A.V.G. Management Science Ltd. v. Barwell Developments Ltd. et al., [1979] 2 SCR 43

Supreme Court of Canada

A.V.G. Management Science Ltd. v. Barwell Developments Ltd. et al., [1979] 2 S.C.R. 43

Date: 1978-12-21

A.V.G. Management Science Ltd. (Plaintiff) Appellant;

and

Barwell Developments Ltd., Cambie Construction Ltd., Canada Permanent Trust Company and Raymond Outtrim (Defendants) Respondents.

1978: November 23; 1978: December 21.

Present: Laskin C.J. and Ritchie, Spence, Dickson and Estey JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR BRITISH COLUMBIA

Sale of land—Inability of vendors to give title—Agreeing in effect to sell to two different purchasers—No fraud or bad faith on part of vendors—Damages—Rule in Bain v. Fothergill not applicable—Whether Rule in Bain v. Fothergill should no longer be followed in common law Canada—Land Registry Act, R.S.B.C. 1960, c. 208, s. 38 [am. 1971, c. 30, s. 7].

On November 21, 1973, the respondents accepted an offer from Jordan Development Corporation Ltd. to purchase an apartment building for $495,000. The agreement was subject to a provision for the benefit of the purchaser Jordan, to be met by 12 noon on November 28, 1973. On November 23, 1973, the appellant made an offer, open for acceptance until 11 p.m. on November 29, 1973, to purchase the same property for $515,000. The vendors mistakenly concluded after noon on November 28, 1973, that the Jordan deal was off for failure of Jordan to meet the provision in its contract, and they accepted the appellant’s offer at 2:00 p.m. on that day. Jordan refused to accept a return of its deposit tendered by the vendors, and on December 10, 1973, lodged a caveat on the land under the Land Registry Act, R.S.B.C. 1960, c. 208, as amended. Subsequently, Jordan succeeded in an action of specific performance after registering a lis pendens against the property.

The contract with the appellant called for a closing date of January 23, 1974, and on January 14, by agreement, the closing date was extended to February 15, 1974. It was on January 23, 1974, that Jordan registered its lis pendens, and the decree of specific performance was obtained on August 18, 1975. The appellant stood ready and able all this time to complete. It subsequently brought an action for damages. They

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were assessed at trial at $37,000 if recoverable on ordinary contract principles, but by reason of the rule in Bain v. Fothergill (1873), L.R. 7 H.L. 158, the appellant was denied recovery for the loss of its bargain and its damages were limited to $6,628.50, consisting of return of the deposit, the costs of investigating title and solicitor’s fees and disbursements preparatory to carrying out the contract. (The rule in Bain v. Fothergill is an affirmation by the House of Lords of a limiting principle for assessing damages in favour of a purchaser for breach of a contract for the sale first enunciated in Flureau v. Thornhill (1776), 2 Wm. Bl. 1078. The purchaser was held disentitled to recover damages for the loss of his bargain if the sale fell through because of the vendor’s inability, absent fraud or bad faith, to give a good title.)

The Court of Appeal for British Columbia (Robertson J.A. dissenting) dismissed the appellant’s appeal from the trial judgment. The Court of Appeal held that the trial judge had correctly found the Jordan agreement, although unregistered, to constitute a defect of title under the rule of Bain v. Fothergill. With leave of the Court of Appeal, the appellant then appealed to this Court.

Held: The appeal should be allowed, the judgments below set aside and judgment entered for the purchaser for $37,000 plus $6,628.50, a total of $43,628.50.

This Court agreed with Robertson J.A. that the present case was not within the rule in Bain v. Fothergill. Although the Court of Appeal majority felt that to oust the rule would be to reinstate Hopkins v. Graze-brook (1826), 6 B. & C. 31, the facts here were quite different. (An exception to the rule as enunciated in Flureau v. Thornhill, which exception was recognized in later cases, denied to a vendor the benefit of the rule if at the time he entered into a contract of sale he knew that he had no title and could not make title at the time for closing. That exception, reflected in Hopkins v. Grazebrook, was rejected by the House of Lords in Bain v. Fothergill.) There was here no case merely of a vendor who, knowing he has no title (as, where he himself has merely a contract of purchase), purports to sell to another. The vendors here, somewhat greedy as the trial judge found, had title and then proceeded, in effect, to agree to sell the property twice. There was neither fraud nor want of good faith (save possibly in respect of Jordan), but it is enough to oust the limiting rule in Bain v. Fothergill if the vendor, having title, has either voluntarily disabled himself from being able to

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convey or has risked and lost his ability to do so by what were in effect concurrent dealings with two different purchasers.

The question as to whether the rule in Bain v. Fothergill should no longer be followed in common law Canada did not really arise here. However if it had been necessary, in order to decide this case, to come to a conclusion on the matter, the Court was of the opinion that the rule in Bain v. Fothergill should no longer be followed in respect of land transactions in those Provinces which have a Torrens system of title registration or (as in British Columbia and parts of Ontario) a near similar system. In all such jurisdictions and areas, where the title is that shown on an official registry, there can be no claim by a vendor of uncertainty of title or of the necessity to gather in deeds and documents through which he would seek to establish title.

The Court was further of the opinion that, in principle, a similar view should be taken in respect of land transactions governed by a registration of deeds and documents system such as exists in the Atlantic Provinces, in parts of Ontario and in parts of Manitoba. Despite the differences between the Torrens system and kindred systems and deed registry systems, there is no reason why a line should be drawn between them to rule out Bain v. Fothergill in respect of the former and not in respect of the latter. The existence of public registers upon which transfers of interest must be recorded to be protected could be considered as ousting the rationale on which the rule in Bain v. Fothergill was founded.

Ontario Asphalt Block Co. v. Montreuil (1916), 52 S.C.R. 541, considered; Day v. Singleton, [1899] 2 Ch. 320; Goffin v. Houlder (1920), 90 L.J. Ch. 488; Wroth v. Tyler, [1973] 1 All E.R. 897; A.S.A. Construction Pty. Ltd. v. Iwanov, [1975] 1 N.S.W.L.R. 512; Sikes v. Wild (1861), 1 B. & S. 587, aff’d (1863), 4 B. & S. 421; McNamara Construction (Western) Ltd. v. The Queen, [1977] 2 S.C.R. 654; Reference re Agricultural Products Marketing Act, [1978] 2 S.C.R. 1198; Stephens v. Bannan, (1913) 6 Alta. L.R. 418; O’Neil v. Drinkle (1908), 8 W.L.R. 937; United Trust Co. v. Dominion Stores Ltd., [1977] 2 S.C.R. 915, referred to.

APPEAL from a judgment of the Court of Appeal for British Columbia[1], dismissing the

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appellant’s appeal from a judgment of McKenzie J. whereby it was held that the rule in Bain v. Fothergill applied so as to limit the damages recoverable by the appellant on the inability of the respondents to give title to certain property which they had contracted to sell to the appellant. Appeal allowed.

G.K. Macintosh, for the plaintiff, appellant.

W.B. MacAllister, for the defendants, respondents.

The judgment of the Court was delivered by

THE CHIEF JUSTICE—There are two questions in this appeal. The first is whether the rule in Bain v. Fothergill was properly applied by McKenzie J. of the British Columbia Supreme Court and by the majority of the British Columbia Court of Appeal. In purported application of the rule, the two Courts limited the damages recoverable by the appellant purchaser on the inability of the respondent vendors to give title to certain property which they had contracted to sell to the appellant. The second question is whether the rule in Bain v. Fothergill should no longer be followed in common law Canada, if it was properly applied in this case.

The facts here are not in dispute and may be shortly stated on the concurrent findings of the Courts below. On November 21, 1973, the respondents accepted an offer from Jordan Development Corporation Ltd. to purchase an apartment building for $495,000. The agreement was subject to a provision for the benefit of the purchaser Jordan, to be met by 12 noon on November 28, 1973. On November 23, 1973, the appellant made an offer, open for acceptance until 11 p.m. on November 29, 1973, to purchase the same property for $515,000. The vendors mistakenly concluded after noon on November 28, 1973, that the Jordan deal was off for failure of Jordan to meet the provision in its contract, and they accepted the appellant’s offer at 2:00 p.m. on that day. Jordan refused to accept a return of its deposit tendered by the vendors, and on December 10, 1973, lodged a caveat on the land under the Land

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Registry Act, R.S.B.C. 1960, c. 208, as amended. Subsequently, Jordan succeeded in an action of specific performance after registering a lis pendens against the property.

The contract with the appellant called for a closing date of January 23, 1974, and on January 14, by agreement, the closing date was extended to February 15, 1974. It was on January 23, 1974, that Jordan registered its lis pendens, and the decree of specific performance was obtained on August 18, 1975. The appellant stood ready and able all this time to complete. It subsequently brought an action for damages. They were assessed at $37,000 if recoverable on ordinary contract principles, but by reason of the rule in Bain v. Fothergill the appellant was denied recovery for the loss of its bargain and its damages were limited to $6,628.50, consisting of return of the deposit, the costs of investigating title and solicitor’s fees and disbursements preparatory to carrying out the contract.

The rule in Bain v. Fothergill[2] is an affirmation by the House of Lords, having first “summoned the Judges” (of whom six attended), of a limiting principle for assessing damages in favour of a purchaser for breach of a contract for the sale of the land first enunciated in Flureau v. Thornhill[3]. The purchaser was held disentitled to recover damages for the loss of his bargain if the sale fell through because of the vendor’s inability, absent fraud or bad faith, to give a good title.

Bain v. Fothergill was heard by three members of the House of Lords of whom one, Lord Colonsay died before judgment was delivered. In the course of the reasons of Lord Chelmsford (with whom Lord Hatherley also sat) that learned Lord agreed with the view that the exception which denies damages for loss of a bargain due to a defect in title, if the vendor acts bona fide, cannot be justified in principle. However, having accepted

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the rule as enunciated in Flureau v. Thornhill, the House of Lords went further and rejected an exception to it which had been recognized in later cases. That exception, reflected in Hopkins v. Grazebrook[4], denied to a vendor the benefit of the rule if at the time he entered into a contract of sale he knew that he had no title and could not make title at the time for closing. Bain v. Fothergill destroyed the authority of Hopkins v. Grazebrook and brought the situation in that case within its limiting principle, unless the vendor was fraudulent.

Of course, the rule in Bain v. Fothergill runs counter to ordinary contract principles governing damages for breach, and it invited a reliance on a tort element, e.g. fraud, as a ground of avoiding it, notwithstanding that the damages may be different if based on deceit and not on breach of contract for loss of the bargain. The rationale of the rule lay in the uncertainty of English titles, in the want of any reliable registration system (let alone a Torrens system) and in the need to have recourse to and gather up relevant documents of title. (There was only a voluntary registration system in effect in England when Bain v. Fothergill was decided, the Transfer of Land Act, 1862 (Imp.), c. 53, and it had very little effect.) Lord Hatherley mentioned this rationale in his reasons at pp. 210-11 of the Report and I need not quote what he said. Indeed, I am relieved of the necessity of canvassing the rationale, history and application of the rule and the exceptions grafted on it (exceptions to an exception) by the full report on the rule by the British Columbia Law Reform Commission, published in 1976. Reference is there made to the exceptions to the rule, these exceptions being (1) fraud of the vendor; (2) bad faith of the vendor; (3) defects arising out of matters of conveyancing (as, for example, the unwillingness of a vendor to pay off a mortgage, which he could do), and (4) breach of covenants in an executed conveyance. Of course, the third exception above covers any outright failure of a vendor to complete

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when it was within his power to do so. It is an extension of this, giving rise to the exception of bad faith, as in Day v. Singleton[5] where a vendor lessee failed to make a reasonable effort to obtain the lessor’s consent to an assignment of the leasehold. Another extension is exhibited by Goffin v. Houlder[6] where the vendor, having title at the time of a contract giving an option to purchase, sold the property to another before the option expired. It may be said, however, that this case is completely outside the rule in Bain v. Fothergill because there was no defect of title when the option contract was entered into.

McKenzie J., in his reasons in the present case, referred extensively to the judgment of Megarry J. (now V.-C.) in Wroth v. Tyler[7], although in that case the rule in Bain v. Fothergill was held inapplicable. Briefly, the situation in Wroth v. Tyler was that the vendor had title subject to a mortgage, and contracted to sell his interest and give vacant possession to a purchaser. The wife of the vendor thereafter registered her matrimonial right of occupation under the Matrimonial Homes Act of 1967 as a charge against the property. After considering and denying the claim for specific performance, Megarry J. turned to the matter of damages and refused to apply Bain v. Fothergill, holding that it was an anomalous rule, not to be extended. Differing positions were taken by counsel for the parties on whether there was a defect of title at the date of the contract. The learned judge dealt with this issue as follows (at p. 917):

…The most helpful approach seems to me to take the matter by stages. First, if the mere existence of the wife’s charge, before registration, creates a defect in title within the rule, then Parliament has at a blow imposed a defect in title on many millions of homes vested in one or other of the parties to a marriage. On 1st January 1968 millions of perfectly good titles

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became defective. I should be slow indeed to impute to Parliament any intention to produce this result. This is all the more striking in the case of registered land, where the operation of the rule in Bain v. Fothergill might be expected to be minimal; for the main purpose of the Land Registration Acts is to simplify titles and conveyancing. Furthermore, if the mere existence of an unregistered charge under the 1967 Act constitutes a defect in title, it is a singularly impotent defect, for on completion of a sale it will be void against the purchaser for want of registration. If instead the vendor refused to complete, plainly he would be refusing to take a step which would remove the defect from his title; and on the principle of Day v. Singleton he would appeal to Bain v. Fothergill in vain. As at the date of the contract in this case, I therefore cannot see how the rule in Bain v. Fothergill could have applied. In other words, looking at matters immediately after the contract had been made, the case could not, in my judgment, be said to fall within either the spirit or the letter of the rule in Bain v. Fothergill.

When in this case the wife’s rights were registered the day after the contract had been made, a different situation arose; for then her rights could no longer be destroyed by completing the sale. On the footing that the wife’s rights thereupon became capable of attracting the rule in Bain v. Fothergill, does the rule apply to cases where, at the date of the contract, the necessary conditions for the application of the rule did not exist, but those conditions first, came into being after the contract had been made? It has not been suggested that there is any authority bearing directly on this point. The action is an action for damages for breach of contract, and I should be slow to hold that some supervening event could bring within the rule a case initially outside it. Furthermore, the basis of the rule is that of the contract having been made against a background of the uncertainty of titles to land in England; …As I have indicated, a rule laid down for defects in title which lay concealed in title deeds which were often, in the phrase attributed to Lord Westbury, ‘difficult to read, disgusting to touch, and impossible to understand’, seems singularly inapposite to the effect of a modern statute on registered land, with its aseptic certainty and clarity of title.

McKenzie J., although relying on the analysis of Megarry J. in Wroth v. Tyler in respect of the rule in Bain v. Fothergill, distinguished the case as one where the wife’s occupation interest did not constitute a defect of title at the time of the contract of sale. Contrarywise, he held the Jordan agreement,

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even though unregistered, to constitute such a defect within the rule, notwithstanding that it would have been possible to register a conveyance in favour of the appellant before the Jordan caveat was lodged. The trial judge went on to reject fraud or bad faith on the part of the respondents and concluded that they were entitled to the benefit of the rule.

He held also that neither s. 35 nor s. 38 of the Land Registry Act precluded this result. Those sections, so far as material, read as follows:

35. Except as against the person making the same, no instrument… purporting to transfer, charge, deal with, or affect land or any estate or interest therein, shall become operative to pass any estate or interest, either at law or in equity, in the land… until the instrument is registered…

38. (1) Every certificate of indefeasible title issued under this Act shall be received in evidence in all Courts of justice in the Province without proof of the seal or signature thereon, and, so long as it remains in force and uncancelled, shall be conclusive evidence at law and in equity, as against Her Majesty and all persons whomsoever, that the person named in the certificate is seised of an estate in fee-simple in the land therein described against the whole world, subject to

(a) the subsisting exceptions or reservations contained in the original grant from the Crown;

(b) any Dominion or Provincial tax, rate, or assessment at the date of the application for registration imposed or made a lien or which may thereafter be imposed or made a lien on the land;

(c) any municipal charge, rate, or assessment at the date of the application for registration imposed or which may thereafter be imposed on the land, or which had theretofore been imposed for local improvements or otherwise, and which was not then due and payable, including any charge, rate, or assessment imposed by any public corporate body having taxing powers over an area in which the land is situate;

(d) any lease, or agreement for lease, for a period not exceeding three years, where there is actual occupation under the same;

(e) any public highway or right-of-way, watercourse or right of water, or other public easement;

(f) any right of expropriation by Statute;

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(g) any lis pendens or mechanic’s lien, judgment, caveat, or other charge, or any assignment for the benefit of creditors or receiving order or assignment under the Bankruptcy Act, registered since the date of the application for registration;

(h) any condition, exception, reservation, charge, lien, or interest noted or endorsed thereon;

(i) the right of any person to show that the whole or any portion of the land is by wrong description of boundaries or parcels improperly included in such certificate;

(j) the right of any person to show fraud, wherein the registered owner or wherein the person from or through whom the registered owner derived his right or title otherwise than bona fide for value has participated in any degree;

(k) any restrictive condition, right of reverter, or obligation imposed on the land by the Forest Act when noted and endorsed thereon.

[McKenzie J. noted that an agreement for sale was not within the exceptions.] It was McKenzie J.’s view that, in terms of s. 35, the Jordan agreement, although unregistered, was effective against the respondents and hence operated as a defect in their title in respect of their subsequent agreement with the appellant. He regarded s. 38 as simply a signal to purchasers to obtain a conveyance for speedy registration, and hence the appellant might have defeated any claim Jordan had to obtain title by preceding Jordan to the Land Registry office, leaving Jordan (assuming no caveat had been filed beforehand) to a remedy in damages.

The majority of the Court of Appeal (Hinkson J.A., Taggart J.A. concurring) affirmed the finding of the trial judge that there was no fraud or bad faith on the part of the respondents and refused to hold that the rule in Bain v. Fothergill was inapplicable if the vendors were careless or even reckless in agreeing to sell their property to different purchasers. The Court disapproved of A.S.A. Construction Pty. Ltd. v. Iwanov[8], where the facts were similar. There there were two successive contracts of sale of the one property to different purchasers. Each sued for specific

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performance and the actions were tried together. The second purchaser admitted the priority of the first and successfully sued for damages for loss of the bargain. It was held that the limiting rule of Bain v. Fothergill did not apply where a vendor was the author of his own misfortune. Hinkson J.A. felt that this was an attempt to resurrect Hopkins v. Grazebrook.

Again, the Court of Appeal held that the trial judge had correctly found the Jordan agreement, although unregistered to constitute a defect of title under the rule of Bain v. Fothergill It rejected the appellant’s contention that because at the time of its agreement with respondents there was nothing registered against their title, the prior Jordan agreement could not prevail against s. 38 of the Land Registry Act.

Robertson J.A., dissenting, took a different view of the Iwanov case in New South Wales and treated it as supporting his own view of the scope of Bain v. Fothergill. For him the scope was reflected in the three considerations upon which Lord Chelmsford proceeded, namely, there was no fraud of the vendor, no wilful act preventing performance but rather an unexpected and insuperable defect in title. Applying these considerations to the present case, he said this:

Here, however, there was no “unexpected defect” in the defendant’s title. They held a certificate of indefeasible title to the land, and it was conclusive evidence at law and in equity, against all persons whomsoever, that the defendants were seized of an estate in fee simple in the land against the whole world. The defect, far from being unexpected, arose from the defendants’ own act in contracting to sell the land to Jordan. Moreover, that act was “a wilful act on their part.”

I have gone to some pains to show that the rule in Bain v. Fothergill was developed to meet circumstances such as do not exist here. Its application should, then, be limited to cases which fall fairly and squarely within what it specifically decided: general words in it should not be used to expand the scope of what it actually decided. The circumstances here do not fall within the scope of what it actually decided.

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I share the opinion of Robertson J.A. that the present case is not within the rule in Bain v. Fothergill, and I also share the view of Megarry J. in Wroth v. Tyler that the anomalous character of the rule is a good reason for a strict limitation of its scope. Although the Court of Appeal majority felt that to oust the rule would be to reinstate Hopkins v. Grazebrook, the facts here are quite different. There is here no case merely of a vendor who, knowing he has no title (as, where he himself has merely a contract of purchase), purports to sell to another. The vendors here, somewhat greedy as McKenzie J. found, had title and then proceeded, in effect to agree to sell the same property twice. I do not say that there was fraud or a want of good faith (save possibly in respect of Jordan) but, in my view, it is enough to oust the limiting rule in Bain v. Fothergill if the vendor, having title, has either voluntarily disabled himself from being able to convey or has risked and lost his ability to do so by what were in effect concurrent dealings with two different purchasers.

This is enough to dispose of the first question posed at the beginning of these reasons. In view of the disposition, the second question does not really arise. This Court was however invited in express terms by all three members of the British Columbia Court of Appeal to declare its refusal to follow the rule in Bain v. Fothergill. They could speak only, of course, in respect of its application in British Columbia.

The appellant here was concerned primarily with establishing that the rule did not apply; in this he succeeded, and it was only in the alternative that its counsel urged that the rule no longer be followed. Counsel for the respondents took the position that the rule, having survived so long, should be followed by the Courts and it should be left to the various Legislatures to decide on its abolition. British Columbia itself recently moved to this end in the enactment on June 20, 1978, of the Conveyancing and Law of Property Act, which by s. 33 expressly abrogates the rule, but the Act has not as yet been proclaimed.

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As might be expected with a rule that has had as long a history as that in Bain v. Fothergill, it has spawned other suggested justifications than the major one of uncertainty of title which inspired it. The complexity of real property law and the consequent hardship on a bona fide vendor putting his property on the market should not, it was said, result in visiting him with all the consequences of an ordinary breach of contract if his title proved defective: see Sikes v. Wild[9]; Di Castri, Canadian Law of Vendor and Purchaser (2nd ed. 1976), at p. 748. Lord Hatherley had given support for this view in his reasons in Bain v. Fothergill, at p. 211, by saying that the purchaser must be considered to have bargained on that basis.

Another justification for the rule was said by 5 Corbin on Contracts (1964), s. 1098, at p. 531, to rest on the fact that “land in England [was] not subject to rapid fluctuation, that contracts were nearly always quickly closed, and that the contract price [was] usually substantially the same as the market value at the time of breach”. The learned author cited the judgment of this Court in Ontario Asphalt Block Co. v. Montreuil[10] for this proposition and I will return to this case later. Corbin added this statement, which is equally applicable to Canada:

…This reason is certainly one that is not to be accepted in the United States. If the market value and the contract price are the same it makes no difference which rule is adopted. But in the United States there are innumerable long-time contracts for a future conveyance, and land often rapidly fluctuates in price. The English rule, therefore, would discriminate against the purchaser when it is not useless.

Another point made in justification of the rule is referred to in 5 Corbin on Contracts, at p. 530, in the following words:

A few [American] cases follow the English rule entirely, sometimes on the ground that, since no substantial damages are recoverable on the covenant of title contained in a deed of conveyance, no more should be

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recoverable for breach of the preliminary contract to convey.

It is questionable, however, that no substantial damages are recoverable on breach of a covenant of title in a conveyance if, for example, the purchaser is compelled to give up possession, as opposed to a defect which does not produce such a drastic result: see McGregor on Damages (13th ed. 1972), at p. 484, citing Lock v. Furze[11]; and see the Canadian cases cited in the report of the Law Reform Commission of British Columbia, at p. 11.

Although some jurisdictions in the United States follow the rule in Bain v. Fothergill, with its qualifications, including as a qualification instances where a vendor knowingly contracts beyond his power, the generally prevailing position is a rejection of the rule and an adherence to ordinary contract principles of recovery for loss of a bargain: see 3 American Law of Property (1952), s. 11.67, at pp. 169-170.

Despite the other supports for the rule that I have mentioned, the foundation was the uncertainty of title because of the absence of any uniform registration system through which title could be more easily ascertained than by relying on the production of deeds without the back-up of a state-operated register. The rule was said to be a prop in support of the marketability of land and, presumably, it was up to the purchaser, if he could succeed in doing so, to obtain a contractual promise in avoidance.

Even if the exceptions have not eaten deeply into the rule, it seems to me that its main rationale has disappeared in those jurisdictions which have a Torrens system, as for example, Alberta, Saskatchewan and Manitoba (under its Real Property Act, R.S.M. 1970, c. R30) and, similarly, in British Columbia whose registration Act, the Land Registry Act approximates the Torrens system. The same can be said of Ontario in respect of those areas governed by The Land Titles Act, R.S.O. 1970, c. 234. In all such jurisdictions and areas, where the title is that shown on an official

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registry, there can be no claim by a vendor of uncertainty of title or of the necessity to gather in deeds and documents through which he would seek to establish title.

In my view, the venerability of the rule and the fact that Legislatures have not moved long ago to abolish it, cannot be viewed as a decisive reason against a refusal by this Court to follow it. It was, after all, a judge-made rule, based on considerations that do not operate in Canada. The fact that it has not been cast aside before may have to do with the decision of this Court in the Ontario Asphalt Block case, supra, decided at a time when this Court was still subject to the Privy Council and through it to the House of Lords in matters of common law. That situation no longer obtains, and this Court has asserted its freedom not only to depart from its own decisions but from Canadian decisions of the Privy Council as well: see McNamara Construction (Western) Ltd. v. The Queen[12]; Reference re Agricultural Products Marketing Act[13].

The Ontario Asphalt Block case was an Ontario appeal to this Court which divided four to two on whether the rule in Bain v. Fothergill applied to its facts. The issue arose in respect of a ten-year lease with an option to the lessee to purchase the fee, and with an obligation on its part to make improvements during the leasehold term which it did. Both Fitzpatrick C.J. and Davies J., dissenting, were of opinion that these facts took the case out of the rule when, upon the exercise of the option the lessor could not give title as he had covenanted to do. The Chief Justice held that, accepting the rule in Bain v. Fothergill, “this case is outside the transactions to which in its widest interpretation the rule making exception to the general law of contracts has any application” (at p. 548). He quoted from Sedgwick on Damages (9th ed. 1913), vol. 3., at p. 2121 as follows:

If the defendant fails to convey because he has not a good title, he is always liable in substantial damages.

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This is commonly called the United States Supreme Court rule, and represents one extreme of the series of principles of which the highest English court has adopted the other extreme. It seems to be the correct one on principle.

Both dissenting judges held to a strict interpretation of the rule, wishing to keep it within the bounds of the rationale which spawned it. The majority (in effect, only Anglin J. dealt with the application of the rule and taking his reasons) concluded that there was no evidence to warrant an inference that the optionor after discovering a defect in his title (he being a devisee for life) made no effort to obtain the consent of the remaindermen, to bring the case within Day v. Singleton, supra. It was clear from the reasons of Davies J. that the rule in Bain v. Fothergill, having been followed in Ontario, should not be called in question as part of the law of that Province, and hence for him the only question was whether the case was within the rule.

Not only this Court but other Courts in Canada were formerly under the same stricture, and any call for a denial of the rule would be a call for legislative intervention. In Stephens v. Bannan[14], Beck J. in the Supreme Court of Alberta en banc said at p. 431 that “the English rule as to damages in the case of breach of contract for the sale of land should be applied in this jurisdiction notwithstanding that we have here the Torrens system of land titles”. On the other hand, in O’Neil v. Drinkle[15], a Saskatchewan case, Lamont J. (who later became a member of this Court) took a bolder approach, as follows (at p. 944):

In this province, however, the reasons for the adoption of this exception to the common law rule as to damages do not exist. Instead of the complicated law as to the title of real estate which they have in England, we have a very simple system of land transfer, under which a person having a certificate of title holds an indefeasible title to his land, which is not subject to those uncertainties and defects which led to the establishment of the exception as laid down in Flureau v. Thornhill, and as was said by Cockburn, C.J., in Engel v. Fitch, L.R. 3

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Q.B. 314: “The limit of the exception is to be found in the reason on which it is based; the reason ceasing, the rule should also cease.”

Therefore, I am of opinion that the conditions being entirely different here, and the reasons which led to the establishment of the exception being entirely absent, there is no reason why a different principle should be adopted in assessing damages for breach of contract for the sale of land than that adopted for the breach of other contracts.

He did not, however, have to press this because he was satisfied on the facts that the rule did not apply.

I have no hesitation in saying, at a distance of seventy years from O’Neil v. Drinkle, that I fully agree with what Lamont J. there said about the rule in Bain v. Fothergill. It will suffice to refer to a common provision of the Torrens Acts in Alberta and Saskatchewan (The Land Titles Act, R.S.A. 1970, c. 198, s. 203 and The Land Titles Act, R.S.S. 1965, c. 115, s. 237) and in Manitoba (The Real Property Act, R.S.M. 1970, c. R30, s. 77) which is as follows (I quote the Alberta provision):

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.

There is a similar provision in s. 44 of the British Columbia Land Registry Act, Moreover, s. 28 of that Act is also relevant to support the abolition of the rule in Bain v. Fothergill. It is in these terms:

28. It is the duty of any person selling or conveying land, or who enters into an agreement, or assignment of

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an agreement for the sale of land, whereby the purchase price is payable by instalments or at a future time, to register his own title, in order that any person to whom the land or any part thereof is conveyed, and any person claiming under the agreement, sub‑agreement, or assignment, may be able to register his title; and so long as the failure of any person to comply with this section continues, no action shall be brought by the person so failing to register upon any covenant in such agreement or sub‑agreement.

As the British Columbia Law Reform Commission report points out, at p. 20 thereof, this sanction upon a vendor should be complemented by giving a purchaser a remedy in damages now denied to him under Bain v. Fothergill.

In Ontario, there is no exact equivalent in its Land Titles Act, R.S.O. 1970, c. 234, as amended, to s. 203 of the Alberta Act, above quoted, and this Court has held that unregistered interests of which a purchaser for value has notice are not defeated by his prior registration of his interest when there is no express statutory provision to make notice irrelevant: see United Trust Co. v. Dominion Stores Ltd. et al.[16] This, however, does not militate against the inaptness of the rule in Bain v. Fothergill in the face of the fact that in general the registry is the sole mirror of title.

In view of the foregoing, it would be my opinion, if it was necessary, in order to decide this case, to come to a conclusion on the matter, that the rule in Bain v. Fothergill should no longer be followed in respect of land transactions in those Provinces which have a Torrens system of title registration or a near similar system.

It seems to me that, in principle, a similar view should be taken in respect of land transactions governed by a registration of deeds and documents system such as exista in the Atlantic Provinces, in parts of Ontario and in parts of Manitoba. The Acts in the Atlantic Provinces require the keeping of public registers of deeds and documents (including plans) and provide, generally, for priority according to the order or time of registration: see

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the Registry Act, R.S.N.B. 1973, c. R-6; The Registration of Deeds Act, R.S.Nfld. 1970, c. 328; The Registry Act, R.S.N.S. 1967, c. 265; The Registry Act, R.S.P.E.I. 1974, c. R-11. The deeds and documents that are registered are not thereby invested with any greater legal force than they intrinsically possess; there is, in short, no public guarantee of title as under the Torrens system, but if they have intrinsic legal force their registration gives them priority over unregistered instruments, of which they had no notice. Registration is, of course, notice and hence the necessity for a search of the register and an examination of the intrinsic worth of the deeds and documents recorded thereon, involving a concern for the chain of title. In Prince Edward Island the statute goes further; it provides as follows in s. 43.

43. No constructive or other notice of any unregistered deed or mortgage shall defeat, impeach, or affect, or be construed to affect, any deed or mortgage relating to all or any part of the same lands, tenements or hereditaments, which has been registered under this Act, but every such unregistered deed or mortgage shall be deemed to be fraudulent and void against subsequent purchasers or incumbrancers for valuable consideration, whose deeds or mortgages are previously registered, whether the purchasers or incumbrancers had notice thereof or not, but nothing in this Act affects, or is construed to impeach any will, or security for a debt due or to become due to the Crown, although it or a memorial or entry thereof is not recorded in the office of a registrar.

In Ontario, the traditional registration of deeds system (The Registry Act, R.S.O. 1970, c. 409, as amended) has been modified by The Certification of Titles Act, R.S.O. 1970, c. 59, as amended. It applies to land not registered under The Land Titles Act and provides for the investigation and certification of title to such land. When a certificate of title is issued and registered, it has, pursuant to s. 15, a conclusive effect as against the Crown and all other persons subject to any exceptions, reservations, conditions, covenants, charges, mortgages and other encumbrances mentioned therein. In short, the Act gives a starting point for

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title searches and establishes a register akin to that under a Land Titles system.

The Manitoba Registry Act, R.S.M. 1970, c. R50 as amended, is similar to the Registry Acts above mentioned, but it does provide in s. 47 that lands that are subdivided must be brought under The Real Property Act, that is, into the Torrens system.

Despite the differences between the Torrens system and kindred systems (as in British Columbia and Ontario) and deed registry systems, I do not see why a line should be drawn between them to rule out Bain v. Fothergill in respect of the former and not in respect of the latter. The existence of public registers upon which transfers of interests must be recorded to be protected could be considered as ousting the rationale on which the rule in Bain v. Fothergill was founded. I need not, however, pursue this matter further in the present case.

In the result, I would allow the appeal, set aside the judgments below and direct that judgment be entered for the purchaser for $37,000 plus $6,628.50, a total of $43,628.50, the damages found and confirmed below if Bain v. Fothergill did not apply. The appellant is entitled to costs throughout.

Appeal allowed with costs.

Solicitors for the plaintiff, appellant: Farris, Vaughan, Wills & Murphy, Vancouver.

Solicitors for the defendants, respondents: Boughton & Co., Vancouver.