George H. Welsh (Plaintiff) Appellant;
and
Edmund R. Popham (Defendant) Respondent
1925: May 12; 1925: June 4.
Present:—Anglin C.J.C., and Duff, Mignault, Newcombe and Rinfret JJ.
ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ALBERTA
Sale—Mortgage—Real property—Transfer of mortgaged land—Absolute in form but as security only—Claim by mortgagee against transferee under implied covenant—Land Titles Act, R.S.A. (1922), c. 183, ss. 54, 55, 179.
[Page 549]
Where a transfer of mortgaged land was given by the mortgagor as security only, but was absolute in form and contained no declaration negativing or modifying the covenant by the transferee with the transferor and mortgagee for payment of the mortgage, declared by section 54 of The Land Titles Act to be implied in the transfer, and where in a memorandum of agreement it was stipulated that upon payment of the amount in which the mortgagor was indebted to him, the transferee should re-transfer to the mortgagor a title to the land in fee simple subject to existing encumbrances or "other encumbrances of equal amount."
Held, affirming the judgment of the Appellate Division, (20 Alta. L.R. 449), that section 54 did not render the transferee liable to the mortgagee for the amount of the mortgage. By the interpretation of sections 54 and 55 of The Land Titles Act in light of section 179 of the same Act, their ex facie meaning appears to be subject, at least, to this gratification, that they must not be construed or applied in such a way as to disable the courts from giving effect to the terms of any agreement constituting a "disposition" of the land within the meaning of section 179, entered into either contemporaneously with or subsequently to, the execution of the transfer.
APPEAL from the decision of the Appellate Division of the Supreme Court of Alberta (1), affirming the judgment of the trial judge and dismissing the appellant's action to recover from the respondent certain mortgage moneys.
The material facts of the case and the questions at issue are fully stated in the above head-note and in the judgment now reported.
[Page 550]
A. G. Virtue for the appellant. The covenant implied by section 54 cannot be negatived in any manner other than that set out in the Act, i.e., by express declaration in the instrument.
Any agreement between the transferee and the mortgagor cannot annul a covenant existing by virtue of section 54 between the transferee and the mortgagee.
Macleod Sinclair K.C. for, respondent.
While prima facie a transferee of mortgaged property is directly liable to the mortgagee on the implied covenant, nevertheless by section 55 of the Act the implication or presumption is capable of being negatived, rebutted or modified by evidence as to the exact relationship between the transferor, mortgagor and the transferee expressly agreed to between them or to be implied from the actual facts and circumstances surrounding the transaction.
The judgment of the court was delivered by
DUFF J.—The only question requiring discussion is that arising out of the claim of the appellant based upon s. 54 (1) of The Land Titles Act, c. 133, R.S.A. 1922. The facts can be stated in a sentence or two. The appellant held a mortgage (executed in May, 1918) to secure a loan of $1,600 on certain Alberta lands, the property of one Henderson. In October, 1919, the respondent took from Henderson a transfer under The Land Titles Act of the same lands. This transfer was duly registered, and the respondent became the registered owner of the land, subject to the appellant's mortgage.
The transfer was in fact taken as security for moneys owing by Henderson to the respondent, the terms of the arrangement, with the exception of the amount of the indebtedness, being stated in a memorandum of agreement of November, 1919, which is in evidence.
The ground on which the appellant, who was plaintiff in the action, bases his claim is, that by force of s. 54 of The Land Titles Act, the respondent, being a transferee of the mortgaged lands, subject to the mortgage, is under an obligation, both to the mortgagee and to Henderson, to pay off the mortgage; and the point to be decided is whether,
[Page 551]
in the circumstances of this case, such is the effect of s. 54 (1).
By the agreement of November, 1919, it is stipulated that on payment by Henderson to the respondent of the amount in which Henderson was thus indebted to him together with interest at a specified rate, the respondent should retransfer to Henderson a title to the land in fee simple, subject to existing encumbrances or "other encumbrances of equal amount." In the meantime the respondent was to have the right to sell the land, accounting to Henderson for the surplus, after repayment of debt, interest and costs. The land has proved to be valueless, and, in the circumstances of this case, if the proposition upon which the appellant bases his appeal be accepted, it must follow that the respondent is obliged to pay the appellant's mortgage debt, and that he is entitled to no indemnity from Henderson, because, by the terms of s. 54 (1), if that enactment is operative, the respondent is under an obligation to indemnify Henderson in respect of this very mortgage. This result follows, according to the appellant's contention, notwithstanding the fact that by the terms of the written agreement of November, as already mentioned, the sole obligation of the respondent, which arises only on payment of Henderson's debt to him, is to transfer the land to Henderson, subject to existing encumbrances.
By s. 139, c. 24, of the Statutes of Alberta, 1906 (now s. 179, R.S.A. 1922), it is provided:—
Nothing contained in this Act shall take away or affect the jurisdiction of any competent court on the ground of actual fraud or over contracts for the sale or other disposition of land for which a certificate of title has been granted.
By virtue of this section (apart altogether from other sources of jurisdiction) the Supreme Court of Alberta has jurisdiction to give effect to the understanding between Henderson and the respondent evidenced by the agreement of November, 1919, and to the equitable rights arising from that understanding. Subject to any modification of those rights effected by s. 54 (1), the respondent, as between himself and Henderson, must be treated as a mortgagee of the land which was the subject of the arrangement, and their rights, inter se, must be determined on that footing. The existence of a right of indemnity,
[Page 552]
inhering in the mortgagor, as against the mortgagee in respect of the prior mortgage would, of course, be incompatible with a proper recognition of these rights, besides being inconsistent with the express stipulation of the agreement of November.
Coming now to s. 54 (1), if that section stood alone, there could be no difficulty in giving effect to the agreement of November as modifying any implied covenant arising from the statute. But by s. 55,
every covenant and power declared to be implied in any instrument by virtue of this Act may be negatived or modified by express declaration in the instrument;
and it is argued that this provision, if operative at all, must operate as declaring exclusively the procedure by which the implication arising under the earlier section can be displaced.
Section 55 is, however, a section which applies not only to the covenant implied by force of s. 54 (1), but to every covenant and every power implied in any instrument by virtue of any provision of the Act; and it is by no means clear that, by rejecting the contention advanced by the appellant, one would be depriving it of all effect. Moreover, these sections, 54 and 55, must be read with s. 179— formerly s. 139, quoted above—and, so far as possible, effect be given to all of them. Interpreting ss. 54 and 55 in light of s. 179, their ex facie meaning on any reading of the words appears to be subject, at least, to this qualification, that they must not be construed or applied in such a way as to disable the court from giving effect to the terms of any agreement, constituting a "disposition" of the land within the meaning of s. 179, entered into either contemporaneously with, or subsequently to, the execution of the transfer. Where there is, as in this case, an express agreement in writing creating equitable rights equivalent, as between the parties, to an equity of redemption, the application of s. 179 presents no difficulty whatever; nor would there appear to be any difficulty in applying that section in any case in which, by proper and sufficient evidence, it was shown that the transferee had accepted the transfer and the title conveyed by it under any arrangement vesting in the transferor equitable rights in the land and incompatible in its nature or in its terms with the implication declared by s. 54.
[Page 553]
In the circumstances of this case, therefore, a 54 (1) did not create any covenant for indemnity in favour of the transferor; and since the terms of that section leave no doubt that the transferee's obligation to the mortgagee is only to arise in circumstances in which the transferee is, by virtue of the statute, under an obligation to indemnify the transferor, it follows that the appellant must fail. This view is in harmony with the course of decision in Alberta and Saskatchewan. Short v. Graham; Evans et al v. Ashcroft and The British Canadian Trust Company; Great West Lumber Company v. Murrin & Gray; Montreal Trust Company v. Boggs and Beresford; Dominion of Canada Investment and Debenture Co. v. Carstens; in re Macdonald Estate.
Two of the learned judges in the court below have taken the view that the transfer ought to be rectified by inserting in it an express declaration negativing any implication under s. 54.
If a covenant of indemnity in the terms of that section had appeared in the transfer, there could have been no difficulty in rectifying the instrument to bring it into accord with the common intention of the parties as established by the agreement of November; and a decree for rectification would, if necessary, appear to be a proper decree in this case.
In the view already expressed, however, that, in the circumstances, s. 54 (1) is inoperative, rectification is unnecessary.
The appeal should be dismissed with costs.
Appeal dismissed with costs.
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