United Trust v. Dominion Stores et al., [1977] 2 SCR 915

Supreme Court of Canada

United Trust v. Dominion Stores et al., [1977] 2 S.C.R. 915

Date: 1976-10-05

United Trust Company (Plaintiff) Appellant;

and

Dominion Stores Limited (Defendant) Respondent;

and

Molly Geller and Bella Granatstein (Defendants) Respondents.

1976: March 31, 1976: April 1; 1976: October 5.

Present: Laskin C.J. and Judson, Ritchie, Spence and Beetz JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Land titles—Priorities—Actual notice—Encumbrance—Lease—Unregistered renewal of lease—Purchaser of freehold having notice of leasehold interest—Transferee’s interest subject to leasehold interest—The Land Titles Act, R.S.O. 1970, c. 234 as amended, ss. 78(1), (2), 79(1), 85(5), 91, 94.

Dominion had been tenants since 1935 of land governed by the Ontario Land Titles Act under a written lease and various renewals thereof. The last renewal which was to have terminated on November 30, 1970 contained an option in favour of Dominion to renew until November 30, 1975 subject to a rental increase and the usual clause as to increase to cover real estate taxes. Dominion gave due notice of the exercise of the option but entered negotiations for a longer term of leasing. The negotiations continued until 1972, when on April 20, the landlords’ solicitors advised that their clients were prepared to enter into an option agreement for the period from December 1, 1975 to June 30, 1982 and suggested that Dominion’s solicitor draft the required documentation. The draft option agreement was submitted shortly thereafter by Dominion’s solicitor. United had however been negotiating with the landlords for the purchase of the premises and on May 17, 1972 the landlords agreed to sell to United who had actual notice of the lease and the agreement between Dominion and the landlords. On May 25, 1972 the landlords’ solicitors replied to Dominion’s letter of April 28 that the landlords had “no intention of executing the documents which you have forwarded as the said documents do not meet with the approval of the writer or our clients in their form and substance”. On June 22, 1972, the day after closing the purchase, United placed a new door with new lock on the premises and excluded Dominion therefrom notwithstanding that Dominion

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had paid rent up to and including June 30, 1972. An application by Dominion for an order granting relief from forfeiture and reinstatement in the premises was granted and the subsequent appeal was dismissed by the Court of Appeal.

Held (Laskin C.J. dissenting): The appeal should be dismissed.

Per Judson, Ritchie, Spence and Beetz JJ.: The doctrine of actual notice as to all contractual relations and particularly the law of real property has been firmly based in law since the beginning of equity. Such a cardinal principle of property law cannot be considered abrogated unless the legislative enactment is in the clearest and most unequivocal of terms. The Land Titles Act, R.S.O. 1970, c. 234, as amended by 1972 (Ont.), cc. 1, 132 and 1973 (Ont.), c. 39 contains no such provision. Section 85(5) did not affect the law as stated in Re Jung and Montgomery, [1955] 5 D.L.R. 287, as first, the subsection did not purport to repeal generally the law in Re Jung and was therefore not enacted simply for the purpose of such repeal and second, the subsection deals with instruments registered in respect of or affecting the same estate or interest in the same parcel of registered land.

Per Laskin C.J. dissenting: Several provisions of The Land Titles Act make the register the sole mirror of title and curtain off any unregistered interests regardless of notice. The scheme and language of the Act are adequate to show the irrelevancy of actual notice. If fairness from a common law stand point was the dominant consideration, irrespective of legislative policy and of the circumstances which brought title registration systems into being the matter would be different but here the concern was not with common law but rather with a complete break from it through a choice of legislative policy reflected in some Canadian Provinces and elsewhere by the adoption of the Torrens system and in Ontario and England by the adoption of a related system of title registration. Section 85(5) cannot be construed to exclude the effect of notice where the notice is of a claim to the same interest as that purchased by another for value on the face of the register but not to exclude it where the notice is of a claim to a subordinate interest. Sections 78(1), (2), 79(1), 91 and 94 of the Act make it clear that notice of an unregistered interest cannot qualify the registered title of a transferee for value from the registered owner. This

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conclusion is reinforced by s. 85 and in particular by subs. (5).

[Waimiha Sawmilling Company Limited, v. Waione Timber Company Limited, [1926] A.C. 101; Assets Co. Ltd. v. Mere Roihi et al., [1905] A.C. 176 distinguished; Re Skill and Thompson (1908), 17 O.L.R. 186; John Macdonald & Co. Limited v. Tew (1914), 32 O.L.R. 262; Re Jung and Montgomery, [1955] 5 D.L.R. 287; Pitcher v. Shoebottom, [1971] 1 O.R. 106; Zbryski v. City of Calgary (1965), 51 D.L.R. (2d) 54 referred to.]

APPEAL from a judgment of the Court of Appeal for Ontario[1] dismissing an appeal from a judgment of Grant J.[2] allowing an application for an order granting relief from forfeiture and reinstatement in devised premises. Appeal dismissed, Laskin C.J. dissenting.

D.T. Stockwood and J. Ryan, for the appellant.

P.S.A. Lamek and D.J.T. Mungovan, for the respondents.

THE CHIEF JUSTICE (dissenting)—This appeal raises a question of first instance in this Court in respect of The Land Titles Act, R.S.O. 1970, c. 234, as amended. The question is whether an unregistered interest in land governed by the Act, and not being an overriding interest thereunder, may be asserted against a purchaser for value of the freehold of the land who obtains a transfer from the owner on the Land Titles register with actual notice of the unregistered interest. Grant J. held that the purchaser’s title was subject to the unregistered interest, and this decision was affirmed by the Ontario Court of Appeal. I take a different view. In my opinion, notice, actual or constructive, of unregistered interests cannot qualify the title of a purchaser for value as shown on the register.

The unregistered interest in the present case, sought to be asserted against the appellant’s free-

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hold title, is a leasehold which had an unexpired term exceeding three years at the time the appellant obtained its Land Titles transfer. As such it was not a protected or overriding interest under the Act. Section 51, item 4, makes registered land subject to any lease or agreement for a lease for a period yet to run that does not exceed three years where there is actual occupation under it. Hence, where the unexpired term exceeds three years, even if there is occupation under it, The Land Titles Act would seem to require registration of the leasehold interest if it is to be protected against the preclusive claim to the entire freehold interest by a registered transferee for value from the registered owner.

Why the respondent lessee, a large food chain, which had first become lessee of the land in 1935, did not register notice of its leasehold interest is unfathomable. It had access to competent legal advice no less than did the appellant. On the argument of the appeal, its counsel contended that, in the circumstances of the case, the admitted notice and knowledge by the appellant of the respondent’s outstanding leasehold interest before purchasing the freehold made its purchase through a Land Titles transfer fraudulent when it sought, on the strength of the transfer, to dispossess the respondent. The basis of this contention by the respondent, a contention which was not raised in its original application to Grant J. for relief from forfeiture and reinstatement of its lease, lies in the course of negotiations between solicitors for the respective parties when the appellant was seeking to obtain a surrender of possession by the respondent concurrently with the carrying out of its intended purchase of the freehold. I would not be justified, on the record in this case, in coming to a conclusion that there had been a deliberate misleading of the respondent. The latter knew of the agreement for purchase of the freehold by the appellant and had ample opportunity to protect its interest. The respondent cannot improve its position by labelling actual notice as fraud. If its position is maintainable, it must be on the ground that The Land Titles Act does not defeat unregistered interests of which a subsequent purchaser for value has actual notice.

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I have had the advantage of seeing the reasons prepared by my brother Spence sustaining that proposition and affirming the judgments below. I agree with him on the other aspects of the present appeal which, of course, cease to be material if the appellant can succeed on the issue of notice.

We face here another instance of a temptation to construe a statute in the light of the common law, to qualify a statute by an equitable doctrine alien to the purpose (a clear purpose in the circumstances underlying its enactment) which the statute sought to achieve. Because notice of unregistered interests was not expressly excluded as a qualifying consideration, the integrity of the land titles register is shaken by the judgment in appeal, although the scheme and language of The Land Titles Act are, in my opinion, adequate enough to show the irrelevancy of such notice. A system of registration of title is treated, in respect of the effect of notice of unregistered interests, as if it were a system of registration of documents, such as exists under The Registry Act, R.S.O. 1970, c. 409, as amended, an Act now qualified by The Certification of Titles Act, R.S.O. 1970, c. 59, as amended.

If fairness from a common law standpoint was the dominant consideration, irrespective of legislative policy, irrespective of the circumstances which brought title registration systems into being, there could be less quarrel with the decision of the Courts below. We are not, however, concerned with the common law, but rather with a complete break from it through a choice of legislative policy reflected in some countries and in some Canadian Provinces by adoption of the Torrens system, and in England and Ontario by the adoption of a related system of title registration.

The Ontario Land Titles Act, first enacted by 1885 (Ont.), c. 22 is modelled not on the Torrens system, which got its start in South Australia in 1857, but on the English Land Transfer Act, 1875 (U.K.), c. 87. There had been a Royal Commission

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on Registration of Title in England which reported in 1857 but this report, although adopted by Parliament, was not carried out in ensuing legislation, the Land Registry Act, 1862 (U.K.), c. 53. Why this Act failed and was supplanted by a new Act in 1875 is briefly told in Curtis and Ruoff, Registered Conveyancing (2d ed. 1965), at pp. 5-6:

...Unfortunately, however, the 1862 Act did not apply the principles elaborated by the Commissioners. The system established by parliament attempted to achieve perfection. The disregard of what was practicable brought about a failure so catastrophic that, only four years after the passing of the Act, a Royal Commission was set up to inquire into the reasons for it. This Commission reported in 1870 that the failure of the registration system could be attributed to three fundamental departures from the principles advocated by the Royal Commission of 1857. They were:

(1) That the title shown to land before it could be registered must be impeccable, with all technical imperfections cured and that the registrar had no discretion to ignore blemishes which were of no practical consequence;

(2) That the boundaries of every piece of land had to be determined to the last inch by notice to adjoining owners and that this caused disputes over trifles and great expense and delay;

(3) That partial interests, such as life interests, must be registered instead of confining the register to the ownership of the entirety and that this prevented the register from simplifying titles.

As a result of this report, a further Act was passed in 1875. This Act practically repealed the 1862 Act and established a new registry, which is in fact the Land Registry of today, with an entirely different system of registration modelled, this time, on the recommendations of the Royal Commission of 1857. Under this new system the registrar was given a wide discretion as to the titles he might accept for registration and power to hear and determine objections instead of having to refer them to the court. It was no longer necessary to fix the boundaries of properties down to the last inch and registration was confined to the ownership of the full legal freehold or leasehold estate in the land.

The 1857 Report, an extensive canvass of the considerations supporting a title registration

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system as opposed to a system of registration of deeds or documents, was one of a series of inquiries into real property problems which had earlier come under examination by the Real Property Commissioners in reports of 1829 and 1830. The Report of 1857 considered, inter alia, the question of notice of unregistered interests and said this about it (in para. 73):

“We propose that fraud in obtaining a transfer of the registered ownership shall defeat the title of the person who becomes registered owner by fraud, but that notice of unregistered rights shall not merely as notice have any such effect. We think that though the purchaser in the course of his inquiries, or before he concludes the purchase, has notice of any claims upon the estate, it will not be unjust to deprive the parties interested in such claims of their rights in favour of such purchaser, if their rights are not protected upon the register. We do not agree that any attempt to exclude the application of the doctrine of notice would prove abortive. We are aware that it has been said that the judges would, notwithstanding any law to the contrary, in the course of time contrive some means of neutralising any enactment which went to exclude the doctrine of notice, just as our Courts of old contrived to prevent the Statute of Uses having the effect intended by the legislature; and that to abolish the doctrine of notice altogether would be contrary to every principle of justice and equity. After full consideration, however, we cannot adopt these views, but, on the contrary, we concur generally in the reasons adduced by the Real Property Commissioners in their Second Report (pp. 37-40), in favour of excluding the interference of Courts of equity on the ground of notice.”

The reference in this passage to what the Real Property Commissioners had to say in their Second Report, made in 1830, is a reference to the following observations of those Commissioners:

The reasons in favour of excluding the interference of Courts of Equity on the ground of notice, may be thus stated.

If the public good require that a purchaser, to have the protection of the Law, should comply with a form, and that form be made simple and easy, a purchaser omitting the form has no just ground of complaint that the protection is not given. If the omission were not wilful, he should still blame only his own want of care, or that of his agents. It is greatly for the public good, that civil rights should be capable of being ascertained without difficulty, and for this purpose the Law on

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which they depend should as far as possible be general, and not varying in different circumstances, which would lead to mistakes; they should be supported by evidence, not open to doubt, and as little as possible exposed to falsification. For these reasons, it has been thought necessary in most Countries to require the title of land to be proved by written documents, and thereby prevent attempts to enforce pretended claims by parol testimony or circumstantial evidence. A registered title possesses the advantages of certainty and security in a high degree, but they will be impaired, if preference be given to an unregistered over a registered deed, on the ground of notice. The fact of notice will in every case be possible and in many probable; there will be a temptation therefore to the unregistered claimant to commence a suit, in the hope that the other claimant may confess notice, or circumstances from which it may be implied; and there may also be a temptation to support the suit so commenced by false evidence.

The mischiefs of letting in constructive notice have been so strongly felt, that some Equity Judges have held it excluded under the present Registry Acts; but no provision which can be made for denying effect to constructive notice will be effectual, because the distinction between actual and constructive notice cannot be defined, and must therefore often fail to be justly drawn either by a Court or a Jury; and cases of individual hardship might lead to a course of decisions which would encroach on the spirit of the Act, and impair its benefits.…

…

The exclusion of interference on the ground of notice will very rarely prevent the jurisdiction of a Court of Equity, in case of actual fraud. In all cases in which priority may be given to a registered over an unregistered deed by means of fraud, although notice must be one of the ingredients to prove the existence of the fraud, there will usually be other circumstances by which, independently of the notice, a fraudulent intention will be manifested. Any conspiracy or improper conduct, for preventing or impeding the registration of one deed in order to give effect to another, may always be avoided as fraudulent; and in other cases, fraud will be shown by inadequacy of price, or the circumstances under which the subsequent deed was executed. Where a party suffers from his own negligence, or from not requiring a caveat, which would have protected him against any superior activity in another, he will have relied upon confidence in the parties instead of the protection afforded by the Law, and will have no just cause of complaint.

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The key sections of the Ontario Act of 1885, following the text of similar sections In the English Act of 1875, were ss. 35, 38, 54(1)(2)(3) and 99. These sections (which, in the present Act, are respectively ss. 91, 94, 75, 78(1) (the original 54(3)) and 174) read as follows:

35. A transfer for valuable consideration of land registered with an Absolute title shall, when registered, confer on the transferee an estate in fee simple in the land transferred, together with all rights, privileges, and appurtenances belonging or appurtenant thereto, subject as follows:—

(1) To the incumbrances, if any, entered on the register; and

(2) To such liabilities, rights, and interests, if any, as are by this Act declared for the purposes of the Act not to be incumbrances (unless the contrary is expressed on the register),

But free from all other estates and interests whatsoever, including estates and interests of Her Majesty, her heirs and successors, which are within the legislative jurisdiction of this Province.

…

38. A transfer of land registered under this Act, made without valuable consideration shall, so far as the transferee is concerned, be subject to any unregistered estates, rights, interests, or equities subject to which the transferor held the same; but, save as aforesaid, shall, when registered, in all respects, and in particular as respects any registered dealings on the part of the transferee, have the same effect as a transfer of the same land for valuable consideration.

…

54. (1) The registered owner alone shall be entitled to transfer or charge registered land by a registered disposition.

(2) But, subject to the maintenance of the estate and right of such owner, any person, whether the registered owner or not of any registered land, having a sufficient estate or interest in the land, may create estates, rights, interests and equities in the same manner as he might do if the land were not registered.

(3) And any person entitled to or interested in any unregistered estates, rights, interests, or equities in registered land may protect the same from being impaired by any act of the registered owner, by entering on the register such notices, cautions, inhibitions, or other restrictions as are in this Act in that behalf mentioned.

…

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99. Subject to the provisions in this Act contained with respect to registered dispositions for valuable consideration, any disposition of land or of a charge on land which if unregistered would be fraudulent and void, shall, notwithstanding registration, be fraudulent and void in like manner.

The purpose disclosed in these provisions to make the register the sole “mirror” of title and to “curtain” off any unregistered interests regardless of notice (the terms in quotation marks come from Ruoff, An Englishman Looks at the Torrens System (1957), at p. 8) was fortified by an amendment in 1893 (Ont.), c. 22, s. 11 enacting what is now s. 79(1) of the Act. The original s. 54(3), now s. 78(1), was also fortified by 1972 (Ont.), c. 132, s. 18 by adding s. 78(2). The importance of ss. 78 and 79(1) in the light of s. 91 makes it desirable that I should set them out in full, and they are as follows:

78. (1) Any person entitled to or interested in any unregistered estates, rights, interests or equities in registered land may protect the same from being impaired by any act of the registered owner by entering on the register such notices, cautions, inhibitions or other restrictions as are authorized by this Act or by the director of titles.

(2) Where a notice, caution, inhibition or restriction is registered, every registered owner of the land and every person deriving title through him, excepting owners of encumbrances registered prior to the registration of such notice, caution, inhibition or restriction, shall be deemed to be affected with notice of any unregistered estate, right, interest or equity referred to therein.

79. (1) No person, other than the parties thereto, shall be deemed to have any notice of the contents of any instruments, other than those mentioned in the existing register of title of the parcel of land or that have been duly entered in the books of the office kept for the entry of instruments received or are in course of entry.

…

Section 51 of the present Act lists the overriding interests, as for example, taxes, existing easements, dower, certain leasehold interests as previously mentioned, and rights of expropriation, to which

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registered land may be subject, and s. 52 expresses the position as to title upon the first registration of ownership. Section 52 reads as follows:

52. The first registration of a person as owner of land, in this Act referred to as first registered owner with an absolute title, vests in the person so registered an estate in fee simple in the land, together with all rights, privileges and appurtenances, free from all estates and interests whatsoever, including estates and interests of Her Majesty, that are within the legislative jurisdiction of Ontario, but subject to the following:

1. The encumbrances, if any, entered on the register.

2. The liabilities, rights and interests that are declared for the purposes of this Act not to be encumbrances, unless the contrary is expressed on the register.

3. Where the first registered owner is not entitled for his own benefit to the land registered, then as between him and any persons claiming under him, any unregistered estates, rights, interests or equities to which such person may be entitled.

From its beginning, the Act provided and still provides for the registration of charges (an updated designation of the mortgage) and for protecting claimed interests in registered land by the registration of a caution: see ss. 26 and 58 of the original Act, now ss. 98 and 143. The Master of Titles plays, of course, a key role in the administration of the Act, and there is an assurance fund to back up what is in effect a government guarantee of the title as shown on the register. Registration is not automatic, but must pass administrative scrutiny and be in compliance as to required forms and otherwise with the prescriptions of the Act.

I do not need to descend into further detail as to the provisions of the Act to support my view that notice of an unregistered interest by a purchaser for value who buys the title as shown on the register cannot qualify that title. This appears to have been the view taken also of the English Land Transfer Act, 1875 by virtue of s. 49 thereof, the equivalent of s. 75 of the Ontario Act (which was originally s. 54(1)(2) and is quoted above): see 24 Halsbury (1st ed. 1912), at p. 320, s. 591. No

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doubt the Legislature could have added to what it said about the primacy of the register by referring even more expressly to notice than it did in ss. 78 and 79, as was done in England in the revision of its title registration legislation by the Land Registration Act, 1925 (U.K.), c 87, s. 59(6) and as is the case in Torrens system legislation but that, in my view, would have merely exaggerated an existing sufficiency.

To repeat myself, I am unable to appreciate how there can be any escape from the force of ss. 52 and 91 of the present Act which constitute a code as to the title that is acquired upon first registration and upon a transfer on the register. The supporting provisions, especially ss. 75, 78 and s. 79(1), show that registration is the method of obtaining protection of claimed interests in registered land and that only fraud is an external qualifying consideration.

In one respect, the English Land Registration Act gives protection to unregistered interests which is given in only a limited fashion by the Ontario Land Titles Act, and that is protection for the “rights of every person in actual occupation of the land or in receipt of the rents and profits thereof” unless the rights are not disclosed upon inquiry. As Megarry and Wade, The Law of Real Property (4th ed. 1975), say, at p. 1066, “equitable owners in possession even though they have not lodged cautions or other entries in the register [are safeguarded and protected] even when their occupation is not obvious to a purchaser”; and, again, “a tenant in possession of registered land under a mere agreement for a lease, for example, or who has an option to renew the lease or to purchase the freehold will be in no danger of losing his rights to a later purchaser, if, as will often happen, he fails to protect his rights by entry on the register”. Such a provision in the Ontario Act would have protected the respondent in the present case, and it is worth considering its introduction into that Act.

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A good deal of argument was addressed by counsel for the parties to Torrens system case law. The main value of the cited cases for the present case is the dissociation of notice and fraud, the rejection of the notion that a person with notice of an unregistered interest can be charged with fraud: see, for example, the Australian case of Friedman v. Barrett[3]. The importance of the distinction is underlined in Torrens system legislation by the express exclusion of notice and by making fraud an exception to the integrity of the register. In some jurisdictions, the legislature has gone further by providing that knowledge of an unregistered interest was not itself to be imputed as fraud. Such a provision existed in the New Zealand Land Transfer Act, 1915, which was considered by the Privy Council in Waimiha Sawmilling Co. v. Waione Timber Co.[4], but was not part of the Queensland legislation which came under examination in Friedman v. Barrett. Its absence did not, however, dissuade the Courts from distinguishing mere notice from fraud and from protecting the registered owner against an unregistered claim of an interest of which he had notice. Cases on this question go back to the pioneer judgment of the Privy Council in Assets Ltd. v. Mere Roihi[5] at p. 210.

Fraud is, of course, an exception to the integrity of the register under the Ontario Act (see s. 174), but since this Court is agreed that the respondent has not made out a case of fraud, there is only the question of notice to consider, a question which the respondent contends must be answered in its favour because, despite what the various provisions of the Act referred to in these reasons may indicate, notice has not been expressly excluded under the Ontario Act as it is under Torrens system legislation.

The respondent points to such express exclusion in the New Zealand legislation which was before

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the Privy Council in the Waimiha Sawmilling case, supra, a case upon which the appellant relied. The reliance was based on the fact that the Judicial Committee, in its reasons upholding the title of a registered purchaser as being free from an unregistered agreement of which it had notice, appeared to proceed on the strength of that provision of the New Zealand statute which was comparable to s. 91 of the Ontario Act. Its only reference to the New Zealand provision, which was s. 197, excluding notice was to that part of it which stated that knowledge of the existence of an unregistered interest was not itself to be imputed as fraud. However, the whole of s. 197 was quoted, and I agree with the respondent that the appellant cannot draw much comfort from the Waimiha Sawmilling case.

This does not mean, in my view, that there is necessarily a gap in the Ontario Act. We are dealing with different albeit related systems of title registration, and I do not think that the presence of an express provision in Torrens system legislation is evidence of a gap in the Ontario Act or, indeed, in the comparable English legislation of 1875. Especially is this so when the consequence is said to be the importing of a doctrine which denies the central policy of the Ontario Act. Of course, an express exclusion of notice as a qualifying consideration in respect of title as shown on the register might have obviated this litigation, but so too would registration of notice of its lease by the respondent pursuant to s. 115 of the Ontario Land Titles Act.

So much for legislative history and for the legislation itself. I wish to deal now with such case law as there is on the question at issue. The reasons of the Ontario Court of Appeal in the present case are the only reported reasons of an Ontario appellate court holding that previous notice of an unregistered interest may qualify the title of a purchaser for value acquired by a transfer from the owner as shown on the register. Yet those reasons, subject to a matter to be mentioned in a moment, merely rest

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on Re Jung and Montgomery[6] where the Ontario Court of Appeal, without written reasons, affirmed a judgment of Duranceau Co. Ct.J. Speaking in the present case for himself and for Brooke J.A., Jessup J.A. was candid enough to say that (and I quote his words) “if I were approaching the problem in the state of the statute as it was when Re Jung was decided, I would have doubt whether that case was correctly decided, particularly in view of the terms of what is now s. 91 of the statute”. Jessup J.A. felt, however, that the enactment in 1960 of what is now s. 85(5) of The Land Titles Act must be taken as an affirmation of Re Jung and Montgomery as holding that notice of an unregistered interest will qualify a title taken by a purchaser for value on the faith of the register. I shall come later in these reasons to s. 85(5), upon which both parties relied; but I address myself now to what was before Duranceau Co.Ct.J. in Re Jung and Montgomery and to what he decided in that case.

Jung had purchased certain premises under a Land Titles transfer of June 26, 1953 which was registered on June 30, 1953. At that time Montgomery was a tenant of part of the premises under a five year lease running from April 1, 1950 to March 31, 1955. Notice of the lease was not registered, but Jung himself had been a tenant of another part of the premises before purchasing the freehold and after his purchase Montgomery continued as tenant of Jung, paying rent which Jung accepted. Montgomery’s lease contained an option to renew for three years on giving three months’ notice and Montgomery gave proper notice of renewal on November 8, 1954. On February 9, 1955 Jung served a notice to quit on Montgomery, and on the latter’s refusal to leave he brought proceedings for possession.

Judge Duranceau found as a fact that Jung was aware of Montgomery’s lease and of the option therein for renewal before he purchased the prem-

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ises. So far as the remainder of Montgomery’s original term was concerned, it was protected as an overriding interest, being an unexpired term not exceeding three years and with actual occupation. The renewal term presented a different situation. It did not exceed three years but there could be no actual occupation under it until it began, and this could not be before April 1, 1955. Judge Duranceau treated the option as creating a separate interest to be considered on its own terms, and hence it could not be an overriding interest within s. 51, item 4. It does not appear that any argument was made for treating the option as a covenant running with the land, in which event no separate registration would be required: cf. Di Castri, Law of Vendor and Purchaser (2nd ed. 1976), p. 427. For present purposes, however, it is unnecessary for me to determine whether a “covenant” view of the option would be correct. Although the reasons of Judge Duranceau are not explicit on the point, I take it that the February 9 notice to quit served on Montgomery was a notice to him to quit at the end of his five year term. The issue between the parties was whether Jung could insist on dispossessing Montgomery after March 31, 1955 or whether Montgomery had a valid renewal term of three years from that time.

There are indications in the reasons of Judge Duranceau that because Jung recognized Montgomery’s lease by accepting rent under it, he was bound to its terms. The reasons do not indicate whether any remonstrance was made by Jung when the notice of renewal was given on November 8, 1954, three months before Jung gave notice to quit. This could have been enough to dispose of the case without introducing notice into The Land Titles Act. In affirming Judge Duranceau, the Court of Appeal is reported as having dismissed the appeal without calling on the respondent tenant and to have agreed with the judgment at first instance. Perhaps it also agreed with all the reasons for judgment, which clearly included reliance on notice, and this was certainly the view taken of Re Jung and Montgomery by both Grant

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J. and the Ontario Court of Appeal in the present case.

After citing Magee on Land Titles (1940), pp. 43, 93, 104, to the effect that the doctrine of notice is foreign to the Ontario Land Titles Act and noting that no cases are cited in support, Judge Duranceau refers to a line of cases which he says support the contrary view. Some of these cases are clearly inapplicable to the issue of notice as it arises here; and equally unacceptable is his apparent equating of notice with fraud. Two decisions which were relied on by him and which were cited to this Court on the appeal here may, however, be mentioned. They are Re Skill and Thompson[7] and John Macdonald & Co. Ltd. v. Tew[8]. Neither, in my opinion, is of any assistance on the question of notice in relation to The Land Titles Act.

Re Skill and Thompson ran the gamut of Ontario’s then superior court system; it was heard first by Riddell J. in Chambers, then on appeal by the Divisional Court and on further appeal by the Ontario Court of Appeal. It arose out of the dismissal by the Master of Titles under The Land Titles Act of an application to remove or vacate a caution registered against certain land by Thompson who claimed the interest therein as against Skill, the owner shown on the title register. Skill had purchased from one Sears in whose name the title had stood before the transfer to Skill, but Thompson claimed under a previous option to purchase given by Sears and of which Skill allegedly had notice. Riddell J.’s view was that the register was controlling and, moreover, since Thompson had begun an action for specific performance against Sears and Skill, there was no justification for maintaining the caution; hence, he vacated it. The Divisional Court restored the order of the Master of Titles, holding that to remove the caution before the action for specific performance was tried anticipated the result of the action in which it would be open to the plaintiff to establish fraud, in that the transfer from Sears to Skill was

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not intended to be registered. There may be here an equating of notice with fraud, but the Divisional Court judgment is not clear on the issue of notice as such. When the case came before the Ontario Court of Appeal, two of its five members gave reasons dismissing the appeal; the other three members simply agreed in that result. Osler J.A. proceeded on the ground that the Master of Titles had jurisdiction, which was properly exercised, to maintain the caution and it was not for him to try the rights of the parties summarily. Nothing in his reasons touches the question of notice unless it be in his recital of the facts as involving a claim by Thompson that the transfer by Sears to Skill was in fraud of Thompson’s rights under his exercised option.

It is on the reasons of Meredith J.A. that Duranceau Co.Ct.J. in Re Jung and Montgomery and the respondent in the present appeal rely. Regrettably, Judge Duranceau in quoting those reasons stops short of placing the quotation in context, that being supplied by a following passage which is not quoted in Re Jung and Montgomery. The following two passages from the reasons of Meredith J.A. are the ones quoted:

The Land Titles Act is not an Act to abolish the law of real property; it is an Act far more harmless in that respect than in some quarters seems to be imagined, at times, at all events, when the wish is father to the imagination. It is an Act to simplify titles and facilitate the transfer of land; and, doubtless, greater familiarity with it will tend to remove a good many false notions regarding its revolutionary character.

Its main purpose is to assure the title to a purchaser from a registered owner; but, surely, it is not one of its purposes to protect a registered owner against his own obligations, much less against his own fraud: see sec. 124.

Section 124 of the Act, as it then was (the provision is now s. 174), protects against fraud in the

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following terms (previously quoted in its original form as s. 99):

Subject to the provisions in this Act contained with respect to registered dispositions for valuable consideration any disposition of land or of a charge on land which, if unregistered, would be fraudulent and void shall, notwithstanding registration, be fraudulent and void in like manner.

Having referred to this provision, Meredith J.A. went on to say this:

In this case the respondent contends—and it is so plainly alleged in the statement of defence of the defendant Sears in the action—that the appellant acquired title to the land in question from the registered owner, not only with notice of, but expressly subject to, a prior right, which the respondent had, to purchase it, and that he is substantially in the same position as if he had himself agreed to sell it to the respondent. If this be so, how can the Act prevent an enforcement of such a right? But for the registered caution, a transfer by the appellant to a subsequent registered owner, would, under the Act, give a good title to such an owner, but why should it, and how can it, cut out the obligation of the appellant whilst the title remains in him? The purpose of the Act is to protect the registered owner, who buys on the faith of the registry. But if fraud were necessary to support a claim against the appellant, having regard to the Act, it is, at the least, a reasonable question whether the registration of a transfer, for the purpose of defeating a legal obligation, would be, against him who commits the act, a fraud under the section which I have mentioned. I do not, of course, intimate that the respondent will be able to establish his contentions; it is enough to say that such contentions are reasonably made, in good faith, and are the subject of a pending action.

What this passage indicates is that there was more than mere notice alleged against Skill; that he was, in effect, party to an arrangement that any title he acquired would be subject to Thompson’s prior claim. Of course, this was mere allegation; the issues were still to be tried. I think Magee on Land Titles (1940) at p. 110 was substantially correct in treating Re Skill and Thompson as determining how far the jurisdiction of the Master of Titles extended in dealing with a registered caution. I do not, therefore, regard Re Skill and Thompson as settling for any inferior court that

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notice as opposed to fraud will be effective against a registered title.

The Tew case in 1914 is even less relevant to the issue in this appeal. What is relied on is a general statement of Mulock C.J. Ex., sitting as one of four Judges in appeal, as follows (at p. 265 of 32 O.L.R.):

The Land Titles Act deals simply with the question of registration; it does not interfere with any common law or other rights of an owner of land to mortgage the same by instrument not capable of registration under the Land Titles Act. The appellant, being a volunteer, acquired by the transfer from the mortgagor to him only the mortgagor’s interest, or, in other words, took subject to the respondent company’s lien: National Bank of Australasia v. Morrow (1887), 13 V.L.R. 2; Jellett v. Wilkie (1896), 26 S.C.R. 289.

The litigation arose out of a claim by a mortgagee of land for priority against an assignee for the benefit of creditors who obtained the assignment from the mortgagor after the mortgage but who registered his assignment on the Land Titles register. The mortgage had been made pursuant to The Short Forms of Mortgages Act, and it was not as such registrable on the Land Titles register. By the time the mortgagee obtained a proper Land Titles transfer, the assignment had been registered. The trial judge held that the mortgage should have priority, and this was obviously correct since the assignee was not a purchaser for value who could claim the protection of the Land Titles register. Section 45 of the Act as it then stood (it is now s. 94) provided that “a transfer of registered land made without valuable consideration is subject, so far as the transferee is concerned, to any unregistered estates, rights, interests or equities subject to which the transferor held the same…”. The only difference among the four Judges who heard the appeal was as to the form of the judgment to enable the mortgagee to have effective relief.

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So much for the case law. The logic of The Land Titles Act is perfectly plain. If, as its terms stipulate, it is the register that determines where title resides, then actual notice becomes immaterial unless it is preserved, as fraud is preserved and as certain other interests called overriding interests, are preserved. To say that because notice is not expressly excluded (as it is excluded ex abundante cautela in Torrens systems legislation) it is deemed to be preserved, is no less a pronouncement of policy than that which I espouse. The question then becomes one of determining which policy is more consistent with the Act, with its spirit as well as its letter. A succinct statement of the policy will be found in the Ontario Law Reform Commission’s Report on Land Registration, issued in 1971, in which it summarizes the Land Titles system as follows (at p. 14):

The land titles system was established in Ontario in 1885. It is essentially an affirmation by the province of the ownership of interests in land. Local offices have again been established—at present there are 30—and a separate record is kept in these offices for each parcel governed by the system. The record includes an affirmation of the existence and ownership of interests—the fee simple and charges, and some leases and easements. Interests about which affirmations of existence and ownership are not made may be protected against loss of priority by registration of notices and cautions.

A search is essentially an examination of the record and, usually, of some documents referred to in the record. The system imposes a larger degree of administrative supervision of conveyancing than the registry system does, and forms that must be used are specified for many transactions. If an interest is extinguished as a consequence of the making of an affirmation, the owner of the interest is entitled to compensation from a fund established for this purpose. A claim that does not appear in the record is of no effect against a purchaser unless the purchaser has acted fraudulently.

When The Land Titles Act was first introduced in Ontario, there was already experience in the Province with a system of registration of deeds, and the policy thereunder of priority of registra-

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tion subject to actual notice was clearly expressed: see The Registry Act, R.S.O. 1877, c. 111, ss. 74, 78 and 80. To import actual notice in a title registration system without its express preservation is to change the basic character of the system. It is impossible, in my view, to adhere to the principle of the primacy of the register and at the same time to make it yield to a doctrine of notice.

I come now to s. 85(5), referred to in the reasons of the Court of Appeal in this case as a governing consideration in its decision. This provision reads as follows:

(5) Subject to any entry to the contrary in the register and subject to this Act, instruments registered in respect of or affecting the same estate or interest in the same parcel of registered land as between themselves rank according to the order in which they are entered in the register and not according to the order in which they were created, and, notwithstanding any express, implied or constructive notice, are entitled to priority according to the time of registration.

I do not agree with the view expressed in the Court of Appeal that this provision is, in effect, an affirmation of the survival of notice as a qualification of the absolute character of the register (fraud, of course, apart). The Court dwells on the words in s. 85(5) “notwithstanding any express, implied or constructive notice” for its view, but I am unable to appreciate how the express inclusion of these words supports the conclusion that actual notice of an unregistered interest is still effective against title shown on the register.

If it is a provision that operates at large, it obviously excludes notice of an unregistered interest as a limitation of the title shown on the register. Treating s. 85(5) as operating at large, I cannot see how it can be construed to exclude the effect of notice where the notice is of a claim to the same interest as that purchased by another for value on the faith of the register, but not to exclude it where the notice is of a claim to a subordinate interest, as is the case here. Arnup J.A. in his concurring reasons in the Court of

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Appeal conceded the illogicality of a situation where a person would be better off claiming against a registered transferee through notice than by registering his interest, but he concluded that the Legislature must take responsibility for such a result. I think rather that the Courts must take the responsibility, since it would be their interpretation, by no means a compelled one, which produces it.

In my view, if s. 85(5) be taken in the context of the whole of s. 85 it is capable of explanation without treating it as applicable at large, but yet reinforcing the indefeasibility of the register and of title according to the register, subject only to overriding interests and to fraud.

Section 85 deals with the procedure for registration and with the effectuation of registration. It begins with a provision requiring that the day, hour and minute of the receipt of instruments presented for registration must be noted by the attending officer or clerk. Then follow subsections (2) and (3) which I reproduce here in full:

(2) Subject to the rules, an instrument received for registration shall be registered in the order of time in which it is so received, unless before registration is completed it is withdrawn or the proper master of titles decides that it contains a material error, omission or deficiency or that there is evidence lacking that he considers requisite or declines registration for any other reason, and notifies the parties or their solicitors accordingly within twenty-one days after being so received and allows a period of time not less than seven and not more than thirty days from the date of such notification for correction of the error, omission or deficiency or for furnishing evidence and, when the error, omission or deficiency is corrected or evidence furnished within the time allowed, the instrument has priority as if it had been correct in the first instance, but, if the error, omission or deficiency is not corrected or if evidence is not furnished within the time allowed or if the person desiring registration fails to appeal successfully from the decision, the proper master of titles may proceed with other registrations affecting the land as if the instrument had not been presented for registration, and the proper master of titles shall be deemed not to be affected with notice of the contents of the instrument.

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(3) Registration of an instrument is complete when the entry in the proper register and particulars of registration thereof on the instrument are signed by the proper master of titles, his deputy or a signing officer, and the time of receipt of the instrument shall be deemed to be the time of its registration.

What these provisions show is that entry on the register in fact may take place some time after receipt of an instrument tendered for registration but, nonetheless, the registration will be effective as of the time of receipt of the instrument. As s. 85(2) shows, entry may be held up pending correction of errors or deficiencies in the tendered instrument and yet may be accorded priority as against an intervening tender of another competing instrument which appears to be in correct form. When s. 85(5) speaks of priority “in respect of or affecting the same estate or interests in the same parcel of registered land” according to the order of entry in the register, it is dealing with competing instruments in the light of the provisions of s. 85(2) and (3). It appears to me to be an unnecessary punctuation of the obvious, but it could be said to emphasize the import of s. 85(2) that where an error or deficiency is corrected (as contrasted with the case where it is not) the intervening instrument is not entitled to priority merely because there is notice of it before the error or deficiency in the other one is corrected even if the intervening instrument was created first.

I do not regard s. 85(5), in the context in which it exists, as modifying the effect of ss. 52 and 91, any more than their effect is modified by the incongruous terms of s. 157(3) of the Act respecting tax sale purchasers. It appears that the reference to actual notice in s. 157(3), introduced in an amendment to the Act by 1914 (Ont.), c. 24, s. 2, was designed to establish a special rule for tax sales in conformity with the situation under The Registry Act, since there is an included reference to the relevant section of that Act in the 1914 amendment. The amendment is discussed by Magee, Notice under the Ontario Land Titles Act (1933), 11 Can. Bar Rev. 245 with reference also to the judgment of Meredith C.J.C.P. in Re Lord and Ellis[9], decided shortly before the 1914 amendment was passed. However, all this apart, I do not see this special situation as governing the operation

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of the central feature of the Act.

In summary, I am satisfied that ss. 78(1)(2), 79(1), 91 and 94 of The Land Titles Act make it abundantly clear that notice of an unregistered interest cannot qualify the registered title of a transferee for value from the registered owner, and that this conclusion is reinforced by s. 35 as a whole and by s. 85(5) in particular. In the result, I would allow the appeal, set aside the judgments below and dismiss the application of the respondent Dominion Stores Limited, with costs to the appellant throughout.

The judgment of Judson, Ritchie, Spence and Beetz JJ. was delivered by

SPENCE J.—This is an appeal from the judgment of the Court of Appeal for Ontario pronounced on October 25, 1974. By that judgment, the Court of Appeal dismissed an appeal from the judgment of Grant J. pronounced on October 15, 1973. The respondent, Dominion Stores Limited, had applied to the Supreme Court of Ontario for relief from forfeiture and reinstatement of its lease upon certain premises known as 418 Spadina Road, in the City of Toronto, for an extension of its option agreement for a renewal of the said lease and for an injunction to restrain the three respondents from any future interference with the applicant under its lease and extension or option agreement.

Grant J. did grant relief from forfeiture and “ordered and determined” that the applicant Dominion Stores Limited was entitled to exercise its option to renew the lease until June 30, 1982.

Grant J. further ordered that the respondent United Trust Company be restrained from further excluding Dominion Stores Limited from possession of the said premises so long as Dominion Stores Limited complied with the terms of the said lease.

At the opening of the appeal, I pointed out that no leave to appeal had been obtained and that, therefore, the appeal was governed by the provi-

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sions of s. 36 of the Supreme Court Act which at the appropriate time gave an appeal as of right on a question that is not a question of fact alone from a final judgment of the highest court of final resort for a province in judicial proceedings where the amount or value of the matter in controversy in the appeal exceeds $10,000 while the order of Grant J. confirmed by the Court of Appeal contained no reference to any monetary amount and simply granted the injunction and declaration applied for. Counsel for the appellant referred to the affidavit of Grant Edwardh, an appraiser who deposed that the rental upon the premises was $2.18 per square foot and that the firm market or economic rent was $6.25 per square foot, a difference of $4.07 per square foot per year. Even in one year, the difference between the rent reserved in the lease and the economic rent would exceed $10,000, and such affidavit could have been filed with the notice of appeal to bring the appeal within the provisions of the said s. 36 of the Supreme Court Act as it then existed. Under these circumstances, this Court determined that if leave to appeal were necessary it should be granted.

Dominion Stores Limited had been tenants of the said premises under written lease from September 5, 1935 and had carried on a supermarket in the said premises under the terms of the said lease and various renewals thereof. The respondents Geller and Granatstein became the owners of the said premises subject to such lease in 1946. The last renewal of the lease was dated September 12, 1967 and was to have terminated on November 30, 1970. The said renewal contained an option in favour of Dominion Stores to renew such lease for a further period from December 1, 1970, to November 30, 1975, upon the same terms and conditions except that the rental was increased to $475 per month and also subject to the usual clause as to increase to cover real estate taxes. Dominion Stores gave due notice of the exercise of such option.

Desiring to make extensive repairs to the premises and to devote them to a specialty shop rather than to a supermarket, Dominion Stores Limited entered into negotiations with the owners for a longer term of leasing. Such negotiations con-

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tinued from February 1971 until the early months of 1972.

On April 12, 1972, Dominion Stores Limited, over the signature of its real estate manager, one J.A. Munro, wrote to the landlords’ solicitor confirming the arrangement which it was alleged had been orally arrived at prior thereto. I quote that letter in full:

Dear Sir:

Re:      418 Spadina—Option to Lease

Pursuant to our discussion yesterday please find attached a copy of the letter received from Simpsons Contract Division covering the cost of renovations required to bring this building in line with Health, Building, Fire and Labour Department regulations.

The existing Dominion lease for this location expires November 30th, 1975. It is understood the owners are now prepared to grant an option to Dominion Stores Limited for the period from December 1, 1975 to June 30th, 1982, at the same rental, terms and conditions as contained in the existing lease. As discussed with you it is the intention for Dominion Stores Limited to proceed with a sublease of these premises at the earliest possible date to Quintana Stores Limited.

On receipt of your clients written acceptance of the option to lease and the proposed sublease, we will have our legal department draw the necessary documentation for execution. Your early attention to this matter will be greatly appreciated.

On April 20, 1972, the landlords’ solicitor replied to that letter as follows:

Attention: Mr. J.A. Munro

                   Real Estate Manager

Dear M. Munro:

Re:         418 Spadina—Option to Lease

We acknowledge receipt of your letter dated April 12th, 1972, and wish to advise that our clients would be prepared to enter into an option agreement with your company for the period from December 1st, 1975 to June 30th, 1982, at the same rental, terms and conditions as contained in the existing lease.

It is clearly understood that the option agreement will contain a condition that renovations must be made by your company to the building in the minimum amount of $15,000.00 or else the agreement would be terminated. It is also understood that the renovations would be

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commenced and completed within a reasonable period of time after the execution of the option agreement.

We would suggest that you draw the documentation which is required and if the form and substance meet with our approval we shall submit it to our clients for their immediate execution.

On April 28, 1972, Dominion Stores Limited, over the signature of J.R. Morrison, a solicitor in its legal department, again wrote to the solicitor for the landlords a letter which read:

Attention: Mr. Lawrence S. Crackower

Re:                     Your File No. 72-10835

                           Molly Geller & Bella Granatstein

                           418 Spadina Road, Toronto

                                                                                   

Dear Sirs:

Further to your letter of April 20th last addressed to the attention of our Mr. J. A. Munro, we have prepared and enclose herewith option agreement in accordance with the understanding reached, and if it meets with your approval we shall be obliged if you will have same executed by your clients and return all three copies to us for execution by Dominion Stores Limited, following which we shall return to you one fully executed copy.

As the remainder of the current term and the renewal term total more than ten years we may wish to register a Notice of Lease, and will be much obliged if you could let us have a legal description of the property or if not the lot and plan numbers.

                                                                             Yours very truly,

                                                                             J.R. Morrison,

                                                                             Solicitor,

                                                                             Legal Department.

The learned trial judge, after a careful consideration of the evidence and documents which I have recited and of the appropriate law, came to the conclusion that by the letter of April 20, 1972, there had been concluded an enforceable agreement to extend the lease on the premises until the year 1982. The learned trial judge then considered the situation if his determination had been in error and that the correspondence properly construed expressed the intention that the agreement between the parties would be subject to the prepara-

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tion and execution of a new agreement which met the approval of the landlords’ solicitors. Again, after an examination of the evidence and the case law, he came to the conclusion that the solicitors for the landlords did not act judiciously in the matter and that they withheld their approval in bad faith. The learned trial judge, therefore, granted the order which I have recited above determining that Dominion Stores Limited was entitled to exercise its option to renew the lease until June 30, 1982.

Jessup J.A. disposed of this issue in the Court of Appeal in the following short paragraph:

The appellant also argues that the agreement in question here for the extension of a lease was only an agreement to agree but I do not think that contention is supported by a fair consideration of the entire correspondence between the landlord’s solicitor and the tenant.

Arnup J.A., in his reasons, said:

The other points raised by the appellant and mentioned by Jessup J.A. were in my view correctly disposed of by Grant J.

I have come to the conclusion that upon this issue the judgment of the learned trial judge confirmed by the Court of Appeal was the correct one and I need add little to his carefully considered reasons.

There is only one point dealt with in the argument before this Court which requires particular mention and that is that the agreement with Dominion Stores Limited was arrived at by a letter from the solicitors for the landlords and that there is nothing over the signature of the landlords themselves, and further that although the solicitors are and were in this case authorized to negotiate whether the lease should be renewed and the terms of such renewal, they were not authorized to conclude an agreement for the renewal. I am of the opinion that the actual language of the solicitors’ letter of April 20 which I have quoted above clearly indicates that they had instructions from the landlords to conclude a renewal on the terms set out in the said letter and that they were simply carrying out their instructions and acting properly as the communicator for their clients.

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This application was presented to Grant J. upon affidavit evidence. There is no affidavit from either of the respondents Molly Geller or Bella Granatstein and no affidavit from any member of the firm of solicitors who acted for them and who wrote the letter of April 20. Under such circumstances, I am entitled to conclude, as were the courts below, that the letter of April 20 was written upon instructions of the clients and bound the clients as if it had been signed by them personally.

I turn to a much more difficult question, and in order to deal with it resume the outline of the facts.

The appellant United Trust Company had been negotiating with the respondents Geller and Granatstein for the purchase of the premises known municipally as 418 Spadina Road and on May 17, 1972 submitted a written offer to purchase to the said Geller and Granatstein. This offer was accepted by the said Geller and Granatstein on the same day. One term thereof provided:

This offer is conditional for a period of thirty days from the date of acceptance herein upon the purchaser obtaining a surrender of lease from Dominion Stores Limited which will allow the purchaser vacant possession of the premises herein on the date of closing and should such surrender not be obtained within thirty days from the date of acceptance herein then this offer shall be null and void at the purchaser’s option and all deposit monies shall be returned forthwith upon demand without any deductions whatsoever.

The United Trust Company then entered into negotiations with Dominion Stores Limited in an attempt to have them surrender their lease and vacate the premises. These negotiations continued until on or about the 15th of June when two solicitors for United Trust met with an officer and the solicitor for Dominion Stores Limited in what the solicitor for United Trust Company described as being “a bona fide attempt to settle the matter which is now before the court”. The said solicitor in his affidavit continued:

5. It was agreed that I would discuss with my clients the amount of rent which they would be prepared to accept from Dominion Stores should Dominion Stores lease the premises from them. As an alternative path to settlement, Mr. Shaw agreed that Mr. Morrison would deter-

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mine the amount of compensation which Dominion Stores would accept to reimburse them for the alleged out-of-pocket expenses incurred and for the loss of the location.

The representatives of the two parties parted on that basis and no further negotiations seem to have taken place but on the same June 15, 1972 the United Trust Company, not its solicitor, wrote to Mrs. Geller and Mrs. Granatstein the following letter:

Re:         418 Spadina Road, Toronto

Dear Mrs. Geller and Mrs. Granatstein:

This letter will confirm that we intend to waive our rights with respect to the condition about obtaining vacant possession of the above property from Dominion Stores Limited as set out in the agreement between United Trust Company and yourselves dated May 17th, 1972.

Therefore, we have instructed our solicitors, Goodman & Goodman to proceed to close the transaction.

I would like to take this opportunity to thank you for the courtesy extended to us by reducing the interest rate on the mortgage back to 8%.

It was quite apparent therefore that rather than continue to negotiate with Dominion Stores Limited, United Trust Company were ready to waive the condition in the accepted offer to purchase of May 17, 1972 which made the transaction dependent upon its success in obtaining a surrender of the Dominion Stores lease. The final paragraph of that letter is also most noteworthy. The offer to purchase which I have recited above provided for interest at the rate of 9 per cent per annum. On the basis that the United Trust Company was not going to be able to obtain possession of the premises free from lease, it succeeded in reducing the interest on the mortgage back by one per cent per year.

It was only on May 25, 1972 that the solicitors for the respondents Geller and Granatstein replied to the Dominion Stores’ letter of April 28, which I have quoted above, and that reply read:

Attention: Mr. J.R. Morrison, Solicitor, Legal Department

Dear Mr. Morrison:

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Further to your letter to us of April 28th, and further to our recent telephone coversation with Mr. Munro, please be advised that our clients have instructed us to advise you that they have no intention of executing the documents which you have forwarded as the said documents do not meet with the approval of the writer nor our clients in their form and substance.

At this time, we are returning your draft Agreements to you.

Although the offer to purchase provided for closing “on or before the 31st of July 1972”, the transaction was closed between the respondents Geller and Granatstein as vendors and the United Trust Company as purchasers on June 21, 1972, and the following day, without any notice to Dominion Stores Limited, United Trust Company placed a new door with a new lock on the premises at 418 Spadina Road and excluded Dominion Stores Limited from the premises, although Dominion Stores had paid rent for the period up to and including June 30, 1972. On the same June 21, 1972, the solicitors for United Trust Company wrote to the Dominion Stores Limited a letter which read:

Re:                                United Trust

                                       418 Spadina Road

                                      Geller and Granatstein

                                                                                   

Dear Nat:

Subsequent to our meeting last Thursday we met with the vendors’ solicitors to attempt to obtain an extension of the time for the fulfilment of the condition in the contract, to enable us to further explore the possibility of a settlement with Dominion Stores Limited.

The vendors refused to grant an extension and accordingly our client had no alternative other than to close the transaction which was completed today. Notwithstanding, I am instructing our client to provide us with the information as per our discussion so that we can, without prejudice to the legal rights of either party, attempt to settle this matter.

The first paragraph of this letter is rather interesting. It refers to a meeting on “last Thursday”. June 21 would appear to have been a Wednesday. If so, the previous Thursday would have been the 15th, but on June 15 United Trust Company was writing to Mrs. Geller and Mrs. Granatstein waiv-

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ing the condition which entitled them to a surrender of the Dominion Stores’ lease before they could be required to close the transaction and purchase the premises. It is difficult to understand how there could have been any negotiation at the time specified in that letter other than one to reduce the cost to United Trust Company and such negotiation was in fact successful when the rate on the interest was reduced. Such rejection was, of course, on the basis that United Trust would have to take the title to the premises subject to the lease and the solicitors for the respondents Geller and Granatstein accepted this understanding when they wrote to the solicitors for the United Trust Company on June 19, 1972 saying in part:

Since your clients have now agreed to waive the condition in the said Agreement of Purchase and Sale, it now appears that your clients have agreed to assume the tenancy obligations with Dominion Stores Limited.

[The underlining is my own.]

On July 7, 1972, the solicitors for Dominion Stores Limited delivered to the solicitors for the United Trust Company a letter demanding that possession be returned and on July 10, 1972 the same solicitors for Dominion Stores Limited delivered to the same solicitors for United Trust Company a letter enclosing a cheque dated July 7, 1972. The cheque was returned. The Dominion Stores Limited, therefore, commenced these proceedings.

The title to the premises at 418 Spadina Road, Toronto, is under the provisions of The Land Titles Act, R.S.O. 1970, c. 234, as amended by 1972 Statutes of Ontario, cc. 1 and 132, and 1973, c. 39.

The appellant United Trust Company admits it had full actual notice of the lease which the respondent Dominion Stores Limited held on the premises and indeed it could not say otherwise as its officers had engaged in long negotiations with the officers of Dominion Stores Limited in an attempt to obtain a surrender of that lease and the offer to purchase made by the appellant United Trust Company to the respondents Geller and Granatstein was originally subject to the condition that such surrender of lease could be obtained

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from the respondent Dominion Stores Limited. It is the contention, however, of the appellant that under the provisions of The Land Titles Act the lease to Dominion Stores Limited never having been registered on the title in accordance with the provisions of that Act the purchaser took free of any encumbrances created by that lease. Put baldly, this contention is that under the Ontario Land Titles Act, apart from fraud, actual notice of a non-registered instrument is ineffective to put the burden of the encumbrance resulting therefrom upon a purchaser for value.

It should first be noted that by the express provisions of The Land Titles Act, i.e. s. 51(1), para. 4, any lease for a period with less than three years to run is protected despite lack of registration by providing that the title is subject to such a lease which for the purpose of the Act should be deemed to be not an encumbrance and, therefore, not requiring registration. As pointed out by Grant J., the lease to Dominion Stores Limited, apart from any right of or option of extension, did not expire until November 30, 1975, and the United Trust Company closed the purchase from the respondents Geller and Granatstein on June 21, 1972, more than three years prior to the expiry of the term and, therefore, the lease was not protected by the provisions of s. 51 (1).4.

The appellant submits, in support of its contention, the provisions of ss. 52, 75, 78, 79, 85(5), 91 and 115(5) of The Land Titles Act. Section 52 deals with a first registration and is not applicable upon the present appeal. I set out the other sections cited by the appellant:

75. (1) No person, other than the registered owner, is entitled to transfer or charge registered freehold or leasehold land by a registered disposition.

(2) Subject to the maintenance of the estate and right of the registered owner, a person having a sufficient estate or interest in the land may create estate, rights, interests and equities in the same manner as he might do if the land were not registered.

…

78. (1) Any person entitled to or interested in any unregistered estates, rights, interests or equities in registered land may protect the same from being impaired by

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any act of the registered owner by entering, on the register such notices, cautions, inhibitions or other restrictions as are authorized by this Act or by the director of titles.

(2) Where a notice, caution, inhibition or restriction is registered, every registered owner of the land and every person deriving title through him, excepting owners and encumbrances registered prior to the registration of such notice, caution, inhibition or restriction, shall be deemed to be affected with notice of any unregistered estate, right, interest or equity referred to therein.

…

79. (1) No person, other than the parties thereto, shall be deemed to have any notice of the contents of any instruments, other than those mentioned in the existing register of title of the parcel or land or that have been duly entered in the books of the office kept for the entry of instruments received or are in the course of entry.

(2) For the purposes of subsection 1, the Highways register mentioned in clause c of section 182 shall be deemed to be a book kept for the entry of instruments.

(3) Subject to the regulations, the Trans-Canada Pipe Line register established under clause c of section 182 shall be deemed, for the purposes of this Act, to be a register of the title of land or interests therein, including easements, owned by Trans-Canada Pipe Lines Limited.

85. (5) Subject to any entry to the contrary in the register and subject to this Act, instruments registered in respect of or affecting the same estate or interest in the same parcel of registered land as between themselves rank according to the order in which they are entered in the register and not according to the order in which they were created, and, notwithstanding any express, implied or constructive notice, are entitled to priority according to the time of registration.

…

91. A transfer for valuable consideration of land registered with an absolute title, when registered, confers on the transferee an estate in fee simple in the land transferred, together with all rights, privileges and appartenances, subject to,

(a) the encumbrances, if any, entered or noted on the register; and

(b) the liabilities, rights and interests, if any, as are declared for the purposes of this Act not to be encumbrances, unless the contrary is expressed on the register,

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and to such rights, privileges and appurtenances, subject also to any qualifications, limitation or encumbrance to which the same are expressed to be subject in the register, or where such rights, privileges and appurtenances are not registered, then subject to any qualification, limitation or encumbrance to which the same are subject at the time of the transfer, but free from all estates and interests whatsoever, including estates and interests of Her Majesty, that are within the legislative jurisdiction of Ontario.

…

115. (1) A lessee or other person entitled to or interested in a lease or agreement for a lease of registered land may apply to the proper master of titles to register notice of the lease or agreement in the prescribed manner.

…

I shall deal with these sections hereafter.

It is the appellant’s argument that the enactment of the Torrens land titles system in the Province of Ontario made applicable in that province the main theory of a Torrens title registration system, to wit, the absolute authority of the register, and that it is the effect of such a principle that actual notice, no matter how clearly proved so long as encumbrances do not appear on the register, does not affect the clear title of the purchaser for value. I am ready to agree that this is a prime principle of the Torrens system and that it has been referred to as such by various text writers which I need not cite in support thereof.

The Torrens Registration System was the brainchild of a Mr. Robert Torrens of South Australia and, due to his perseverance, a statute embodying the principles of his land titles system was enacted in South Australia in 1857. Similar statutes based on the same principles and using the same technique were enacted in rapid succession in Queensland in 1861, in Tasmania, Victoria and New South Wales in 1862, in New Zealand in 1870, and in Western Australia in 1874. Use of the system spread to Canada and a like statute was enacted in the Colony of Vancouver Island in 1861, and then in the Province of British Columbia in 1869. The Land Titles Act was enacted in Ontario in 1885. At that time, the Legislature in Ontario had before it as models all these

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previous enactments which I have listed. In every case, those enactments contained an express provision making actual notice ineffective to encumber the registered title.

The subsequent enactment of Land Titles Acts in Alberta, Saskatchewan and Manitoba contained like provision. In Ontario, no such provision appeared. The respondent Dominion Stores Limited submits that this omission is crucial and certainly could not be considered to be an accident.

Counsel for the respondent Dominion Stores Limited submits, and I agree with him, that the many cases cited by counsel for the appellant for the proposition that actual notice is ineffective, including some cases which bear an almost exact resemblance to the present, are cases which depend upon the statutory provisions in the various jurisdictions containing such express provision and, therefore, are irrelevant in considering the situation in Ontario which lacks such a provision. I have read the authorities cited by the appellant and I do find that in each of those cases there is express reference to such a section. As an example, may be cited the provisions of s. 203 of The Land Titles Act of Alberta, R.S.A. 1970, c. 198, which I quote:

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.

[R.S.A. 1955, c. 170, s. 203]

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There is no doubt that when such a term appears in the governing statute, the result is that unregistered encumbrances fail in any way to affect the title of the purchaser for value.

Lord Buckmaster said in Waimiha Sawmilling Company Limited v. Waione Timber Company Limited[10], at p. 106:

The first of these sections provides in plain language that, except in the case of fraud, the registered proprietor of land holds it freed from everything except what is notified on the register, subject to the three exceptions, not one of which is relevant for the present purpose; while s. 197 expressly declares that knowledge of the existence of an unregistered interest shall not of itself be imputed as fraud.

[The emphasis is my own.]

and adopted the definition of “fraud” given by Lord Lindley in Assets Co. v. Mere Roihi and others,[11], at p. 210:

...by fraud in these Acts is meant actual fraud, i.e., dishonesty of some sort, not what is called constructive or equitable fraud—an unfortunate expression and one very apt to mislead, but often used, for want of a better term, to denote transactions having consequences in equity similar to those which flow from fraud.

However, in Ontario, only a few years after the enactment of The Land Titles Act, the courts have expressed a disinclination to imply such an extinction of the doctrine of actual notice. There is no doubt that such doctrine as to all contractual relations and particularly the law of real property has been firmly based in our law since the beginning of equity. It was the view of those courts, and it is my view, that such a cardinal principle of property law cannot be considered to have been abrogated unless the legislative enactment is in the clearest and most unequivocal of terms. Such a provision, as I have said, does appear in all the other statutes cited by the appellant.

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The view of the Ontario courts was expressed by Meredith J. in Re Skill and Thompson[12]. There, a master of titles had made an order in which he refused to expunge from the register a caution which was registered by a person claiming under an agreement to purchase from the person who had been the owner and who had, despite such agreement to purchase in the hands of the person, conveyed to one who became the registered owner on the title. Riddell J. allowed an appeal from the master of titles and ordered that the caution be expunged. Thompson appealed to the Divisional Court composed of Meredith C.J.C.P. and Anglin and Mabee JJ. and Mabee J. gave the reasons for the Divisional Court in reversing Riddell J. Skill then appealed to the Court of Appeal composed of Moss C.J.O. and Osler, Garrow, and Maclaren JJ.A. In the Court of Appeal, Meredith J.A. alone dealt with the point and his statement has been quoted ever since as expressing the Ontario view as to the effect of actual notice. It was:

MEREDITH J.A.: The Land Titles Act is not an Act to abolish the law of real property; it is an Act far more harmless in that respect than in some quarters seems to be imagined, at times, at all events, when the wish is father to the imagination. It is an Act to simplify titles and facilitate the transfer of land; and, doubtless, greater familiarity with it will tend to remove a good many false notions regarding its revolutionary character. Its main purpose is to assure the title to a purchaser from a registered owner; but, surely, it is not one of its purpose to protect a registered owner against his own obligations, much less against his own fraud:

Some years later, in 1914, in John Macdonald & Co. Limited v. Tew[13], Mulock C.J. Ex. said at p. 265:

The Land Titles Act deals simply with the question of registration; it does not interfere with any common law or other rights of an owner of land to mortgage the same by instrument not capable of registration under the

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Land Titles Act. The appellant, being a volunteer, acquired by the transfer from the mortgagor to him only the mortgagor’s interest, or, in other words, took subject to the respondent company’s lien: National Bank of Australasia v. Morrow (1887), 13 V.L.R. 2; Jellett v. Wilkie (1896), 26 S.C.R. 289.

Now it is true that in Macdonald v. Tew Chief Justice Mulock was dealing, as he said, with a person who as assignee for creditors was not a purchaser for value but his statement as to the effect of The Land Titles Act upon the common law rights of an owner of land to mortgage, or to lease, is indicative of the view held by Ontario courts.

The next decision in Ontario to which I wish to refer is Re Jung and Montgomery[14]. There, Duranceau D.C.J. had considered a landlord’s application for possession. The landlord and a tenant had both been the tenants of adjoining parcels of land held under The Land Titles Act. The landlord purchased the parcel which he had previously leased and the parcel leased by Montgomery. Montgomery’s lease, including the option to renew, ran for more than three years. Jung, the new registered owner, had full knowledge of Montgomery’s tenancy at the time he purchased from the previous owner. After having closed the transaction, Jung continued to accept rental from Montgomery but later made application for possession. This latter fact, in my view, could have determined the case simply on the basis that Jung had accepted Montgomery as his tenant and was saddled with Montgomery’s lease. The learned district court judge, however, mentioned this point only at the close of his reasons and devoted the main portion thereof to a consideration of the question of whether Jung’s actual notice of Montgomery’s lease prior to his having closed the transaction of purchase resulted in him having to take title subject to Montgomery’s lease and held that it did so relying particularly on Skill and Thompson and Macdonald v. Tew which I have cited above. Jung appealed to the Court of Appeal and the

[Page 955]

disposition there is set out in the report in these words:

The court dismissed the appeal at the conclusion of the appellant’s argument and orally expressed its agreement with the judgment appealed from.

In 1955 O.W.N. at p. 936, a similar notation appears.

Shortly thereafter, in 1960, The Land Titles Act was amended by the addition of s. 54(5). That amendment now appears as s. 85(5) of The Land Titles Act which I have cited above.

In Pitcher v. Shoebottom[15], Lieff J. considered a case where the plaintiff had entered into an oral agreement to buy certain lots from the defendant. Prior thereto, the defendant had approached the real estate agent for the purpose of selling his land. As a result of that agent’s endeavours, an agreement had been entered into between the defendant and one Block for the sale of part of the lands in November 1960. That transaction was closed in 1960. The plaintiff took action against the defendant for specific performance of the agreement made in 1958 relying on Jung and Montgomery, supra. The defendant pleaded the provisions of what is now s. 85(5) of The Land Titles Act. Lieff J. said at p. 112:

At the time the agreements of purchase and sale were entered into there seems to be no doubt that actual notice of an unregistered interest was sufficient to defeat a registered purchaser’s claim to priority over that unregistered interest. That this was the situation at the time the agreements were entered into is supported by Re Jung and Montgomery, [1955] O.W.N. 931, [1955] 5 D.L.R. 287, where the Court of Appeal dismissed an appeal from the judgment of Duranceau, D.C.J., for the reasons given by him.

…

It is argued by the corporate defendants that the Land Titles Amendment Act [now s. 85(5)] has the effect of eliminating the doctrine of actual notice from the Land Titles Act. If this is so, and the proper law to apply in the present case is the statute as amended, the effective date of which was January 1, 1960, then this would

[Page 956]

necessarily be an end to the matter with respect to the doctrine of actual notice.

Lieff J. found it unnecessary to decide this point as he held, as a matter of fact, that the purchaser had not notice of the unregistered interest.

In the present case, both Jessup J.A. and Arnup J.A. considered s. 85(5) in giving the reasons for the Court of Appeal, as had Grant J. upon the hearing of the application. Jessup J.A. was of the opinion that by the enactment of s. 85(5) the Legislature had disclosed the intent of the statute and that it was the intent found in the decision of Re Jung and Montgomery, noting:

The subsection does not purport to repeal generally the law as laid down in Re Jung and therefore was not enacted simply for the purpose of such repeal.

As an alternative reason for the conclusion, Jessup J.A. pointed out that s. 85(5) dealt with “instruments registered in respect of or affecting the same estate or interest in the same parcel of registered land” while the issue considered was a freehold estate in the purchaser United Trust Company and a leasehold estate in Dominion Stores Limited.

Arnup J.A., in his reasons, dealt with the argument in this term:

The appeal narrows down to the question whether the enactment of s. 85(5) in 1960 changed the law by abolishing the doctrine of actual notice. If this is what the Legislature intended, the amendment was put in a very peculiar place, having regard to the context of subsections (1) to (4) of s. 85.

With respect, I am in complete agreement with that comment. It is difficult to understand why the Legislature, faced with a decision approved in the Court of Appeal that actual notice was still in Ontario effective to encumber the registered titleholder’s estate, should have attempted to eliminate such a conclusion by the enactment of a subsection in a section dealing with details of registration when an appropriate amendment in plain words of s. 52 as to first registration or s. 91 as to subsequent transfers would have been appro-

[Page 957]

priate. The form was available as it already appeared in many other provincial Land Titles Acts. Again, I agree with Arnup J.A. when he said that the law of real property should not be found to have been altered by the Legislature except where such alteration had been made by clear or appropriate words.

Arnup J.A. was of the view that s. 85(5) would have applied between registered instruments even if one were a transfer of the freehold and the other a lease, being of the opinion that the latter affected the former but found it unnecessary to so determine. In view of his opinion, with which, with respect, I agree, s. 85(5) did not affect the law as enunciated in Re Jung and Montgomery.

I am in accord with the reasons set out by Jessup J.A. and Arnup J.A. in the Court of Appeal to that effect and I, therefore, am not required to consider the issue of whether the circumstances which occurred in this appeal, and which I have outlined with some detail above, could result in a finding of fraud against the appellant.

In Zbryski v. City of Calgary[16], Farthing J. considered circumstances which, although they do not resemble the present circumstances, had much the same tenor and found that such circumstances did constitute actual fraud as against the holder of the unregistered interest but he did so after a trial and after witnesses had given viva voce evidence and were cross‑examined extensively.

The present appeal arose upon an application for relief against forfeiture and for an injunction. The application was considered upon the basis of affidavit evidence and documents with a limited amount of transcript of examination upon the affidavits. The application itself did not contain any allegation of fraud. In my view, the well-established principle that fraud must be strictly alleged and strictly proved would not justify a finding of fraud on this kind of a record and, therefore, I have not come to any conclusion as to whether the

[Page 958]

respondent Dominion Stores Limited could have established its case upon the basis of actual fraud.

For the reasons which I have given, I would dismiss the appeal with costs and affirm the judgment of the Court of Appeal for Ontario.

Appeal dismissed with costs, LASKIN C.J. dissenting.

Solicitors for the appellant: Goodman & Goodman, Toronto.

Solicitors for the respondent: Fraser & Beatty, Toronto.