters for example F is as follows: B was the registered owner of the interest from which all other interests were derived. E was the owner of the prior interest from B (the interest created first in time), which was neither a registered interest nor an interest protected by caveat. C was the owner of the subsequent interest from B; in some cases it was registered, and in other cases i t was protected by a caveat, but it should be emphasized that this was irrelevant to the issue of whether or not the interest was procured by fraud (see paragraph 6.49).

(a) Independent fraudulent conduct 6.51 This category includes those cases in which an interest was

procured by an owner through conduct which was independently fraudulent, that is, fraudulent irrespective of the conduct of anyone else. Although the term 'actual fraud' might be used to describe the conduct exemplified in this category, that usage will be avoided because under the general law the conduct exemplified in category (b) also constitutes 'actual fraud'.

6.52 Fialkowski v. Fialkowki,G and De Lichtbuer v. Dupmeier? I n both of these cases a transfer from B to C was forged by C, who became the registered owner of Blackacre, leaving B as the owner of the nonregistered interest, i.e., a right to be reregistered as the owner and to have C's registration canceled. In both cases C subsequently granted a mortgage to D, who was a BFP. In both cases, C's registration was held to be defeasible, and B reacquired his registered ownership subject to D's mortgage. In neither case was it even questioned that C's registration procured by his forgery was fraudulent.

6.53 Zbryski v. City of Calgary.8 E had acquired a statutory right under section 73 of the Alberta Act to be registered as the owner of two lots on the basis of adverse possession against B. C (City of Calgary) annexed B (a town), and subsequently over a period of several weeks of negotiations, assured E that his ownership claim would be considered on the merits. Lulled into a false security, E neither sought registration nor filed a caveat to protect his claim. Shortly thereafter, C obtained registration a s the


owner of the lots, and contended that its registered ownership extinguished E7s nonregistered interest. There were other issues latent in the case; it could be argued that C was no more than B in a new governmental form, and in addition, that C was not a purchaser. However, the court held that C's representations deceived E into believing that it was not necessary for him to take precautions to protect himself, and that C's registration was therefore fraudulently procured.

6.54 Loke Yew v. Swettenham Rubber Co? This case was a 1911 decision of the Privy Council. Based on nonregistered documents obtained from B, E was the 'owner' (in equity) of a small portion of a larger tract of which B remained the registered owner. B, therefore, held his registered ownership of the portion of land subject E's nonregistered equitable interest on trust for E (see paragraph 2.61). Subsequently B sold and transferred the entire tract to C, who became the registered owner. Before the sale and transfer, B told C that E 'owned' the small portion of the tract, and that the sale was subject to E's rights. Although B may have been attempting to protect E's rights in this manner, B did not expressly except E's rights in the small portion from the transfer to C, and because of the unqualified transfer, C became the registered owner of the entire tract, without the inclusion of any reference to E's rights on the register. By making the unqualified transfer to C, B breached his trust to E, and by telling C that the sale was subject to E's rights, B acknowledged that his transfer was in breach of trust. Had nothing more taken place, C would have acquired his registered interest by knowingly participating in B's breach of trust. Cases of this type will be considered in category (b).

6.55 The crucial additional fact was that C expressly agreed to honor E's equitable interest, and thus made himself a trustee for E on the same terms as those which bound B. After obtaining registration, C denied E's rights and attempted to evict him. The Privy Council held that C's conduct was fraudulent, and that C held his registered ownership subject to E's nonregistered rights. The case thus demonstrates the fundamental trust principle discussed in paragraph 2.51, that trust obligations will be enforced against one who has promised to perform them.

6.56 Gyger v. L'Arrivee and Vince.1° This quite modern case applied the same principle of trust law illustrated by Loke Yew. B contracted to sell a 10 acre portion of a large tract which he owned to E. Subsequently B contracted to sell the entire tract to C, and although B told C that the sale was subject to E's rights, nothing in the contract with C disclosed this fact. The breach of trust by B was evident, for C acquired a written contract which, if assigned to a subsequent BFP, would extinguish E's prior interest. In fact C did assign the contract to D, who protected his interest by filing a caveat. As in Loke Yew, however, D was not only told that E 'owned' the 10 acre portion; D acknowledged E's rights and agreed to respect them. Later D disavowed any obligation to E. The court held that D's conduct was fraudulent, that D's contract rights were subject to E's prior nonregistered contract rights, and that E was entitled to specific performance of his contract against B, who had remained the registered owner of the entire tract.


(b) Knowing participation in the fraudulent conduct of another 6.57 In all of the cases included in this category, B breached a trust

obligation which he owed to E by entering into the transaction with C, and C had actual knowledge of B's breach of trust and consequently of his own participation in that breach of trust by acquiring the subsequent interest. The conduct of C illustrated by these cases was dicussed in paragraph 2.52; it clearly would have been fraudulent under generally accepted equitable principles entirely independent of the equitable doctrine of constructive notice. The problem of whether or not conduct of this type was intended to be legitimized by section 203 of the Alberta Act was introduced in paragraph 6.46.

6.58 In an early New Zealand case, National Bank of New Zealand v. National Mortgage and Agency Co.,ll Richmond J . discussed the problem as follows:

In many instances the rule of equity that notice is fraud must be recognised as consentaneous with the principles of common morality; for it may be an act of downright dishonesty knowingly to accept from the registered owner a transfer of property which he has no right to dispose of. . . . . The Act does not go so far as to shelter a purchaser who takes with full knowledge that the transfer to himself will unjustly deprive the true owner of his property without adequate compensation.

The author believes that the statement of Richmond J. in the subsequent case of Locher v. Howlett,12 and the emphasized language in particular, identifies the basic principle of law accurately:

I t may be considered a s the settled construction of this enactment that a purchaser is not affected by knowledge of the more existence of a trust or unregistered interest, but that he is affected by knowledge that the trust is being broken, or that that owner of the unregistered interest is being improperly deprived of it by the transfer under which the purchaser himself is taking.

I t may be that unnecessary confusion has been created by the tendency of courts to use a variety of different expressions to articulate a single fundamental principle. I t is said to be fraud if the subsequent purchaser 'knows that the registered owner has no authority to dispose of the property', or 'knows that the transfer will unjustly deprive the true owner of his property', or 'intends to deprive another of his just rights'. Are these expressions all formulations of a basic rule that if C enters into a transaction with B with actual knowledge that it involves a breach of B's trust obligations to E, then C has knowingly participated in B's fraudulent conduct?

6.59 Independent Lumber Co. v. Gardiner;13 Scandia Meat Market Ltd. v. KDS Investment Co.;14 Ruthenian Greek Catholic Church v. Fetsyk;l5 Sydie v. Saskatchewan and Battle River Land Development Co.;16 and National Bank of New Zealand v. National Mortgage and Agency Co.17 In all of these cases C had actual knowledge that he was participating in a breach of trust by B, and in all of them C was held to have procured his subsequent interest, which was registered, by fraud. Only Sydie warrants further comment, for in that case C had agreed to act a s E's agent to procure the lot in issue from B, and a s an officer of B had signed the contract between B and E which created E's nonregistered


interest. As C had breached his own agency obligation to E by buying the lot from B for himself, the Sydie case could properly have been included as a category (a) case.

6.60 Munro v. Stuart.ls E held a written lease of Blackacre from B. B showed the lease to C before the contract for the sale of Blackacre to C was made, and the contract expressly stated that Blackacre was sold subject to existing tenancies. The actual transfer from B to C, however, contained no exception protecting E's lease, and for this reason B breached his trust to E by making the unqualified transfer to C. On the facts, there appeared to be no question but that C had actual knowledge of B's breach of trust. After securing registration, C sought to eject E, and B brought a suit seeking a n order that the register be revised to subject C's registered ownership to E's lease on the grounds that C's conduct was fraudulent. Harvey J. held that C had not fraudulently procured his registered interest, and that his registered ownership should not be subjected to E's lease.

(c) Acquisition of an interest with knowledge that a conflictingprior nonregistered interest does exist

6.61 Categories (c) and (d) differentiate cases depending upon whether C had knowledge that a conflicting prior interest did exist, or only had knowledge suggesting that a prior interest might exist. The two categories are thus based on a factual difference which does not constitute a legal distinction, for in neither situation will C have fraudulently procured his subsequent interest. Determining the proper category for a case requires a difficult evaluation of the facts actually found by the court, but the effort will be worthwhile if it underscores the burden of proof cast on E by the elimination of the doctrine of constructive notice. Of course, even under this doctrine E had to prove that he had a prior interest. But having done this, knowledge of E's substantive rights, and consequently knowledge of whether or not B's transaction with C would violate E's rights, would be imputed to C under constructive notice unless C could establish that a diligent investigation would not have disclosed these facts. In practice, C had to prove that he was bona fide. Without the benefit of constructive notice, E must both allege and prove that C fraudulently procured his subsequent interest. The pragmatic problem was discussed a t paragraph 3.26; if C had either actual knowledge or a strong suspicion of E's prior interest, he probably also had actual knowledge that his acquisition of the subsequent interest would involve participation in fraud in the great majority of cases. When reading the cases, one frequently draws a n almost instinctive inference that C must have known that he was participating in B's fraud. Although that is the not unreasonable attitude which supported the doctrine of constructive notice, statutes such a s section 203 of the Alberta Act have rejected it in order to further facility of transfer. Consequently, E must now allege that C procured his subsequent interest fraudulently, and he must introduce hard evidence which a court can accept a s proving C's fraudulent conduct without resort to quasi- presumptions and inferences. The cases included in both categories (c) and (d) demonstrate that the courts have insisted that E meet this new burden of proof imposed on him.


6.62 In the category (c) cases, C knew that a conflicting prior nonregistered interest did exist. The crucial factual issue was whether or not C also knew that B was violating a trust obligation, and that C was, therefore, knowingly participating in B's fraudulent conduct.

6.63 Canadian Superior Oil v. Cugnet.lg B and E were brothers, and C's agent who procured a n oil and gas lease from B for C was 'well and favourably known' to the brothers. Before granting the lease, B told C's agent that Blackacre, including the M & M, had been sold on contract to E, and consequently C knew of the existent of E's conflicting prior nonregistered interest. However, the opinion contains no facts which would have even suggested to C's agent that the grant by B was fraudulent because not authorized by his brother E. The court held that C's lease had not been procured by fraud. I t should also be noted that although C's lease was protected by a caveat rather than by formal registration, C's conduct was tested by the statutory redefinition of fraud.

6.64 Robertson v. Keith.20 C, a judgment creditor of B, bought Blackacre a t a sheriffs sale in execution of his judgment against B and became the registered owner. Before the sale, E protested and told both C and the sheriff that he had contracted to purchase Blackacre, and in fact E had already paid the purchase price and was in possession. Under the Victoria statute, rights of persons in possession were protected; therefore E prevailed and C's registered ownership was defeasible. However, the court said that C's purchase at the sheriffs sale and subsequent registration was not fraudulent. This seems perfectly reasonable, for C could hardly have been fraudulent unless he had known, a s a matter of law, that the sheriff was not authorized to sell Blackacre other than subject to E's possessory rights, and i t is clear from the facts that even the sheriff was not aware of the law. I t is one thing to say that one is presumed to know the law; it would be quite another thing to hold that one was fraudulent if he did not.

6.65 Cooke v. The Union Bank.21 B made a marriage settlement agreement in 1891 pursuant to which he promised to transfer Blackacre to trustees, in trust for his intended wife (W) for life, then to B for life if he survived W, remainder to the children of the marriage a s B or W should by deed or will appoint. I n 1891, without having carried out the agreement to create the trust, B mortgaged Blackacre to C to secure loans C made to B. W, the primary life beneficiary under the marriage settlement agreement, not only knew of the mortgage to C, but agreed to transfer property of her own as additional security for the loans from C to B. In 1893, a suit was brought on behalf of two infant children of the marriage (less then three years old), seeking a declaration that C had procured the mortgage by fraud, and that the mortgage bound only B's contingent life estate (should he survive W) in Blackacre under the agreement. I t should be noted that the infant children had a contingent remainder in Blackacre under the agreement a s members of the class to be benefited by the special power of appointment to be held by B and W. The opinion proceeded on the grounds that B had breached his obligations under the marriage settlement agreement by mortgaging the land to C. The case has two interesting features.

6.66 First, before the mortgage was granted B showed the marriage


settlement agreement to C's bank manager, who 'perused' it. I t seems clear, therefore, that C knew of the existence of the conflicting prior nonregistered interests of the beneficiaries under the agreement. The court, however, made no finding of fact that C knew that mortgaging Blackacre would constitute a violation of B's agreement. Under the doctrine of constructive notice, knowledge of B's authority under the agreement would have been imputed to C, no matter how ambiguous the agreement may have been (see paragraph 2.54). However, under a statute comparable to section 203 of the Alberta Act, which eliminates the doctrine of constructive notice, it can be argued that C was not required to study and evaluate a late nineteenth century marriage settlement agreement at his peril. The court said that as the rights of the beneficiaries under the agreement were not endorsed on B's certificate of title, C could deal with B as an absolute owner. I t is suggested that the crucial point was that there was no finding that C knew that the mortgage of Blackacre exceeded B's authority under the agreement.

6.67 Secondly, the primary fraud in the Cooke case was committed by B, and was acquiesced in by W. Unlike the typical fraud case in which the interests of B and E were held by different persons, in Cooke B and W were also E to an overwhelming economic extent. Fraud, in its broader context, is a flexible doctrine; no legislative definition can ever mark its precise dimensions. Moreover, fraudulent conduct does not exist in a vacuum; it exists, if at all, relative to the conduct and rights of others. If Manning J. had found that C had fraudulently procured the mortgage, B (the primary fraudulent party) would have evaded the mortgage he had created. If the court had then ordered B to carry out the marriage settlement agreement, W (a beneficiary who had acquiesced in B's fraud), and presumably B as her spouse, would have enjoyed Blackacre for the rest of W's life, which they no doubt hoped would be long. The pleasure of life would have been enhanced every time they walked past the C bank, which they had defrauded. The court, not surprisingly, declined to find that C's conduct was fraudulent.

(d) Acquisition of an interest with knowledge suggesting that a conflicting prior nonregistered interest may exist

6.68 In the category (c) cases, C knew that a conflicting prior nonregistered interest did exist, but the facts did not demonstrate that C knew that B (or the sheriff in Robertson) lacked authority to enter into the transaction. In the category (d) cases, the crucial factual issue was whether or not C actually knew that a conflicting prior nonregistered interest did exist! Unless the evidence could support a finding that C knew that a conflicting prior nonregistered interest did exist, the issue of whether or not C knew that he was knowingly participating in B's fraudulent conduct could not arise in these cases.

6.69 Maurice Demers Transport Ltd. and Demers v. Fountain Tire Distributors (Edmonton) Ltd.22 Prior to purchasing Blackacre, C made a n inspection and saw that E was occupying the warehouse and the office space on the premises. However, a search of the title revealed neither a registered lease nor a caveat filed to protect E's leasehold interest. C


purchased Blackacre by means of an agreement for sale, and protected his interest by filing a caveat. E did not allege that C's purchase was fraudulent, and although the evidence that C knew that E was in possession of the premises might have supported a finding that C knew that E held a lease, there was no evidence that C knew the terms and conditions of E's lease. The court held that C had not procured the subsequent interest fraudulently. Without knowledge of the terms of E's lease, C could not have known its termination date, and hence could not have known that it was actually a conflicting prior interest.

6.70 Hackworth v. B ~ k e r . ~ 3 Because the facts of this famous case are so familiar to Western Canadian lawyers in terms of the names and situations of the relevant parties, more detail will be included in this case summary. B (the widow Halcro) was blind and about 80 years old. H (her husband) died in the early fall of 1933. In November 1933, B transferred the lot in issue to E (Mrs. Hackworth, one of B's children). In April 1934, C, believing that the lot had been owned by H and that it formed part of his estate, wrote to E's husband, who was taking care of H's estate for B, and asked if the lot were for sale. During the same month, both E and her husband told C that E owned the lot, that it was not for sale, and that E's son was going to farm it, and E's son told C that H had transferred the lot to E. There was no evidence that C had any knowledge of the actual transfer from B to E, and no evidence which would have led C to believe other than that E had acquired the lot from H. In October 1934, C checked the title to the lot and found that B was and for years had been the registered owner, and that E had no interest in the lot disclosed by the register. C purchased the lot from B and became the registered owner.

6.71 The trial judge held that C had purchased the lot with the designed object of cheating E of her known existing rights. As all of the available evidence would have led C to believe that any interest held by E had come from H, and a s the register disclosed that B had owned the lot for years, was there any credible evidence to support a finding that C even knew of E's existing rights? Or, did the available evidence indicate that it was much more likely that C believed that E had no interest in the lot at all, and that she was under a complete misapprehension as to her supposed ownership? If the evidence could not have supported a finding that C knew of E's existing rights, could i t have supported a holding that C had knowingly participated in B's fraud by purchasing from her? A majority of the Court of Appeal of Saskatchewan held that the facts did not support a conclusion that C's conduct was fraudulent.

6.72 Wicks v. BennetLZ4 E was a partnership which held a nonregistered lease of Blackacre. Although he was one of the partners, B acquired registered ownership of Blackacre without the knowlege of his fellow partners. Subsequently B sold and transferred the land to C without protecting E's leasehold interest in the transfer, and C became the registered owner. Shortly before C's purchase, one of the partners told C that E had a nonregistered interest in the land. However, as there was no evidence that C was informed even of the nature of the interest claimed by E, there was no evidence to support a finding that C knew that a conflicting prior interest actually existed. Although there was evidence


that the price C paid was unreasonably low, beyond this there was no evidence to indicate that C believed other than that B was authorized to act on behalf of E, and that B would protect E's interest. The court held that C's purchase was not fraudulent.

6.73 Rounsevell v. Ryan & Sons.25 Before C purchased Blackacre, B told C that E held a verbal lease, and C promised to honor E's verbal lease if E had any rights under it. On these facts, if B had had equitable obligations to E under a verbal lease, C would have assumed those trust obligations himself, and Rounsevell would have been a category (a) case. In fact, E held a valid written lease from B, and C neither knew that the written lease existed nor agreed to honor B's obligations under it. Moreover, as there was no evidence that C knew the terms of the written lease, there was no evidence that he knew that it was a conflicting prior interest and that B was breaching his obligations to E. The court held that C's conduct was not fraudulent.

6.74 Oertel v. Hordern.26 In 1898, Blackacre, which was not under the New South Wales Torrens system, was owned by W for life, remainder 1/3 to H and 1/3 each to two sons of W. The remainder of each of the two sons was mortgaged to H, giving H legal ownership of the entire remainder. In March 1899, with the authority of his wife W, H granted a lease of Blackacre to E. This lease, however, was not signed by W, who owned the life estate. In September 1899, H, W, and the two sons were registered as the owners of Blackacre under the Torrens system a s their interests are stated above, but E's lease was not registered. In July 1901, H and W contracted to sell Blackacre to C, and on August 13,1901, E notified C of the details of his lease. On August 15, 1901, H and W transferred Blackacre to C, who became the registered owner in September 1901.

6.75 Simpson C.J. held that no actual fraud could be imputed to C, and emphasized the following facts in support of his decision. The lease upon which E founded his claim was signed only by H, and this could have caused C to believe that E had no valid interest in Blackacre. The fact that the registered title, which was issued after the date that the lease was granted, contained no entry of the supposed lease, could have reinforced C's conclusion that the lease was invalid for it suggested that the RegistrarGeneral had formed this opinion and had refused to register the lease. With respect to this point, there was no evidence to suggest to C that H and W had fraudulently withheld the lease from the Registrar-General, which of course they had done. Finally, the fact that even after E learned of C's contract to purchase Blackacre, E conspicuously failed to file a caveat to protect his alleged lease, could have convinced C that H and W were acting honestly, and that E's claim was unfounded.

6.76 The author believes that, on the basis of the facts disclosed in the opinions, all of the decisions in the cases discussed, with the exception of the Munro case (paragraph 6.60), are consistent with the conclusion that statutes such as section 203 of the Alberta Act were intended to negate the doctrine of constructive notice, no more and no less! The author concedes that many of the Australian cases cited are replete with statements to the effect that the decision in Munro was correct. With the greatest respect, the


author holds the opinion that these statements were not required to resolve the actual issues presented by the facts in those cases, and were thus dicta.

(5) Defeasibility of a registered in teres t obtained through error by a n o w n e r w h o w a s not a purchaser f o r value

6.77 Under accepted equitable principles, one who acquired a legal interest, or a n otherwise superior equity, other than as a purchaser for value, held that interest subject to any prior equity (see paragraphs 2.46-49, 2.69, 2.73-74, and 2.78-83). The reason for this rule is that the holder of the subsequent interest, if a donee, would be unjustly enriched if he were not subjected to the prior equity. This rule has been almost uniformly incorporated into modern recording systems, with a n additional supporting reason; recording systems are designed to facilitate commercial land transactions, and a donee does not rely on a recording system for assurance that he will in fact acquire the interest given to him (see paragraph 3.30). Is this rule of the general law changed by a typical Torrens system? The answer is 'no'. Baalman summarizes the situation a s follows: 27

The Torrens System of land registration is predominantly a purchaser's system. Its aim is to facilitate the transfer of land as a commercial commodity by removing most of the risks of financial loss which beset purchasers under the general law. As a transferee who does not give value for his land is not exposed to that risk, there is no need to protect him. But the Torrens statutes have not always said so in plain words; in many of them it has simply been left to necessary implication . . . [The] Courts have consistently drawn that implication . . . . 6.78 The Alberta Act is typical of statutes based on the Australasian

model. Sections 63 and 65, each of which purport to contain all of the statutory in defeasibility exceptions, contain no provision suggesting that the registered interest of a donee is defeasible. Section 185 is completely contrary, for it provides that the Registrar may complete the register and correct any error 'so far a s practicable without prejudicing rights conferred for value', which means that any entry in the register which is inconsistent with the general law can be revised unless the holder of the rights under the entry is a purchaser for value. Similarly, but narrower in sweep, section 180 provides that if A has been deprived of any land because of the registration of B a s a result of B's fraud, A can not only eject B, but A can also eject C if C has derived his title a s a transferee from B other than a s a transferee bona fide for value. Section 167 operates negatively; it does not provide that a registered interest of a donee is defeasible, rather, it provides that a registered interest acquired by a purchaser bona fide for valuable consideration is not defeasible.

6.79 Example G. A was the registered owner of Blackacre. In 1919, A executed and delivered a transfer of Blackacre to B, excepting M & M, and the transfer expressed the intention of both parties. Upon receipt of the transfer, the Registrar canceled A's registration as the owner of Blackacre, including M & M, and registered B a s the owner of Blackacre, including M & M. Example G is now identical to example D a t paragraph 6.29. The registration of B a s the owner of the M & M was erroneous because the transfer excepted the M & M, and because neither party intended that B


should acquire the M & M. At this point it is clear that the register should have been revised and that ownership of the M & M should have been restored to A. In 1924, B executed and delivered a transfer of Blackacre, including M & M, to C, who was duly registered in accordance with this transfer. The transfer from B to C reflected a gift from B; C was not a purchaser for value. I n 1962, A brought a n action seeking a declaration a s to who, A or C, owned the M & M in Blackacre. The issue inherent in the inconsistent sections of the Alberta Act discussed above is raised by example G, and this issue was squarely presented to the Supreme Court of Canada in Kaup v. Imperial Oil Ltd.28 The unanimous opinion of the Supreme Court, which was delivered by Martland J., said that sections 167, 180, and 185 of the Alberta Act reflected the true legislative intent, that they prevailed over sections 63 and 65, and that a registered owner under the Act who was not a purchaser for value acquired only the rights held by his transferor. Consequently, as the register should have been revised against B in order to restore the M & M to A, the court held that it should be revised against C for the same purpose.

6.80 Example H. In 1970, B was the registered owner of Blackacre. During that year, B purchased goods and services from C for $50,000 on credit extended by C. I n 1971, B contracted to sell Blackacre to E for $200,000, and the contract provided that no transfer would be issued to E until the full purchase price was paid. No caveat was filed by E to protect his equitable interest in Blackacre a s a contract purchaser. In 1972, C obtained a judgment against B for $50,000, based on the debt B had incurred in 1970 by purchasing the goods and services, and C had the sheriff deliver a writ of execution to the Registrar of the Land Titles Office, who duly entered the writ in the execution register in accordance with section 21(3) of the Alberta Act. At the time C's writ was entered in the execution register, E had paid the contract price for Blackacre in full, but had not yet received a transfer from B. The question posed by example H is, did C's writ of execution give him a charge against Blackacre which was not subject to E's prior contract rights? The legal effect of C's writ of execution is defined in section 128(2) of the Alberta Act a s follows:

128.(2) Upon and from the receipt by the Registrar of the copy of the writ, all legal and equitable interests of the execution debtor in any lands there or thereafter registered in his name and including his interest, if any, as an unpaid vendor of land, are bound by the execution, and from and after the receipt by the Registrar of the copy, no certificate of title shall be granted and no transfer . . . executed by the execution debtor of the land is effectual except subject to the rights of the execution creditor. . . . (Emphasis added.)

6.81 Assume for the following analysis that section 128(2) means precisely what it says. B was the registered (legal) owner of Blackacre, and there was no entry in the register qualifying B's ownership, or subjecting it to any conflicting interest, other than C's writ. Of course E had a contractual right to a transfer of Blackacre from B, but suppose that E had received a transfer and had submitted it to the Registrar. Section 128(2) directs the Registrar to issue a certificate of title to E subject to C's rights. Under section 2.4 of the Alberta Act, 'encumbrance' means any charge, and includes executions. Therefore, C had a statutory right to a charge on Blackacre for $50,000, and a right to have this charge continued on the certificate of title issued to E. The problem is that E was the equitable


owner of Blackacre before C's writ was entered in the register, and as E had paid the full purchase price, B had no beneficial interest and held his registered (legal) title on trust for E (see paragraph 2.61). The contention that equitable interests are not recognized and protected in lands included under the Alberta Act has been so completely rejected that it will not be considered here.29 If C's charge encumbered B's unqualified registered (legal) title, it conflicted with E's nonregistered (equitable) ownership to the full extent of the $50,000 charge, and this raises the issue of which interest has priority.

6.82 Under section 2.9 of the Alberta Act, 'instrument' includes a n encumbrance (which includes a charge), and under section 58 instruments have priority according to the time of registration under section 20. As C's writ was entered in the register, and as E's claim of equitable ownership was not, C had priority unless he was not entitled to gain priority over E through his first entry in the register for some reason. There is a reason, for C was not a purchaser of the charge based on the writ of execution of his judgment (see paragraph 2.49). Under the general law E's equitable interest would be entitled to priority of enforcement against B because C was not a purchaser, and under the holding in Kaup, C must be a purchaser in order to qualify for the benefits of first entry in the register under the Alberta Act. If C's charge were subordinated to E's right to an unqualified certificate of title, C's charge could not be enforced against Blackacre a t all. I t should now be emphasized that the foregoing analysis was based on the initial premise that section 128(2) means what it says, and that C's charge encumbered B's unqualified registered (legal) ownership. This created the conflict between the interests of C and E, the conflict raised the priority issue, and the priority issue presented the final question of whether or not a donee can enhance his position under the Alberta Act. As the initial premise was incorrect, the foregoing analysis is irrelevant to example H.

6.83 I n Jellett v. Wilkie,30 in 1896, the Supreme Court of Canada held that the statute which was the historical predecessor of section 128 was only intended to give a judgment creditor a charge on the beneficial interest of a judgment debtor. In Price v. Materials Testing Laboratories Ltd.,31 decided in 1976, Laycraft J. reviewed the authorities since the Jellett decision, and stated that no legislative changes reflected in section 128 justified a conclusion that Jellett v. Wilkie was no longer the law of Alberta. The facts in the Price case, although rather complex, presented the issue posed by example H. The court held that the charge based on a writ of execution applied only to a n interest in land to which the judgment debtor was both legally and equitably entitled. Thus although section 128 says 'all legal and equitable interests of the debtor', it means 'all legal interests of the debtor (but subject to equities binding the debtor), and all equitable interests of the debtor'. C did not have a registered charge over Blackacre which was subordinated to the prior nonregistered interest of E because C was not a purchaser. Rather, a s B had no beneficial interest in Blackacre when C's writ was entered in the register, C obtained no charge against Blackacre a t all under section 128. Consequently, there was no conflict between the interests of C and E , there was no priority problem, and there was no need to consider whether or not C was a purchaser.


6.84 Continuing example H, but with the following change, assume that E still owed B $25,000 of the purchase price of Blackacre when C's writ was entered in the register. C would be entitled to collect this sum from E under judicial process.32 But, a s C's writ only attached to the debt E actually owed to B, there was still no conflict between the interests of C and E, and there was no priority problem under the Alberta Act.

6.85 There is, however, a latent priority problem which example H does not go far enough to present. C did have a judgment debt against B, B was the unqualified registered (legal) owner of Blackacre, and C had a writ of execution entered in the register. To the world, insofar a s the register was concerned, it looked as though C's judgment debt was secured by a charge on Blackacre, for E's equitable ownership claim was not protected by a caveat. Suppose that C assigned his judgment debt to a purchaser for value?

6.86 Whether or not a jurisdiction chooses to give a judgment creditor a charge over any property of a judgment debtor, and if so, over precisely what property, are public policy questions quite independent of either a recording system or a Torrens system. Most common law jurisdictions deem that it is sound public policy to give a judgment creditor a charge over some property of a judgment debtor in order to facilitate the collection of just debts. However, as the charge is given to the judgment creditor by law, statutes almost uniformly limit the charge to interests the debtor holds for his own benefit, and do not extend it to interests held in trust for someone else (see paragraph 2.49). The fact that a judgment creditor is not a purchaser is probably the crucial factor supporting a legislative decision to limit the charge to interests the debtor holds beneficially, and was crucial to the judicial interpretation of the meaning of section 128. I t should be emphasized, however, that although section 128 is in the Alberta Act, its definition of the interests of a debtor which are subject to the charge of a writ of execution is part of the general law of Alberta.

6.87 The Kaup case held that unless a registered owner was a purchaser for value, his interest was defeasible under principles of the general law independent of a Torrens system. I t would seem to follow inevitably from this decision that a subsequent interest acquired by a donee and protected only by a caveat would be subordinated to any prior interest, for unlike registered ownership, the state does not confer any ownership on the claimant of an interest entered in the register by a caveat. Given the vulnerability of the ownership of a donee, the author believes that a comprehensive review of the operation of a Torrens system should consider, as a matter of functional public policy, whether or not the purchaser requirement should be retained.

6.88 Example I. A was the registered owner of a section of wooded and hilly land, valuable primarily for recreational purposes. In 1970, A and B made an oral contract for the sale of the NW to B. The transfer described the N lh, and it was a n uncontested fact that a mistake was made in the law office in which the transfer was prepared. A executed and delivered the transfer to B, and B was registered a s the owner of the N lh. Neither A nor B intended that B become the owner of the NE %, and i t is clear that A was entitled to have the transfer rectified and to have the register revised in


order to regain ownership of the NE VI (see paragraphs 6.37-38). The land was seldom used by B, and pursuant to B's will passed by transmission to his son C when B died in 1974. C became the registered owner of the N %, and C paid the same assurance fund fees under section 161 of the Alberta Act to secure registration that a purchaser for value would have paid. In 1976, C built his retirement home on the NE 'A, with loving care and attention to detail, and a t a cost of $80,000. The mistake was discovered in 1977 when A, who had been working in Australia in the oil fields since 1975, returned to Alberta.

6.89 Because the purchaser requirement is intact in Alberta, a registered interest obtained through error by a donee is defeasible in accordance with principles of the general law. In example I, translated into common law conveyancing, A would have delivered a deed to B, through this deed and B's will C would have acquired legal ownership of the N l/z, the legal description in the deed from A to B would have been changed to the NW lh by equitable rectification, and C would have been divested of his ownership of the NE lh. Suppose that the deed from A to B had been forged by B. At common law neither B nor C would have acquired any legal interest in the N Yz. However, under a forged Torrens transfer, B might have obtained registered ownership of the N l/z, and so might C as B's successor by transmission. Because Torrens systems retain the purchaser requirement, the registered interest of a donee is subject to conflicting prior nonregistered interests, whether or not they are protected by caveating. If C would not have obtained any legal interest in the N lh under the general law, his registered ownership will be defeasible. In example I, C's registered ownership of the NE lh will be defeasible a s a consequence of the equitable rectification of the transfer from A to B.

6.90 This discussion is concerned only with the defeasibility of a registered interest resulting from the fact that that registered owner was a donee; it is assumed that the registered owner was not fraudulent. Should the purchaser requirement be eliminated a s a separate condition precedent to protection under a Torrens system? Several reasons supporting such a change are suggested.

6.91 The purchaser requirement makes it necessary for a' prudent donee to make a derivative investigation of his registered ownership before he can safely develop land. Throughout this study the Torrens system objective of increasing facility of transfer has been emphasized. In example I, however, facility of transfer would not be promoted by protecting C's registered ownership, for it can safely be assumed that C would have accepted the transmission of the NE lh under B's will even if he had suspected that B's registered ownership was tainted. A donee is seldom concerned with checking the title to land received a s a gift. In this situation, therefore, the conventional conclusion is that A's security of ownership should be respected, and that the NE 'A should be restored to A.

6.92 There is, however, another objective of a system of land ownership which is a t least as important a s increasing facility of transfer, and that is promoting the use and development of land. Indeed, it may be said that increasing facility of transfer is primarily a means of achieving the goal of promoting the use and development of land. If C had acted on


sound legal advice, he would have investigated B's derived title before he invested both his time and $80,000 in building his retirement home on the NE %. A donee may not check the title to land when it is received a s a gift, but a prudent donee will investigate the title to land before he invests large sums of money in developing it. Example I concerned a retirement home on recreational land, but the example could just a s easily have been framed as $200,000 invested on a n irrigation system for inherited agricultural land. It may be that the phrase 'security of ownership' encompasses the objective of promoting the use and development of land, but in example I the question remains, whose security of ownership would promote the use and development of the NE lh, that of A, or that of C? If A had invested money in the development of the NE % before C became the registered owner through the medium of the erroneous registration of B, A would have been entitled to compensation for his loss if C's registered ownership were protected. But C will not be entitled to compensation for his loss if his registered ownership is defeasible. Therefore, the purchaser requirement has the necessary effect of requiring a prudent donee to make a derivative investigation of his registered ownership before he invests any significant amount of capital in the development of land. To the extent that a donee must check his chain of title, the Torrens system has failed to accomplish one of its primary objectives. Moreover, because the system pretends that derivative investigations relative to registered interests are unnecessary, the administrative machinery of the system is not geared for searches, and this creates practical problems when one conducts such a search.

6.93 The purchaser requirement is inconsistent with the modern philosophy of distributing appropriate types of financial risks through insurance (see paragraph 4.32). Under the general law, one who acquires a subsequent interest a s a donee takes the interest subject to a prior equity in order to prevent his unjust enrichment relative to the holder of the prior equity (see paragraph 2.46). This equitable doctrine has its roots in the fifteenth century, and has been accepted over the centuries a s a just method of determining which of two innocent parties should sustain a loss when one of them must sustain it. As the prior equity was first in time, and a s the subsequent interest was not acquired for value, it has always seemed proper to impose a n equitable burden attached to land on a gratuitous recipient of the land. The Torrens system, however, should be operated on sound insurance principles. In example I, C should not be required to sustain a loss in order to spare A from suffering one, for either A or C can be compensated from the assurance fund. Eliminating the purchaser requirement would make it possible either to protect C's registered interest, or to compensate C for its loss. Neither solution would result in unjustly enriching C, for C would not be enriched a t A's expense if either A's registered interest were protected or A were compensated for his loss. Assume that B was not erroneously registered a s the owner of the NE lh, that B constructed a lovely home on the NE lh, that C inherited the NE lh from B, that C procured fire insurance on the home, and that the home was destroyed by a fire caused by C's negligence. C will not be precluded from recovering indemnity for his financial loss on the grounds that he would be unjustly enriched because he was a donee! Indeed, he will not be precluded


from obtaining indemnification a t all, for one procures insurance to protect himself from losses frequently caused by his own negligence.

6.94 The purchaser requirement detracts from both the certainty and the simplicity of a Torrens system. One of the objectives of a Torrens system is to define clearly the circumstances under which one's registered ownership is potentially defeasible in order to create a s simple a system as reasonably possible. By retaining the purchaser requirement, the Torrens system incorporates the principles of the general law defining the purchaser for value, which were very briefly summarized a t paragraphs 2.47-49. In order to qualify as a purchaser for value, one must furnish more than nominal consideration for the interest acquired, but he need not pay full value for the interest acquired! I t may readily be seen that the purchaser for value doctrine, which is equitable, is very flexible, rather than certain, and is extremely complex, rather than simple.

6.95 There are reasons supporting the proposition that the registered owner under a Torrens system is a purchaser. Under the common law system of conveyancing, one's ownership of a legal interest in land was derived from his predecessors. Under the Torrens system, one's ownership of a legal interest in land is conferred by the state, albeit usually pursuant to the instructions in a transfer from the former registered owner. Although a donee does not furnish consideration for his transfer, he does pay more than a nominal sum to the assurance fund operated by the state in order to secure his registered ownership. Conceptually, i t is a tenable proposition that all registered owners under a Torrens system are purchasers. Functionally, it is a sensible proposition if the Torrens system and its assurance fund are operated on sound insurance principles, for the author is aware of no reasons why an innocent registered owner should not be permitted to purchase protection for a registered interest.

6.96 I t should be anticipated that eliminating the purchaser requirement could increase the possibility of fraud. Altering example I, assume that B learned of his erroneous registration a s the owner of the NE lh, that he fraudulently executed and delivered a transfer of the NE 'A to his son C, that C knew that B's registered ownership of the NE 'A was defeasible in favor of A, and that C became the registered owner of the NE 'A. Although C's registered ownership is defeasible in favor of A because C knowingly participated in B's fraudulent conduct, i t might be very difficult for either A or the guardian of the assurance fund to prove fraud on the part of either B or C because the factual issue is what knowledge each had, and that is subjective. However, whether or not C was a purchaser for value depends on objective facts, and if the purchaser requirement were retained, it might be considerably easier to prove that C was a donee. Of course if B and C were careful rogues, they would have manufactured bogus evidence to prove that C was a purchaser for value. Nevertheless, it is a t least possible that the defeasibility of C's registered interest in a fraud case could be based on the more readily provable fact that he was a donee, if the purchaser requirement were retained.

6.97 Any insurance scheme, from classic commercial fire insurance through benefit systems under the aegis of the modern welfare state, is vulnerable to fraud. Indeed, the fraud example under consideration merely


demonstrates what is described in the insurance industry a s the moral hazard. Administrators of both commercial insurance and government welfare systems are constantly plagued by the dilemma of developing administrative procedures for the payment of claims which are sufficiently simple and expeditious to deal justly with most claims which are honest, and which are still sufficiently protective to maintain some control over the moral hazard. The important point is that no credible body of opinion suggests that the insurance approach should be rejected because it is subject to fraud. Users of insurance systems absorb the costs of payments procured by fraud in order to secure the benefits of risk sharing produced by these systems.

6.98 Suggestions for reform can be offered if the purchaser requirement is retained, and the first is relatively obvious. If the registered interest of a donee is defeasible in accordance with principles of the general law, that is, if the registered owner of such a n interest obtains neither protection for the interest nor a right to compensation for its loss under the Torrens system, it would seem that a donee should not be required to contribute to the assurance fund in order to secure his registered ownership.

6.99 If the purchaser requirement is retained, A will be entitled to recover, that is, to obtain restitution of, his lost ownership of the NE 'A in example I in order to prevent the unjust enrichment of C relative to A. The equitable principles applicable to restitution from a donee to prevent his unjust enrichment, however, differ from those which are imposed on one who acquired a n interest through fraud.33 Although the law on this subject is complex and beyond the scope of this study, i t is clear that C has a lien on the NE 'A for the amount of his expenditures, and that A will not be entitled to restitution unless C is reimbursed for those e~penditures.3~ The right to reimbursement gives C some protection, but it is likely that A will have the whip hand. If A thinks that the house which C constructed is worth a t least the amount of C's expenditures, A can reimburse C and recover his ownership, and then either keep the NE 'A or sell it a t a profit. However, C will probably want to keep his home on the NE 94, and because A has the right to reimburse C, A will probably be able to force C to pay a n inflated price for the NE 'A in order to settle the matter.

6.100 An approach comparable to that taken in section 183 of the Alberta Act might be useful in resolving the practical problems which arise when a donee's registered ownership is defeasible. Section 183 provides a s follows:

183.(1) Where a person at any time has made lasting improvements on land under the belief that the land was his own, he or his assigns

(a) are entitled to a lien upon the same to the extent of the amount by which the value of the land is enhanced by the improvements, or

(b) are entitled to or may be required to retain the land if the court is of opinion or requires that this should be done having regard to what is just under all the circumstances of the case.

(2) The person entitled or required to retain the land shall pay such compensation as the court may direct.

The author referred only to the approach taken by section 183 as he doubts


very seriously that the section was intended to be applicable to a case in which one made lasting improvements on land which was actually his own, but under a defeasible registered title. Occasionally courts have said that a n erroneous registration under a Torrens system was void. If this practice were followed, the court could hold that ownership had never passed from A, and that therefore C had made lasting improvements on the NE l14 under the belief that the land was his own. One functional problem which results from characterizing the registered ownership of a recognized interest in land a s void was introduced a t paragraph 4.30, and is discussed more fully in section 6.d. An additional problem related to the limitation of actions and to adverse possession is considered in chapter 8. I t is suggested that section 183 could readily be amended in order to make i t expressly applicable to lasting improvements made on land under a defeasible registered title.

(6) Summary 6.101 The first five statutory indefeasibility exceptions contained in

the Alberta Act, summarized a t paragraph 6.5, have been discussed in section 6.c. If a registered interest is defeasible because of, or subordinated to, a conflicting prior interest: (1) to give effect to a n overriding interest (such a s a government tax lien), (2) to give effect to a n interest to which it is subjected by a n entry in the register (such a s a mortgage), (3) to permit the execution of a transaction a s mutually intended by the parties, (4) because it was obtained by fraud, or (5) because i t was obtained by a donee, the defeasibility or subordination results from the application of principles of the general law adopted by a Torrens system. For this reason, it has been unnecessary to consider the question of whether or not the owner whose registered interest was defeasible should be entitled to compensation from the assurance fund. Manifestly he should not, for his loss does not result from the Torrens system.

d. Defeasibility Required by Principles of Law Necessary Under a Torrens System

6.102 Section 6.d. is the heart of this study. In the preceding pages the author has attempted to identify the boundary between the general law, a s modified by conventional recording systems, and a Torrens system. In quantitative terms, the profound improvements in conveyancing which can be achieved under a Torrens system require a n extensive administrative structure. But the few unique rules of Torrens law which are required to secure these improvements are a thin veneer on the general law.

(1) Defeasibility of a registered interest based on an invalid transfer from the immediately preceding registered owner

6.103 Example J. A was the registered owner of Blackacre. B obtained what for the moment will be referred to a s a n invalid transfer of Blackacre from A, and on the basis of this transfer became the registered owner of Blackacre. Moreover, B was a bona fide purchaser for value. The transfer was referred to a s invalid because it would have been either void or voidable if it had been a conveyance under the general law. Example J is


based on the series of examples discussed a t paragraphs 2.12-27, and they are summarized below for ease of reference.

2.12 Forged transfer. 2.13 Unauthorized delivery of transfer. 2.14 Unauthorized execution of transfer by agent. 2.15 Mistake a s to nature of instrument. 2.16 Improper execution of company transfer. 2.17 Dower of spouse not released by transfer. 2.19 Mental incapacity to execute transfer. 2.20 Minority.

In the examples a t paragraphs 2.12-17, the transfer was void because it was not intended by A; in the examples a t paragraphs 2.19-20, the transfer was voidable because A will not be bound by his intent a s a matter of public policy.

2.25 Invalid tax lien sale. 2.26 Invalid mortgage foreclosure sale. 2.27 Invalid expropriation.

In the examples a t paragraphs 2.25-27, the transfer divesting A was void because it was not supported by either a judical or an administrative procedure conforming with law.

6.104 Example J poses the question of whether a registered owner gains immediate or only deferred indefeasibility (to use the orthodox description of the problem) under a Torrens system.S5 Looking a t the issue from B's point of view, B is said to have gained immediate indefeasibility if his registered ownership is not defeasible in favor of A in a n example J case. Although the language chosen is a matter of style, the author finds it more functionally expressive to ask simply whether or not B's registered ownership is defeasible in an example J case.

6.105 If B's registered ownership is defeasible in all of the example J situations, one could formulate a rule that registered ownership based on an invalid transfer from the immediately preceding registered owner is defeasible. This defeasibility is not based on any of the grounds previously discussed in this chapter. It results from neither a n overriding interest nor an interest to which B's registered ownership was subjected by an entry in the register. B's registered ownership was not inconsistent with the mutual intention of A and B, for B fully intended to become the registered owner of Blackacre. Moreover, B was a purchaser for value, and he was not fraudulent. Nevertheless, no new rule of Torrens law is required, for a s the transfer would have been either void or voidable under the general law, B's defeasibility results from the application of principles of the general law. If a jurisdiction chooses this solution for the issue posed by example J , the condition of defeasibility must be shifted back to section 6.c., for it will not be a condition of defeasibility required by the Torrens law of the jurisdiction. The functional significance of this choice should be emphasized; it means that a n innocent purchaser such a s B retains the general law burden of evaluating the validity of the immediate transfer upon which his registration is based, at his peril. I t also means that a jurisdiction


following this rule has chosen not to solve problem 2 a t paragraph 2.97 under its Torrens system (see paragraph 4.4).

6.106 The classic case supporting this interpretation of the objectives of a Torrens system is Gibbs v. Messer,36 which was decided by the Privy Council in 1891. The Gibbs case, and the problem now under consideration, were introduced in paragraph 5.75. However, the author believes that the philosophy behind the Gibbs decision is stated in a quotation from the judgment which is reproduced in paragraph 4.23, and which is worthy of review. Their Lordships believed that the object of a Torrens system was to save persons'such a s B, when dealing with a registered proprietor such a s A, from the trouble and expense of going behind the register in order to investigate the history of a registered title, and of satisfying themselves of its validity. They viewed a Torrens system as designed to solve problems 1 and 3-5 a t paragraph 2.97, relating to possible common law infirmities in A's title, but not to solve problem 2, relating to possible infirmities in the immediate transfer from A to B. The facts in the Gibbs case were complex, and whether or not the decision actually supports a broad rule that one's registered ownership is defeasible whenever it is based on a transfer from the immediately preceding owner which would have been either void or voidable if it had been a transfer under the general law is debatable. The author will not enter the lists on this issue. It is clear that the Canadian courts have held that B's registered ownership is defeasible in a n example J and although the Gibbs case was decided in 1891, no Canadian legislature has made amendments to a Torrens statute with the intention of rejecting the Gibbs philosophy. A functional reason supporting the Gibbs approach is that a transferee is normally in a better position to determine the validity of the transfer to him than is the Registrar, and that for this reason the transferee should have this responsibility. The necessary consequence of this approach is that the transferee will not have a right to compensation from the assurance fund when his registered ownership is defeasible because the transfer was invalid.

6.107 If B's registered ownership is not defeasible in any of the example J situations, one could formulate a rule that registered ownership is defeasible if a n immediately succeeding innocent purchaser obtains registered ownership on the basis of a n invalid transfer. I t is A's registered ownership which is defeasible, and a s principles of the general law would not produce this result, a rule of Torrens law is required. If a jurisdiction chooses this solution for the issue posed by example J , it will have chosen to solve problem 2 a t paragraph 2.97 under its Torrens system, and a n innocent purchaser such a s B will not have the general law burden of evaluating the validity of the immediate transfer upon which his registration is based.

6.108 In Frazer v. decided in 1967, the Privy Council held that a registered mortgage was not defeasible, even though it was based on a forged instrument. The relevant facts of this case, which were summarized a t paragraph 5.75, presented the issue posed by example J . In Frazer, A's registered ownership was defeasible to the extent required to enforce B's registered mortgage. The Board found statutory support for its decision in section 63 of the Land Transfer Act 1952 (N.Z.), which is


virtually identical to section 180 of the Alberta Act, as follows: 180.(1) No action of ejectment or other action for the recovery of any land for which a

certificate of title has been granted lies or shall be sustained against the owner under this Act in respect thereof, except in any of the following cases . . . . (Emphasis added.)

Five statutory exceptions follow, and none of them even remotely suggests that B's registered interest is defeasible in a n example J situation. The problem is that no section in either the New Zealand Act or the Alberta Act provides that A's registered interest is defeasible in a n example J situation. The Board cited Boyd v. Mayor of W e l l i n g t ~ n , ~ ~ a 1924 case decided in the Court of Appeal of New Zealand by a majority of three to two, in support of its conclusion a s to the interpretation of the New Zealand Act. In Boyd it was held that the registered ownership of the City of Wellington, although obtained pursuant to a void expropriation procedure, was not defeasible. The judgment in Frazer contains the following broad dictum:40

Their lordships are of opinion that this conclusion is in accordance with the interpretation to be placed on those sections of the Land Transfer Act, 1952 which they have examined. They consider that Boyd's case was rightly decided and that the ratio of the decision applies a s regards titles derived from registration of void instruments generally. As regards all such instruments it established that registration is effective to vest and to divest title and to protect the registered proprietor against adverse claims.

Under the Frazer decision, A's registered ownership is defeasible pursuant to a n invalid transfer, a rule of Torrens law is required to produce this result, and therefore A should have a right to compensation from the assurance fund for his loss.

6.109 The author believes that the conflict between the opposing policies reflected in the Gibbs and the Frazer cases requires legislative resolution. He also suggests that each type of invalid transfer justifies separate consideration, and that there are more flexible options available than blanket adherence to either of the two extreme positions. As the policy reasons supporting the general law position that the transfers listed in paragraph 6.103 are invalid are not only complex, but vary to some extent with each type of transfer, thorough consideration of each type of invalid transfer is beyond the scope of this study. Therefore, the solution to the issue posed by example J which is outlined below is offered as a tentative proposal in order to demonstrate the possibilities which are available if a flexible approach is taken to the resolution of the issue. Basically, it is proposed that the risk of a registration based on a n invalid transfer be imposed either on the party in the best position to prevent the problem, or on the assurance fund if facility of transfer would be too adversely affected by imposing the risk on one of the parties to the tainted transaction.

6.110 B's registered ownership would be defeasible without compensation in the following situations:

Forged transfer. Mistake a s to nature of instrument. Mental incapacity to execute transfer. Minority.

Both the forged transfer and the mistake as to nature of instrument situations will probably result from the fraud of a third person, and A


therefore will be ignorant of the purported transaction. In the mental incapacity and minority situations, A is not bound by his intent a s a matter of public policy. The proposal follows the Gibbs philosophy, and requires B to assume the risk of ascertaining that either A or someone authorized to act for him executed the transfer with the requisite intention. The proposal requires no change in the general law; the invalid transfers remain invalid, and B will not be entitled to compensation a s his registered interest is defeasible because it was based on a n invalid transfer.

6.11 1 A's registered ownership would be defeasible without compensation in the following situations:

Unauthorized delivery of transfer. Unauthorized execution of transfer by agent. Improper execution of company transfer.

The proposal requires changes of the general law in the first two situations; the previously invalid transfers become valid transfers, and for this reason A will not be entitled to compensation a s his registered interest is defeasible to permit the execution of a valid transfer.

6.112 The improper execution of company transfer will be considered first, for it is believed that the Alberta Act already follows the proposal in this situation. Section 158(2) provides:

158.(2) Any document executed by a corporation, notwithstanding anything to the contrary in the Act, statute, charter or memorandum and articles of association incorporating the corporation, shall for the purposes of this Act be deemed to be sufficiently executed if it is sealed with the corporate seal of the corporation and countersigned by a t least one officer of the corporation.

This section makes a significant change in general company law, for i t converts previously invalid transfers into valid transfers. An A company transfer is valid if it carries the corporation seal and was countersigned by at least one corporation officer. Section 178(d) follows logically, and provides that the assurance fund is not liable if the corporate seal i s improperly used or the cbrporation lacks capacity to execute a n instrument. However, the proposal assumes that section 158(2) will not be changed. Consequently, a company transfer which is not validated by this section remains a n invalid transfer, and under the proposal i s treated in the same manner a s a forged transfer under paragraph 6.110.

6.1 13 The first two situations listed in paragraph 6.11 1 are similar, for in both of them A set the stage for the invalid transfer. If A executed a transfer which his agent delivered to B without authority, or if A's agent exceeded his authority by executing a transfer in favor of B, it can be argued that the risk of a registration based on the invalid transfer should be carried by A rather than by either B or the public through the assurance fund. The proposal makes these transfers valid under the general law.41

6.114 A's registered ownership, or the statutory dower interest of A's spouse, would be defeasible with compensation in the following situations:

Dower of spouse not released by transfer. Invalid tax lien sale. Invalid mortgage foreclosure sale. Invalid expropriation.

134 Torrens' Elusiue Title

In these situations, the proposal follows the Frazer philosophy. I t requires no change in the general law; the invalid transfers remain invalid. However, in order to promote facility of transfer, A's registered interest is defeasible in spite of the invalid transfer. A rule of Torrens law is required to produce this result, and therefore A will be entitled to compensation for the loss of his registered interest.

6.115 The problem under The Dower of Alberta will be considered first. Section 4(2) provides that land ceases to be the homestead of a married person, and therefore ceases to be subject to the dower interest of a spouse, when a transfer of the land by the married person is registered. Section 12 provides that a married person who makes a disposition of land which results in the registration 'of the title' in the name of any other person, without obtaining the required consent of the spouse, is liable to the spouse in a n action for damages. Section 14 provides that a spouse who cannot obtain satisfaction of a judgment recovered pursuant to section 12 may apply for payment of the judgment from the assurance fund under The Land Titles Act.

6.116 As these sections were interpreted by the Supreme Court of Canada in British American Oil Co. v. K O S , ~ ~ decided in 1964, it appears to be clear that if A made a transfer of Blackacre to B without obtaining the required consent of A's spouse, and if B became the registered owner of Blackacre with a certificate of title, the dower interest of A's spouse in Blackacre would be divested, and A's spouse would have the rights specified in sections 12 and 14. This is consistent with the proposal. However, in the Kos case A granted a mortgage against Blackacre to B without obtaining the required consent of A's spouse, and B was the registered owner of the mortgage. The court said that the dower interest of a spouse was only divested in favor of one who obtained the entire interest of the married person, and held that B's registered mortgage was defeasible and that B was not entitled to compensation from the assurance fund. An innocent purchaser of a registered interest has no practical means of determining whether or not his vendor is married, and is, therefore, a t the mercy of a fraudulent married vendor. The author wishes that he could assume that the purpose of section 4(2) was to protect a n innocent purchaser from this risk in order to promote facility of transfer. As limiting this protection to the situation in which the innocent purchaser obtains a registered 'title' seems highly capricious, the proposal extends the protection to any registered interest, and the defrauded spouse will be entitled to compensation in recognition of the fact that the transfer divesting the dower interest was invalid.

6.117 The last three situations listed in paragraph 6.114 involve judicial or administrative procedures. The proposal is based on the proposition that facility of transfer is unduly impaired if the burden of determining whether or not a judicial or an administrative public official performed his statutory duties properly is imposed on B. Consequently, B's registered ownership is not defeasible. As A's registered ownership is defeasible on the basis of a transfer founded on a n invalid judicial or administrative procedure, A will be entitled to compensation for the loss of his registered interest.


(2) Defeasibility of a prior registered interest to the extent that conflicting legal rights are (a) erroneously registered to an intermediate owner, and (b) registered to a subsequent owner who was a purchaser

without fraud under a valid transfer 6.118 Example K. A was the registered owner of a section of land in

Alberta. Subsequently, and without a n authorizing transfer from A, B was registered as the owner of the NW 'A of the section, and A's registration was canceled. B's registration might have been based on a piece of paper which did not purport to be a transfer, it might have been based on a n invalid transfer from A, i t might have been based on a transfer in favor of D which the Registrar misread a s B, or it might have been based on a valid transfer from A to B of the NE 'A which the Registrar misread as the N '/2, resulting in B's erroneous registration a s to the NW 'A. In none of the above events would there have been a transfer from A authorizing B's registration a s the owner of the NW 'A. Later, C purchased the NW 'A from B without fraud, obtained a valid transfer from B, and was registered as the owner of the NW 'A.

6.119 Neither B nor C would have obtained ownership of the NW 'A in example K under either the general law or the general law as modified by a recording system. Purely to simplify analysis, assume that Alberta chose to apply the general law principle that B's registered ownership was defeasible if it were based on a n invalid transfer from A. B's registered ownership was, therefore, clearly erroneous in any of the possible events stated in paragraph 6.118 under principles of the general law unchanged by any rule of Torrens law. Specifically, B's registered ownership was erroneous either because it was based on a n invalid transfer from A to B (see paragraph 6.105), or because it was intended by neither A nor B (see paragraph 6.29). Consequently, A had a statutory right to have the register revised and to reacquire ownership of the NW 'A, and B's registered ownership was defeasible.

6.120 The problem changes fundamentally, however, when C's registered ownership is considered, for then the issue is whether or not a Torrens system will achieve its primary objective of solving problem 1 a t paragraph 2.97. In paragraph 4.25 the author stated that C's registered ownership must not be defeasible in example K. The reasons supporting this conclusion are repeated here. The Torrens system is designed to protect a registered owner from a n erroneous registration which occurred before his registration in order to spare him from both the risk and the expense of investigating the derived title of his predecessors. A was the registered owner of the NW 'A, and presumably gained the benefits of the system. In any human system, one must take the bitter with the better. C is also entitled to the benefits. The NW 'A might have had a unique value to C, either commercial or sentimental. If C is to be induced to rely on the register, the system must assure him that the error which resulted in B's registration will not subject C's registered ownership to defeasibility in a n example K situation. Therefore, A's right to have the register revised and to reacquire ownership of the NW 'A must be extinguished by a rule of Torrens law. The caption of this subsection contains, perhaps still in crude terms,


the necessary rule of Torrens law which makes A's registered ownership vulnerable to permanent divestiture. Example K is sometimes referred to a s the single chain situation. The interest subject to conflicting registrations moved from A through error to B, and then moved without further error to C a s a purchaser without fraud. A more informal way to state the Torrens rule is that in the single chain situation, the error must be resolved against the registered owner who was the victim of the error, and in favor of the registered owner who purchased without fraud in reliance on the register.

6.121 Section 167 of the Alberta Act is normally invoked to protect C's registered ownership.

167. Nothing in this Act shall be so interpreted as to leave subject to . . . deprivation of land in respect of which he is registered as owner, any purchaser or mortgage bona fide for valuable consideration of land under this Act on the plea that his transferor or mortgagor has been registered as owner through fraud or error . . . except in the case of misdescription as mentioned in section 180, subsection (I), clause (e).

As C is the registered owner of the NW 'A, and as A's registration was canceled, the section a s literally read supports C. However, assume that A was also a n innocent purchaser for value. No section of the Alberta Act expressly provides that A's registered ownership is defeasible in example K. However, either C's registration is now defeasible, or A's registration was permanently divested, and the courts have deduced, from the language of section 167 in conjunction with the primary objective of a Torrens system, that A's registered ownership was permanently divested.

6.122 Indeed, the courts have experienced no real difficulty with example K cases. In both Fialkowski v. Fialk0wski,4~ and De Lichtbuer v. D~prneier?~ B was the registered owner of Blackacre on the basis of a forged transfer, and A's former registered ownership was held to have been permanently divested to the extent of C's rights under a registered mortgage. In the Turta B was registered a s the owner of the M & M because the Registrar misread a transfer from A to B which expressly excepted the M & M. A majority of the court held that when C became the registered owner of the M & M, A's former registered ownership was permanently divested. In the Frazer case:' B was the registered owner of a power of sale over Blackacre on the basis of a forged instrument, and the court held that C's registered ownership based on a transfer from B executed pursuant to the power of sale was not defeasible (see paragraph 5.73). In Frazer, the Privy Council relied on the New Zealand counterpart of section 167 on this aspect of the case.

6.123 In order to accomplish the primary objective of a Torrens system, A's registered ownership of the NW l/4 will be divested in a n example K situation if B were registered on the basis of a lottery ticket, or of a forged transfer from A, or of a valid transfer to D. Therefore, is there any functional reason why A's registered ownership should not be divested if B were registered as the owner of the N '/z (and hence also of the NW lA) because the Registrar misread the legal description in a valid transfer from A to B of a parcel of land which was described a s the NE lA? The sections of the Alberta Act relating to the defeasibility of C's registered ownership if he were registered a s the owner of land by misdescription of the land are


quoted in paragraph 6.5 a t item (7). It should be noted that section 167 contains the misdescription exception. The subject of a n erroneous ownership decree resulting from a n error in a legal description was discussed in paragraphs 5.20-27. If C's registered ownership were defeasible under the misdescription exception, and if C wanted to minimize this risk before he purchased the NW lh, he would have to make a historical search of the legal descriptions in all of the transfers and registrations in B's derived chain of title, albeit in a Torrens system in which one's ownership is supposed to be conferred by the state and not derived from the claimed ownership of one's predecessors.

6.124 As long a s B was registered a s the owner of the NW ]A, the register was erroneous, for A had a right to have the register revised and to regain his lost ownership of the NW 'A in accordance with principles of the general law. The caption of this subsection states the rule of Torrens law which exposes A's registered ownership to permanent divestiture. If this condition of defeasibility were clearly stated in the Alberta Act, functional analysis would be greatly simplified. Applied to example K, it means that at the moment that C became the registered owner of theNW 'A A's right to have the register revised was extinguished and replaced by a right to compensation from the assurance fund, and consequently the register ceased to be erroneous.

6.125 Example L. Example L continues the facts of example K, except that A's registration a s the owner of the NW 'A was never canceled, and thus presents a contemporaneous conflicting registration situation. At paragraph 6.26, it was suggested that the valid registration should be defined by statute as the one which conforms with the general law.as necessarily modified by the Torrens system, and hence a s the registration which will ultimately prevail a s a matter of law. As long a s A and B were the conflicting registered owners of the NW lh, the register could have been revised by the cancellation of B's voidable and erroneous registration, leaving A as the only registered owner. Therefore, while this situation existed, A's registered ownership would be defined a s the valid registered ownership under the suggested rule.

6.126 When C became the registered owner of the NW % in example L, a s a n innocent purchaser who relied on B's registered ownership, the primary objective of a Torrens system which was decisive in example K continues to be applicable and requires that C's registered ownership be preserved in a conflict with A's registered ownership. However, in example L the register remained erroneous after C's registration, for A and C became the conflicting registered owners of the NW 'A. Although B's registered ownership was erroneous under principles of the general law before C's registration, A's registered ownership became erroneous under the required rule of Torrens law at the moment that C became the conflicting registered owner. Whereas A had a right to have B's erroneous registration canceled before C's registration, C acquired a right to have A's erroneous registration canceled after C's registration. Therefore, when C became the conflicting registered owner, his registered ownership would be defined as the valid registered ownership under the suggested rule.

6.127 In both examples K and L, B's registration was erroneous. The


only factual difference between the two examples is that in example K, A's registration was canceled, whereas in example L it was not, thereby creating a contemporaneous conflicting registration situation. In both examples, achieving the primary goal of the Torrens system requires that C's registered ownership be indefeasible relative to A's registered ownership. The sections of the Alberta Act relating t o the defeasibility of C's registered ownership if A were deemed to have a prior certificate of title in exampleL are quoted in paragraph 6.5 a t item (6). I t should be noted that section 167 does not contain the prior certificate of title exception. I s there any functional reason why C's registered ownership should be defeasible in example L, but not in example K? If C's registered ownership were defeasible under the prior certificate of title exception, and if C wanted to minimize this risk, he would have to make a historical search of all of the registrations in B's derived chain of title before he purchased the NW l/i in order to determine whether or not a prior uncanceled certificate of title existed.

6.128 Example M. Example M continues the facts of example K, with the following changes. B was erroneously registered a s the owner of the M & M in Blackacre. After C purchased the M & M from B and became the registered owner, the Registrar discovered that A's registered ownership of the M & M should never have been divested, and that B's registered ownership had been erroneous. He assumed, therefore, that the register remained erroneous, and that i t should be revised. The Registrar canceled C's registered ownership of the M & M, and reregistered A as the owner of the M & M by deleting the original cancellation entry on A's certificate of title. Example M now presents the relevant facts in Re Appeal By Canadian Gulf Oil Co.,48 decided by the Court of Appeal of Saskatchewan in 1954.

6.129 The court held that the alterations made by the Registrar were unauthorized because C had acquired his registered ownership in good faith and for value, and relied on the Saskatchewan counterpart of section 185 of the Alberta Act, which was summarized a t paragraph 6.9. The Saskatchewan statute authorized the Registrar to correct errors "without prejudicing rights obtained in good faith for value". Consequently, the court ordered the Registrar to remove the alterations. Perhaps the applicability of both the misdescription and the prior certificate of title exceptions was presented by the facts. Neither exception must have been considered a n issue, for neither misdescription nor prior certificate of title was even mentioned in the opinions in the case. In Canadian Gulf, the register ceased to be erroneous after C became the registered owner of the M & M, for under the required rule of Torrens law under consideration, A's right to have the register revised in order to regain his ownership was extinguished. After the Registrar's alterations, A's registered ownership of the M & M was erroneous. Both opinions written in the case carefully emphasized that a s no new rights had been acquired on the basis of A's reregistration, the erroneous entries should be corrected.

6.130 Example M also presents the essential facts of the Turta case,'19 which was decided in 1954. Only the decision in the Supreme Court of Canada will be discussed. As stated a t paragraph 6.122, a majority of the


court held that A's right to have the register revised in order to reacquire ownership of the M & M which were erroneously registered to B was lost when C became the registered owner of the M & M.

6.131 The misdescription exception was a crucial issue, for if it were applicable, C's registered ownership of the M & M would have been defeasible in favor of A. However, a majority of the court held that the misdescription exception only applied to a registration which was erroneous because of a n error in the legal description of the surface boundaries of land. As the Registrar had not been authorized to divest C's registered ownership under the misdescription exception, no conceptual problem existed with regard to a remedy. The court could simply have directed the Registrar to cancel A's registered ownership of the M & M and to reregister C a s the owner of the M & M.

6.132 The prior certificate of title exception created far more difficulty. As C's registered ownership of the M & M was not erroneous, the Registrar had no authority to divest C's ownership of them and to revest ownership of them in A. However, that is precisely what the Registrar did, and a s was pointed out in paragraphs 4.28-30, the Registrar must have the power to confer ownership of a recognized legal interest in land when he is not authorized to do so. If that were not so, B would never have acquired registered ownership of the M & M in the first place, for no transfer from A to B purported to transfer the M & M, and therefore the Registrar was not authorized to register B a s the owner of the M & M. The majority of the court seemed to have been of the opinion that if A had reacquired his registered ownership of the M & M, he would have had not only the prior certificate of title, but the only certificate of title, and would have prevailed. This, of course, would have frustrated the primary objective of the Torrens system. The majority held that A's reregistration was void, and that C remained the legal owner of the M & M, albeit without benefit of registration.

6.133 Would the approach taken in Canadian Gulf not have been more appropriate? Under the necessary rule of Torrens law, A lost his right to reacquire ownership of the M & M through revision of the register when C . became the registered owner. Therefore, A's reregistration, and his prior certificate of title, were erroneous and voidable. Could not the court have directed the Registrar to revise the register by canceling A's erroneous certificate of title? I n fact, in the Turta case, after the Registrar conferred ownership of the M & M on A, A granted a n oil and gas lease to D. At that time, according to the author's analysis, C had a right to have the register revised and to reacquire registered ownership of the M & M. Although C had a prior nonregistered interest relative to D, C had not filed a caveat to protect his interest. However, C did file a caveat before one was filed by D, and by winning the race C preserved his priority. But what if D had caveated first? If A's registered ownership of the M & M were void, and therefore of no legal effect, how could D have acquired a n interest from A in reliance on the register (see paragraph 4.30)?


(3) Defeasibility when conflicting legal rights have been registered to different persons, all of whom were purchasers without fraud under valid transfers

6.134 Example N. Example N continues the facts of example L, with the following additions. After C became the registered owner of the NW l/i, D purchased the NW l/i from A without fraud, obtained a valid transfer, and became the registered owner of the NW lA. Example N is sometimes referred to a s the multiple chain situation, for a s C purchased from B, and as D purchased from A, both were purchasers without fraud under valid transfers from a registered owner. Example N presents a conflicting contemporaneous registration situation, as did example L. However, example L was a single chain situation, for A and C held the conflicting registered ownerships of the NW l/i. The error which resulted in B's erroneous registration could be resolved against A, who was the victim of the error, and in favor of C, who was a n innocent purchaser relying on the register. In example N, although both C and D purchased in reliance on the register, the registered ownership of one of them must be defeasible. I s i t possible to develop a rule of Torrens law which will make it possible for one to purchase in relative safety, in spite of the potential multiple chain risk?

6.135 One possible solution is to resolve the conflict between C and D through the application of principles of the general law. Under the general law, neither B nor C would have acquired ownership of the NW l/i; A would have retained his ownership, and D would have acquired ownership of the NW l/i through his valid transfer from A. Under this solution, C's registered ownership would be defeasible, for C purchased on the erroneous, or unauthorized chain. D's registered ownership would not be defeasible, for he chanced to purchase on the authorized chain, the only chain which would have existed but for the erroneous registration of B. To the best of the author's knowledge, multiple chain situations are extremely rare. In fact, he has not discovered a case in which the issue was actually presented. If this solution were adopted, the purchaser would have only two options. Because the possibility of a multiple chain situation is so slight, he might choose to rely on compensation from the assurance fund if his registered ownership were defeasible because it was based on the erroneous chain. However, if he were not content to rely on luck and the assurance fund, the prospective purchaser would have to conduct a thorough investigation of the seller's 'derived' registered ownership in order to determine whether or not he would be purchasing on the erroneous chain. This solution, therefore, sacrifices one of the basic objectives of a Torrens system: eliminating the need for derivative title searches.

6.136 Because of the potential multiple chain situation, it is believed that the Torrens system cannot achieve its objective of making it possible for one to purchase a registered interest in safety by relying only on the register. There is another solution, however, which might come closer to preserving the integrity of the system than that discussed in the preceding paragraph. In a n example N, or multiple chain situation, the registered owner who purchased from a registered owner who was in possession would prevail. If neither of the registered owners purchased from a


registered owner who was in possession, the registered owner who first took possession would prevail. If a prospective purchaser were assured that his registered ownership would not be defeasible if he met the possession requirements of this rule, the marginal risk of the multiple chain situation would be virtually eliminated. Under this rule, the prospective purchaser would have to determine whether or not his seller could deliver possession, but he would not be induced to make a search of his seller's derived ownership.

6.137 The possession solution discussed in the preceding paragraph might be more difficult to apply if the conflicting registered ownerships were of a subsurface profit a prendre. In this situation, could the registered owner who paid the mineral tax be defined as the owner in possession in Alberta? Conflicting nonpossessory registered interests would obviously be impossible to resolve under a possession rule. Could the authorized chain solution discussed in paragraph 6.135 be used as a secondary rule to resolve the conflict i n a multiple chain situation when the possession rule could not be applied?

e. Summary 6.138 The conditions of defeasibility discussed in section 6.c. are all

based on principles of the general law which, although independent of a Torrens system, are incorporated into the system. In section 6.d., the conditions of defeasibility which are required for reasons unique to a Torrens system were discussed.

6.139 The indefeasibility exceptions in the Alberta Act based on prior certificate of title and on misdescription, items (6) and (7) respectively a t paragraph 6.5, were discussed a t relevant points throughout section 6.d. The author believes that it is appropriate to raise the question of whether they serve or hinder the accomplishment of the objectives of a Torrens system.

FOOTNOTES 1. (1961) 34 W.W.R. 418 (Alta. T.D.). 2. Id. a t 420. 3. (1952) 5 W.W.R. (N.S.) 529, aff'd 119531 4 D.L.R. 87,8 W.W.R. (N.S.) 609 (Alta. A.D.), [I9541 S.C.R. 427,

I19541 3 D.L.R. I, 12 W.W.R. (N.S.) 97. 4. 119731 1 W.W.R. 471, reu'd [I9731 6 W.W.R. 673 (Alta. A.D.). 5. An excellent analysis of the fraud cases, more orthodox in method, is contained in a n article by G. J.

Davies, Equity, Notice and Fraud in the Torrens System, (1972) 10 Alta. L. Rev. 106. 6. (1911) 4Alta. L.R. 10, 1 W.W.R. 216(S.C.). 7. [I9411 3 W.W.R. 64 (Sask. K.B.). 8. (1965) 51 D.L.R. (2d) 54 (Alta. T.D.). 9. [I9131 A.C. 491 (P.C.).

10. (1977)3B.C.R. 384(S.C.). 11. (1885)N.Z.L.R. 3S.C. 257, a t 263,265. 12. (1894) 13 N.Z.L.R. 584, at 595 (emphasis added). 13. (1910) 3 Sask. L.R. 140, 13 West. L.R. 548 (C.A.). 14. [I9771 1 W.W.R. 542 (Alta. T.D.). 15. 32 Man. R. 452, [I9221 3 W.W.R. 872 (K.B.). 16. (1913) 14 D.L.R. 51,5 W.W.R. 194 (Alta. S.C. in bank). 17. (1885) N.Z.L.R. .7(S.C.) 257. 18. (1924) 41 N.S.W.S.R. 203.


19. (1954) 12 W.W.R. (N.S.) 174 (Sask. Q.B.). 20. (1870) 1 Vict. L.R. (Eq.) 11. 21. (1893) 14 N.S.W.R. (Eq.) 280. 22. (1973)42D.L.R.(3d)412,[1974] 1 W.W.R. 348(Alta.A.D.). 23. [I9361 1 W.W.R. 321 (Sask. C.A.). 24. (19'91) 30 C.L.R. 80 (Aust. H.C.). 25. [I9101 S.A.I,.R. 67. 26. (1902) 2 N.S.W.S.R. (Eq.) 37. 27. Baalman, The Singapore Torrens System 86 (1961). 28. [I9621 S.C.R. 170, 32 D.L.R. (2d) 112,37 W.W.R. 193. 29. Re Church 119231 S.C.R. 642, [I9231 3 D.L.R. 1045, [I9231 3 W.W.R. 405. 30. (1896) 26 S.C.R. 282. 31. 68 D.L.R. (3d) 444, [I9761 5 W.W.R. 280(Alta. T.D.). 32. Morton and Cowell v. Hoffert [I9241 3 D.L.R. 16, [I9241 2 W.W.R. 529 (Alta. T.D.). 33. 4 Scott, Law of Trusts 5 292 (3d ed. 1967). 34. Id. at 5 292.4. 35. Hinde, Indefeasibility of Title since Frazer v. Walker, The New Zealand Torrens System Centennial

Essays 33,40 (Hinde ed. 1971). 36. [I8911 A.C. 248. 37. Watson v. Ogilvie [I9241 1 D.L.R. 815, [I9241 1 W.W.R. 837 (Sask. K.B.); see Credit Foncier Franco-

Canadian v. Bennett (1963) 44 D.L.R. (2d) 186,43 W.W.R. 545 (B.C. C.A.). 38. [ I961 1 A.C. 569. 39. [I9241 N.Z.L.R. 1174. 40. [ I961 1 A.C. 569, a t 584 (emphasis added). 41. See the Uniform Simplification of Land Transfers Act (United States) $5 2-202 and Comment, 3-201,3-

202 (unauthorized delivery); 5 3-208 (agent exceeding authority). 42. The Dower Act, R.S.A. 1970, c. 114. 43. [I9641 S.C.R. 167,42 D.L.R. (2d) 426,46 W.W.R. 141. 44. (1911)4Alta.L.R. 10, 1 W.W.R. 216(S.C.). 45. [I9411 3 W.W.R. 64 (Sask. K.B.). 46. (1952) 5 W.W.R. (N.S.) 529, aff'd [I9531 4 D.L.R. 87,8 W.W.R. (N.S.) 609 (Alta. A.D.), [I9541 S.C.R. 427,

[I9541 3 D.L.R. 1,12 W.W.R. (N.S.) 97. 47. [196q 1 A.C. 569. 48. (1954) 14 W.W.R. (N.S.) 130. 49. (1952) 5 W.W.R. (N.S.), aff'd [I9531 4 D.L.R. 87, 8 W.W.R. (N.S.) 609 (Alta. A.D.), [I9541 S.C.R. 427,

[I9641 3D.L.R. 1,12 W.W.R. (N.S.) 97.

CHAPTER 7

Protecting Nonregistered Interests Through Caveating

a. Introduction 7.1 Chapters 5 and 6 were primarily devoted to registered interests.

Section 56 of the Alberta Act, which provides for the fundamental Torrens system principle that legal interests in land are created by the state through registration, was quoted in full a t paragraph 5.78. Its operative language reads a s follows:

56. [No] instrument is effectual to pass any estate or interest in . . . land . . . unless the instrument is executed in accordance with the provisions of this Act and is duly registered thereunder.. . .

Chapter 5 contained an analysis of the extent to which it was both possible and feasible for the estate to confer ownership by registration, and Chapter 6 considered the circumstances under which conferred ownership was defeasible.

7.2 In contrast, chapter 7 will be devoted to interests in land which are not supported by the active registered ownership decree of the state a t all. As these interests are merely ownership claims, they are characterized as nonregistered interests in this study. Paragraphs 4.10-13 contained a brief summary of the procedure available under Western Canadian Torrens systems for the protection of these interests by caveats entered in the register, and this subject will be further developed in this chapter.

7.3 With the completion of chapter 6, it is now possible to summarize the nonregistered interests. Assume that B is the registered owner of Blackacre, and that E is the claimant of a nonregistered interest. The nonregistered interests can be organized into two major categories, and not surprisingly, these categories are either the same as, or analogous to, the two categories of equities discussed in chapter 2.

(1) Equitable in teres ts

7.4 The first category of nonregistered interests consists of the classic equitable interests. B may hold Blackacre on an express trust for E, or B may have contracted to sell Blackacre to E. Indeed, E may claim any one of the classic equitable interests discussed a t paragraphs 2.59-68. As stated in paragraphs 2.69-70, the existence of these interests depends on the willingness of a court to utilize the equitable remedy of specific performance to require either B, or a successor owner of Blackacre, to carry out B's express or implied promise. These interests remain equitable interests in a jurisdiction with a Torrens system and, subject to the


recording law principles reflected in the caveating system, they are still alive and well.1

(2) Interest based o n revision of the register 7.5 The second category of registered interests includes interests

which are analogous to the mere equities based on the equitable remedies of rectification and cancellation, discussed a t paragraphs 2.71-75. Although B is the registered owner of Blackacre, E may have a right to have the register revised and to become the registered owner of an interest in Blackacre for reasons wholly independent of the equitable remedy of specific performance. In fact, the remaining situations in which E has a right to become the registered owner of an interest in Blackacre through revision of the register are simply correlative to the same situations in which B's registered interest is, in whole or in part, defeasible. Therefore, in order to list the nonregistered interests in this category, most of the situations analyzed in chapter 6 in which B's registered interest is defeasible can be repeated.

7.6 (a) Overriding interest (see paragraphs 6.11-12). It should be noted that if E's nonregistered interest is based on an overriding interest, it is invulnerable, and need not be protected by a caveat.

7.7 (b) Interest based on a transaction intended by the parties (see paragraphs 2.15-22). B may have executed and delivered a transfer of an interest in Blackacre to E, and E may not have registered the transfer in order to obtain legal ownership of the interest. It is possible that E declined to register the transfer as a matter of choice. It is also possible that the transfer did not qualify for registration. This latter problem was examined a t paragraphs 5.82 and 5.87, where it was pointed out that the provisions of the Alberta Act limiting the creation of registered interests has the disadvantage of increasing the number of nonregistered interests. The courts have frequently characterized interests under unregistered transfers as equitable interests; on the grounds that a legal interest can only be obtained through registration.3

7.8 (c) Interest based on a fraudulent deprivation of ownership (see paragraph 6.39). E may have been the registered owner of Blackacre, and B may have procured his registered ownership through his fraud.

7.9 (d) Interest based on a deprivation of ownership through error operating in favor of a donee (see paragraphs 6.77-79). E may have been the registered owner of Blackacre, and B may have acquired his registered ownership through error innocently, but a s a donee.

7.10 (e) Interest based on a deprivation of ownership through an invalid transfer to the immediately succeeding registered owner (see paragraphs 6.103-106). E may have been the registered owner of Blackacre, and B may have acquired his registered ownership as an innocent purchaser, but through an invalid transfer.

7.11 In situations (b) through (e) listed above, there is a convenience bred of familiarity in referring to E's nonregistered interest as an equitable interest. As E's nonregistered interest is not based on a conveyance which would be effective at law, as opposed to an equity, in any of these

Chapter 7 . Caveating 145

situations, under the general law it could only be an equitable interest. Moreover, with a n exception to be discussed in the following paragraph, in these situations B is the registered legal owner, and E has a right to become the registered legal owner through revision of the register. Under the general law, if B's legal ownership were based on a conveyance which either was not intended by both B and E, or was procured by fraud, E's remedy would be a right to have the conveyance rectified or canceled in equity in order to reacquire his lost ownership. Consequently, E's right to have the Blackacre register revised in order either to gain or to regain registered ownership is analogous to equitable rectification. There is a problem with this analogy, however, for equitable remedies are discretionary. I t would seem that if the proven facts establish the validity of E's interest in situations (c) through (e), E has a statutory right to revision of the register, rather than a discretionary equitable right.

7.12 Situation (b) poses a further difficulty under the statutory revision theory. If E has a registrable transfer, it seems accurate to say that E has a statutory right to have the register revised in order to obtain a register legal interest. But if E does not have a registrable transfer, he certainly does not have a right to have the registered revised in order to obtain a registered legal interest. The transfer in question might pertain to an interest which contravens no public policy and which would have been a legal interest under the general law. Must such an interest exist, if a t all, as an equitable interest? Under the general law, the parties have a n absolute right to create recognized legal interests. If E has an instrument which is not registrable because i t does not substantially conform with the proper form, but which otherwise purports to create a legal interest which is consistent with the general law, is the existence of the interest subject to equitable discretion? The subject of limiting interests qualifying for registration was discussed in section 5.f., and the foregoing questions are merely designed to underscore the problems inherent in this approach.

b. Should Nonregistered Interests be Recognized? 7.13 Section 56 of the Alberta Act was quoted in part a t paragraph 7.1.

This section, typical of Torrens statutues, appears to express a legislative intention that no interest in land will be recognized unless i t is created by registration. There is no suggestion of a distinction between legal interests, which must be created by registration, and nonregistered interests, which will be recognized, and which can be protected through caveating. However, the author is not aware of any Torrens jurisdiction which denies recognition to nonregistered interest.

7.14 Two of the modern Torrens acts deal directly with the ambiguity latent in section 56 of the Alberta Act. Both section 27(1) of the Singapore Act4 and section 38(1) of the Kenya Act5 contain the provision in section 56 of the Alberta Act that a n unregistered instrument will not be effectual to pass any estate or interest, but both Singapore section 27 and Kenya section 38 contain a subsection (2) which states:

(2) Nothing in this section shall be construed as preventing any unregistered instrument from operating a s a contract.


Consider the classic equitable interests referred to a t paragraph 7.4. With the exception of the express private trust, they are all based on a contract between B and E. If B contracted to sell Blackacre to E, and if B breached that contract, E could bring an action a t law to obtain damages for B's breach of contract. The author would be extremely surprised if anyone had ever seriously suggested that section 56 of the Alberta Act meant that a court of law could not grant damages for breach of a contract concerning an interest in land unless the instrument creating the contract were registered. Therefore, the subsection (2) quoted above must mean that the equitable remedy of specific performance of contract remains available for the enforcement of an unregistered instrument. As E's equitable interest in Blackacre is based on his ability to obtain specific performance of his contract right to purchase Blackacre from B, the subsection (2), in effect, provides for the recognition of equitable interests.

(1) Enforcement of nonregistered interests between the immediate parties

7.15 E's nonregistered interest may be any one of the classic equitable interests. There are no apparent reasons which would justify elimination the remedy of specific performance of contract as between the original contracting parties, and thus completely abolishing these equitable interests. For centuries specific performance has performed a useful function in averting difficult contract damage issues. Moreover, although recognizing that E has an equitable interest in Blackacre insofar a s E and B are concerned has significant implications in some areas of real property law (see paragraph 2.44), it has no relevance to facility of transfer and the objectives of a Torrens system.

7.16 E's nonregistered interest would be a right to have the Blackacre register revised in order to acquire registered ownership if B made a transfer to E, or if B procured his registration through fraud, or if B were a donee, or if B acquired his registration through a n invalid transfer from E. In these situations E's nonregistered interest must be enforced against B if it is to exist at all.

(2) Enforcement of nonregistered interests against a successor registered owner

7.17 Once it is decided that enforcing E's nonregistered interest in Blackacre against B is consistent with public policy, only the goal of promoting facility of transfer stands a s an obstacle to inforcing it against a purchaser of Blackacre from B, such a s C. If a convenient system can be implemented to provide C with a source of relevant information a s to all nonregistered interests which could be enforced against him, the dual goals of protecting E's nonregistered interest and promoting facility of transfer can be reconciled. Consequently, the functional question is not whether nonregistered interests should be recognized and enforced. Rather, the question is how to develop a system which will make it possible for E to protect his nonregistered interest without impeding facility of transfer.

c. Benefits Secured Through Caveating System 7.18 Even the earliest Torrens acts provided a method for the holder of

a nonregistered interest to preserve his interest for a t least a period of time during which he could seek the benefits of registration. The modern caveat or caution can have either of two different effects, depending on the legislation. Under the older system its purpose is to secure temporary protection for a nonregistered interest; after a caveat is filed, no further registrations are permitted until the claim protected by the caveat is either registered or denied registration. Under the newer system, a caveat gives permanent protection; after the caveat is filed, all further registrations are subjected to the claim protected by the caveat. As the Alberta Act utilizes the newer system, it will be the subject of this chapter.

7.19 In operation, the caveating system under the Alberta Act is virtually the same as a typical modern North American recording system. These systems have two primary objectives, and they are relatively simple to understand if the two objectives are recognized as distinct. Assume that C wished to purchase Blackacre from B. The first objective of the system is to provide E with a method of protecting his prior nonregistered interest (see paragraph 3.28). The second objective is to make it possible for C to acquire a subsequent interest from B free from prior nonregistered interests by relying on the register (see paragraph 3.12)

7.20 Sections 136, 142, 152, and 58 of the Alberta Act provide a s follows:

136. Any person claiming to be interested in any land for which a certificate of title has been issued . . . may cause to be filled with the Registrar a caveat . . . against the registration of any person as . . . owner of, or any instrument affecting, the estate or interest, unless the certificate of title or instrument . . . is expressed to be subject to the claim of the caveator. 142. So long as any caveat remains in force the Registrar shall not register an instrument purporting to affect the land, mortgage or encumbrance in respect of which the caveat is lodged, unless the instrument is expressed to be subject to the claim of the caveator. 152. Registration by way of caveat . . . has the same effect as to priority as the registration of any instrument under this Act. . . 58. Instruments registered in respect of or affecting the same land have priority the one over the other according to section 20 and not according to the date of execution.

Section 20 of the Alberta Act merely prescribes the procedure for determining the time of registration.

(1) Benefits secured by caveating a prior nonregistered interest

7.21 Taken together, the quoted sections of the Alberta Act provide for accomplishing the first recording system objective; if E's prior nonregistered interest were entered in the register by a caveat, any interest subsequently acquired by C would be subjected to the interest protected by E's caveat to the extent that the interest was valid under the general law, at least so long a s the caveat remained in force. Functionally, the system is designed to provide C with information concerning all nonregistered interests which could be enforced against him. Legally, however, the effect


of a caveat is prescribed by the Alberta Act; i t does not depend on equitable principles from the general law.

7.22 It should be emphasized that it is the interest which is protected by a caveat under section 142, and not merely the owner of the interest a t the time it was caveated. Assume that E's prior nonregistered interest was a lease for a term of 30 years, that E properly caveated the lease, and that E later assigned the lease to F. It is B's reversion which is bound by the caveated lease, and if C subsequently purchased the reversion from B, the reversion would remain subject to the lease owned by F.6 It would be expedient for F to file his own caveat, but he would do so to protect his ownership of the lease against the risk that E might make a subsequent assignment of the lease to G as a n innocent purchaser.7

7.23 The caveating system in Alberta contains an ingredient which is not present in a typical recording system. Under the latter, there are no provisions for the removal of a recorded instrument; once recorded, a n instrument remains recorded until the court house bums down and the records are destroyed. The recorded interest will cease to be relevant when it expires in accordance with its own terms. Or, the recorded interest may be extinguished or modified by the recording of a subsequent instrument either executed by the proper parties, or issued by a court after a judicial determination of the validity of the recorded interest on the merits. The Alberta Act does contain provisions for the removal of a caveat, and although the legal consequences of the removal of a caveat are a n integral element in the benfits of the caveating system to the relevant parties, this subject will be discussed separately in section 7.e.

(2) Benefits secured by one who acquires a subsequent interest in reliance on the register

7.24 The second objective of a recording system is to make it possible for C to acquire a subsequent interest from B free from prior nonregistered interests by relying on the register. If E filed a caveat to protect his prior nonregistered interest, C would acquire his subsequent interest subject to the prior caveated interest, to the extent of its validity. But what if E did not file a caveat? Assume that B was the registered owner of Blackacre, that his registered ownership was not subject to any outstanding interests disclosed by the register, and that C acquired a valid transfer of Blackacre from B. What must C do, or be, in order to take free from E's prior nonregistered interest? Sections 152 and 58 of the Alberta Act appear to create a pure race system (see paragraph 3.14); C must either caveat (section 152) or register (section 58), before E either caveats or registers, in order to gain priority. This, however, is not so. First, C must also be a purchaser for value (see paragraphs 6.77-79 and 6.87). Because E held the prior interest derived from B, E can be a donee; a s C is seeking to utilize the caveating system to gain a priority he would not have had under the general law, C can not be a donee. Secondly, C must be innocent of fraud (see paragraphs 6.39 and 6.49). Consequently, the Alberta caveating system is a purchaser-race-fraud system.

7.25 As discussed a t paragraph 3.18, the feature can lead to unfortunate consequences in terms of facility of transfer. E held the prior


nonregistered interest. In the Turta case: translated from example M a t paragraphs 6.128, 6.130, and 6.133, E (there C) had a right to have the register revised in order to regain his registered ownership of the M & M which the Registrar had erroneously reregistered to B (there A), and C (there D) subsequently acquired a n oil and gas lease from B (there A). In Stephens v. Bannon? E purchased B's contract to acquire a lot from A, and C subsequently purchased the same contract from B. Assume, for the purposes of the issue under consideration, that C was an innocent purchaser in both cases. In both cases, E's prior nonregistered interest was not disclosed by a caveat when C acquired his subsequent interest in reliance on the register, but E nevertheless preserved his priority by winning the race to the Land Titles Office and caveating first.

7.26 Normally, however, C will win the race, and it is now clear that under the Alberta Act, if C were also a n innocent purchaser, his subsequent interest would not be subordinated to E's prior nonregistered interest.1° The foundation case establishing this prinicple is Re Royal Bank and La Banque D'Hochelaga," decided in 1914. The previous year, in Stephens v. Bannon, the court had recognized that E could protect a prior equitable interest by filing a caveat. This result of the statutory caveat was quite consistent with equitable prinicples; functionally, the statute made it possible for E to give the world notice of his prior interest, and hence to preserve it. The other objective of a recording system, to make it possible for a subsequent innocent purchaser of even a comparable equitable interest to gain a n advantage by caveating first, involved a reversal of equitable doctrine. Although the principle had existed in Eastern Canada under conventional recording systems for over a century, Simmons J. referred to it a s a "startling innovation".12 And Stuart J., dissenting, refused to interpret the statute a s having been intended to produce such a result.

7.27 T.M. Ball lumber Co. v. St. Mary's Parish Credit Union Ltd.,l3 decided by the Supreme Court of Canada in 1961, is worthy of consideration here. E held a n equitable mortgage of a lot owned by B to secure B's debt of $2,000 and possible future advances to be made by E to B, and E's prior nonregistered interest was not protected by a caveat. E made future advances to B, and E's mortgage secured a debt of $6,400 a t the time C acquired a subsequent equitable mortgage of B's 'equity' in the same lot, and caveated this interest. Later E advanced a n additional $3,000 to B. The c o d held that, a s a matter of proper construction, because C's mortgage was limited to B's 'equity' in the lot, C's mortgage only applied to B's beneficial ownership, that is, the value of the lot less the $6,400 B actually owed to E when C acquired his mortgage. Consequently, a s to the first $6,400 which might be realized from a sale of the lot pursuant to foreclosure of the mortgages, there was no priority issue, for C's mortgage was by its implicit terms subject to E's prior mortgage. However, as to any remaining proceeds from a foreclosure sale, the mortgages were conflicting, and C's mortgage was entitled to priority to the extent of the debt it secured because it was purchased without fraud and caveated first.


d Caveating Requirements

(1) Interests qualifying for protection 7.28 Section 136 of the Alberta Act defines the interests in land which

qualify for protection by caveating. The section is complex, but if the author's summary is accurate, i t could be simplified to read a s follows:

A caveat ma,y be filed if the claimed interest: (a) is in land registered under the act,

and (b) either

(i) is based either on an instrument executed by any person or on an Act of Alberta, or

(ii) arose after the land was first registered under the act.

7.29 The point of overwhelming importance in terms of the functional operation of the caveating system is that there is no requirement that a caveated interest be valid in order to be entitled to whatever protection caveating will provide. The caveated interest is a mere claim, and its status on the merits is not elevated by caveating. The principle was stated with abundant clarity by Tritschler J. in C.P.R. v. District Registrar:l4

Applicant does so claim and it is not disputed that its caveat is in the correct statutory form. A caveat is merely a notice of a claim which may or may not be a valid one. The validity of the claim must be determined after and not before the filing of the caveat. The purpose of caveats is to warn the registered owner and, what is more important, all persons who might deal on the faith of the certificate of title, that the caveator claims an interest which is not disclosed on the certificate of title. This purpose would be frustrated if a claim to an interest had to be established by the decision of a Court or of the District Registrar before a caveat could be filled. It is trite law that caveats are to be used for the protection of alleged as well as of proved interests and that a caveat is merely a warning which creates no new rights but protects existing rights, if any.

7.30 There has been scant litigation in recent years concerning what interests qualify for protection by caveating. In the early years a commonly held view was that only a n interest which was based either on a registrable instrument, or on a specifically enforceable instrument, could be protected by a caveat. This view was rejected by the Supreme Court of Saskatchewan in 1914, in Imperial Elevator Co. v. 01ive.15 The counter proposition, that only a n interest which could not be created in registrable form qualified for protection by a caveat, was rejected in Rystephaniuk v. Prosken.16 In the latter case the court held that an easement could be protected by a caveat even though it could have been created by a registrable transfer, and even though a s a n overriding interest it did not require protection a t all.

(2) Authority of Registrar to reject caveats 7.31 Section 54 of the Alberta Act provides a s follows: 54. ( 1 ) The Registrar shall decide whether any instrument or caveat presented to him for registration is subsequently in conformity with the proper form in the Schedule or not and may reject any instrument or caveat that he may decide for any reason to be unfit for registration.

( 2 ) Where any instrument or caveat is presented to the Registrar for registration subject to any condition, the Registrar shall reject the instrument or caveat for

Chapter 7. Caveating 151

registration if the condition is not satisfied at the time the instrument or caveat would otherwise be registered.

(3) The Registrar may reject any document submitted for filing or registration which i s i n his opinion for any reason unsuitable to be microphotographed pursuant to section 22.1. (Emphasis added.)

7.32 Section 137 of the Alberta Act and Form 33 are not quoted, but cumulatively, they require that a caveat be signed by the caveator or by his agent, that it contain the name and address of the caveator or of his agent, that it state a n address within the province for service of notices, and that it describe the land in which the interest is claimed. It seems beyond question that the Registrar must have authority to reject a caveat if it does not comply with reasonable administrative requirements. The caveat and its attachments must be suitable for reproduction by equipment available in the Land Titles Office. Signatures, names, and addresses are all relevant for purposes of notices and proceedings relating to the caveat. The required form enhances administrative efficiency. The land affected must be adequately described so that the caveat can be entered in the proper register.

7.33 Section 137 also requires that a caveat be supported by a n affidavit stating that the deponent (the claimant or his agent) believes that the claimant has a good valid claim in respect of the land. A prophylactic requirement such a s this, when multiplied by the number of caveats filed, results in a very considerable expense for the society using the system. The author believes that the opinions of experienced lawyers should be obtained to determine whether or not this requirement is sufficiently effective in inhibiting the filing of spurious caveats to justify its cost in connection with the thousands of caveats filed.

7.34 According to section 54(1), the Registrar may reject any caveat that he may decide for any reason to be unfit for registration. Conceding that a caveat may be unfit if it does not meet reasonable administrative requirements, what other reasons would make it unfit?

7.35 At paragraph 7.29, Tritschler J. was quoted as having said that a caveat creates no new rights but protects existing rights, if any. Assume that E submitted a caveat to the Registrar to protect a lease of Blackacre from B to E for a 30-year term, and that the Registrar had reason to suspect that the lease was invalid under the general law. Perhaps B sent a letter to the Registrar contending either that the lease was forged, or that it was executed or delivered by a n agent of B without authority. Was E's caveat rendered unfit? If the Registrar rejected the caveat, when in fact the lease was valid, B would have a n opportunity to make a subsequent transfer of Blackacre to C as a n innocent purchaser, and thereby to extinguish E's leasehold interest. If the Registrar accepted the caveat, when in fact the lease was invalid, E would have acquired no substantive legal rights, for the state does not purport to confer any ownership rights by entering a caveat in the register. The lease would have remained void, and by accepting the caveat the Registrar would not have exposed the assurance fund to any risk. Assume that E assigned a caveated but void lease to F, that F was a n innocent purchaser, and that F108s caveat was accepted. The situation would not have changed; a s E was never registered a s the


owner of a leasehold interest in Blackacre, F did not purchase a leasehold interest from a registered owner in reliance on the register.

7.36 The practical problem is that the Registrar does not know whether or not a claimed interest is valid on the merits. However, by accepting a caveat based on a n invalid transfer, the Registrar would not confer any ownership rights on the caveator, he would not divest any ownership rights of the registered owner, and he would not expose the assurance fund to any risk. The caveat would adversely affect the ability of the registered owner to enter into a transaction concerning any registered interest subjected to the caveat. In C.P.R. v. District Registrar, referred to a t paragraph 7.29, Tritschler J. held that the Registrar had no authority to reject a caveat because he believed that the claim for which it sought protection was invalid. If this is the sound view, it would seem that section 54 of the Alberta Act should be redrafted accordingly.

7.37 It is clear from section 136 of the Alberta Act, summarized a t paragraph 7.28, that some valid interests in land do not qualify for protection by caveating. A caveat seeking to protect such a n interest must, therefore, be unfit. Does the Registrar have a duty to reject such a caveat? Thousands of caveats are routinely submitted to the Registrar for filing. If the Registrar has a duty to reject a caveat seeking to protect a n interest not qualifying for protection, how much does it cost the users of the system to pay for the Registrar's efforts to carry out that duty? What would be the legal consequence if such a caveat were inadvertantly accepted? If a caveat did not comply with reasonable administrative requirements, that fact would be apparent from the face of the Form 33, and would be discovered during the routine administrative processing of the caveat. If the Registrar has no authority to reject a caveat for reasons related to the validity of the interest sought to be protected, he is not required to commit the valuable time of skilled government employees to the task of reading caveats in order to evaluate the interests claimed on the merits.

7.38 However, how does the Registrar determine whether or not a n interest does qualify for protection by caveating unless he has the claimed interest scrutinized? Assume that the caveat seeks to protect a pipeline easement across Crown land which was not registered under the Alberta Act. Here the disqualification is based on the status of the parcel of land sought to be affected by the caveat. Every caveat has to be entered in the register for a parcel of land, and a s the parcel of land was not registered under the Alberta Act, that fact would readily be discovered, and the caveat could be rejected.

7.39 The only other disqualified interests are those which are based neither on a n instrument executed by any person nor on a n act of Alberta, and which arose before the land affected was first registered under the Alberta Act. One could speculate for some time in a n effort to identify all of the interests which this class might comprise, but the effort seems hardly justified. Two possible interests can be easily identified. If B were homesteading Crown land which was not registered, E might have acquired a n equitable interest based on a n oral contract to purchase the land from B, made before B acquired a Crown patent and become the registered owner. Such a n interest would have arisen before the land was


first registered under the Alberta Act, and it would have been based neither on a n instrument nor on a legislative act of Alberta. The interest would be very rare. The other interest, which is of common knowledge, is often described a s the native land claim. As a caveat based on a native land claim is usually filed against thousands of acres, this interest would be apparent.

7.40 The author does offer a suggestion which would provide and answer to the questions posed a t paragraph 7.37. Could the Alberta Act provide that a n accepted caveat purportedly protecting a n interest not qualifying for protection is invalid? This may seem inconsistent with the author's position that under a Torrens system unauthorized ownership decrees must be characterized a s voidable, and not a s void. The two situations are, however, fundamentally distinct. If the Registrar erroneously conferred ownership of a recognized legal interest in land on B through registration, B's registered ownership must be recognized a s valid until the register is revised in order to support the rule of Torrens law that C can purchase the interest from B without fraud in reliance on B's registered ownership (see paragraph 6.120). In contrast, if F purchased E's caveated interest without fraud, F would acquire no more than E's claim. F could not rely on the register insofar a s the validity of E's interest was concerned, for by accepting a caveat the Registrar did not purport to validate E's interest. Consequently, a statutory rule providing that a caveat is invalid if the interest does not qualify for protection would simply deprive the interest of the protection afforded by the caveating system, and would leave it vulnerable to subordination in favor of a n interest which was properly registered or caveated. Although this suggestion is made in the context of section 136 of the Alberta Act, it could apply to any caveat filed to protect a n interest which does not qualify for protection for reasons related to the nature of the interest or to the owner of the interest. It would eliminate the Registrar's duty to reject such caveats, for no legal consequence would result if one were accepted.

(3) Description of interest sought to be protected by caveat 7.41 Section 137 of the Alberta Act provides that every caveat shall

state "the nature of the interest claimed and the grounds upon which the claim is founded." An adequate description of a n interest sought to be protected by a caveat is crucial, for unless the caveated interest is adequately described, facility of transfer of a n interest subject to the caveat is likely to be impaired.

7.42 Assume the following facts. B and E, who were the registered owners of Blackacre a s tenants in common in equal shares, made a contract under which E claimed three equitable interests in B's one-half interest in Blackacre, namely: (1) a lien against B's one-half interest for one-half of the cost of repairs made by E to a building on Blackacre, (2) a lease of B's one-half interest, and (3) a right of first purchase if B decided to sell his one-half interest. E filed a caveat claiming "a right of first purchase of B's one-half interest in Blackacre should B decide to sell such interest, a s granted by a n agreement of (date and parties) which agreement inter alia provides: (right of first purchase clause of agreement quoted)". Subsequent-


ly, C purchased B's one-half interest in Blackacre without fraud, and was registered a s the owner subject to the rights protected by E's caveat. What rights were protected by E's caveat? The issue presented by this example was decided in 1956 by the Supreme Court of Canada in Ruptash v. Zawick.17

7.43 Although it was conceded that the right of first purchase would be protected by the caveat if it were valid, E did not seek to enforce this right against C. Consequently, the issue was whether or not the lien and the lease claimed by E were protected by the caveat. The court held that, as properly construed, the agreement did not grant either of these interests to E, and therefore E's claim failed on the merits. However, in the alternative, the court held that even if these interests had been valid, they were not protected by the caveat, and hence were not enforceable against C. The court said that E's caveat claimed only a right of first purchase (the nature of the interest claimed) granted in a written agreement (the grounds on which the claim was founded), and that although the agreement was referred to a s providing "inter alias' other rights, the caveat did not claim these other rights. As it seems unlikely that many caveators would recite several interests, and then claim only some of them, the Ruptash holding is of relatively limited practical application.

7.44 I t is believed that Calford Properties Ltd. v. Zeller's (Western) Ltd.I8 implicitly raises a more important question related to facility of transfer. In Calford, E held a nonregistered lease protected by a caveat in substantially these terms: "E claims a n interest in Blackacre under a lease in writing (date and parties) for a term and on the conditions contained therein". The lease was for a 30-year term, and contained a n option giving the lessee a right to renew the lease for a n additional ten years. C purchased the reversion in Blackacre from B, and was registered a s the owner subject to the rights protected by E's caveat.

7.45 The court held that C acquired the reversion subject to all of E's rights contained in the lease, including the option to renew the lease. The Ruptash case was easily distinguished, for in Calford E claimed a n interest under a lease "on the conditions contained therein", that is, E claimed all of the rights in the lease. The practical problem is that the nature of the interest claimed was merely described as a lease, which told a propective purchaser of the reversion (C) almost nothing. The lease could have been for one year or for fifty years, and could have been an instrument containing from one to who knows how many pages. Manifestly, a prudent purchaser of the reversion would examine and evaluate the lease. The lease, however, was not attached to and incorporated into the caveat; and insofar a s the facts disclosed, was not available in the Land Titles Office. Therefore, C's lawyer had the task of obtaining a copy of the lease from someone, and either E's lawyer or B's lawyer was the logical target. As any lawyer knows, it is seldom as simple a s one telephone call. In Calford the original lease was executed in 1974 by Royal Exchange Assurance as executor of the estate of the deceased owner of Blackacre, late of London, a s lessor. The reversion in Blackacre had changed hands several times between 1948 and C's purchase from B in 1970, over 22 years after the beginning of the term of the lease. Moreover, E was as assignee of the


original lessee's interest in the lease. One can only speculate a s to how easy it would have been for either B's lawyer or E's lawyer to have located a copy of the original lease.

7.46 The author sees no reason why a caveator should be absolutely required to attach a copy of the instrument, if any, upon which his claim was founded, to his caveat. He does suggest that section 137 might be amended to provide that a caveat will only protect rights disclosed by the caveat including its incorporated attachments, and thus actually available for examination a t the Land Titles Office. If a caveator wished to summarize the rights provided by the instrument upon which his interest was founded, a s frequently will be convenient, it is believed that he should be permitted to do so, so long a s he carries the risk of omissions in the summary.

e. Removal of Caveats

(1) Basic policy issues 7.47 Nonregistered interests protected by caveating will invariably

conflict with registered legal interests or with nonregistered interests. Although a caveated interest will usually be legitimate, it may be spurious; and if legitimate in origin, it may have become obsolete.

7.48 Because a subsequent purchaser of a n interest in land will be bound by an inconsistent nonregistered interest protected by a caveat, the mere existance of a claim protected by a caveat impedes facility of transfer to the detriment of both a n owner of a n interest subject to a caveated claim and a potential purchaser from him. The caveating system gives this protective benefit to the holder of a caveated interest. For this reason, in order to restore facility of transfer, it is deemed appropriate to give the holder of a n interest subject to the caveat a summary remedy to obtain the removal of the caveat, that is, a remedy which does not give his adversary the procedural means of protecting his interest normally found in a judicial action.

7.49 The mere existence of a claimed nonregistered interest impedes the use and development of land by an owner, whether or not the claim is protected by a caveat. Should a judicial system attempt to isolate a n owner of an interest in land from conflicting claims? Or should it provide a forum and procedures for the resolution of conflicts on the merits with justice for both parties? If a claimed nonregistered interest were not protected by a caveat, the owner of the interest in land adversely affected would have to utilize the normal adjudicative procedures to resolve a controversy on the merits, and thus remove any impediment to the use and development of his land. Is there any reason why a summary adjudicative procedure should be available if a caveat were filed?

7.50 A dilemma is presented when a n attempt is made to promote either facility of transfer or the use and development of land by a summary adjudicative procedure, for a s the great majority of caveated claims are valid on the merits, the principle of security of ownership of nonregistered interests in land dictates that adequate safeguards for the claimant be provided, whether or not he happens to be a caveator.


(2) Benefits secured by removal of caveats 7.51 Section 144(1) of the Alberta1 Act provides as follows:

144.(1) [Elvery caveat . . . shall be deemed to have lapsed after the expiration of 60 days after notice . . . [is] sent by registered mail . . . to the caveator.. . to take proceedings in court on his caveat, unless before the expiration of the period of 60 days the caveator takes proceedings in court. . . to substantiate the . . . interest . . . claimed. . . .

Section 144(5) provides that the person sending the notice must have a n interest in the land. By simply mailing a notice to the caveator, such a n interested person can obtain the removal of a caveat if the caveator does not commence the required action. No problem exists if the caveat relates to an invalid claim, for the caveator will have sustained no injury. But if the caveat protects a valid claim, what is the effect of its removal?

7.52 At paragraph 7.21 it was stated that the benefit which accrues to the holder of a nonregistered interest by filing a caveat is that any subsequently acquired interest is subject to the nonregistered interest to the extent that it is valid, a t least so long a s the caveat remains in force. The effect of removal of the caveat must, therefore, be to retract that benefit and to leave the nonregistered interest vulnerable to subordination in favor of a subsequently purchased interest.

7.53 Assume that B and E made a contract for the sale of Blackacre to E, that E did not file a caveat to protect his equitable interest in Blackacre as a contract purchaser, and that B unjustifiably refused to carry out the contract. It is clear that the fact that E chose not to file a caveat would not preclude him from obtaining either specific performance of his contract against B in equity, or damages from B a t law for breach of contract. If E had filed a caveat, and had subsequently removed it voluntarily, surely his legal and equitable rights against B would not have been altered. Should it make any difference if E's caveat has been removed as a result of a notice from B to commence followed by E's failure to do so in time? B would have been able to sell Blackacre to C free of E's claim, but should that not be the extent of B's benefit from the caveat removal procedure?

7.54 Assume that B created a nonregistered interest in Blackacre in favor of E, that E filed a caveat to protect his interest, that C subsequently acquired a n interest from B which was consistent with that of B, that C sent a notice to E to commence action to substantiate his claim, that E failed to do so in time, and that E's caveat was removed. This example presents the relevant facts of two conflicting caveat removal cases; Boulter- Waugh v. Union Bank,lg a 1919 decision of the Supreme Court of Canada, and Bensette v. Reece, lo decided by the Saskatchewan Court of Appeal in 1973. In Boulter- Waugh the prior nonregistered interest was an equitable mortgage, and the subsequent interest was a registered mortgage. In Bensette the prior nonregistered interest was a royalty interest in the M & M in Blackacre, and the subsequent interest was the registered ownership of Blackacre including the M & M.

7.55 As demonstrated by the example in paragraph 7.53, the procedure commenced by C would not have affected E's remedies against B. The crucial issue is what effect did the removal of the caveat have on E's right to have the equitable remedy which he had against B enforced against C.


The least one can say is that the removal of the caveat would enable C to transfer his interest free of E's claim to D as a subsequent purchaser without fraud. According to the court in Bensette, that was the only effect of the removal of E's caveat. The court held that E could enforce his prior interest against C notwithstanding the removal of the caveat, because a t the time of C's purchase E's prior interest was protected by the caveat.

7.56 However, in Boulter- Waugh the Supreme Court of Canada held that the removal of E's caveat was immediately effective to give C priority over E. As has been stated, the logical effect of the removal of a caveat is to expunge whatever protection the caveat gave. The court in Boulter- Waugh appears to have concluded that in order to maintain his priority over C, E was required to keep his protective caveat in the register during the entire period that C held his interet. As the functional purpose of the caveat was to give C notice of all nonregistered interests which might have been enforceable against him a t the time that he purchased, it is difficult to understand why the continued existence of the caveat should be required. The author believes that the court acted upon a perceived need for a system providing for a summary adjudication of the merits of E's claim a s it affected C (see paragraph 7.49), and that a procedure which merely provided for the removal of a form of protection was extended beyond its logical limits in order to achieve this goal.

(3) Summary adjudication of validity of nonregistered interest 7.57 A summary caveat removal procedure increases facility of

transfer for the benefit of both the owner of an interest subject to a caveat and a potential purchaser from him. A summary procedure for ad- judicating the validity of a nonregistered interest protected by a caveat not only increases facility of transfer, but also promotes the use and development of land by a n owner whose interest is subject to the caveat, whether or not he intends to sell his interest. However, if a summary adjudicative procedure operates too harshly, it will be detrimental to any use and development plans of a holder of a nonregistered interest.

7.58 Section 146 of the Alberta Act provides as follows: 146.(1) In the case of a caveat filed . . . the applicant or owner may . . . apply to the court or a judge, by originating notice subject to the Alberta Rules of Court, calling upon the caveator to show cause why his caveat should not be discharged, and upon the hearing of the application the court. . . may make such order. . . as to the court. . . may seem just.

In a practical sense, this section provides the owner of a n interest subject to a caveat with a method for obtaining a summary adjudication of the validity of the caveated claim. The caveator will normally want to retain the protection afforded by his caveat, in order to do so he must show cause why his caveat should not be discharged, and this will require him to prove the validity of his claim. The procedure is summary because it is based on originating notice, and because it places the burden of proving the validity of his claim on the caveator. Under ordinary procedure, the owner would be required to apply to the court for a declaration that his interest was not bound by the caveated claim, and he would have the burden of proof.

7.59 However, what relief could a n owner obtain under section 146 if the caveator were properly served, but chose not to appear? It seems clear

158 Torrens' Elusive Btle

that the court would have authority to order that the caveat be discharged. The section authorizes the court to make an order which seems just. Would the court have authority to determine the validity of the caveated claim? If the caveator opposed the application, the validity of his caveated claim would be placed in issue, and if the court determined that the claim were invalid, the caveator would be bound under the doctrine of res judicata. However, the author is not convinced that authority for a summary adjudication of the validity of a caveated claim can be derived from section 146.

(4) Adequacy o f safeguards fo r valid caveated in teres ts 7.60 The procedure provided by section 146 appears to give a caveator

adequate safeguards, for although it shifts the burden of proving the validity of his claim to him a s a condition of maintaining his caveat, he receives the normal notice required by the Alberta Rules of Court. A caveator should have the evidence to prove his claim, and if the rule were otherwise, the owner of an interest subject to a caveat would have the burden of proving that the claim was not valid, which would often require proof of a negative set of facts. As an application under section 146 is a judicial action, the author believes that serious consideration should be given to amending the section so that it will expressly authorize a court to adjudicate the validity of a caveated claim (see paragraph 7.59).

7.61 Assuming that the summary caveat removal procedure provided by section 144 was never intended to result in an adjudication of the validity of a caveated claim if the caveator failed to take proceedings in court to substantiate his claimed interest (see paragraph 7.51-56), it seems appropriate to ask whether or not the procedure under section 144 is too summary even for the removal of the protection afforded by a caveat.

7.62 The caveat removal concept originated with respect to the original caveat, which operated a s a complete statutory injunction against any subsequent registrations until the caveat was removed. As the caveat was a powerful weapon in the hands of the claimant of a nonregistered interest, a summary nonjudicial caveat removal procedure was perhaps justified. In the context of the historical development of the Torrens system, we can understand Torrens' zeal to protect the sacred register much a s Horatius defended the bridge.

7.63 Much water has flown under the bridge since 1861. Under the Alberta Act subsequent registrations are not blocked by the filing of a caveat; they are simply subjected to a caveated claim, for whatever it may be worth. It is generally accepted that few caveated interests are blatantly spurious. I t is doubtful that many lawyers who file a caveat on behalf a client feel that the procedure is either ethically questionable or inimical to the proper operation of the Torrens system. Nevertheless, the summary removal procedure provided by section 144 is strongly suggestive of a statutory prejudgment that the caveated claim is likely to be invalid. If a caveator failed to bring a n action to substantiate his claim after a letter was sent to him by registered mail, and irrespective of whether or not he received it, his caveat would lapse, and his interest would become vulnerable to subordination in favor of a n interest acquired by a subsequent purchaser.


7.64 Would the Alberta originating notice procedure not strike a more just balance between a n owner of a n interest subject to a caveat and a caveator? If so, only the summary caveat removal procedure provided by section 146 would be required, and the procedure under section 144 could be abolished. Assume that E filed a caveat to protect his claim to a nonregistered interest in Blackacre, and that subsequently C purchased a mortgage of Blackacre from B and was registered as a mortgagee subject to E's caveated claim. E's caveat might protect a claim to either an equitable mortgage granted by B, or a right to have the register revised in order to regain ownership of the M & M in Blackacre which had been erroneously registered to B. In either event, E's claim is hostile both to B's registered ownership and to C's mortgage, and in the normal course of events, it is probable that both B and C would want a n adjudication a s to the validity of E's claim as it affected each of them.

7.65 If E could be located, either B or C could request him to remove his caveat and to relinquish his claim. If E could not be located, or if he refused the request, either B or C could proceed under section 146. If E substantiated the validity of his claim, justice would have been accomplished. As E would have had a notice conforming to accepted judicial standards, if he either failed to oppose the application, or failed to prove his claim, the author perceives no reason why his caveat should not be discharged, and why his claim should not be terminated on the merits relative to the applicant and to the owner of an interest necessarily benefited by a resolution of the validity of the claim. A decision that E's claim was invalid relative to B would necessarily operate in favor of C. However, as the conflict between E and C relates only to priority, a decision that C's registered mortgage was not subject to E's caveated claim would not benefit B.

7.66 Moreover, if E chose to attempt to substantiate his claim, and eventually failed to do so, there are sections of the Alberta Act which give the owner of the registered interest which was adversely affected by the caveated claim rather unusual benefits for an adversary judicial system. Section 149 imposes liability on one who files or continues a caveat without reasonable cause to compensate any person who sustains damage because of the caveated claim. And, section 147 empowers the court to order the caveator to provide security sufficient to indemnify any person against damages that might be sustained if a disposition of property were delayed by the presence of the caveat, "and to make such other order a s may be just".

7.67 It is believed that the clause just quoted would authorize the procedure in Alberta which culminated in Waimiha Sawmilling Co. v. Waione Timber Co.,21 decided by the Privy Council in 1926. E's caveated claim was a right to cut and remove timber, an equitable timber profit a prendre, based on a contract between B and E. After litigation concerning the validity of E108s contract rights, the trial court ruled in favor of B. B wished to sell the land affected by the caveated claim to C, and both B and C knew that E was pursuing a n appeal. Consequently, B requested the trial judge to order that the caveat be removed for the express purpose permitting a sale to C free of E's possible equitable interest. The trial judge


so ordered, the caveat was removed, this order was not appealed, and C purchased the land and became the registered owner.

7.68 In the Waimiha case E alleged that C had fraudulently procured his registered interest because he had purchased with knowledge of the litigation and of E's pending appeal. It should be noted that E's rights were contractual; his equitable interest in B's land depended on the willingness of a court of equity to specifically enforce his contract rights, if any, against the owner of the land. By ordering the removal of the caveat in order to permit the sale to C, the trial judge in effect exercised his discretion to deny E any remedy of specific performance, even if E ultimately prevailed on the merits a s to his contract rights. If E prevailed on the basis of a n appeal, his action would be to recover damages a t law against B for breach of contract. The case demonstrates that, pursuant to the authority granted by section 147, it is feasible for a court to order the discharge of a caveat before the validity of the caveated claim is finally adjudicated. The Privy Council rejected the argument that C had fraudulently procured his registered interest. As a judge with equitable powers had directed that the caveat be removed in order to permit the sale to C, it is difficult to comprehend how either B or C could have been fraudulent unless they had bribed the judge.

7.69 The author has leaned rather heavily on the summary caveat removal procedure provided by section 144 of the Alberta Act because he thinks that a credible argument can be made that it is unfair, and that i t may be unnecessary. For this reason, he believes that it should be seriously scrutinized by experienced lawyers, and not merely continued a s part of received wisdom.

FOOTNOTES 1. Re Church [I9231 S.C.R. 642, [I9231 3 D.L.R. 1045, [I9231 3 W.W.R. 405. 2. e.g., Abigail v. Lapin [I9341 A.C. 491 (P.C.); Stonehouse v. Attorney General of B.C. [I9621 S.C.R. 103,

31 D.L.R. (2d) 118,37 W.W.R. 62. 3. e.g., I.A.C. (Finance) Pty. Ltd. v. Courtney (1963) 110 C.L.R. 550 (Aust. H.C.). 4. Singapore Land Titles Ordinance (1956). 5. Kenya Registered Land A d (1963). 6. Calford Properties Ltd. v. Zeller's (Western) Ltd. 29 D.L.R. (3d) 16, [I9721 5 W.W.R. 714 (Alta. A.D.). 7. Id. 8. Turta v. Canadian Pacific Ry. Co. and Imperial Oil Ltd. [I9541 S.C.R. 427,[1954] 3 D.L.R. 1,12 W.W.R.

(N.S.) 97. 9. (1913) 14 D.L.R. 333,5 W.W.R. 201 (Alta. S.C.).

10. Henderson v. Montreal Trust Co. (1954) 11 W.W.R. (N.S.) 289, aff'd [I9551 2 D.L.R. 528, 14 W.W.R. (N.S.) 210 (Alta. A.D.); Imperial Oil Ltd. v. Conroy (1954) 12 W.W.R. (N.S.) 569 (Alta. T.D.).

11. Sub nom Muller v. Schwalbe (1914) 19 D.L.R. 19,7 W.W.R. 817 (Alta. A.D.) 12. Id., 19 D.L.R. a t 30 ,7 W.W.R. at 827. 13. [I9611 S.C.R. 310,27 D.L.R. (2d) 551,34 W.W.R. 625. 14. (1956) 4 D.L.R. (2d) 518, a t 521,18 W.W.R. 241, a t 244 (Man. Q.B.). 15. (1914) 19D.L.R. 248,6 W.W.R. 1562. 16. (1951) 59 Man. R. 142,3 W.W.R. (N.S.) 76 (K.B.). 17. [I9561 S.C.R. 347,2 D.L.R. (2d) 145. 18. 29D.L.R. (3d) 16, [I9721 5 W.W.R. 714 (Alta. A.D.). 19. 58 S.C.R. 385, [I9191 1 W.W.R. 1046. 20. 34 D.L.R. (3d) 723,[1973] 2 W.W.R. 497. 21. [I9261 A.C. 101.

CHAPTER 8

Remedies

a. Introduction 8.1 Remedies have been discussed, interstitially, throughout this

study. In chapter 6, for example, it was impossible to discuss the situations in which one's registered ownership would be feasible without discussing the right of another to have the register revised in order to acquire registered ownership. And, in chapter 7 it was impossible to discuss nonregistered interests without pointing out that their existence is based on particular types of remedies. This chapter will focus on remedies as a separate subject, and will attempt to complete our consideration of several topics which have already been introduced.

b. Types of Remedies

(1) Obtaining possession by a registered owner 8.2 The legal remedies available to obtain possession of land by

means of an action under the general law continue to be available to one who has a legal right to possession in jurisdictions with a Torrens system. The misleading phrase 'recover possession' is scrupulously avoided, because one's legal right to obtain possession under a Torrens system depends on his registered ownership, and not on either his prior possession or the prior possession of a predecessor to whose rights he has succeeded. The phrase was accurate under the common law in England, for a s one's legal ownership of land was almost invariably based on prior possession, one's legal right to obtain possession of land was of legal necessity a right to recover possession (see paragraph 2.84-88).

8.3 Stated affirmatively, under a Torrens system, one's legal right to obtain possession of land depends on whether or not he is the registered owner of a legal interest in land which confers the right to possession. The legal interests in land conferring a right to possession are the fee simple estates, the life estate, and the leasehold estates.

8.4 Section 180(1) of the Alberta Act appears to attempt to state the foregoing proposition in negative terms, that is, that one does not have a right to recover possession of land under a Torrens system based on prior possession. I t states a s follows:

180.(1) No action of ejectment or other action for the recovery of a n y land for which a certificate of title h a s been granted lies or shall be sustained against the owner under this Act in respect thereof, except in any of the following cases, that is to say:

Exceptions lettered (a) through (f) follow. Exceptions (a), (b) and (c) relate


to the legal right of a mortgage, of an encumbrancee, and of a lessor to obtain possession of land. These rights are all based on the registered ownership of a legal interest in land which confers a right to possession under the proper circumstances. Similarly, exception (f) relates to the legal right of a registered owner under a prior certificate of title to obtain possession of land. Exceptions (d) and (e), however, contain the fraud and misdescription exceptions under which a registered interest is defeasible. Thus, they appear to give one who was formerly a registered owner a right to bring a legal action to obtain possession of land based on his prior registered ownership. The author believes that exceptions (d) and (e) are absolutely inconsistent with sound Torrens theory, for they purport to give one a cause of action to obtain possession of land when he is not the registered owner of a legal interest in land conferring a right to possession.

(2) Specific performance 8.5 The equitable remedy of specific performance of promissory

obligations under the general law continues to be available in jurisdictions with a Torrens system. Consequently, the classic equitable interests outlined a t paragraphs 2.59-70 are recognized (see paragraphs 7.4, 7.13-15, and 7.17), and are entitled to protection under the caveating system as nonregistered interests (see paragraphs 7.18-23). Although equitable interests may be extinguished or subordinated through the operation of the caveating system (see paragraphs 7.24-26 and 7.51-56), their existence depends on the judicial remedy of specific performance granted by a court with equitable jurisdiction.

8.6 Assume that B was the registered owner of Blackacre, and that E purchased an interest from B which would have been a recognized legal interest under the general law, but which, in accordance with the intention of the parties, was contained in an instrument which was not a registrable transfer (see paragraph 7.12). E has no statutory right to have the register revised in order to obtain a registered legal interest. E has no equitable right to a decree of specific performance directing B to give him a registrable transfer, for this was not intended by the parties. I t is clear, however, that E's nonregistered interest will be given judicial protection, and the question is, by what remedy. The author is forced to the conclusion that the applicable remedy is specific performance in equity of a trust implied from the transaction between B and E. Although B retained registered legal ownership, by the instrument he purported to transfer rights in Blackacre to E, which might well have included a right to possession. Therefore, it can be implied that B promised to hold his registered legal ownership in trust for E to the extent of the rights contained in the instrument, and that this trust is subject to specific performance in equity. Under this analysis, E has the same rights a s the beneficiary of an express trust, as discussed in the proceeding paragraph.

(3) Revision of register in order to acquire registered ownership

8.7 As ownership of recognized legal interests in land is conferred by the state through registration under a Torrens system, the remedy under

Chapter 8. Remedies

consideration here is a creature of Torrens law. As stated a t paragraphs 7.5-11, this remedy is applicable whenever one has a right to become the registered owner of a n interest in land. The right is, however, a nonregistered interest, and must be protected under the caveating system.

8.8 The author believes that the right to revision of the register in order to acquire registered ownership must of necessity be of statutory origin under a system in which registered ownership is conferred by the state through acts of government officials. The sections of the Alberta Act supporting this conclusion were discussed a t paragraphs 6.15-20. The Registrar derives his authority to create and to terminate legal interests in land by a continous process of revising the register from section 185 of the Alberta Act. The authority of the courts to direct the Registrar a s to the performance of his duties is contained in sections 181,182 and 187 through 194.

8.9 The crucial policy issue regarding the remedy of revision of the register concerns the forum for the remedy. When should the Registrar be authorized to provide the remedy administratively, and when should the remedy only be provided judicially, by the courts? I t is beyond question that the remedy should be administrative in the overwhelming majority of situations. I t is also clear that under sections 181 and 182, the court can intervene with regard to any issue under the Alberta Act, whenever its jurisdiction is invoked by either the Registrar or a n interested party. These principles, however, do not delineate the maximum scope of the Registrar's authority. I t should be emphasized that the fact that the power of the Registrar must exceed his authority (see paragraphs 4.28-30), does not mean that his authority should not be defined in order to establish the designed method of operation of the system.

8.10 Section 185 authorizes the Registrar to complete the register by correcting any erroneous entry without prejudicing rights conferred for value. As stated a t paragraphs 6.118-124, if a n interest were registered to a purchaser for value without fraud, the register would cease to be erroneous in spite of a prior erroneous entry, and under the necessary rule of Torrens law, revision would no longer be authorized by anyone. Consequently, section 185 authorizes the Registrar to provide the remedy of revision of the register whenever the remedy is authorized under the Alberta Act. Assume that E claimed a right to have the register revised in order to reacquire registered ownership of Blackacre on the grounds that B fraudulently induced a n escrow agent to deliver a transfer from E to B without authority, and that B was not a purchaser for value. This example concerns a transaction between the immediate parties, E and B; no innocent third purchaser, such a s C, was involved. However, the example presents a t least three issues. Was the transfer delivered without authority and therefore invalid? Was B's conduct fraudulent? Was B a purchaser for value? All three issues involve mixed questions of fact and of law. Should the Registrar be authorized to provide the revision remedy administratively if any question of fact or of law is contested by the parties? I t is probable that the Registrar would invariably refer a case such a s the one posed by this example to the courts. The author's concern is that section 185 does not require him to do so.


8.11 Faced with the dilemma presented by a statute such a s section 185 of the Alberta Act, some judges have stated that the Registrar is authorized to correct erroneous registrations which result from accidental clerical errors, but not those which result from intentional judgmental err0rs.l With respect, and assuming that one could determine whether an erroneous registration was accidental or intentional, the author is unable to understand what functional utility is served by drawing such a distinction. If the erroneous registration were accidental, it is unlikely that revision would involve any contested question of fact or of law. However, an erroneous registration which was intentionally made by an inexperienced official in the Land Titles Office who either failed to appreciate the significance of a fact, or who did not understand the law, might also involve no contested question of fact or of law.

8.12 The author is led to suggest that the Registrar should be authorized to revise a register whenever he can do so upon the basis of uncontested facts and law. Obviously this rule would require the Registrar to exercise his judgment; the author doubts that any rule could avoid this without seriously impeding the administrative efficiency of the Torrens system. The rule suggested, however, would not only give the Registrar direction, but would also define when the revision remedy should be administrative, and when it should be judicial, and on the basis of a principle demarcating administrative and judicial functions which is generally accepted (see the Pylypow case a t paragraph 6.36).

(4) Compensation from assurance fund 8.13 The need for a system of compensation from an assurance fund

under a Torrens system was discussed a t paragraphs 4.32-34. I t is generally, although not universally, accepted that an owner of a registered interest in land who is permanently divested of his interest through the operation of a rule of Torrens law because of the registration of another should be entitled to compensation for his loss. Section 165 of the Alberta Act provides a s follows:

165. Any person sustaining loss or damage through an omission, mistake or misfeasance of the Registrar or an official in his office in the execution of his duties, and any persons deprived of any land or encumbrance or of an estate or interest therein through the bringing of it under this Act, or by the registration of another person as owner of the land or encumbrance or by an error, omission or misdescription in a certificate of title, and who by the provisions of this Act is barred from bringing an action for the recovery of the land or encumbrance or interest therein, may bring an action against the Registrar of the district in which the land is situated for the recovery of damages.

(a) Comparative benefits of registration and of caveating 8.14 If a n owner of a registered interest in land were divested of his

interest for any of the reasons summarized a t paragraph 6.101, the defeasibility would result from the application of principles of the general law rather than from principles of Torrens law, and the owner had been deprived of his registered interest should not be entitled to compensation from the assurance fund.

Chapter 8. Remedies 165

8.15 Consequently, a right to compensation should exist in situations in which the defeasibility resulted from the application of principles of Torrens law (see paragraphs 6.102-137). The right to compensation when a registered interest was divested because of a n invalid transfer from the immediately preceding registered owner was discussed a t paragraphs 6.103-117. Therefore, the single chain situation (see paragraphs 6.118-133), and the multiple chain situation (see paragraphs 6.134-137), remain for consideration.

8.16 In the single chain situation, A's registered interest was divested in favor of B pursuant to a n erroneous registration, and C was subsequently registered a s the owner of the interest under a valid transfer from B which C purchased without fraud. As stated a t paragraph 6.124, A's registered interest must be permanently divested through the application of a rule of Torrens law, and A should be entitled to compensation.

8.17 The multiple chain situation is somewhat more complex, and it is suggested that example N a t paragraph 6.134 be reviewed. As C purchased on the erroneous, or unauthorized chain, he would not have obtained ownership a t all under the general law, and consequently, if his registered interest were defeasible, it would not be through the application of a rule of Torrens law. Nevertheless, C purchased without fraud from B in reliance on the register, and i t would seem that C should be entitled to compensation. As D purchased on the authorized chain, if his registered interest were defeasible, it would result from a rule of Torrens law, and D should be entitled to compensation.

8.18 In pragmatic terms, what does a registered owner pay for and receive under a Torrens system? The single chain situation will be used in this analysis, for a s long as the Gibbs v. Messer philosophy remains intact (see paragraph 6.105), solving the problem inherent in the single chain situation is the primary objective of a Torrens system. Assume the following facts. A was the registered owner of a section of land, and B was the registered owner of a leasehold interest of the N1/z for a 30-year term. There are three problems concerning this lease. (1) The transfer of the lease from A to B was forged by B. (2) The transfer only described the NW1/4. (3) The lease contained a renewal clause which was void for uncertainty. On the basis of these facts, A had a right to have the register revised by the cancellation of B's registered ownership of the lease because of B's fraud. However, while A's nonregistered right to have the register revised was not protected by a caveat, C purchased the leasehold interest from B without fraud under a valid transfer.

8.19 Should C protect his leasehold interest by registration, or by caveating? Under a Torrens system, B was the registered owner of the leasehold interest. The state could and did confer ownership on B in spite of the forged transfer (see paragraph 5.8). The state could and did confer B's leasehold interest in the N1/2 in spite of the fact that the transfer only described the NW1/4 (see paragraph 5.19). If the misdescrption exception applied, C would not be protected by either registration or by caveating. The state could and did confer ownership on B of all of the legal rights in land contained in the lease which are recognized by the general law (see paragraph 5.63). As the renewal clause in the lease was void for


uncertainty under the general law, i t would not be validated by either registration or by caveating (see paragraph 5.57).

8.20 Because C purchased B's registered leasehold interest without fraud, C could protect the leasehold interest from A by either registering or by caveating before A caveated. Under the general law, C would have obtained no interest in the N1/2 because the transfer from A to B was forged. Even if that transfer had been validly executed, under the general law C would have obtained no interest in the NE% because the transfer from A to B only described the NW1/4. Thus, the Torrens system made it possible for C to purchase from a registered owner in reliance on the register and to secure substantial benefits without registering his transfer and paying any fee to the assurance fund, for C could protect his leasehold interest by filing a caveat.

8.21 Assume that C registered his transfer and became the registered owner of the leasehold interest, that subsequently the leasehold interest was erroneously registered to D, and that later E purchased the leasehold interest from D without fraud and caveated his interest. E obtained ownership of the leasehold interest, and C would be entitled to compensation from the assurance fund for his loss.

8.22 Assume that C submitted a caveat to protect his transfer of the leasehold interest from B, that the Registrar accepted the caveat but failed to enter it in the proper register for B's leasehold interest, that D purchased the leasehold interest from B without fraud, and that D filed a caveat to protect his interest which was entered in the proper registrar for B's leasehold interests. The state conferred ownership of the leasehold interest on neither C nor D, and neither C nor D paid any fees to the assurance fund. Because D's caveat was entered in the register for B's leasehold interest, and because C's caveat was not, the author presumes that D obtained priority over C in this example. Consequently, C was deprive of the leasehold interest because the Registrar failed to perform a required duty under the caveating system.

8.23 Should the owner of a nonregistered interest in land who was deprived of his interest because of an error in the administration of the caveating system be entitled to compensation from the assurance fund? Section 165, quoted a t paragraph 8.13, provides that any person sustaining loss through a n omission of the Registrar is entitled to compensation. Therefore, C acquired the same right to compensation from the assurance fund by caveating his leasehold interest that he would have obtained by registering it (see paragraph 8.21). Obviously, if C had not submitted a caveat to protect his nonregistered interest, he would not have been entitled to compensat i~n.~

8.24 Assume that C wished to sell his leasehold interest to D. If C were the registered owner of the leasehold interest in the N1/z, D could safely purchase the interest in reliance on the register. The fact that the transfer of the lease from A to B had been forged would not endanger D's ownership. The fact that the transfer from A to B had only described the NW% would not endanger D's ownership if the misdescription exception were abolished. D would have to discover that the renewal clause was void for uncertainty by examining the terms of the lease. If C's leasehold


interest were protected by a caveat, D would purchase a t his peril a s to any defects in the transfer of the interest from B to C. If the transfer from B to C had been forged, C would not have acquired the leasehold interest, and C's caveat would have protected a worthless claim (see paragraph 7.35).

8.25 The foregoing paragraph has identified the one benefit which one acquires by becoming the registered owner of a n interest in land under the Torrens system: facility of transfer. Whether or not C should have been the registered owner of the leasehold interest, if he were the registered owner, he could market the leasehold interest more readily. If C were the equitable, or nonregistered owner of the leasehold interest, he would have the burden of proving his ownership to a potential purchaser, and to this extent his facility of transfer would be impaired. In practical reality, however, this impairment is minimal. As B was the registered owner of the leasehold interest, C's proof would begin with this fact. If C's claim were caveated, and if no inconsistent claims were caveated, D would only be required to evaluate the nonregistered transfer from B to C.

(b) Fees under the Alberta Act 8.26 As the preceding discussion has demonstrated, the purchaser of a

nonregistered interest derives substantial benefits from the Torrens system because i t permits him to purchase in safety from a registered owner in reliance on the register. The caveating system, in turn, permits him to protect his nonregistered interest to the extent of its validity. With the combined benefits derived from the Torrens system and from the caveating system, the nonregistered interests is probably a s secure under the Alberta Act a s is the registered interest.

8.27 The author believes that i t is safe to postulate that most of the expense incurred by the Government of Alberta in operating the systems provided by the Alberta Act is administrative. Section 161 of the Alberta Act requires the Registrar to collect the prescribed fee before performing any duty under the Act, and i t is assumed that these fees are designed to underwrite the administrative expense of the systems. I n addition, section 161 requires that a separate fee for the assurance fund be charged for the registration of a transfer. One who protects a nonregistered interest by caveating, however, is only charged the assurance fund fee if his caveat protects a mortgage, and this fee is specifically imposed by section 140. If the assurance fund is intended to underwrite the potential compensation expenses of the systems, a s opposed to their administrative expenses, i t seems reasonable to suggest that both categories of interests benefiting from the systems, registered and nonregistered, should contribute to the assurance fund to the extent of the respective compensation risks which they impose. Precisely what those risks are would require empirical study.

8.28 The assurance fund fee is established by section 161(1) a s follows: 161.(1) . . .

(a) Upon every transfer of land after the issue of the first certificate of title therefor, where the land was not encumbered at the time of registering the grant, an amount equal to (i) one-twentieth of 1 per cent of the value of the land transferred if the value

amounts to or is less than $5,000, and


(ii) one-fortieth of I per cent on the additional value, where the value exceeds $5,000;

(b) Upon every subsequent transfer, if there has been an increase in the value of the land since the granting of the last certificate of title, a n amount equal to (i) one-twentieth of 1 per cent of the increase if the increase is not more than

$5,000, and (ii) one-fortieth of 1 per cent on any excess over $5,000;

(c) upon registering any mortgage or encumbrance on land, (i) 25 cents, or

(ii) a n amount equal to one-eightieth of 1 per cent of the moneys secured by the mortgage or encumbrance,

whichever is the greater.

Assume that A was the registered owner of Blackacre, that a t the time of A's registration Blackacre was valued a t $50,000, that A sold and transferred Blackacre to B for a fair market price of $70,000, and that B submitted his transfer for registration. As the value of Blackacre increased by $20,000 between the time of A's registration and the time of B's request for registration, B will be required to pay an assurance fund fee of $6.25. If the value of Blackacre had increased by $100,000, the fee would have been $26.25.

8.29 The present system for determining the assurance fund fee has the advantage of being relatively fair, for if B were deprived of his registered ownership under circumstances entitling him to compensation, the measure of his compensation would be the actual value of Blackacre, and the cumulative assurance fund fees which B and his predecessor owners paid were based on the actual value of Blackacre. However, the present system has administrative drawbacks. I t is believed that a large majority of the registrations in Alberta concern interests which increased in value by between $20,000 and $100,000 since the preceding registration. As noted above, this $80,000 variation in the increased value of the interest produces a spread in the assurance fund fee of only $20. Neverthless, because the fee is based on the increased value of each registered interest since the preceding registration, the Registrar must satisfy himself a s to the value of the interest a t the time of each succeeding registration, and the fee for each registration must be separately computed.

8.30 Section 161(2) and (3) provides a s follows: (2) The value of land for the purpose of this Act may be ascertained by the oaths or

affirmations of the transferee or transferor of the land or of such other person on the behalf of either a s the Registrar believes to be acquainted with the value of the land and whose oath or affirmation he is willing to accept.

(3) The oaths or affirmations may be in Form 39 in the schedule, and shall be necessary in all cases where any new duplicate certificate of title is required to be issued whether or not any fees are payable under this section in respect of the land.

The author would venture a guess that, quite apart from the expense to the users of the system of obtaining the oaths or affirmations in Form 39, the government administrative expense involved in checking the required valuation documents and in separately computing each assurance fund fee exceeds the revenue produced.

8.31 Could the method for determining the assurance fund fee be simplified? One possibility would be to adopt a premium system modeled


on casualty insurance. The fee could be a fixed amount for each $1,000,000 of declared valuation, decreasing in amount per $100,000 a s the valuation increased. The transferee would be free to declare any valuation he deemed appropriate, but the maximum compensation he would be entitled to receive in the event of a loss would be the declared valuation. The Registrar would not be required to police valuations, and the oath or affirmation would be eliminated. The required fee could be obtained from a fee schedule in a matter of seconds. One possible disadvantage of this system is that i t would have to provide a n administrative procedure permitting a registered owner to pay a n increased fee in the future to secure additional protection if the registered interest increased in value for any reason. Increased valuations resulting from either inflation or improvements are obvious possibilities. If the fees were minimal, the inflation problem might be slight; one seeking registration a s the owner of a $90,000 residential Blackacre would most likely pay a $30 fee based on a $200,000 declared valuation rather than a $20 fee based on a $100,000 declared valuation, and this would compensate for inflation over a reasonable period of time. If a developer paid a fee based on a $1 million declared valuation, and then made improvements which increased the value of the interest to $5 million it can be argued that a requirement that a n additional fee be paid to secure greater protection would provide a more just system than the one presently in operation.

8.32 Another possibility would be to continue to base the assurance fund fee on the increased value of the registered interest since the preceding registration, but to establish the fee a t a fixed amount for each scheduled amount of increased valuation. In order to achieve the objective of relieving the Registrar of much of the burden of satisfying himself a s to the value of the interest, the minimum fee would have to apply to a n increased valuation sufficiently large to exceed, by a comfortable margin, the anticipated increase in valuation of most of the interests submitted for registration. For example, assume that a minimum fee of $20 applied to a n increased valuation up to $200,000. As the increased valuation of most of the interests submitted for registration would probably be far below $200,000, as a practical matter, the Registrar could assess the minimum fee in the great majority of registrations on the basis of a signed declaration of value in the application for registration, and could impose more formal valuation requirements for the registration of interests which increased in value in excess of $200,000.

(c) Obtaining compensation 8.33 At paragraph 4.20 the author stated that the issue of whether or

not a registration is erroneous is quite independent of the issue of who caused a n erroneous registration. Who caused a n erroneous registration is relevant both to the defeasibility of a registered interest, and to the right of a n owner to compensation from the assurance fund for the loss of a registered interest. Section 168 of the Alberta Act provides as follows:

168. In an action for the recovery of loss or damage arising only through an omission, mistake or misfeasance of the Registrar or his officials, the Registrar shall be the sole defendant, but, if the action is brought for loss or damage arising only from the


fraud or wrongful act of some person other than the Registrar and his officials, or arising jointly through fraud or wrongful act of such other person, and the omission, mistake or misfeasance of the Registrar or other official, then the action shall be brought against both the Registrar and the other person. (Emphasis added.)

I t is believed that, in terms of causation, erroneous registrations can be traced to three primary sources.

8.34 The conduct of a registered owner who was deprived of a n interest could have been the sole cause of the erroneous registration which produced this result. Assume that A was the registered owner of Blackacre, that A executed a transfer to B either describing more acreage from Blackacre or conferring more extensive rights in the acreage than the parties mutually intended, that B was not the cause of the error, that the Registrar registered B a s the owner of the interest in accordance with A's transfer, and that C subsequently purchased B's registered interest without fraud and became the registered owner. A's conduct was the sole cause of B's erroneous registration, and A was permanently divested of the interest when C became the registered owner a s a n innocent purchaser. Does A have a right to compensation either under section 165 (quoted a t paragaph 8.13), or under section 168?

8.35 The conduct of the Registrar could have been the sole cause of the erroneous registration which deprived a registered owner of a n interest. Continue the preceding example, but assume that the transfer from A to B correctly reflected the mutual intention of the parties, and that the Registrar erroneously registered B a s the owner either of more acreage or of more extensive rights in the acreage than the parties intended. The Registrar's conduct was the sole cause of B's erroneous registration, and section 168 clearly provides that A has a right to compensation in this situation.

8.36 The conduct of a third person could have been the primary cause of the erroneous registration which deprived a registered owner of a n interest, but it is believed that conduct either of the Registrar or of the registered owner would have been a contributing cause. The following two examples demonstrate situations in which the conduct of a third party was the primary cause of a n erroneous registration, but in which conduct either of the Registrar (paragraph 8.37), or of the registered owner (paragraph 8.38)' was a contributing cause.

8.37 Continue the preceding example, but assume that B forged a transfer of Blackacre from A to himself, and that the Registrar erroneously registered B a s the owner of Blackacre. There was no conduct on the part of A which could have been a contributing cause of B's erroneous registration. Assume that the protective procedure established by the Registrar to detect forged transfers were based on sound costs-benefits principles: in terms of their cost to the system, they were a s stringent a s could be justified relative to the probable losses which the system would incur from undetected forgeries (see paragraph 4.34). Assume also that the protective procedures were applied properly before B was registered a s the owner of Blackacre. Using the language of section 168, A's loss did not arise either from a n omission or from the misfeasance of the Registrar. The Registrar was not a t fault. Nevertheless, a s B's registration was not authorized by a


transfer executed by A, it was erroneous, and resulted from a mistake of the Registrar. I t would seem, therefore, that the Registrar's conduct was a responsible contributing cause of A's loss. As section 168 refers to a loss which arose jointly from the fraud or wrongful act of a third person, and from a mistake of the Registrar, it is believed that A has a right to compensation in this situation.

8.38 Continue the preceding example, but assume that B fraudulently induced A to execute a transfer of Blackacre to B, and that B was erroneously registered a s the owner of Blackacre. Insofar as the Registrar was concerned, this example is identical to the example a t paragraph 8.34. The Registrar's conduct could hardly have been a responsible contributing cause of B's erroneous registration, for the Registrar merely carried out the transfer executed by A. However, it would seem that A's conduct in executing the transfer to B was a contributing cause of B's erroneous registration. Section 168 provides that A has a right to compensation if the loss arose: (1) only from the conduct of the Registrar (see paragraph 8.35), (2) jointly from the conduct of a third person and from the conduct of the Registrar (see paragraph 8.37), or (3) only from the conduct of a third person. In the example under consideration, if A's conduct in permitting B to defraud him were considered to be a contributing cause of A's loss, would A have a right to compensation under section 168?

8.39 Assuming that one has a right to compensation from the assurance fund, procedurally, how does he obtain compensation? Section 165, quoted a t paragraph 8.13, authorizes one who has been deprived of an interest in land to bring a n action against the Registrar for the recovery of damages, and sections 166 through 176 are all framed on the assumption that one must secure a judgment against the Registrar a s nominal defendant in a judicial action a s a prerequisite to obtaining compensation from the assurance fund. However, section 177 contains a procedure permitting the Attorney General to authorize the payment of a well founded claim from the assurance fund administratively, that is, without a judgment against the Registrar a s nominal defendant.

8.40 One will not have a right to compensation unless he has been deprived of a n interest in land through the application of a rule of Torrens law (see paragraph 8.15). If either the inherent validity of a claim or the proper measure of damages were genuinely disputed by the Attorney General, and if the claim could not be settled on terms acceptable to the Attorney General, it seems clear that the claimant should be required to establish his right to compensation in a judicial action. However, a s one's right to compensation results from the Torrens system, it would seem that legitimate claims should be paid pursuant to simple administrative procedures, and that a claimant should not be forced to bring a judicial action unless his claim is honestly disputed.

8.41 Under section 168, if the Registrar's conduct were the sole cause of one's loss, he could bring an action against the Registrar. However, section 169 applies if the conduct of a third person were a joint responsible cause of the loss.

169. In all such actions where there is a defendant other than the Registrar and damages are recovered, if the court finds that some defendant other than the Registrar is


liable for the loss sustained, final judgment shall not be entered against the Registrar until a judge of the court in which the action was brought has made an order declaring that judgment is not and cannot presently be satisfied in whole or in part out of the goods or lands of the other defendant found liable, and that the amount of the judgment in whole or as to such part thereof as remains unsatisfied, together with costs, should be a judgment against the Registrar, and judgment may thereupon be entered against the Registrar.

The author can only repeat the point made in the preceding paragraph. As one's right to compensation results from the Torrens system, why should he be required to obtain a judgment against a third person, and to demonstrate to a court that it cannot be satisfied, as a condition precedent to obtaining a judgment against the Registrar?

c. Limitation of Actions

(1) Obtaining possession by a registered owner 8.42 Section 18 of The Limitation of Actions Act of Alberta: (hereafter

the Alberta Limitation Act), reads a s follows: 18. No person shall take proceedings to recover land except (a) within 10 years next after the right to do so first accrued to such person (hereinafter

called the "claimant"), or (b) if the right to recover first accrued to a predecessor in title, then within 10 years next

after the right accrued to such predecessor.

Section 18 bars the legal right of a n owner to obtain possession of land ten years after the cause of action accrued either to the claimant or to a predecessor in title. Under section 44 of the Alberta Limitations Act, if one had been in possession of land for ten years, adversely to the owner with a legal right to obtain possession, he (the adverse possessor) would have obtained possessory ownership.

8.43 Adverse possession under the general law was discussed a t paragraphs 2.90-95, and the subject under the Alberta Limitation Act is covered in a n article by Professor J.S. Wi l l i am~.~ I t has frequently been argued that adverse possession is inconsistent with the philosophy of a Torrens system. Two problems are often cited: (1) the possessory rights of an adverse possessor are not disclosed by the register, and (2) they can lead to the acquisition of ownership without registration. I t is believed that both of these problems have been solved in Alberta in practice, although the legislation is somewhat ambiguous.

8.44 The following example concerns the first problem. Assume that B was the registered owner of Blackacre, that E was in continuous possession adversely to B for eleven years, that E's possessory rights were not protected by a caveat; assume further that B sold and transferred Blackacre to C, that C became the registered owner, and that C promptly brought a n action to obtain possession of Blackacre. If C's right to obtain possession of Blackacre were barred, then C's registered ownership would have been subordinated to E's possessory rights, which were not protected by a caveat when C purchased Blackacre from B and became the registered owner. This precise problem was presented to the Supreme Court of Alberta, Appellate Division, in 1948, in Boyczuk v. P e r r ~ . ~

Cha~ter 8. Remedies 1 73

8.45 I t should be noted that section 18(b) bars a cause of action to obtain possession of land ten years after it first accrued to a claimant or to "a predecessor in title". This latter phrase is archaic, for it calls to mind ownership under the common law which was based on a superior right to possession derived from a predecessor in title. The court rather neatly repealed section 18(b) by holding that a s registered ownership is conferred by the state, a registered owner has no predecessor in title. Consequently, a s C had no predecessor in title, C's cause of action to obtain possession of Blackacre did not accrue until he became the registered owner, and was not barred by section 18(a). The author believes that this holding was theoretically sound, and that it served the functional objective of protecting C's registered ownership from E's possessory rights which were not disclosed by the register.

8.46 The court said that E's possessory rights would have been protected if he had filed a caveat before C purchased. But how? As C was the registered owner of Blackacre, and a s his right to obtain possession was not barred by section 18(a), how could E's possessory rights have been protected by a caveat? Under section 73 of the Alberta Act, one who has obtained possessory ownership under the Alberta Limitation Act has a right to become the registered owner. As E was in possession of Blackacre adversely to B for eleven years, E had a right to become the registered owner when C in fact become the registered owner. If E's right to have the register revised in order to obtain registered ownership had been protected by a caveat, C would have obtained his registered ownership subject to E's right. I n short, C's right to obtain possession of Blackacre was not barred by the Alberta Limitation Act. Rather, if E had filed a caveat to protect his right to become the registered owner of Blackacre, both C's registered ownership and his right to obtain possession would have been subject to divestiture under section 73. It should be noted that section 73 solves the second problem posed a t paragraph 8.43, for one's possessory ownership acquired under the Alberta Limitation Act is a nonregistered interest until registered ownership is obtained pursuant to section 73.

8.47 Whether or not a jurisdiction should permit one in adverse possession of land to acquire a right to divest the registered ownership is a n important socio-economic question. I t is the author's opinion, however, that the decision should not be influenced by the fact that a jurisdiction has a Torrens systems. If a registered owner failed to pay real property taxes, his registered ownership would be subject to divestiture. If he suffered one to adversely possess his land for ten years, the same consequence could result.

(2) Specific performance 8.48 Limitation acts in England have never been applicable to such

equitable remedies a s specific performance of promissory obligations, and rectification and cancellation of deeds; rather, the flexible equitable doctrine of laches is utilized (see paragraph 2.95). The current situation in Alberta, however, is more complex. Assume the following facts. B was the registered owner of Blackacre. B contracted to sell Blackacre to E, and the contract required B to provide E with a transfer of Blackacre with a proper


legal description when E paid the purchase price. E paid the purchase price and took possession. However, B failed to provide the transfer because a survey was required, and a n early snow a few days before E paid the purchase price in October made surveying difficult. The winter passed; in fact, six years passed. B and E were friendly neighbors, B never got around to having the survey made, and E never pressed the matter. Then oil was discovered in the area, and B and E fell to feuding; B said that he would not honor the contract and offered to refund E's money with 1Wo interest compounded annually. E sued for specific performance of the contract seven years after B first failed to provide the transfer.

8.49 Section 5 of the Alberta Limitation Act provides as follows: 5.(1) The following actions shall be commenced within and not after the times respectively hereinafter mentioned: . . . .

(e) actions grounded on accident, mistake or other equitable ground of relief not hereinafter specifically dealt with, within six years from the discovery of the cause of action; . . . .

(g) any other action not in this Act or any other Act specially provided for, within six years after the cause of action therein arose.

(2) Nothing in this section extends to an action where the time for bringing the action is by statute specially limited.

As E's action for specific performance sought a n equitable form of relief, and as E knew of his cause of action for at least six years after B failed to provide the transfer, E's action was barred by section 5(l)(e), unless the time for bringing the action was by statute specially limited a s provided by section 5(2).

8.50 Section 36 of the Alberta Limitation Act bars a n action in respect of an agreement for the sale of land ten years after the cause of action accrued to the purchaser. As this section specially limits a n action in respect of an agreement for the sale of land, and as an action for specific performance of an agreement for the sale of land must surely be an action in respect of such a n agreement, E's action was not barred.

(3) Revision of register in order to acquire registered ownership

8.51 Assume the following facts. A was the registered owner of Blackacre, including M & M. In 1930, A executed a transfer of Blackacre to B, excepting M & M, and the transfer reflected the mutual intention of the parties. B was registered as the owner of Blackacre, but the Registrar erroneously included the M & M in B's registration and canceled A's registration a s to the M & M. B took possession of Blackacre. In 1946, A discovered that B was erroneously registered a s the owner of the M & M, and in 1947, A brought a n action seeking an order directing the Registrar to rectify the register and to restore registered ownership of the M & M to him. B contended that A's action was barred by the Alberta Limitation Act. What was A's proper remedy under a Torrens system, and was his cause of action barred? The issues posed by this example were presented to the Supreme Court of Alberta, Appellate Division, in 1951, in Re Pogue and Lane.6


8.52 B contended that A was seeking to recover possession of his M & M, that his cause of action had arisen in 1930, and that it was barred in 1940 under section 18 of the Alberta Limitation Act. The court held A was seeking to regain ownership of the M & M through rectification of the register, and that section 18 was not applicable. The author believes that this holding was correct, and that under sound Torrens theory, A had a nonregistered interest: a statutory right to have the register revised in order to reacquire ownership of the M & M (see paragraph 8.8). However, the author perceives no reason why A could not have added a cause of action seeking possession of the M & M contingent upon his gaining ownership of them through revision of the register. As discussed a t paragraph 2.89, the crucial point is that A's cause of action to obtain possession of the M & M would not arise until he became the registered legal owner of them. As long a s B was the registered legal owner of the M & M, he was presumed to have possession of them. Only after A became the registered owner of the M & M could B take possession of them adversely to A, and thus start the running of the ten year limitation period (provided by section 18) against A's cause of action to obtain possession.

8.53 Could any other section of the Alberta Limitation Act be applicable to A's cause of action? Although the author knows of no Alberta case which has considered section 5(l)(e), quoted a t paragraph 8.49, he believes that it is clearly relevant. A was divested of his registered ownership of the M & M in 1930 by a mistake of the Registrar. Rectification of a deed in order to correct a mutual mistake of the parties and to restore ownership of an interest in land to the party entitled thereto is an equitable remedy. As B was the registered legal owner of the M & M, was not A the nonregistered equitable owner of them? Even if one concludes that the authority of the court to order revision of the register is statutory in origin, it can be argued that the authority is a statutory addition to the court's equitable jurisdiction.

8.54 Would section 5(l)(e) provide a sensible solution for the limitation problem under consideration? I t would give A six years from the discovery of his cause of action in which to assert it. Section 5(l)(g), also quoted a t paragraph 8.49, offers a n alternative solution, but its operation would be extremely harsh, for a s A's cause of action arose in 1930, it would have been barred in 1936, long before A discovered that the Registrar had divested his registered ownership of the M & M and had erroneously registered B as the owner of them.

8.55 To this point, the analysis has been both simple and consistent with Torrens theory. As has been stated in countless decisions under the Torrens system, the register is everything. Although B was erronously registered a s the owner of the M & M, the Registrar had the power to confer ownership on B of any interest in land recognized by the general law. Therefore, B's registered ownership was defeasible in favor of A, but not void. The same issues decided in Re Pogue and Lane were presented to the Supreme Court of Canada in the Turta case, in 1954, and again in Kaup v. Imperial Oil Ltd.,7 in 1962. As the Kaup decision is more recent, it will be considered.

8.56 B asserted section 18 against A's action. The court held that


because B's registered ownership of the M & M was erroneous relative to A, B acquired no interest in the M & M through his erroneous registration, and A remained the legal owner of the M & M since 1930, albeit without the benefit of registration. As A remained the legal owner of the M & M since 1930 under court's interpretation of the Alberta Torrens system, B could have taken possession of them adversely to A. If B had taken adverse possession of the M & M in 1930, A's action would have been to obtain possession of them, and by 1947 this action would have been barred by section 18. However, a s A had remained the legal owner of the M & M since 1930, he was presumed to have retained possession of them. Therefore, unless B proved that he had in fact exercised dominion and control over the M & M adversely to A, A would never have lost possession of them, and consequently A's action could not have been to obtain possession of them. It should be noted that the court's analysis placed the registered legal owner of the M & M in the anomalous position of attempting to prove that he had possessed them adversely to someone else. The court held that B had not adversely possessed A's M & M. The court characterized A's action a s one seeking a declaration of his title to the M & M and an order directing that invalid entries be expunged from the register, and held that no provision in the Alberta Limitation Act barred this action. The analysis utilized in the Kaup decision was applied by the Supreme Court of Alberta, Appellate Division, in Duncan v. Joslin, in 196!X8

8.57 As may be seen, the analysis of the Supreme Court of Canada in the Kaup case differed sharply from that of the Alberta Appellate Division in Re Pogue and Lane. Of course the Kaup decision established the current law, and if it does not represent the preferable solution, the Alberta Act will have to be clarified accordingly.

(4) Compensation from assurance fund 8.58 Assuming that one is entitled to compensation from the

assurance fund, under what circumstances should his action for the recovery of compensation be barred by a limitation provision? Section 175(1) of the Alberta Act provides a s follows:

175.(1) No action for damages under this act shall be brought against the Registrar (a) by reason of the deprivation of land unless it is brought within six years from the

date when the deprivation took place, or (b) by reason of any error, omission or misdescription in a certificate of title, unless it

is brought within six years of the time when the error, omission or misdescription was made, or

(c) for any other reason, unless it is brought within six years from the date when the cause of action arose.

8.59 I t would appear that subsections (a) and (b) state the same rule, for one was deprived of his registered interest in land when another person was erroneously registered a s the owner of a conflicting interest. This rule seems to be extremely harsh, for a registered owner might not learn that he was divested of his ownership until years after the deprivation took place, and he might not have had any knowledge which would have even prompted a n inquiry on his part. Subsection (c) is vulnerable to the same criticism. Assume that the owner of a nonregistered interest submitted a

C h a ~ t e r 8. Remedies 177

protective caveat in proper form, and that the Registrar entered it in the wrong register. Did the owner's cause of action to recover damages arise when the original error was made, or when a subsequent purchaser of a conflicting interest filed a caveat which gained a priority over the prior interest? In either event, is there any reason to believe that the victim of the error knew, or had any reason to know, when his cause of action arose? Section 5(l)(e) of the Alberta Limitation Act offers a model which might be copied, for i t gives one six years from the time in which his cause of action was discovered in which to bring an action.

8.60 The basic problem is that section 175(1) may bar a cause of action which the victim of a n error neither knew existed, nor had any reason to suspect existed. When one is entitled to compensation from the assurance fund, his right will invariably have resulted from an error in the maintenance of the register. Given the number of transactions which the Registrar must execute, errors are bound to occur, either in the registration or in the caveating process. The author is prompted to make a suggestion which could be quite effective in prompting the correction of erroneous entries before they resulted in losses justifying compensation. Persons either registering or caveating interests are required to maintain current addresses on file with the Registrar. Copying documents is no longer unduly expensive. Would i t be feasible to require the Registrar to send a copy of the register affected by any entry to all interested parties immediately after the entry was made?

8.61 At paragraph 8.12, the author suggested that the Registrar should be authorized to revise a register whenever he can do so upon the basis of uncontested facts and law. However, how is the Registrar to determine whether or not a revision might involve a contested issue? If the Registrar were revising a register by executing a routine transaction in accordance with a n authorizing transfer, it is unlikely that any contested issue would be involved. Nevertheless, erroneous registrations do occur in the execution of routine transactions. If the Registrar were relatively certain that a revision would involve a contested issue, he could file a Registrar's caveat to preserve the existing situation, and he could refer the issue to a court. However, court referrals involve expense, and too many of them would seriously impair the administrative efficiency of a Torrens system. If a copy of the register affected by any revision, whether routine or judgmental, were sent to all interested parties, they would be given a n opportunity not only to detect a n erroneous entry which involved no contested issue, but also to contest a revision which they believed was not authorized.

FOOTNOTES 1. e.g.. Re Appeal by Canadian Gulf Oil Co. (1964) 14 W.W.R. (N.S.) 130 (Sask. C.A.) . 2. Schweickardt v. Thorne [I9761 4 W.W.R. 249 (B.C. S.C.. 3. The Limitation of Actions, R.S.A. 1970, c. 209. 4. J.S. Williams, Title by Limitation in a Registered Conveyancing System, (1968) Alta. L. Rev. 67. 5. [1948] 2 D.L.R. 406, [I9481 1 W.W.R. 495. 6 . [I9511 4 D.L.R. 704 ,3 W.W.R. (N.S.) 97. 7 . [I9621 S.C.R. 170,32 D.L.R. (2d) 112,37 W.W.R. 193. 8. [I9651 51 W.W.R. 346.

CHAPTER 9

Overriding Interests

a. Introduction 9.1 The subject of overriding interests was introduced a t paragraphs

4.14 and 6.11-12, and the discussion in those paragraphs can serve a s the beginning of the introduction to this chapter.

9.2 Section 64(1), which is the basic section of the Alberta Act with respect to overriding interests, provides a s follows:

64.(1) The land mentioned in any certificate of title granted under this Act is, by implication and without any special mention therein, subject to

(a) any subsisting reservations or exceptions including royalties contained in the original grant of the land from the Crown,

(b) all unpaid taxes, including irrigation and drainage district rates, (c) any public highway or right of way or other public easement, howsoever created,

upon, over or in respect of the land, (d) any subsisting lease or agreement for a lease for a period not exceeding three years,

where there is actual occupation of the land under the same, (e) any decrees, orders or executions, against or affecting the interest of the owner of the

land, that have been registered and maintained in force against the owner, (0 any right of expropriation that may by statute be vested in any person, body

corporate, or Her Majesty, and (g) any right of way or other easement granted or acquired under the provisions of any

Act or law in force in the Province.

The language of section 64(1) discloses the reason why the listed interests are conveniently described a s overriding interests; because the listed interests are effective without any special mention on the register, they override the register.

b. Justification for Overriding Interests 9.3 A Torrens idealist would question the suggestion that there could

be any justification for overriding interests, for their existence violates the cardinal principle of a Torrens system: that the register is everything. Because of the existence of overriding interests, the register for Blackacre will not necessarily disclose all possible interests in Blackacre, and this creates two potentially serious problems under the system.

9.4 The first problem is obvious: if C wished to purchase Blackacre, he would have to search beyond the register in order to determine whether or not there were any overriding interests. Without question, facility of transfer would be enhanced if all possible interests in a parcel of land could be discovered by a n investigation of official government records maintained in one location, for it would be more economical for a potential


purchaser to conduct a complete title search. However, the savings to users of the system which would be realized if all possible interests in land were disclosed by the register must be balanced against the costs which would be incurred if certain types of interests in land were required to be entered in the register. The author believes that idealism must give way to pragmatism and costs-benefits analysis; the fact that a potential purchaser must search for a particular type of overriding interest in a location other than that in which the register is maintained cannot be characterized a s a serious problem if the total cost of such searches to users of the system is less than the cost of having the overriding interest entered in the register.

9.5 The second problem is not so obvious: if C wished to purchase Blackacre, he could not search for overriding interests unless he knew of their possible existence. The Torrens system is predicated on the reasonable assumption that a potential purchaser of a n interest in land knows that he must examine the register in order to determine whether or not his vendor owns the interest, and whether or not there are any conflicting interests. An assumption that a potential purchaser knows that he must search beyond the register for overriding interests is, however, of dubious credibility.

9.6 Although section 64(1) of the Alberta Act lists several common overriding interests, this section does not appear as a warning on the register (the certificate of title) in Alberta. Consequently, a potential purchaser is informed neither of the concept of overriding interests, nor of the identity of some of the more common types of overriding interests. To assume that a potential purchaser knows not only of the possibility of overriding interests, but also of the identity of even the common types of overriding interests, stretches credulity beyond the breaking point.

9.7 Why is it that the section 64(1) overriding interests are not carried as a caution on the certificate of title? The answer is simple, and it demonstrates why some overriding interests present a serious threat to the Torrens system. Although section 64(1) does not state expressly that the certificate of title is subject only to the listed interests, this is the clear implication of the section. Unfortunately, section 64(1) does not contain a n exhaustive list. For example, two very common overriding interests, rights created under statutes of Canada, and rights created under The Dower Act of Alberta1 (see paragraphs 6.115-116), are not included in section 64(1). As section 64(1) implies that it contains a complete list of the overriding interests in Alberta, when in fact it does not, including it on the certificate of title would compound the statutory misrepresentation.

9.8 The author does not know the full extent of the overriding interests in Alberta. The problem under New Zealand law is discussed in a n excellent article by L. Esterman and J.A.B. 0'Keefe,2 in which the authors emphasize the difficulty one encounters in identifying some overriding interests. The basic problem is that many overriding interests are created by statutes other than the statute creating a jurisdiction's Torrens system. Occasionally the language of a statute will make it clear that the legislature intended to create a n overriding interest, but frequently a statute will leave the issue in doubt. In the latter event, the issue may have

Chapter 9. Overriding Interests 181

been resolved by litigation. If it has not, each lawyer must make his own value judgment a s to whether or not a particular statute creates a n overriding interest.

9.9 Based on the experience of Esterman and O'Keefe in New Zealand, in Alberta one would first be required to make a complete investigation of the statutory law of the province in order to determine which legislation might create a n overriding interest. The question of whether or not one of the identified statutes was intended to create a n interest overriding the Alberta Land Titles Act might have been either expressly answered by a statutory provision, or resolved by judicial interpretation. I t can be anticipated, however, that some ambiguous statutes would leave the question unanswered.

9.10 At paragraph 9.4 the author stated his opinion that the existence of some overriding interests might be justified on the basis of costs-benefits analysis. As the analysis for each interest in land would require both the collection and evaluation of complex statistical data, it is beyond the scope of this study to do more than suggest a n appropriate method for judging the desirability of a n overriding interest. If the existence of a n overriding interest could be justified, the first problem created by overriding interests, that is, the necessity of searching beyond the register in order to determine whether or not a parcel of land was subject to a n overriding interest, could be accepted.

9.11 However, the author believes that it is inexcusable for a jurisdiction with a Torrens system to tolerate the second problem created by overriding interests, that is, the existence of a n interest which overrides the Torrens register but which was not created by a statute which expressly provides for this result. Although no legislature can bind the hands of succeeding legislatures, a legislature can enact a statute which will affect the interpretation which can be given to both existing and future legislation. The problem of undetermined overriding interests is so serious that a bold statutory solution for the problem should be considered. The author suggests that the statute creating a jurisdiction's Torrens system should contain a provision to the effect that no statute of the jurisdiction shall be held to create a n interest in land which overrides the Torrens register unless the statute expressly refers to the statute creating the Torrens system and provides for a n overriding interesL3 If all of the overriding interests permitted in a jurisdiction could be identified, they could and should be carried a s a printed warning on the parcel registers for land under the Torrens system.

c. Typical Overriding Interests 9.12 The remainder of this chapter will be devoted to a discussion of

some of the problems associated with typical overriding interests.

(1) Interests protected by federal law in a federal system 9.13 Interests protected by federal law in a federal system form a

unique category of overriding interests. They are not mentioned in section 64(1) of the Alberta Act, for they are not subject to the legislative power of


the Province of Alberta. Because their existence does not depend on provincial law, they cannot even be identified positively under provincial law. Two situations demonstrating the supremacy of federal law in a federal system will be discussed.

9.14 In the first situation the interest in land is public property of he Crown in right of Canada. Assume the following facts. A, who was a n agent of the Crown in right of Canada, was the registered owner of Blackacre, including M & M. A executed and delivered a transfer of Blackacre to B, excepting M & M. The Registrar registered B as the owner of Blackacre, but by error included the M & M in B's registration and canceled A's registration a s to the M & M. Subsequently C purchased Blackacre from B without fraud and was registered a s the owner of Blackacre, including M & M. Blackacre was located in Alberta, and no statute of Canada subjected the interest of the Crown in right of Canada to the operation of the Land Titles Act of Alberta. This example presents the relevant facts of Re Director of Soldier Settlement.4 The court held that public property of Canada could not be divested pursuant to provincial legislation, and directed the Registrar to rectify the register by reregister- ing A as the owner of the M & M in Blackacre, and by canceling C's registration a s to the M & M. I t should be noted that the interest of the Crown in right of Canada in this example was a true overriding interest, for C's registered ownership of the M & M was divested even though he purchased from B without fraud in reliance on B's registered ownership.

9.15 In the second situation the statute of Canada benefits any owner of a n interest in land if a transaction comes within the protective ambit of the statute. Assume the following facts. A was the registered owner of Blackacre, including M & M. A executed and delivered a transfer of Blackacre to B, which was a railway company subject to the Railway Act (Canada): and the transfer contained no provision relative to the M & M in Blackacre. The Registrar registered B as the owner of Blackacre, including M & M, and canceled A's registered ownership of Blackacre, including M & M. At the time of the transaction there were two relevant statutes in force in the province in which Blackacre was located.

9.16 One was a provincial statute containing a provision which was in all material respects identical to section 8 of The Transfer and Descent of Land Act (Alberta): a s follows:

8.(1) No words of limitation are necessary in any transfer or conveyance of any land in order to transfer all or any title therein, but every instrument transferring land operates as an absolute transfer of all such right and title as the transferor has therein at the time of its execution, unless a contrary intention is expressed in the transfer or conveyance.

Under the provincial statute, as the transfer from A to B did not except the M & M, it operated a s a n absolute transfer of them, and consequently B's registration a s the owner of the M & M was correct.

9.17 The other statute was the Railway Act (Canada), which included the following provision:

198.(2) All . . . mines and minerals . . . shall be deemed to be excepted from the conveyance o f . . . lands [to a railway company], unless they have been expressly named therein and conveyed thereby.

Chapter 9. Ouerriding Interests 183

Under the federal statute, a s the transfer from A to B did not expressly include the M & M, they were excepted from the transfer, and consequently B's registration a s the owner of the M & M was erroneous.

9.18 Neither of the two statutes formed part of the Torrens system of the province. Rather, they were both part of its general law. However, a s they were directly contradictory in terms of the facts given, only one of them could be operative. The issue presented by this example was decided in Re Moir's Estate.' The court held that the federal statute controlled, that B's registration a s the owner of the M & M was therefore erroneous, and that the register should be revised accordingly. I t should be noted that although this example demonstrated the supremacy of federal law in a federal system, it did not demonstrate the operation of a n overriding interest created under federal law. B's registered ownership of the M & M was divested because, under the interpretation of the transfer from A to B required by the federal statute, no transfer of the M & M to B was intended by the parties (see paragraphs 6.29-31). Insofar as the relationship between A and B was concerned, A's right to have the register revised and to regain ownership of the M & M was not a n overriding interest.

9.19 Continuing this example, assume that before A learned of B's erroneous registration a s to the M & M, C purchased Blackacre from B without fraud and was registered a s the owner of Blackacre, including M & M, in accordance with a transfer from B. If A were held to have a right to have the register revised and to regain ownership of the M & M in a contest with C, A's right would be a n overriding interest created under federal law. Moreover, a s the divestiture of C's registered ownership of the M & M would have resulted from the enforcement of an overriding interest, it is believed that C would not be entitled to compensation for his loss from the assurance fund. However, if C's registered ownership of the M & M were protected, A would be entitled to compensation for his loss, for it would have resulted from B's erroneous registration under the Torrens system (see paragraph 8.16).

9.20 To the best of the author's knowledge, the issue presented by this example has not been judicially decided. I t is submitted, however, that the federal public policy reflected in the Railway Act (Canada) is to protect a n owner of mines and minerals from the adverse economic consequences of their unintended sale to a railway company, and that this objective can be adequately served if the erroneous registered ownership of a railway company (B) a s a n immediate transferee is defeasible in favor of a transferor (A), and if a former registered owner (A) is entitled to compensation if he is permanently divested of mines and minerals because of their subsequent purchase by a third party (C) without fraud. Indeed, if it were held either that A had never lost ownership of the M & M, or that A's right to reacquire ownership of them was an overriding interest, the Blackacre M & M would have been withdrawn from the operation of the jurisdiction's Torrens system until A or his successors chanced to transfer them in accordance with the requirements of the Railway Act (Canada). Because this result would be both unnecessary in terms of the objective of the federal statute and highly detrimental to the proper functioning of the


jurisdiction's Torrens system, it would seem unreasonable to attribute such an intention to the federal Parliament.

(2) T a x liens 9.21 A lien for unpaid taxes is made a n express overriding interest by

section 64(l)(b) of the Alberta Act. In most jurisdictions virtually all occupied land is subject to local property taxation, and generally property taxes become a lien against land from the date of assessment, which is usually earlier than the date before which the taxes must be paid, and which is frequently earlier than the date on which the taxes can be paid. Consequently, most land in a jurisdiction which is likely to be sold in a commercial transaction will be subject to a tax lien a t the time of the sale.

9.22 Assume that B was the registered owner of Blackacre, that Blackacre was subject to a property tax lien in favor of the city of E, that E's tax lien was not entered in the parcel register for Blackacre, and that C purchased Blackacre from B without knowledge of the tax lien and became the registered owner. If E's tax lien were a n overriding interest, it would remain a valid lien against Blackacre in spite of the fact that C purchased Blackacre from B in reliance on a parcel register which did not disclose the existence of the tax lien. If E's tax lien were not a n overriding interest, it would have been extinguished by C's purchase of Blackacre without fraud because the tax lien was not entered in the register for Blackacre.

9.23 Should tax liens be a n overriding interest? I n the foregoing example, the tax lien was to secure the payment of municipal property taxes, and i t is believed that most tax liens will secure municipal, township, or county taxes assessed and administered on a local level of government. If these tax liens were not a n overriding interest, they would have to be routinely entered in the parcel register for every parcel of land in the taxing jurisdiction a t the time of assessment, and routinely released a t the time the taxes were paid. If the parcel registers in the jurisdiction were computerized, this administrative procedure might not be unduly expensive. If the parcel registers were manual, it is believed that the procedure would be very expensive. If property tax liens were an overriding interest, C would have the burden of inquiring a t the proper office of the local governmental entity a s to the tax liability imposed on Blackacre a t the time of his purchase. As the author has no cost information on the point, he can only ask whether or not the cost of entering all property tax liens on the parcel registers for all land in the taxing jurisdiction, and of removing the entries when the taxes were paid, would exceed the cost of inquiries a t the office of the local tax authority relative to parcels which were actually involved in commercial transactions.

9.24 In the example under consideration i t was stated that C had no knowledge of E's property tax lien when he purchased Blackacre. If Blackacre were located in Alberta, C would have received no warning that tax liens are a n overriding interest for the section 64(1) overriding interests are not carried a s a caution on the parcel registers in Alberta. The author has already opined that he considers this situation inexcusable (see paragraph 9.11). However, even if the register for Blackacre had carried a warning that tax liens are a n overriding interest, would C have known

Chapter 9 . Overriding Interests 185

where to make inquiries as to whether or not Blackacre was subject to any tax liens? The author is not troubled by property tax liens. As previously stated, it is assumed that a potential purchaser knows that he must examine the register for Blackacre before he can safely purchase a n interest in Blackacre. I t is believed that any potential purchaser who could locate the office of the Registrar, and hence the register for Blackacre carrying a warning that tax liens are a n overriding interest, would know that he must inquire a s to local property tax liens, and would be able to locate the office of the local tax authority. In short, any system established to facilitate commercial transactions in land must assume a minimal business sophistication on the part of users of the system.

9.25 The foregoing discussion has focused on local property tax liens. I t is believed that their existence as a n overriding interest can probably be justified. But other tax liens which might exist in some jurisdictions, such as a lien for unpaid succession duties or a lien for unpaid workers' compensation assessments, are far more questionable. As the frequency of occurrence of tax liens of a particular type decreases, the cost of having all tax liens of this type entered in the registers for affected parcels decreases. However, if purchasers were cautious, inquiries a t the office of the taxing authority responsible for tax liens of a particular type would still have to be made with respect to all parcels of land which were involved in commercial transactions and which might possibly be subject to a tax lien of the particular type, even when the incidence of tax liens of the type was slight. Moreover, because low frequency tax liens are less likely to be known to the public, they are more likely to be overlooked, and consequently they present a greater threat to users of a Torrens system when they are permitted a s overriding interests.

(3) Leasehold interests 9.26 A lease or a n agreement for a lease, for a period not exceeding

three years, where there is actual occupation of the land under the lease or the agreement, is made a n express overriding interest by section 64(l)(d) of the Alberta Act.

9.27 Assume that B was the registered owner of Blackacre, that Blackacre was subject to a lease in favor of E, that E's lease was not entered in the parcel register for Blackacre, that E was in actual occupation of Blackacre under the lease, and that C purchased Blackacre from B without fraud and became the registered owner. Assume further that E's lease provided for either a monthly tenancy or a one-year term certain, and that leasehold interests were not a n overriding interest. E's leasehold interest was extinguished by C's purchase of Blackacre without fraud because the leasehold interest was not entered in the register for Blackacre.

9.28 In the foregoing example i t was assumed that E held either a monthly tenancy or a one-year term certain, for it is believed that these two categories comprise a substantial majority of contemporary leasehold interests. If every lessee in the position of E were required to enter his leasehold interest in the appropriate parcel register in order to protect the interest in the event of a sale of the reversion in the land, and if lessees routinely did so, the inconvenience and expense to short term lessees would


be inordinate relative to the value of the interests protected and the actual risk of loss. In the author's opinion, the overwhelming majority of short term lessees would simply assume the risk. In the example under consideration, i t is probable that even if C wished to obtain possession of Blackacre, he would either terminate the monthly tenancy by the normal statutory procedures, or wait for the one-year term certain to expire naturally. If C adopted this course, E would be no worse off for having assumed the risk.

9.29 But what if C's standards of business morality were considerably below normal, and if he chose to evict E a s rapidly as the law permitted. This course would seldom secure any significant economic advantages for C, but it would frequently impose severe inconvenience and economic hardship on E. The possibility of such cases might well be a sufficient justification for permitting leases for one year or less to exist a s overriding interests.

9.30 Moreover, there is another factor to be considered. How likely is i t that C would have been unaware of E's leasehold interest when E was in actual occupation of Blackacre: if Blackacre were a single family residence, or a unit in either a ten-unit or a one hundred-unit apartment building? If C were aware that E was a lessee, how likely is it that C would have been unaware of the fact that B's sale of Blackacre other than subject to E's leasehold interest was fraudulent? In the example under consideration i t was assumed that C purchased Blackacre from B without fraud, not because it is a t all likely that C would have been innocent of fraud in a case of this type, but because of the difficulty E would probably have in proving C's fraud (see paragraph 6.61). As section 64(l)(d) expressly makes a leasehold interest for a period not exceeding three years a n overriding interest when the lessee is in actual occupation, the difficult fraud issue is avoided and E's leasehold interest would be protected.

9.31 Continue the example under consideration, but assume that E's lease provided for either a threeyear term certain or a five-year term certain. Pursuant to section 64(l)(d), E's lease would be protected a s a n overriding interest if i t were for a three-year term as E was in actual possession under the lease. I t would be extinguished by C's purchase of Blackacre without fraud if it were for a fiveyear term notwithstanding the fact that E was in actual occupation under the lease. I s there any justification for this difference in treatment of the two leasehold interests?

9.32 I t is clear that a leasehold interest is only a n overriding interest if the term of the lease did not exceed three years a t any time. Consequently, E's leasehold interest would not have been a n overriding interest if it had been for a n initial five-year term, even if only two years of the term remained when C purchased B lacka~re .~ It is believed, therefore, that the overriding interest benefit is reserved for leasehold interests which have a n insufficient duration a t the time of creation to result in an economic value which would justify the time and expense of protecting them by entry in the register.

9.33 The leasehold overriding interest enlarges the list of interests which are not disclosed on the register. Therefore, in order to make it possible for a potential purchaser to determine whether or not a parcel of


land is subject to a leasehold overriding interest, the overriding interest benefit is limited to situations in which there is actual occupation under the lease. The net effect is that the objective simplicity of a system in which all interests which can bind a purchaser must be disclosed by the parcel register is sacrificed for a system under which a purchaser may be bound by the interest of a lessee who is in actual occupation under a lease, and this creates two specific problems. First, although the factual issue of whether or not one is in actual occupation under a lease seldom creates difficulties, it certainly introduces a more flexible standard than the entry of a n interest in the r eg i~ te r .~ Secondly, because a purchaser will be bound by the interest of a lessee in actual occupation under a lease for a term not exceeding three years, a cautious purchaser should inspect any parcel of land before completing a purchase in order to determine whether or not it is subject to a leasehold overriding interest.

9.34 The author believes that a credible argument can be made that most leases for a term in excess of one year have sufficient economic value to justify the time and expense of protecting them by entry in the register. If the leasehold overriding interest were intended primarily for the protection of leases of insufficient value to justify entry in the register, one wonders why the benefit of overriding interest status was not reserved for leases not exceeding one year. Although this would not solve the problems mentioned in the preceding paragraph, it would reduce the adverse consequences of the leasehold overriding interest to a purchaser.

9.35 However, section 64(l)(d) extends the benefit of overriding interest status to leases not in excess of three year when the lessee is in actual occupation. This suggests that the leasehold overriding interest was also intended for the protection of a lessee in actual possession under a lease, such a s a lease for three years, which would have been of sufficient value to justify protection by entry in the register. The author believes that section 64(l)(d) reflects the equitable philosophy that rights of persons in possession of land should be protected because a purchaser will almost inevitably be aware not only of those rights, but of the fact that his purchase will be destructive to them (see paragraphs 3.22 and 9.30). Under section 64(l)(d), E's rights would be protected as an overriding interest if he were in actual occupation under an agreement for a lease not exceeding three years. If rights of persons in actual occupation are deserving of protection, why should the rights of a person in possession under an agreement to purchase land, or under a five-year lease, not be protected as an overriding interest?

(4) Exceptions and reservations in original Crown grant 9.36 Section 64(l)(a) of the Alberta Act provides that any subsisting

exceptions or reservations contained in the original grant of land from the Crown are an overriding interest. Why is this overriding interest necessary?

9.37 Assume the following facts. Blackacre was located in a jurisdiction whose Torrens statute contained a provision identical to section 64(l)(a). The original instrument issued by the Crown granted Blackacre to A, reserved a royalty interest on any future sale of standing timber, and


contained no exception of the M & M. A was registered as the owner of Blackacre, and his registration was subjected to neither a reservation nor a n exception in favor of the Crown. Subsequently B purchased Blackacre from A and became the registered owner, and his registration was subjected to neither a reservation nor an exception in favor of the Crown. C wished to purchase Blackacre from B.

9.38 I t would seem that any interests retained by the Crown in the original grant could have been readily registered on the parcel register for Blackacre. If any interests retained by the Crown were duly registered, C would be informed that these interests remained subsisting interests when he investigated the register for Blackacre. If no interests in favor of the Crown were disclosed by the register, under Torrens theory C should be able to assume that any exceptions or reservations which were contained in the original Crown grant were no longer subsisting.

9.39 However, a s Torrens theory is not applicable insofar a s overriding interests are concerned, C could not make any assumptions regarding interests retained by the Crown in the original grant. Fortunately, C had a little knowledge relative to the overriding interest under consideration. He checked the Crown instrument which granted Blackacre to A, and discovered the reserved royalty interest on the standing timber. Although C thus learned that the Crown had reserved this interest in the grant to A, the Crown grant could not disclose whether or not the interest remained subsisting. Indeed, a s Blackacre appeared to have been recently logged, C suspected that the royalty interest might have been discharged. C was able to locate the appropriate government official responsible for provincial forest management, and learned that the timber royalty interest had been released while A was still the registered owner. C purchased Blackacre from B and became the registered owner, and his registration was subjected to neither a reservation nor an exception in favor of the Crown.

9.40 Unfortunately, C had only a little knowledge relative to the overriding interest under consideration. C knew that B's registered ownership had not been subject to a M & M exception in favor of the Crown, and his examination of the Crown instrument which granted Blackacre to A had disclosed no exception of the M & M. Consequently, C assumed that his purchase of Blackacre from B included the M & M. However, the original Crown grant of Blackacre to A was made under the authority of a statute which was substantially the same as section 34(1) of The Public Lands Act (Alberta),lo which provides as follows:

34.(1) All mines and minerals and the right to work the same are, by implication and without the necessity for any express words of exception, excepted from every disposition and notification made under this Act.

Was C the registered owner of the M & M in Blackacre? More specifically, although the M & M in Blackacre were not excepted by the Crown instrument which granted Blackacre to A, were they nevertheless excepted from the Crown grant a s a matter of law under the above statute? This issue was decided by the Supreme Court of Canada, in 1954, in Portage La Prairie v. Canadian Superior Oil of California Ltd.11

9.41 The Court held that the statute comparable to section 34(1) of The


Public Lands Act (Alberta) was, in legal effect, incorporated in the original Crown grant, that the original Crown grant therefore excepted the M & M, and that C's registered ownership was subject to this exception in favor of the Crown because it was a n overriding interest. The Portage La Prairie case vividly demonstrates the pernicious operation of the overriding interest for rights retained by the original Crown grant. As this overriding interest can be identified, it could be carried a s a warning on the parcel registers for lands under the Torrens system (see paragraph 9.11). The problem is that a warning that rights retained in the original Crown grant are an overriding interest would not give a potential purchaser a clue that the exception for mines and minerals created by section 34(1) of The Public Lands Act (Alberta) is contained in the original Crown grant, even when i t does not appear a s a n exception in the original instrument of Crown grant!

9.42 How might a statute creating a jurisdiction's Torrens system solve this dilemma with a s little damage as possible to the Torrens philosophy that the register should be everything? The author believes that the difficulty stems from the fact that the overriding interest for exceptions and reservations contained in the original Crown grant, like the overriding interest for tax liens, is general in its application. I t does not refer to the specific exceptions and reservations which it will most likely include.

9.43 Consider section 19 of The Mines and Minerals Act (Alberta),lZ which provides a s follows:

19. It is hereby declared that no grant from the Crown, whether relating to land, minerals in land or otherwise, has operated or will operate as a conveyance of gold and silver unless gold and silver are expressly named and conveyed in the grant.

As this section provides that no grant from the Crown operated as a conveyance of gold and silver unless they were expressly conveyed, and a s it is doubtful that many, if any, grants in Alberta ever expressly conveyed gold and silver, the author accepts the view that it would serve no useful purpose to except gold and silver routinely from every Crown grant. Similarly, it would be a wasteful administrative expense to include a n exception for gold and silver in favor of the Crown on every parcel register maintained under the Torrens system. However, although gold and silver are a n overriding interest in Alberta because they are excepted from the original Crown grant unless they are expressly included, they are excepted from the original Crown grant because section 19 of The Mines and Minerals Act (Alberta) is included by implication in the original Crown grant in accordance with the holding in Portage La Prairie. Functionally, the overriding interest for Crown gold and silver is a hidden overriding interest. The author suggests that this problem could be solved by including section 19 of The Mines and Minerals Act (Alberta) a s a separate overriding interest for Crown gold and silver in section 64(1) of the Alberta Act, and by carrying it a s a printed warning on all parcel registers. If a potential purchaser of land were seriously interested in acquiring gold and silver, he could check the original Crown grant and would learn whether or not it included gold and silver.

9.44 Although the same solution could be used with respect to the overriding interest for Crown mines and minerals, it would be far less


effective. Section 34(1) of The Public Lands Act (Alberta) only applies to dispositions made under that Act, and it is a fact of common knowledge that dispositions of Crown lands under some other acts not only included the mines and minerals, but did so without expressly disposing of them. Consequently, if section 34(1) were included a s an overriding interest on a parcel register, a potential purchaser would be informed that the original Crown grant excepted the mines and minerals if it was a disposition under The Public Lands Act (Alberta). However, he would have to be a knowledgeable purchaser in order to determine whether or not the original Crown grant was under this Act.

9.45 One further situation should be considered in connection with the overriding interest for exceptions and reservations contained in the original Crown grant. Assume the following facts. Blackacre was located in a Torrens jurisdiction whose Torrens statute contained a provision virtually identical to section 64(1) of the Alberta Act, but which included the clause emphasized below:

The land mentioned in any certificate of title granted under this Act is, by implication and without any special mention therein, unless the contrary is expressly declared, subject t o . . . .

The original Crown grant of Blackacre to A expressly excepted the M & M, and A was registered a s the owner of Blackacre, excepting M & M. Subsequently B purchased Blackacre from A and became the registered owner, but by error the Registrar registered B as the owner of Blackacre, including M & M. Later C purchased Blackacre from B without fraud and became the registered owner, including M & M. Was C's registered ownership of Blackacre, including M & M, subject to the overriding interest for exceptions contained in the original Crown grant? This issue was decided by the Supreme Court of Canada, in 1957, in Prudential Trust Co. v. The Registrar.13

9.46 The Court held that the overriding interest for the M & M excepted from the original grant from the Crown was defeated in favor of C because C purchased in reliance on the express declaration in the register for Blackacre that B was the owner of the M & M. In short, the clause 'unless the contrary is expressly declared' contained in the statute providing for overriding interests empowered the Registrar to override the Crown's overriding interest by a n entry in the register that it was no longer a subsisting interest. Literally, the clause under consideration would permit the Registrar to make a n erroneous entry negating any overriding interest subject to the operation of the clause. The author doubts, however, that the clause would ever affect any overriding interest except exceptions and reservations contained in the original Crown grant. In the example under consideration, although the M & M were excepted from the original Crown grant to A, the Registrar made a n affirmative erroneous entry that B owned them. I t seems highly unlikely that the Registrar would ever make a negative erroneous entry that B's registered ownership was not subject to either any tax liens, or any easements, or any subsisting leases, or any judgment liens.

Chapter 9 . Overriding Interests 191

(5) Easements

9.47 Public easements and rights of way are made a n overriding interest by section 64(l)(c) of the Alberta Act, and private easements and rights of way are made a n overriding interest by section 64(l)(g). Are these ovemding interests necessary?

9.48 Assume that B owned Blackacre, that E owned a legal easement for a road across Blackacre, and that C purchased Blackacre from B. At common law, because E's easement was a legal property interest in Blackacre, Blackacre remained subject to E's easement after C became the legal owner, and whether or not C was a n innocent purchaser with neither knowledge nor notice of E's easement is irrelevant (see paragraph 2.34). Assume that Blackacre was located in a jurisdiction with either a notice or a race-notice recording system, that E's easement was not protected by recording when C purchased Blackacre, and that C recorded his deed before E recorded the instrument which granted his easement. If C had no actual knowledge of E's easement, and if C had no constructive notice of E's easement, that is, if E's easement would not have been discovered in the course of a diligent inspection of Blackacre, C acquired Blackacre free of E's easement (see paragraph 3.17). Now assume that Blackacre was located in Alberta, and that C had no actual knowledge of E's easement when he purchased Blackacre and became the registered owner. Because E's easement was a n overriding interest, Blackacre remained subject to E's easement after C became the registered owner, and whether or not C was a n innocent purchaser with no knowledge of E's easement is irrelevant.

9.49 As the preceding examples demonstrate, insofar a s easements are concerned, the Alberta Act retains the common law, and has not even increased facility of transfer to the same extent a s a modern recording system. A potential purchaser must make a diligent inspection of land which he desires to purchase in a n effect to discover any easements, but if he does purchase land, he will acquire i t subject to any valid easements, even if he did not discover them, and could not reasonably have discovered them.

9.50 The author is aware of no policy reasons which justify continuation of the overriding interest for private easements. I t is argued, however, that the overriding interest for public easements should be continued, and the horror example is sometimes cited of a purchase of Blackacre when it was subject to a n easement in favor of the Crown for a n existing surfaced public highway. I t can safely be assumed that the Crown would not construct a road across Blackacre without first obtaining a t least an easement, and it would seem that having such a n easement entered on the parcel register for Blackacre would not be a n excessive burden. Even if the Crown failed to protect its easement in this manner, the author believes that a purchaser of Blackacre would almost inevitably know not only of the existence of the highway, but that the vendor's sale to him without a n exception for the public easement was fraudulent.

9.51 I t is believed tha t the genuine problem concerns public easements which would not be apparent to a potential purchaser making a reasonably diligent inspection of land. Assume that E, a government entity, owned a n

192 Torrens' Elusive Title - - - - - - - - -

easement for a n undeveloped road across Blackacre, and that C desired to purchase Blackacre from B. E would know of the existence of the easement and of the precise rights in Blackacre which it included, such a s exact location, conditions of use, and duration. If the overriding interest for public easements were abolished, E could protect its known easement by complying with the relatively simple administrative procedure required to have the easement entered in the register for Blackacre, and C could readily obtain complete information a s to the nature of the easement. If the overriding interest for public easements were retained, C would carry the risk of discovering the existence of the easement and the rights in Blackacre which it included, and C would not be faced with a simple administrative procedure. B might not inform C of the easement, either because B was dishonest or becauseB was not aware of the easement. Even if C learned of the possible existence of the easement, he would have the further task of verifying its existence. He would have to determine that E was the government entity that owned the easement, and would then have to make inquiries a t the proper government office in order to determine the nature of the easement.

9.52 It would be possible to retain a n overriding interest for apparent public easements, such a s roads, which could be discovered readily from a n inspection of land. Many public easements could clearly be placed in this category, and government entities would be spared the bother and expense of protection such easements by having them entered in the registers for innumerable parcels of land. This solution would, however, create problems in categorization, for in some cases it would be difficult to determine whether a public easement was on the apparent or the nonapparent side of what is of necessity a vague dividing line.

(6) Charges based on writs of execution of judgment debts 9.53 Pursuant to section 64(l)(e) of the Alberta Act, a charge based on

a writ of execution is a n overriding interest if the execution is registered and maintained in force against the owner of land. The legal effect of a writ of execution which has been entered in the execution register maintained by the Registrar was discussed a t paragraph 6.80, which should be reviewed a t this point. If a n execution must be registered and maintained in force against the owner of land in order to operate a s a charge against his land, why i s it proper to characterize a charge based on a writ of execution a s a n overriding interest?

9.54 In accordance with section 21(3) of the Alberta Act, the Registrar maintains a n execution register, which consists of a n alphabetical index of the names of execution debtors a s disclosed by executions received by the Registrar, and which includes a record of or a reference to the copy of each execution received by the Registrar affecting a judgment debtor indexed in the execution register. The execution register is thus a n alphabetical list of judgment debtors containing a record of executions received against them. Although executions indexed in the execution register create a charge against any beneficial interest of a n execution debtor in land in accordance with section 128(2) of the Alberta Act, the charge based on a writ of execution is not entered on the register for any parcel of land until the


execution debtor executes an instrument affecting land subject to the charge or until the creditor requests that the writ be entered on the parcel register.

9.55 The execution creditor is not required to specify any particular parcel of land of an execution debtor which he wishes the execution to charge. Indeed, frequently the execution creditor will not know whether or not the execution debtor owns any beneficial interest in land which the execution could charge. Assume that B was the registered owner of Blackacre, that E had a writ of execution entered in the execution register creating a charge against Blackacre to secure a judgment debt of $25,000, and that C subsequently purchased Blackacre from B and obtained a transfer. Before the Registrar would register C as the owner of Blackacre, he would routinely check the execution register to ascertain whether or not there were any executions indexed against B. In this example the Registrar would register C as the owner of Blackacre, but he would also register the charge created by E's execution on the parcel register for Blackacre, and would thus subject C's registered ownership to that charge.

9.56 As the preceding example demonstrates, a charge based on a writ of execution is an overriding interest because it operates as a charge against a parcel of land before it is entered on the parcel register for that land. In Torrens jurisdictions, the execution register is generally maintained by the Registrar, and hence is physically located contiguous to the Torrens registers. Although this is convenient, it is by no means necessary. If the execution register in Alberta were maintained in a location apart from the Land Titles Office, such as by the warden of a high security prison, it would be easier for one to recognize why the charge based on an execution entered in the execution register is an overriding interest.

9.57 Is the overriding interest for a charge based on a n execution entered in the execution register necessary? The difficulties associated with this overriding interest are primarily administrative, and although the discussion which follows does not purport to offer a complete analysis, it will point out two specific problems as examples.

9.58 The execution register system is expensive. As already noted, executions are issued against an execution debtor, and execution creditors frequently have executions entered in the execution register even though the execution debtor has no beneficial interest in land which could be subject to a charge. Even if an execution debtor has an interest in land which is subjected to a charge, the charge will frequently lie dormant until it expires six years after the execution was received by the Registrar because the execution debtor never executed an instrument affecting land which was subject to the charge or because the execution creditor never took steps to enforce the charge. Nevertheless, even though executions in the execution register charge a small percentage of the parcels of land in Alberta, prudent purchasers in all transactions must routinely check the execution register before they enter into a binding contract to acquire an interest in land to make certain that it is not subject to a charge, and the Registrar must routinely check the execution register before he completes any transaction submitted for registration.

9.59 The execution register system is subject to considerable confusion


because it is based on the names of execution debtors as disclosed by the executions received by the Registrar. Two problems are obvious: there are many common names, and there are frequently different Anglicised spellings for a non-English name. How are a potential purchaser and the Registrar to determine whether or not William Johnson, the registered owner of Blackacre, is the same person as William Johnson, the execution debtor named in an execution in the execution register? How is the Registrar to determine whether or not John Holigrocki is the same person as John Holigroski?14 Section 130 of the Alberta Act contains an elaborate procedure designed to assist in resolving a controversy as to whether or not a registered owner and a judgment debtor are the same person.

9.60 The overriding interest for a charge based on an execution would be eliminated if the execution register were abolished, and if an execution creditor were required to register his execution against one or more specific parcels of land in which an execution debtor was alleged to have a beneficial interest. I t is believed that this change would result in a considerably more economical system. The operating cost involved in maintaining the execution register, and of having it checked in connection with every transaction submitted for registration, would be eliminated, for all possible charges based on executions would be registered against affected parcels of land. Similarly, potential purchasers would only be concerned with charges if they were registered against a parcel of land involved in a transaction. Admittedly, the present system is very economical for creditors, and facilitating the collection of debts is necessary in a credit oriented society. The question is, is the cost and inconvenience of the execution register system out of proportion in terms of the benefits it produces. The change suggested in this paragraph has been adopted in Nova Scotia under its new Land Titles Act.15

d. Expropriation 9.61 Section 64(l)(f) of the Alberta Act provides that the land

mentioned in any certificate of title granted under the Alberta Act is subject to any right of expropriation vested in any person, body corporate, or Her Majesty. The inclusion of this provision in the Alberta Act does no harm. Indeed, it may be beneficial if it serves to remind all users of the Torrens system that all property interests in land, whether under a Torrens system or not, exist a t the sufferance of the state.

9.62 The author does not consider the right of expropriation to be an overriding interest, however, for i t is an inchoate right in the holder of the power of expropriation to acquire an interest in land, rather than a recognized interest in land.

9.63 I t is believed that few members of the public are unaware of the power of expropriation held by many government entities and by many public utility corporations. I t is doubtful, however, if the existence of section 183 of the Alberta Act is generally known. This section, which is quoted a t paragraph 6.100, is applicable when a person has made lasting improvements on land under the mistaken belief that the land was his own. Because the court is authorized to compel the owner to transfer the land to the person who made the improvements in return for such

Chapter 9. Overriding lnterests 195

compensation as the court may direct, the author would characterize section 183 as providing for a species of private expropriation.16

FOOTNOTES 1. The Dower Act, R.S.A. 1970, c. 114. 2. Estennan and O'Keefe, The Impact of Other Statutes on the Land Transfer System, TheNew Zealand

Torrens System Centennial Essays 210 (Hinde ed. 1971). 3. See section 2(1) o f the Kenya Registered Land Act (1963); and Whalan, The Torrens System in New

Zealand - Present Problems and Future Possibilities, The New Zealand Torrens System Centennial Essays 258,282-86 (Hinde ed. 1971).

4. (1960) 25 D.L.R. (2d) 463,31 W.W.R. 647 (Alta. T.D.). 5. Railway Act, R.S.C. 1952, c. 234. 6. The Transfer and Descent of Land Act, R.S.A. 1970, c. 368. 7. (1961) 36 W.W.R. 83 (Man. Q.B.). 8. First National Investment Co. v. Oddson 48 D.L.R. 732, [I9191 3 W.W.R. 591 (Man. K.B.). 9. e.g.. Trotzuk v. Zilka [I9461 3 W.W.R. 442 (Sask. C.A.).

10. The Public Lands Act, R.S.A. 1970, c. 297. 11. [I9541 S.C.R. 321, [I9541 3 D.L.R. 705. 12. The Mines and Minerals Act. R.S.A. 1970, c. 238. 13. [1957] S.C.R. 658,9 D.L.R. (2d) 561. 14. See Holigrocki v. Holigrocki (1967) 60 D.L.R. (2d) 440,58 W.W.R. 368 (Man. Q.B.). 15. Land Titles Act, S.N.S. 1978, c. 8, s. 41. 16. See Mildenberger v. Prpic 67 D.L.R. (3d) 65, [I9761 4 W.W.R. 67 (Alta. T.D.); Maly v. Ukrainian

Catholic Episcopal Carp. (1977) 70 D.L.R. (3d) 691 (Alta. D.C.)

CHAPTER 10

Conclusion

a. Summary of Fundamental Policy Issues 10.1 The author believes that i t is appropriate to conclude this study

with a summary of important policy issues which should be considered by any law reform body proposing to make recommendations designed to enhance the ability of a Torrens system to achieve its maximum potential. The suggested issues are organized in accordance with the chapters in which the issues are discussed in this study, and paragraph references are included.

10.2 Chapter 5 issues: Issue 1. Who is the owner of a registered legal interest if the registered 'owner' is not a legal entity? See paragraphs 5.10-14. Issue 2. Should erroneous registrations resulting from mistakes in legal descriptions have different legal consequences than erroneous registrations resulting from other mistakes? See paragraphs 5.20-23. Issue 3. Should the English system of conferring registered ownership by general boundaries be adopted? See paragraphs 5.41-44. Issue 4. Should every registered instrument, except a FSA transfer, be defined as incorporated in the register for the parcel of land affected by the instrument? See paragraphs 5.45-47. Issue 5. Should statutory instruments be enacted to facilitate the creation and transfer of common interests? See paragraphs 5.50-53. Issue 6. Should the creation of rights which are not recognized under the general law be permitted through registration under the Torrens system? See paragraphs 5.54-63. Issue 7. Should the creation of contract rights which are not recognized as rights in land under the general law be permitted through registration under the Torrens system? See paragraphs 5.64-77. Issue 8. Should interests in land recognized under the general law be denied the benefits of registration? See paragraphs 5.78-87.

10.3 Chapter 6 issues: Issue 1. Should a registered interest be defeasible to permit the execution of a transaction as mutually intended by the relevant parties? See paragraphs 6.15-38. Issue 2. Should the defeasibility of a registered interest obtained through fraud be limited to situations in which the registered owner knowingly participated in the fraud? See paragraphs 6.39-76.


Issue 3. Should a registered interest obtained through error by a n owner who was not a purchaser for value be defeasible? See paragraphs 6.77-100. Issue 4. This issue must be framed in two correlative forms. (1) Under what circumstances, if any, should a registered interest be defeasible because it was based on a n invalid transfer from the immediately preceding registered owner? (2)Under what circumstances, if any, should a registered interest be defeasible because it was registered to an immediately succeeding innocent purchaser on the basis of a n invalid transfer? See paragraphs 6.103-1 17. Issue 5. Should a registered interest obtained by a n innocent purchaser on the basis of a valid transfer from a registered owner be defeasible? This is the single chain situation. See paragraphs 6.118-133. Issue6. What provision should be made for the situation in which conflicting legal rights have been registered to different persons, each of whom was an innocent purchaser under a valid transfer from a registered owner? This is the multiple chain situation. See paragraphs 6.134-137. Issue 7. Should a condition of defeasibility based on misdescription be retained? See issue 2 a t paragraph 10.2, and paragraph 6.139. Issue8. Should a condition of defeasibility based on prior certificate of title be retained? See paragraph 6.139. Issue 9. Who should be defined a s the legal owner in a situation in which there are contemporaneous conflicting registrations? See paragraphs 6.25- 28.

10.4 Chapter 7 issues: Issue 1. Should nonregistered interests be recognized? See paragraphs 7.13-17. Issue2. How should the various types of nonregistered interests be characterized in terms of the conventional legal and equitable categories? See paragraphs 7.4-12. Issue3. Should one who acquires a subsequent interest a s an innocent purchaser in reliance on the register be required to win the race to the register in order to gain priority over a prior interest? See paragraphs 7.24- 25. Issue4. Should a n affidavit be required in support of a caveat? See paragraph 7.33. Issue 5. Should the Registrar's authority to reject a caveat be limited to situations in which the caveat either (1) fails to meet reasonable administrative requirements (see paragraphs 7.31-36), or (2) seeks to protect a n interest which does not qualify for protection by caveating (see paragraph 7.37. Issue6. Should an accepted caveat which seeks to protect a n interest which does not qualify for protection by caveating be invalid? See paragraphs 7.38-40. Issue 7. Should the protection afforded by a caveat be limited to those rights which are actually disclosed by the caveat a s entered in the register for the parcel of land affected by the caveat? See issue 4 at paragraph 10.2, and paragraphs 7.41-46.

Chapter 10. Conclusion 199

Issue 8. What legal consequences should result from the removal of a caveat? See paragraphs 7.51-56. Issue 9. Should a caveator be entitled to a notice conforming to accepted judicial standards a s a prerequisite to the removal of his caveat? See paragraphs 7.60-69. Issue 10. Should a caveat removal proceeding based on adequate notice to a caveator constitute a n adjudication as to the validity of a caveated claim relative to any party and to any interest necessarily affected by the proceeding? See paragraphs 7.64-65.

10.5 Chapter 8 issues: Issue 1. Can one have a legal cause of action to obtain possession of land if he is neither the registered owner of a legal interest in land conferring a right to possession, nor the owner of an overriding interest in land conferring a right to possession? See paragraphs 8.2-4. Issue 2. Under what circumstances should the Registrar be authorized to provide the remedy of revision of the register administratively? See paragraphs 8.7-12. Issue 3. Should the right of an owner to compensation from the assurance fund for the loss of a registered interest be limited to situations in which the loss resulted from the application of principles of Torrens law? See paragraphs 8.13-17. Issue 4. Should the owner of a nonregistered interest in land who was deprived of his interest because of an error in the administration of the caveating system be entitled to compensation from the assurance fund for his loss? See paragraphs 8.18-23. Issue 5. Should the administrative fee for filing a caveat be established in the same manner a s the administrative fee for registering a n interest? See paragraphs 8.26-27. Issue 6. Should an assurance fund fee be charged for the filing of a caveat irrespective of the interest protected? See paragraph 8.27. Issue7. How should the assurance fund fee be determined? See paragraphs 8.28-32. Issue 8. Should a registered owner whose conduct was the sole cause of his deprivation of a registered interest be entitled to compensation from the assurance fund for his loss? See paragraphs 8.33-34. Issue 9. Should a registered owner whose conduct was a contributing cause of his deprivation of a registered interest be entitled to compensation from the assurance fund for his loss? See paragraphs 8.36-38. Issue 10. Should one be required to obtain a judgment against the Registrar a s a prerequisite to obtaining compensation from the assurance fund? See paragraphs 8.39-41. Issue 11. Should there be a limitation a s to the period of time available to one to enforce a cause of action to have the register revised in order to acquire registered ownership of a n interest in land, and if so, how long should the limiting period be and when should it begin? See paragraphs 8.51-57.


Issue 12. Should there be a limitation as to the period of time available to one to assert a right to compensation from the assurance fund, and if so, how long should the limiting period be and when should it begin? See paragraphs 8.58-59. Issue 13. Should the Registrar be required to send a copy of the parcel register affected by any entry to all interested parties'immediately after the entry was made? See paragraphs 8.60-61.

10.6 Chapter 9 issues: Issue 1. Should all overriding interests permitted in a jurisdiction be identified by a warning entered on the parcel registers for land under the Torrens system? See paragraphs 9.5-11. Issue 2. What overriding interests should be permitted? As the necessity for each overriding interest should be evaluated, each overriding interest presents the same basic issue. See paragraphs 9.12-60.

b. Conclusion 10.7 The author thinks of the real property law of a jurisdiction with a

Torrens system a s comprised of three layers of law. At the bottom is the vast and complex general law, most of which, whether of judicial or legislative origin, is based on principles of the English common law. The Torrens system of registered legal interests in land is the middle layer superimposed on the general law, and at the top is the caveating or recording system for the protection of nonregistered interests in land. Although grafting the two upper layers on the general law has already produced a revolution in real property law, a completely successful revolution in the English common law of real property requires great skill as well as the enthusiasm of a Robert Torrens!

10.8 The existence of the issues presented in this chapter demonstrates that existing Torrens statutes do not create an adequate legal structure for a Torrens system. Some of these issues exist because of important problems which are not solved by existing Torrens statutes. Others exist because the statutory solutions for some important problems are of questionable merit. In some situations the Torrens system attempts to accomplish more than is possible (see issues 6 and 7 at paragraph 10.2); in others the system simply fails to achieve benefits which could be secured (see issue 8 a t paragraph 10.2).

10.9 In the author's view, the Torrens system is based on sound functional principles; it has operated well in most jurisdictions; it could operate much better in any jurisdiction with a n improved statute.

Hackworth v . Baker . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Hardingham v . Nicholls . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21 Henderson v . Montreal Trust Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Henderson v . Toronto General Trusts Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Hextall v . P . Burns & Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80 Hoar v . Mills . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Hodgson v . Marks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 25 Holigrocki v . Holigrocki . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 194 I.A.C. (Finance) Pty . Ltd . v . Courtenay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 144 Imperial Elevator v . Olive . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 150 Imperial Oil v . Conroy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 149 Independent Lumber Co . v . Gardiner . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Jared v . Clements .................................................................... 25 Jellett v . Wilkie ................................................................. 22, 123 Jones v . Williams . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Kaup v . Imperial Oil Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 122, 123, 124, 175, 176 Knight Sugar Co . v . Alberta Railway and Irrigation Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Land Registry Act 1911, Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Latec Investments Ltd . v.Hote1 Terrigal .................................... 30, 33, 34, 37 Law v . Warren ....................................................................... 29 Lee v . Barrey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 84 Lehrer and the Real Property Act, Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Le Neve v . Le Neve . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 Lloyd v . Banks ....................................................................... 25 Locher v . Howlett ................................................................... 115 Loke Yew v . Swettenham Rubber Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 114 Lysaght v . Edwards . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 26 McConaghy v . Denmark . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 39

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . McGugan v Turner 39 Mackreth v . Symmons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Maddever, Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 41 Maly v . Ukrainian Catholic Episcopal Corp . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Marshall v . Fisk ..................................................................... 48 Maurice Demers Transport Ltd . and Demers v . Fountain Tire Distributors

(Edmonton) Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 118 Mildenberger v . Prpic . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 195 Moir's Estate, Re .................................................................... 183 Morton and Cowell v . Hoffert ........................................................ 124 Mumford v . Stohwasser .............................................................. 25 Munro v . Stuart . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 116, 120 Mutual Investments Ltd., Re ......................................................... 94 National Bank of New Zealand v . National Mortgage and Agency Co . . . . . . . . . . . . . . . . 115 Newton v . Newton ................................................................... 23 Nioa v . Bell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 91 Nisbet and Pott's Contract, Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24, 29 Northern Countries of England Fire Insurance Co . v . Whipp . . . . . . . . . . . . . . . . . . . . . . . . . . 15 Ocean Estates Ltd . v . Pinder ......................................................... 36 Oertel v . Hordern .................................................................... 120 Overland v . Lenehan . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79, 80, 81, 82 Parker v . Housefield .................................................................. 27 Pelletier v . Municipal District of Opal ................................................. 13 Perry v . Clissold ..................................................................... 35 Phillips v . Phillips ............................................................ 31, 32, 33 Pilcher v . Rawlins .................................................................... 24 Piper v . Stevenson ................................................................ 36, 39 Pogue and Lane, Re ........................................................ 174, 175, 176 Portage La Prairie v . Canadian Superior Oil of California Ltd . . . . . . . . . . . . . . . . . . . 188, 189 Price v . Materials Testing Laboratories Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 123 Prudential Trust Co . v . The Registrar . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 190

Public Trustee for Alberta v . Pylypow . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30. 108. 109. 164 Rice v . Rice . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 21. 32 Ridgeway and Smith's Contract. Re . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Robertson v . Keith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 117. 118 Roe d . Haldane v . Harvey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 37 Rogers v . Challis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Rounsuell v . Ryan & Sons . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 120 Royal Bank and La Banque D'Hochelaga. Re subnom Muller v . Schwalbe . . . . . . . . . . . . 149 Ruben v . Great Fingall Consolidated . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 11 Ruptash v . Zawick . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 154 Russel v . Russel . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 27 Ruthenian Greek Catholic Church v . Fetsyk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Rystephaniuk v . Prosken ............................................................ 150 Salt v . Cooper . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 17 Saunders v . Anglia Building Society . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 10 Scandia Meat Market Ltd . v.Kids Investment Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 115 Schweichardt v . Thorne . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 166 Smith v . Jones . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Smith v . National Trust Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 88 Smith v . Ontario and Minnesota Power Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 35

. . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . Spokane and Eastern Trust's Mortgage. Re 94 Stephens v . Bannon ................................................................. 149 Stonehouse v . Attorney General of B.C. .............................................. 144 Stroughill v . Anstey . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Sutherland v . Rural Municipality of Spruce Grove . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 13 Swanson v . Smith . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 20 Sydie v . Saskatchewan and Battle River Land Development Co . . . . . . . . . . . . . . . . . . . . . . . 115 Taylor v . Russell . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 23 Thompson v . Hickman . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 30 Thompson v . Simpson . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 24 Thorndike v . Hunt ................................................................... 21 T.M. Ball Lumber Co . v . St . Mary's Parish Credit Union Ltd . . . . . . . . . . . . . . . . . . . . . . . . . 149 Tourville v . Naish .................................................................... 21 Trotzuk v . Zilka ..................................................................... 187 Trustees of Grosvenor St . Presbyterian Church v . Toronto . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 14 Tulk v . Moxhay . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 28 Turta v . Canadian Pacific Ry . Co .

and Imperial Oil Ltd . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 69. 107. 136. 138. 139. 149. 175 Vandeleur v . Sloane . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Violette v . Violette . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 12 Waimiha Sawmilling Co . v . Waione Timber Co . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 159. 160 Walters v . Webb . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 36 Watson v . Ogiluie . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 131 Whitworth v . Gaugain ................................................................ 22 Wicks v . Bennett . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 119 Wortleyv.Birkhead . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 32 Zbryski v . City of Calgary . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 113

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