Sarchuk,
T.C.J.:—These
are
appeals
from
assessments
to
income
tax
by
the
appellants
T.
Guy
Hogan
(Hogan),
James
T.
Dunne
(Dunne)
and
Patrick
J.
Dobbin
(Dobbin)
with
respect
to
their
1979
taxation
year.
The
three
appeals
were
heard
on
common
evidence
by
consent
of
all
parties.
At
trial
the
parties,
by
their
respective
solicitors,
agreed
that
certain
facts
were
not
in
dispute.
These
facts
are
as
follows:
Hogan,
Dunne
and
Dobbin
acquired
several
adjacent
blocks
of
land
situated
near
Mount
Pearl,
Newfoundland
in
1975.
A
townhouse
development
was
constructed
on
this
land,
which
development
qualified
as
a
multiple
unit
residential
building.
The
development
was
mortgaged
by
the
appellants
to
Central
Mortgage
and
Housing
Corporation
(C.M.H.C.)
The
principal
amount
of
this
mortgage
(including
a
supplemental
mortgage
in
1976)
was
$3,035,479.
In
1979,
a
default
in
payment
of
the
mortgage
occurred
and
as
a
result
C.M.H.C.
exercised
its
power
under
the
mortgage
and
under
Newfoundland's
The
Conveyancing
Act,
R.S.N.
1970,
c.
63.
The
property
was
advertised
for
sale
by
public
auction,
which
auction
took
place
on
May
17,
1979.
C.M.H.C.
calculated
its
“reserve
bid"
in
the
amount
of
$3,764,750.
This
figure
was
arrived
at
on
the
basis
of
the
total
amount
due
to
the
mortgagee
plus
a
contingency
figure
of
$25,000
to
assure
that
there
would
be
no
loss
to
C.M.H.C.
The
figure
also
included
certain
management
expenses
incurred
during
the
period
prior
to
May
17,
1979,
when
C.M.H.C.
was
a
mortgagee
in
possession
of
the
property
and
included
a
credit
of
some
rental
income
received
by
it
during
that
period.
No
efforts
were
made
by
C.M.H.C.
to
establish
fair
market
value
at
that
time.
The
reserve
bid
was,
in
keeping
with
local
practice,
disclosed
prior
to
the
auction.
There
was
apparently
no
other
bidding
at
the
auction.
As
a
result
thereof
on
June
20,
1979,
C.M.H.C.
executed
a
deed
whereby
it
conveyed
the
property
from
C.M.H.C.
as
mortgagee
to
C.M.H.C.
in
its
own
right.
The
consideration
expressed
in
this
deed
was
the
sum
of
$1.
This
deed
was
registered
in
the
Registry
of
Deeds
for
Newfoundland
on
November
21,
1979.
Immediately
after
title
was
issued
to
C.M.H.C.
steps
were
taken
to
dispose
of
the
property
and
it
was
included
in
a
public
proposal
call
whereby
C.M.H.C.
sought
bids
from
investors.
In
due
course
the
property
was
sold
to
Carleton
Leasing
Ltd.
(a
third
party
private
corporation)
for
$1,700,000.
This
deed
is
dated
October
9,
1980,
and
was
registered
on
October
21,1980.
In
filing
their
1979
income
tax
returns
the
appellants,
on
the
advice
of
their
accountant,
and
in
the
absence
of
an
appraisal
which
might
indicate
the
fair
market
value
of
the
property
in
1979,
stipulated
the
undepreciated
capital
cost
as
the
proceeds
of
disposition
of
the
property.
This
amount
was
$2,758,689.
The
1979
returns
contained
a
note
to
the
effect
that
C.M.H.C.
had
“foreclosed
on
the
property.”
It
is
understood
by
all
parties
that
the
word
“foreclosed”
was
used
as
a
general
description
of
the
actions
of
the
mortgagee
C.M.H.C.
taken
in
1979
with
respect
to
the
property.
By
way
of
notices
of
reassessment
dated
November
24,
1983
the
respondent
reassessed
the
appellants’
income
tax
liability
for
the
1979
taxation
year
by:
(a)
increasing
the
Appellants’
portion
of
the
total
capital
gain
from
the
disposition
“Land”,
“Building”
and
“Class
8
Property”
owned
by
D.
H.
D.
Associates
to
the
amount
of
$239,265.95;
(b)
reducing
the
Appellants’
portion
of
the
recapture
of
capital
cost
allowance
on
the
Building
previously
included
in
the
Appellants’
income
in
the
amount
of
$107,775.00
by
permitting
the
Appellants
to
deduct
a
terminal
loss
on
Class
8
Property
and
other
expenses
shown
as
follows:
|
Recapture
of
C.C.A.
—
Building
|
$
323,325.00
|
|
Terminal
Loss
—
Class
8
Property
|
(34,250.00)
|
|
Other
Expenses
|
(125,853.35)
|
|
Additional
Income
|
$
163,221,65
|
|
Appellants’
Portion
(1/3
share)
|
$
54,407.22
|
(c)
allowing
the
Appellants
to
deduct
a
capital
loss
in
the
amount
of
$640.00
respectively
incurred
on
the
disposition
of
their
partnership
interests
in
D.H.D.
Associates.
The
net
result
after
other
deductions
and
adjustments
is
that
for
the
1979
taxation
year
the
respondent
established
a
revised
taxable
income
of
$176,
933.87
for
Hogan,
$151,807.04
for
Dobbin
and
$249,303.98
for
Dunne.
The
respondent’s
position
is
set
out
in
paragraphs
6
to
11
of
the
replies
to
the
notices
of
appeal
and
is
as
follows:
6.
The
Respondent
submits
that
the
amount
of
$3,764,741.85
represents
the
amount
by
which
the
liability
of
the
Appellant
and
his
partners
to
the
mortgagee,
C.M.H.C.
was
reduced
as
a
result
of
the
sale
of
the
mortgaged
property
under
a
provision
of
the
mortgage
and
therefore,
is
the
proceeds
of
disposition
of
the
Land,
Building
and
Class
8
Property
within
the
meaning
of
section
54(h)(vii)
of
the
Income
Tax
Act.
7.
In
the
alternative
if
section
54(h)(vii)
of
the
Income
Tax
Act
is
not
applicable
in
the
circumstances
then
the
Respondent
submits
that
the
Appellant’s
proceeds
of
disposition
are
in
the
amount
of
$3,764.741.85
by
virtue
of
section
79(a)
and
(c)
of
the
Income
Tax
Act.
8.
The
Respondent
submits
that
the
Appellant’s
share
of
recapture
in
the
amount
of
$107,775.00
was
properly
calculated
and
included
in
income
pursuant
to
section
13(1)
of
the
Income
Tax
Act.
9.
The
Respondent
submits
that
D.H.D.
Associates
incurred
a
terminal
loss
in
the
amount
of
$34,250.00
within
the
meaning
of
section
20(16)
of
the
Income
Tax
Act
which
amount
was
used
to
reduce
the
amount
of
recapture
to
be
included
in
the
Appellant's
income.
10.
The
Respondent
submits
that
C.M.H.C.
incurred
costs
in
the
amount
of
$125,853.35
on
behalf
of
D.H.D.
Associates
which
amount
was
deducted
from
rental
income.
11.
The
Respondent
submits
that
the
Appellant
incurred
a
capital
loss
in
the
amount
of
$640.00
on
the
disposition
of
his
partnership
interest
in
D.H.D.
Associates
within
the
meaning
of
section
39(1)(b)
of
the
Income
Tax
Act.
The
appellants
argue
that:
.
.
.
there
can
be
no
recapture
or
capital
gain
in
respect
of
the
Property
since
the
proceeds
of
disposition
of
the
Property,
in
relation
to
the
Owners,
have
not
been
established,
and
there
can,
in
relation
to
the
Owners,
be
no
deemed
proceeds
of
disposition,
for
the
1979
taxation
year.
Furthermore:
The
acquisition
of
beneficial
ownership
by
C.M.H.C.
consequent
on
the
default
of
the
Owners
as
mortgagors
resulted
in
C.M.H.C.
acquiring
ownership
pursuant
to
its
charge
on
real
property.
This
did
not
extinguish
the
covenant,
or
obligation,
of
the
Owners,
jointly
and
severally,
to
pay
to
C.M.H.C.
its
loss
on
the
mortgage.
That
obligation
has
not
been
extinguished
although
the
obligation
may
be
reduced
by
the
net
proceeds
of
the
subsequent
sale
by
C.M.H.C.
to
Carleton
Leasing
Limited
for
$1,700,000.00
in
1980.
The
appellants
go
on
to
submit
that
the
proceeds
of
disposition,
at
the
time
of
the
filing
of
their
1979
tax
returns,
were
not
known,
.
.
.
since
the
full
amount
of
recovery
to
CMHC
has
not
yet
been
established.
This
could
only
be
determined
after
trial
of
an
action
by
CMHC
against
the
Owners,
whereby
CMHC
claimed
its
deficiency
on
the
sale
.
.
.
Alternatively,
the
taxpayer
submits
that
the
proceeds
of
disposition
for
the
purpose
of
calculating
capital
gain
and
recapture
of
capital
cost
allowance
is
at
the
most
$1,700,000.00,
which
amount
was
not
realized
until
1980.
The
determination
of
the
issues
in
these
appeals
depends
on
certain
statutory
provisions.
It
will
be
helpful
to
quote
them
at
this
point.
Paragraph
54(h)
of
the
Income
Tax
Act
reads
as
follows:
“Proceeds
of
disposition."
—
“proceeds
of
disposition"
of
property
includes,
(vii)
an
amount
by
which
the
liability
of
a
taxpayer
to
a
mortgagee
is
reduced
as
a
result
of
the
sale
of
mortgaged
property
under
a
provision
of
the
mortgage,
plus
any
amount
received
by
the
taxpayer
out
of
the
proceeds
of
such
sale,
.
.
.
Next
I
quote
paragraph
5(1)(a)
of
The
Conveyancing
Act,
Revised
Statutes
of
Newfoundland
1970,
c.
63.
Section
5(1)
A
mortgagee,
where
the
mortgage
is
made
by
deed,
shall,
by
this
Act
have
the
following
powers
to
the
like
extent
as
if
they
had
been
in
terms
conferred
by
the
mortgage
deed
but
not
further,
namely,
(a)
a
power,
where
the
mortgage
money,
whether
principal
or
interest,
has
become
due,
to
sell
or
to
concur
with
any
other
person
in
selling
the
mortgaged
property,
or
any
part
thereof,
either
subject
to
prior
charges
or
not,
and
either
together
or
in
lots
by
public
auction
or
by
private
contract,
subject
to
such
conditions
respecting
title,
or
evidence
of
title
or
other
matter,
as
he
(the
mortgagee)
thinks
fit,
with
power
to
vary
any
contract
for
sale,
and
to
buy
in
at
an
auction,
or
to
rescind
any
contract
for
sale,
and
to
resell
without
being
answerable
for
any
loss
occasioned
thereby;
.
.
.
Clause
12
of
the
Mortgage
(Ex.
A-1)
provides
in
part
that:
Provided
that
the
Mortgagee,
on
default
of
payment
for
one
month,
may,
on
one
week’s
notice,
enter
on
and
lease
or
sell
the
said
lands;
and
that
should
such
default
continue
for
two
months,
the
foregoing
powers
of
entry,
leasing
and
sale,
or
any
of
them,
may
be
exercised
without
notice;
and
that
the
Mortgagee
may
lease
or
sell
as
aforesaid
without
entering
into
possession
of
the
lands;
.
.
.
and
that
the
Mortgagee
may
sell
the
whole
or
any
part
or
parts
of
the
said
lands
by
public
auction
or
private
contract,
or
partly
one
and
partly
the
other,
on
such
terms
as
to
credit
and
otherwise
as
to
their
Mortgagee
shall
appear
most
advantageous
and
for
such
prices
as
can
reasonably
be
obtained
therefor;
..
.
and
the
Mortgagee
may
buy
in
or
rescind
or
vary
any
contract
for
sale
of
any
of
the
said
lands
and
re-sell,
without
being
answerable
for
loss
occasioned
thereby;
.
.
.
and
for
any
of
such
purposes
the
Mortgagee
may
make
and
execute
all
agreements
and
assurances
the
Mortgagee
deems
fit;
.
.
.
and
the
above
powers
may
be
exercised
by
the
successors
and
assigns
of
the
Mortgagee,
and
against
heirs,
executors,
administrators,
successors
and
assigns
of
the
Mortgagor.
[Emphasis
added.]
Central
to
the
issue
in
these
appeals
is
whether
the
principal
amount
of
the
debt
due
to
C.M.H.C.
by
the
appellants
has
been
extinguished.
The
Mortgage
(Ex.
A-1)
contains
a
covenant
(Clause
6)
for
repayment
of
the
debt
due
by
the
mortgagor
to
C.M.H.C.
and
in
the
ordinary
course
C.M.H.C.
would
have
been
entitled
to
recover
in
an
action
on
the
covenant
the
mortgage
money
and
interest
covenanted
to
be
paid.
The
appellants
were
aware
of
this
provision
and
according
to
Hogan
“considered
this
a
personal
covenant?"
As
a
result
on
September
13,
1982,
Hogan
wrote
to
C.M.H.C.
(Ex.
A-7)
asking
Mr.
Ryan,
its
provincial
director,
inter
alia:
At
this
time
we
would
appreciate
receiving
from
you
a
statement
of
your
position
with
respect
to
any
continuing
legal
obligation
you
feel
we
may
have
to
CMHC,
and
if
you
feel
such
an
obligation
exists,
the
amount
of
same.
On
September
23,
1982
Mr.
Ryan
responded
in
the
following
terms
(Ex.
A-8):
A
review
of
our
files
indicates
that
CMHC
acquired
title
to
this
project
on
26
March
1979
by
way
of
Power
of
Sale
proceedings
carried
out
in
accordance
with
the
provisions
of
The
Conveyancing
Act,
R.S.N.
1970,
Chapter
63
and
amendments
thereto,
and
that
the
covenants
of
the
mortgagors
have
not
been
released.
It
was
Mr.
Ryan's
evidence
that
the
reserve
bid
was
calculated
by
C.M.H.C.
in
accordance
with
their
accepted
practice
and
at
the
time
was
known
to
be
well
in
excess
of
the
fair
market
value
of
the
property.
C.M.H.C.
had
no
right
to
accept
less
than
the
total
amount
of
the
debt
and
had
no
authority
to
accept
a
bid
below
the
reserve
bid
which
would
have
created
a
loss
for
C.M.H.C.
Mr.
Ryan,
being
uncertain
as
to
the
position
of
C.M.H.C.
in
relation
to
the
deficiency
sought
legal
advice
and
received
an
opinion
(Ex.
R-1)
the
substance
of
which
was
that
the
law
on
the
issue
in
Newfoundland
remains
unsettled.
This
opinion
was
passed
on
by
Mr.
Ryan
to
the
appellant
in
the
following
words:
For
your
information,
I
will
detail
our
legal
position
as
related
to
me;
it
is:
The
property
in
question
was
purchased
by
CMHC
at
its
own
mortgage
sale
for
the
amount
of
the
reserve
bid
(the
balance
of
the
mortgage,
cost,
etc.).
The
balance
owing
on
the
mortgage
exceeded
the
value
of
the
property
at
the
time
of
the
sale.
The
property
was
conveyed,
however,
to
CMHC
for
the
consideration
of
one
dollar.
In
keeping
with
the
prevailing
opinion
and
practice
at
the
time
of
the
mortgage
sale,
the
one
dollar
consideration
in
the
Deed
to
CMHC
was
thought
to
have
preserved
our
right
to
pursue
a
deficiency
judgment
if,
as
a
matter
of
policy,
we
should
decide
to
so
proceed.
Since
the
mortgage
sale
—
a
period
of
three
years
—
the
prevailing
opinion
amongst
the
Newfoundland
Bar
would
now
appear
to
be
that,
if
a
mortgagee
purchases
at
its
own
mortgage
sale
for
the
amount
of
the
reserve
bid
(mortgage
balance,
cost,
etc.),
this
is
tantamount
to
full
satisfaction
of
the
mortgage
debt.
In
such
circumstances,
it
is
considered
that
the
right
to
pursue
a
deficiency
judgement
would
be
precluded
regardless
of
the
amount
of
consideration
for
the
conveyance
to
the
mortgagee.
[Emphasis
added.]
It
is
clear
from
the
foregoing
that
C.M.H.C.
believed
that
it
had
purchased
the
property
for
the
amount
of
the
reserve
bid.
According
to
Mr.
Ryan
C.M.H.C.
had
not
been
requested
to
provide
the
appellant
with
a
release
and
furthermore
it
was
and
still
is
C.M.H.C.'s
policy
not
to
release
the
mortgagor
in
the
normal
case.
The
policy
considerations
under
which
C.M.H.C.
pursued
deficiency
judgments
in
exceptional
circumstances
and
the
question
of
whether
or
not
such
a
policy
would
be
applied
retroactively
was
under
review.
However
it
was
Mr.
Ryan’s
opinion
that
it
was
unlikely
that
C.M.H.C.
would
sue
on
the
covenant
in
this
particular
case,
although
that
possibility
could
not
categorically
be
precluded.
The
result
of
the
appeals
before
me
turns
on
a
determination
of
whether
or
not
the
principal
amount
of
the
debt
due
to
C.M.H.C.
has
been
extinguished.
Therefore
it
is
critical
to
establish
whether
or
not
C.M.H.C.
can
successfully
pursue
a
deficiency
judgment,
and
if
so
for
how
much.
In
this
context
it
is
necessary
to
consider
the
capacity
in
which
C.M.H.C.
acquired
the
property
at
the
public
auction
held
on
May
17,
1979.
Paragraph
5(1
)(a)
of
the
said
Conveyancing
Act
of
Newfoundland
(and
Clause
12
of
the
Mortgage)
confer
upon
the
mortgagee
the
power
to
“buy
in”
at
a
public
auction
held
pursuant
to
a
power
of
sale.
This
power
to
"buy
in"
has
been
interpreted
to
mean
one
of
two
things.
First,
it
is
said
to
mean
that
the
mortgagee
can
"buy
in"
for
his
own
benefit.
Conversely,
it
is
said
to
mean
that
the
mortgagee
can
only
“buy
in"
for
purposes
of
resale.
The
difference,
of
course,
is
that
the
amount
of
the
eventual
deficiency
judgment
will,
in
the
first
case,
be
equal
to
the
original
debt
less
the
amount
of
the
“buy
in.”
On
the
other
hand,
if
we
accept
the
second
view,
then
the
amount
of
the
deficiency
judgment
will
be
equal
to
the
original
debt
less
the
amount
of
the
subsequent
sale.
The
respondent
urged
two
cases
upon
the
Court,
namely
Federal
Business
Development
Bank
v.
Gaslard
and
Gaslard
(1983),
44
Nfld.
&
P.E.I.R.
89,
and
Traders
Group
Ltd.
v.
Mason
and
Mason
(1974),
10
N.S.R.
(2nd)
115.
I
will
deal
with
them
in
turn.
In
the
Federal
Business
Development
Bank
case,
supra,
the
appellant
had
loaned
some
$30,000
to
the
respondent,
which
loan
was
secured
by
a
mortgage
on
land
and
business
premises
and
by
certain
chattel
mortgages.
Following
the
respondent's
default
the
appellant
offered
the
property
for
sale
by
tender
with
a
reserve
bid
of
$25,000.
There
were
no
other
bids
and
the
appellant
conveyed
the
real
estate
and
chattels
to
itself
for
the
sum
of
$25,000.
It
eventually
resold
the
property
for
$16,000
and
sued
the
respondent
for
the
deficiency
based
on
the
resale
amount.
It
was
held
by
Morgan,
J.A.
that
".
..
the
operative
sale
was
the
sale
by
tender
to
the
mortgagee
for
$25,000.00
and
not
the
resale
for
$16,000.00
.
.
.”
The
deficiency,
therefore,
was
not
based
on
the
resale
amount,
but
rather
on
the
$25,000
reserve
bid.
I
not
in
passing
that
the
applicability
of
the
Bills
of
Sales
Act,
R.S.N.
1970,
c.
21
was
specifically
denied
by
the
Newfoundland
Court
of
Appeal
thus
the
decision
cannot
be
distinguished
on
that
point,
as
was
suggested
by
the
appellant.
In
Traders
Group
Ltd.
(supra),
the
respondent
bid
$25,000
at
the
sale
of
certain
property
pursuant
to
its
power
of
sale
under
The
Property
Act,
R.S.N.B.
1952,
c.
177,
paragraph
42(1
)(a).
It
subsequently
resold
the
property
for
$16,000.
(Ironically,
the
figures
are
the
same
as
in
Federal
Business
Development
Bank
(supra)).
It
then
sought
a
deficiency
judgment
based
on
the
resale
price
of
$16,000.
Coffin,
J.A.
at
134
held
that:
.
when
the
respondent
bid
in
this
property
for
$25,000.00
at
the
sale,
after
proper
notice,
.
.
.
it
became
the
purchaser.
In
my
view
it
was
a
sale
which
provided
a
fund
of
$25,000.00
towards
the
payment
of
the
amount
due
on
the
mortgage
plus
expenses,
and
any
deficiency
must
be
calculated
on
the
purchase
price
as
a
result
of
the
respondent’s
successful
bid
and
not
on
the
basis
of
the
subsequent
lower
purchase
price
when
the
property
was
resold
for
$16,000.00.
When
the
respondent
bid
at
the
sale
he
was
not
merely
going
into
possession,
he
was
actually
purchasing
the
property
and
the
mortgagor
is
entitled
to
the
credit
of
the
proceeds
of
the
sale.
The
appellant
argues
that
the
Traders
Group
(supra)
was
decided
pursuant
to
The
Property
Act
of
New
Brunswick
which
is
quite
different
from
The
Conveyancing
Act
of
Newfoundland.
That
observation
is
correct.
The
relevant
section
of
the
present
Property
Act
of
New
Brunswick
provides:
44
(1)
A
mortgagee,
where
the
mortgage
is
made
by
deed,
shall,
by
virtue
of
this
Act,
have
the
following
powers
to
the
like
extent
as
if
they
had
been
in
terms
conferred
by
the
mortgage
deed,
but
not
further,
namely;
(a)
a
power,
when
the
mortgage
money
or
any
interest
thereon
has
become
due,
to
sell,
or
to
concur
with
any
other
person
in
selling,
the
mortgaged
property
or
any
part
thereof,
and
either
together
or
in
lots,
by
public
auction
or
by
private
contract,
subject
to
such
conditions
respecting
title
or
evidence
of
title
or
other
matter
as
the
mortgagee
thinks
fit,
with
power
to
vary
any
contract
for
sale,
and
to
buy
in
at
auction,
or
to
rescind
a
contract
for
sale
and
to
resell,
without
being
answerable
for
any
loss
occasioned
thereby;
[Emphasis
added.]
44
(4)
The
power
given
to
a
mortgagee
in
subsection
(1)
“to
buy
in
at
auction”
is
a
power
to
buy
for
his
own
benefit
and
to
his
own
use.
[Emphasis
added.]
There
is
no
such
express
provision
in
The
Conveyancing
Act.
It
is
of
interest
however
that
the
two
cases
Gauvin
v.
Dionne
(1920),
51
D.L.R.
294
(N.B.S.C.
App.
Div.)
and
Ryan
v.
O’Donnell
(1921),
48
N.B.R.
148
(Ch.
Div.)
relied
upon
by
Coffin,
J.A.
in
Traders
Group
Ltd.
(supra)
were
decided
prior
to
the
enactment
of
subsection
44(4)
of
The
Property
Act
of
New
Brunswick
at
a
time
when
the
provisions
of
that
Act
and
The
Conveyancing
Act
of
Newfoundland
were
the
same.
Grimmer,
J.,
in
Gauvin
v.
Dionne,
(supra),
referring
to
the
power
to
“buy
in”
as
conferred
by
the
New
Brunswick
Statutes
(as
it
read
in
1919)
stated,
at
296:
I
am
of
the
opinion,
.
.
.,
that
it
was
intended
to
and
did
confer
upon
a
mortgagee
not
only
the
power
to
vary
a
proposed
sale
under
the
mortgage,
but
also,
if
he
so
wished,
to
buy
in
and
purchase
for
himself
the
property
at
the
sale,
..
.
[Emphasis
added.]
Barry,
J.
in
the
same
case,
says
at
303:
If
the
legislation
was
not
intended,
.
.
.,
to
remove
the
disability
which
existed
against
mortgagees
becoming
purchasers
at
their
own
sales,
and
to
put
them
in
the
position
of
open
competitors
with
other
prospective
purchasers
at
a
bona
fide
public
auction
held
after
the
publicity
required
by
the
Statute
had
been
given,
then
it
is
difficult
indeed
to
discern
what
the
legislation
was
really
intended
to
remedy.
As
I
have
observed,
no
specific
power
had
been
conferred
to
the
mortgagee
at
that
time
by
the
New
Brunswick
Property
Act
to
“buy
in”
for
his
own
benefit.
Notwithstanding
that
fact
the
courts
held
that
the
mortgagee
had
the
right
to
do
so.
That
same
principle
appears
to
have
been
applied
in
the
Federal
Business
Development
Bank
case,
supra,
by
the
Court
of
Appeal
of
Newfoundland.
Counsel
for
the
appellant
suggested
that
these
decisions
did
not
reflect
the
view
of
the
majority
of
the
courts
in
Canada
and
should
not
be
followed
in
these
appeals.
He
noted
that
Falconbridge
on
Mortgages,
4th
ed.,
discusses
the
power
of
a
mortgagee
to
“buy
in"
at
an
auction
pursuant
to
the
power
of
sale
at
page
742:
.
.
.
If,
however,
the
mortgagee
is
himself
selling
under
the
power
of
sale
he
cannot
sell
to
himself
either
alone
or
with
others;
nor
can
he
sell
to
a
trustee
for
himself,
or
to
any
person
employed
by
him
to
conduct
the
sale.
A
sale
by
a
person
to
himself
is
not
a
sale
at
all,
and
a
power
of
sale
does
not
authorize
the
donee
of
the
power
to
take
the
property
subject
to
it
at
a
price
fixed
by
himself,
even
although
such
price
be
the
full
value
of
the
property.
.
.
(Farrars
v.
Farrars
Limited,
(1888),
40
Ch.
D.
395
(C.A.))
These
comments
imply
the
existence
of
a
general
principle
that
a
mortgagee
cannot
sell
to
himself.
In
view
of
the
Gauvin
v.
Dionne
(supra)
and
Ryan
v.
O'Donnell
(supra),
decisions
the
question
is,
does
the
power
to
buy
in
at
a
public
auction
as
granted
by
paragraph
5(1)(a)
of
The
Conveyancing
Act
of
Newfoundland
change
this
general
principle?
Falconbridge
does
not
seem
to
believe
that
it
does.
Referring
to
Section
23,
paragraph
1
of
the
Mortgages
Act
of
Ontario,
(which
is
similar
to
paragraph
5(1
)(a)
of
The
Conveyancing
Act
of
Newfoundland),
at
page
742,
footnote
8,
the
authors
state:
It
is
submitted
that
the
power
given
to
a
mortgagee
.
.
.
to
“buy
in
at
an
auction,
.
..
does
not
include
the
power
to
buy
for
his
own
benefit,
but
means
merely
that
the
mortgagee
may
buy
in
the
property
for
the
purpose
of
reselling
under
the
power
of
sale,
or
of
having
recourse
to
any
other
remedy
available
to
a
mortgagee.
It
has
however,
been
otherwise
decided
in
New
Brunswick:
Gauvin
v.
Dionne
(1919),
51
D.L.R.
294
(N.B.S.C.
App.
Div.);
Ryan
v.
O'Donnell
(1921),
48
N.B.R.
148
(Ch.
Div.)
[Emphasis
added.]
To
the
foregoing
one
might
now
add
that
it
has
been
otherwise
decided
in
Newfoundland
by
virtue
of
the
judgment
in
Federal
Business
Development
Bank
(supra).
Notwithstanding
the
opinion
expressed
in
Falconbridge
on
Mortgages
I
am
of
the
view
that
the
provisions
of
paragraph
5(1
)(a)
of
The
Conveyancing
Act
of
Newfoundland
have
been
interpreted
so
as
to
give
a
mortgagee
the
power
to
buy
in
at
an
auction
for
its
own
benefit.
I
have
therefore
concluded
in
the
case
at
bar
that
when
C.M.H.C.
"bought
in"
it
did
so
for
its
own
benefit.
The
facts
adduced
before
me
are
virtually
indistinguishable
from
the
facts
upon
which
the
decision
in
the
Federal
Business
Development
Bank
(supra)
rested.
C.M.H.C.
disclosed
its
reserve
bid
at
the
commencement
of
the
auction.
This
had
the
effect
of
establishing
an
opening
price
and
effectively
precluded
any
other
interested
party
from
bidding
at
or
near
the
true
market
value
of
the
property.
Furthermore,
it
is
a
fact
that
following
the
auction
C.M.H.C.
as
mortgagee
transferred
the
property
to
itself
as
purchaser,
albeit
for
"artificial"
consideration
of
one
dollar
(Ex.
A-5)
and
title
issued
in
the
name
of
C.M.H.C.
with
no
encumbrances
thereon.
The
deed
effecting
the
transfer
recited
the
power,
the
default,
the
service
of
notice
and
that
the
conveyance
was
made
in
exercise
of
the
power
and
followed
a
public
auction
at
which
no
bid
was
received
in
excess
of
the
reserve
bid
placed
by
the
"purchaser."
No
objection
was
taken
to
the
registration
of
the
deed.
Bound
as
I
am
by
the
decision
in
Federal
Business
Development
Bank
(supra)
I
must
conclude
that
the
principal
amount
of
the
debt
due
to
C.M.H.C.
has
been
extinguished
and
that
the
ultimate
deficiency
is
to
be
calculated
as
the
difference
between
the
original
debt
and
the
purchase
price
bid
at
the
auction
(by
way
of
the
reserve
bid)
and
not
the
subsequent
resale
price.
It
follows
then,
based
on
the
foregoing,
that
pursuant
to
subparagraph
54(h)(vii)
of
the
Income
Tax
Act,
the
proceeds
of
disposition
to
the
taxpayers
from
the
sale
of
their
property
must
be
equal
to
the
amount
by
which
the
liability
of
the
taxpayers
to
the
mortgagee
was
reduced
as
a
result
of
the
sale
This
amount
is
$3,764,741.85
as
assessed
by
the
respondent.
The
appeals
are
dismissed.
Appeals
dismissed.
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