Supreme Court of Canada
Coupland Acceptance Ltd. v. Walsh et al., 1954 S.C.R.
90
Date: 1954-02-15
In the Matter of The
Mechanics’ Lien Act, R.S.O. 1950, c. 227.
Coupland Acceptance
Limited (Plaintiff) Appellant;
and
Edwin Alexander
Walsh Carrying on Business under the Name of W.J. Walsh and Company, and Others
(Defendants) Respondents.
1953: September 30; 1953: October 1; 1954:
February 15.
ON APPEAL FROM THE COURT OF APPEAL FOR
ONTARIO.
Mortgages—Mechanics’ Lien—Priority—Lien
registered after mortgage but before money advanced to pay off prior mortgage—Subrogation—Whether
lender entitled to priority over liens of general contractor and subcontractors—The
Mechanics Lien Act, R.S.O. 1950, c. 227, ss. 13 (1), 20—The Registry Act,
R.S.O. 1950, c. 386, s. 69.
Section 13(1) of The Mechanics Lien
Act, R.S.O. 1950, c. 227 gives priority to the lien over all payments or
advances made under a mortgage after registration of the lien. The
section does not apply however, where, as here, advances are made by a
third party for the purpose of paying off a prior mortgage. In such case the
lender is entitled in equity to stand as against the property in the shoes of
the first mortgagee and need not rely upon the subsequent mortgage for
priority. Crosbie-Hill v. Sayer [1908] 1 Ch. 866; Whiteley v. Delaney
[1914] A.C. 132 (applied in Gordon v. Snelgrove [1932] O.R. 253)
followed.
[Page 91]
The appellant, incorporated under the
Companies Act (Ont.) to carry on the business of automobile and insurance
adjusters, was empowered to invest the moneys of the company not immediately
required for the purposes of the company in such manner as from time to time
might be determined. By supplementary letters patent its powers were extended
to permit it to purchase and deal in property, real and personal, but not
directly or indirectly to transact any business within the meaning of The
Loan and Trust Corporations Act, R.S.O. 1950 c. 214.
By an agreement in writing made with two
named individuals the appellant took in its own name a mortgage on an apartment
house property as security for an advance of $28,000 made by it and an equal
amount by them, and undertook to hold half of the proceeds of the mortgage in
trust for them. The courts below having held that the respondents’ claims for
liens were registered after the appellant’s mortgage but prior to the advances
made under it, the respondents contended that the appellant was without
capacity to accept the mortgage under the Companies Act and that its
undertaking to act as trustee was prohibited by The Loan and Trusts
Corporations Act, R.S.O. 1950, c. 214.
Held: further,
that as to its own money the appellant must be presumed in the absence of
evidence to the contrary to be investing moneys of the company not immediately
required for the purposes of the company, and in agreeing to hold the proceeds
of the mortgage in trust for its co-investors, to be acting under the express
powers given by s. 23 (1) (p) of the Companies Act. Re Mutual
Investments Ltd. 56 O.L.R. 29; Re York Land Co. Ltd. [1939] O.W.N.
229, distinguished.
Decision of the Court of Appeal for Ontario
[1952] O.W.N. 665, reversed in part.
APPEAL by Coupland Acceptance Limited, sued
as second mortgagee, from a judgment of the Court of Appeal for Ontario which allowed in part its appeal from a
judgment of Schwenger J., County Court Judge, (sub-nom Walsh v. the King et
al; Bowser et al v. Dyer et al) in consolidated actions under The
Mechanics’ Lien Act.
J.J. Robinette, Q.C. and P.B.C. Pepper for
the appellant.
G.D. Watson, Q.C., J.A. Sweet, Q.C. and Walter
Fraser for the respondents.
The judgment of the Court was delivered by
KELLOCK J.:—The finding in the courts below that
no advance was in fact made under the appellant’s mortgage until after
registration of the claim for lien disposes of the appeal except as to the
contention that the appellant is entitled to stand in the place of the
mortgagees under the
[Page 92]
Kerbel mortgage with respect to the sum of
$46,782.50 paid by the appellant to the said mortgagees, which, with other
moneys paid by the mortgagor, effected the retirement of that mortgage.
The evidence is clear that it was agreed that
the moneys obtained from the appellant were to be used, as they were in fact
used, to pay off the existing second mortgage held by Kerbel and that the
mortgage to be given to the appellant was to be in replacement of that
mortgage. While the appellant’s mortgage was registered on May 4, 1951, Kerbel
was not paid off until May 9th and, in the meantime, the respondents’ lien had
been registered on the 5th of May. A discharge of the Kerbel mortgage, although
delivered to the appellant, was not registered and, consequently, had no
operation beyond that of a receipt or acknowledgment. It is only when
registered that such a document becomes operative as a discharge of the
mortgage; s. 69 of The Registry Act, R.S.O. 1950, c. 336; Ross
and Colclough.
The appellant claims to be subrogated to the
rights of the Kerbel mortgagees. It seems plain that, apart from any provisions
of The Mechanics Lien Act, the appellant would be so entitled. In Crosbie-Hill
v. Sayer, Parker
J., at 877, stated the law as follows:
…where a third party at the request of a
mortgagor pays off a first mortgage with a view of becoming himself a first
mortgagee of the property, he becomes, in default of evidence of intention to
the contrary, entitled in equity to stand, as against the property, in the
shoes of the first mortgagee. Even in the case of a purchase of an equity of
redemption, where the first mortgagee is at the same time paid off and joins in
a conveyance of the property to the purchaser, so that questions of merger
arise, it will require strong evidence of contrary intention to preclude the
Court from holding that the first mortgage debt is still alive for the purpose
of protecting the purchaser of the equity of redemption from mesne
incumbrances, whether at the time of purchase he knows of such incumbrances or
otherwise.
In that case Parker J., held that mesne
incumbrancers who were not parties to the transaction under which the first
mortgage was paid off were not entitled to avail themselves of that fact in
order to defeat the real intention of the parties, thereby obtaining priority
for themselves by a
[Page 93]
mere accident at the expense of other people who
never intended to benefit them. Reference may also be made to Whiteley v. Delaney.
The law thus laid down was applied by Sedgewick
J., in Gordon v. Snelgrove, in
favour of a plaintiff who had paid off a prior mortgage with knowledge at the
time of the registration of his mortgage that there was a registered second
mortgage.
While s. 13(1) of The Mechanics Lien Act, R.S.O.,
1950, c. 227, gives priority to the lien over all payments or advances made
under a mortgage after registration of the lien, the section is not to be
construed as affecting the right relied upon here by the appellant. The
appellant does not rely upon its mortgage for priority as to the moneys here in
question but upon the equitable right to stand in the place of the Kerbel
mortgagees whose priority to the lien is unquestionable. The position of the
lienholder remains the same as it was before the appellant intervened and it
would, in my opinion, require more than is to be found in the section to
bring about a result so unjust that it would, to paraphrase the language of
Parker J., in the Crosbie-Hill case, permit the lienholder, by a mere
accident, to obtain priority at the expense of people who never intended to
benefit him. Had the appellant been in fact aware of the registration of the
lien, it could have purchased the Kerbel mortgage, in which event no possible
question could have arisen.
Nor do I think that s. 20 is relevant. The
respondents refer to Cook v. Koldoffsky,
where it was pointed out that the section (then s. 21) enables a
lienholder, by registration, to secure the advantages given under the decisions
upon the Registry Act which prevent a prior registered instrument from
holding its position if the person claiming under it had actual notice of the
lien before its registration. As stated by Hodgins J.A., at p. 562, the Registry
Act “deals solely with priorities as between instruments” and s. 20 gives
only the status of a purchaser pro tanto to a lienholder
whose right to interfere with a prior
instrument depends upon actual notice of the instrument, i.e., the lien when
registered (sec. 72 of the Registry Act, R.S.O. 1914, ch. 124) or
upon the absence of actual notice to him of a prior unregistered instrument.
[Page 94]
Once it is clear that s. 13 does not apply there
is, in my view, nothing in s. 20 which interferes with a right of the nature of
that here in question.
The respondents contend in any event, however,
that the appellant’s claim is to be reduced by the sum of $2,126.25,
representing interest at the rate of 2 per cent per month for the two months
following the maturity of the Kerbel mortgage to the time of its payment off,
as recovery of any amount beyond the rate of 5 per cent payable before maturity
is prohibited by s. 8 of the Interest Act, R.S.C. 1927, c. 102. To this
the appellant objects that the payment of this amount is not to be ascribed to
any moneys advanced by it but that the mortgagor, who provided the sum of
$8,500 over and above the amount advanced by the appellant, must be taken to
have made this payment. I think this objection is well taken but nonetheless,
following the terms of s. 8, the appellant may not rely upon the provisions of
the Kerbel mortgage with respect to interest beyond a rate of 5 per cent from
May 9, 1951.
It is further contended by the respondents that,
by virtue of certain statutory provisions to be referred to, the appellant was
without capacity to accept a mortgage of real estate. The appellant was
incorporated in 1927 under The Companies Act, R.S.O. 1927, c. 218, inter
alia, for the purpose
(a) of carrying on the business of
automobile and insurance adjusters, etc., and “to conduct the general business
of a holding, investment, promoting, brokerage and trading corporation and real
estate agency”, and
(b) “to invest and deal with the
moneys of the company’s not immediately required for the purposes of the
company in such manner as from time to time may be determined.
By supplementary letters patent issued in 1949,
the powers and objects of the company were extended “subject to the provisions
of any statute or regulations passed thereunder in that behalf” so as to permit
the company to purchase or otherwise acquire and to deal in property, real and
personal, but not directly or indirectly to transact or undertake any
“business” within the meaning of The Loan and Trust Corporations Act. This
prohibition recognized the restriction on the authority to incorporate
contained in s. 2(1) of The Companies Act which provides that the
[Page 95]
Lieutenant-Governor in Council may incorporate
by letters patent for any of the purposes to which the authority of the
legislature extends except, inter alia, those of “corporations within
the meaning of The Loan and Trust Corporations Act.” It would,
however, appear that to the Lieutenant-Governor in Council, at least there was
no conflict inhering between the prohibition in the charter and the express
power “to invest and deal with the moneys of the company not immediately
required… in such manner as may be from time to time determined”.
Under the provisions of s. 1(c) of The
Loan and Trust Corporations Act (and it will be convenient to refer to
R.S.O. 1950, c. 214) “corporation” is defined to mean
a loan corporation, a loaning land
corporation, or a trust company.
A “loan corporation” is defined by clause (h)
as every incorporated company, association or society, constituted,
authorized or operated “for the purpose of” loaning money on the security of
real estate or for that and any other purpose. A “loaning land corporation” is
defined by clause (i) to mean a corporation incorporated “for the
purpose of” lending money on the security of real estate and of carrying on the
business of buying and selling land. “Trust company” is defined by clause (r)
as a company constituted or operated “for the purpose of” acting as trustee, bailee,
agent, executor, administrator, etc. Section 129, s-s (1), provides that
no corporation, unless registered under the Act or a person duly authorized by
it, shall undertake or transact in Ontario the “business” of a loan corporation
or a loaning land corporation or a trust company.
In my opinion the appellant did not, by reason
of the mortgage here in question, carry on the “business” of any of the
corporations mentioned in The Loan and Trust Corporations Act. What it
did do was, upon the terms of an agreement in writing between it and two named
individuals, to take in its own name a mortgage in respect of which it had
advanced $28,000 of its own moneys and the two individuals an equal amount, the
appellant agreeing to hold half of the “proceeds” of the mortgage in trust for
the individuals. In thus investing its own money it is to be presumed, in the
absence of evidence to the contrary,
[Page 96]
that the appellant was investing moneys “not
immediately required for the purposes of the company”. In agreeing to hold the
proceeds of the mortgage in trust for its co-investors, the company was acting
under the express power given by s. 23(1) (p) of The Companies Act. There
is no evidence that the company was in the “business” of investing in mortgages
on real estate. The fact that the mortgage in question was for a short term
only, four months, would rather indicate that the appellant was “turning to
account”, to employ the language of paragraph (o) of s. 23, moneys it
did not need immediately. It was for the respondents to show, if it were the
fact, that the character of the transaction was other than as above.
The respondents also rely upon s. 2(2) of The
Companies Act, which authorizes, notwithstanding anything in s-s (1), the
incorporation of a private company with power to lend and invest money “on
mortgage of real estate or otherwise”. By so doing, such a company “shall not
by reason thereof be deemed a corporation within the meaning of The Loan and
Trust Corporations Act.” It will be observed that this provision authorizes
not an isolated act but a practice or “business”. It is thus in keeping with
the provisions of The Loan and Trust Corporations Act already referred
to, under which corporations incorporated “for the purposes of” that statute
are authorized to carry on “the business” described by the statute, while
others are prohibited therefrom.
Reliance is also placed by the respondents upon
s-s (2) of s. 129 of The Loan and Trust Corporations Act, by which it is
provided that “any collecting or taking of money on account of… loans or
advances” shall be deemed “undertaking the business” of the corporations with
which that statute deals.
In the case at bar, however, while the $28,000
of the two individuals was paid over by them to the appellant and by it
disbursed to the mortgagor, I think it clear that what is struck at by the
statute is the collecting or taking of money by a corporation to be by it, in
turn, lent out to borrowers, the “collecting or taking” constituting the
corporation a debtor of the person or persons advancing the money. It was not
intended in the present instance that the appellant
[Page 97]
should become a debtor of these moneys. Under
the agreement already referred to, that of which the appellant was to become
trustee was half of the “proceeds” of the mortgage. If, after receiving from
the named individuals their $28,000, the appellant had misappropriated them, no
doubt it would thereby become a debtor, but apart from such an eventuality, the
appellant was merely an agent to pay over the moneys and accept the mortgage. I
do not think, therefore, that the appellant has invaded the prohibited area. It
therefore seems to me that it was competent for the appellant to take the
mortgage for its own behoof and to agree to become trustee for the individuals
concerned of one half of the proceeds as and when received.
In Re Mutual Investments Limited, to which we were referred by counsel for
the respondents, the company there concerned was authorized by its charter to
act as agent for the investment of funds, inter alia, on mortgages of
real estate but apart from the holding of mortgages on its own behalf for
unpaid purchase money of real property it had sold, it was prohibited from
transacting or undertaking any business within the meaning of The Loan and
Trust Corporations Act. It was held by a single judge, Riddell J., that the
only power given to the company by its charter was to “negotiate” investments,
not to make them in its own name, and that in doing what it did, it was
violating the provision of what is now s. 129, s-s (1) of the statute. It would
appear that the company was purporting to carry on “business” in this manner
and accordingly was in breach of the statute.
In Re York Land Company Limited, it was held by Middleton J.A., that a
company, incorporated under the Ontario Companies Act with power to deal in
real estate and to take mortgages for any unpaid balance of purchase money, did
not lack capacity to accept as purchase moneys for lands sold, a transfer of a
charge upon lands it had not owned. Middleton J.A., relied upon s. 24(1) (q)
of the statute, now s. 23(1) (q), which authorizes the company to do
all such things as are conducive to the objects set forth in the
section and in the letters patent. The learned
[Page 98]
judge evidently did not regard s. 2(2) of The
Companies Act nor any of the provisions of The Loan and Trust Corporations
Act as in any way operating to the contrary.
I would therefore allow the appeal to the extent
indicated, with costs throughout.
Appeal allowed in part.
Solicitor for the appellant: H.J.
Waldman.
Solicitor for the respondent, E.A. Walsh:
J.A. Sweet.
Solicitor for the respondent, H.M. the
Queen in Right of Canada represented by Central Mortgage & Housing
Corporation: Christilaw, Gage & Wigle.
Solicitor for the respondents, Charles
Bowser et al: S.R. Jefferess.
Solicitor for the respondent, Lawson
Lumber Co.: Walter Fraser.
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