Who's Responsible for This?



Clients from other jurisdictions are often surprised that notwithstanding the fact that Alberta mortgages, like the mortgages from their jurisdiction, contain provisions giving the lender the power to sell the mortgaged property, these sales are actually conducted by the Court.  This has been the case since the 1930s and is so firmly established in the Alberta legal firmament, it is difficult to imagine it changing. It provides protection for debtors by having the sale process controlled by the Courts and is part of a larger web of mortgagor protection legislation from that time period.  While often seen by lenders as creating delay and expense, it also provides some protection for the lender in that it is the Court, not the lender, who makes the final decision with respect to a sale.

In a recent appearance in chambers, one of our associates had the case of Chief Construction Company Ltd. v. Royal Bank of Canada[1] cited to him by the Court.  We were not aware of it and thought it raised some interesting issues for lenders regarding some of the limitations to these protections.

Chief Construction Company Ltd. (“Chief Construction”) purchased 2 houses on 32 acres of lands in a judicial sale in a foreclosure filed by Royal Bank of Canada (“RBC”).  Between the date that Chief Construction’s offer was accepted by the Court and the closing, there was a flood on the property, causing $200,000 in damage to the houses on the property.  Chief Construction sued RBC for the $200,000 damages suffered.  Chief Construction applied for summary judgment against RBC.  RBC cross applied for summary dismissal.

In this instance, the Redemption Order had been granted September 30, 2011. It appears to have been in the usual form, which attached a judicial listing agreement and a schedule (“Schedule “A”) which was to be attached to any offer submitted to the Court for acceptance.  Among the notable terms of the Order were:

  • Realtor was given authority to list the property as an officer of the Court;
  • Any offers received would be subject to
    • Court approval; and
    • the terms and conditions set out in Schedule “A”;
  • Schedule “A” stated, among other things:
    • the seller of the property was the Court of Queen’s Bench of Alberta;
    • the property was sold “as is-where is”;
    • neither the seller or its agent had made any representations and warranties with respect to the property, including with respect to the condition of any buildings or improvements on the property;
    • if there was an inconsistency between the purchase agreement and Schedule “A”, Schedule “A” prevailed; and
    • the offer may only be accepted by an Order of the Court.

On March 15, 2012, a Preservation Order was granted, permitting RBC to enter the property, take over the utilities and do whatever was necessary to preserve the property.  This is a standard Order, usually granted when properties are abandoned.

Chief Construction hired their own realtor and viewed the property with that realtor.  They read and understood Schedule “A” and were aware this was a foreclosure sale.  Their representative never spoke to RBC or the realtor appointed by the Court.

An offer to purchase the property (the “Offer”) was made by Chief Construction on May 22, 2012. Section 6 of the Offer made a variety of representations and warranties by both the buyer and seller, including representations regarding the condition of the property.  There was also a provision that the property would be in substantially the same condition on possession as it was when the Contract was accepted.  Additionally, there was to be a Real Property Report (“RPR”) provided by the Seller.  Schedule “A” was attached to the Offer.  The version attached did not exclude the RPR requirement. The Offer was never signed by RBC but was accepted by the Court on June 1, 2012.  The closing date of the sale was June 29, 2012.

In April 2012, the property flooded and the buildings on the property were damaged.  RBC remediated the property and added those expenses to the amount owing under the mortgage.  Chief Construction was aware of the flood and the flood damage.

On June 20, 2012, a representative of Chief Construction and its realtor inspected the property.  The property was undamaged at that time.  The property was not inspected again by either party until July 3, 2012.  At that time, Chief Construction discovered that the buildings had been damaged by flooding.  It was alleged that the flood was due to the sump pump not working because RBC had not maintained the electricity to the property.  It was not possible to determine whether the damage occurred before or after the closing date.  RBC first became aware of the damage on July 17, 2012.

Chief Construction sued RBC in breach of contract and in negligence.  The suit was commenced nearly two years after the purchase closed.

The Master held that Chief Construction did not have a claim in contract against RBC.  However, he did not dismiss that claim against RBC.  Master Prowse held that Chief Construction had rights which arose from the Offer.  The Court had the ability to uphold the rights provided to Chief Construction under the Offer by ordering RBC to pay some of the proceeds it received as part of the foreclosure process to Chief Construction.  He did this with respect to the value of the RPR.

With respect to the rest of the claims in breach of contract and tort, he gave Chief Construction leave to amend their Statement of Claim to seek compensation for the rights under the contract that were violated by redistribution of the mortgage proceeds from RBC to Chief Construction.  This, the Master indicated, was the proper cause of action and remedy rather than a claim in contract or negligence.

The Court also ruled that the evidence with respect to the violation of those rights was not clear based upon the evidence before the Court.  There was also insufficient evidence to establish that RBC was negligent with regard to the failure of the sump pump.  As such, the rest of the claims had to proceed to trial.

The Court noted that the proper way to have dealt with these claims would have been an immediate application for advice and direction with respect to these losses.  However, the Court did not deny Chief Construction their relief on that basis or on the basis of the delay in filing their claim.

This is a surprising case in many ways.  It would appear that the Court interpreted Schedule “A” very narrowly.  This sort of narrow construction usually is reserved for standard form contracts, which are contracts where the terms are imposed by one party on the other.  Arguably, Schedule “A” is just that sort of document.

However, this sort of restrictive interpretation of a document generally is argued in the context of a claim of either breach of contract or negligence against one of the parties.  This is because documents like Schedule “A” usually are designed to protect the person who created them, which, in this case, is the Court.  In the case of breach of contract, the idea is that the party who is being sued has violated the rights of the person suing.  If the breach of contract is made out, the party being sued compensates the person suing for their loss.

What makes this situation unique is that the party who is being made to compensate the person suing is not a party to the contract.  In essence, what appears to be happening, but is not made explicit, is that the Court is finding itself in breach of contract.

The relief against RBC is equally unique.  The funds have already been paid in accordance with a prior Order of the Court.  It is likely that Order did not indicate that Chief Construction would receive any portion of the sale proceeds.  That Order has been filed and carried out.  Normally, one would have to set aside the earlier Order or appeal it and have it overturned in order to change the payment provisions.  Neither of these things have happened.

On a practical basis, this highlights for lenders and their counsel the importance of providing a form of real estate purchase contract and having the realtor request that all purchasers use that form.  If an offer is provided on another format, amendments should be requested to the offer to remove all representations and warranties along with any covenants stating the property will be in the same condition on closing as on the acceptance of the contract.  In most cases, purchasers are willing to do so because they are generally offering less than they would otherwise pay for the property due to the fact that it is being sold through a foreclosure.

[1] 2017 ABQB 589 (Alta. Q.B.)

Collateral Mortgages – A Trap for Those Who Aren’t Careful


A recent case has demonstrated what can happen if a collateral mortgage and the associated documents that need to go along with it are not properly prepared.

Re: 667402 Alberta Ltd.[1] arose out of proceedings commenced under the Companies’ Creditors Arrangement Act[2] brought by the Canada North Group of companies.  “Weslease” was a company and partnership that did business with 1919209 Alberta Ltd. (“191”), one of the Canada North Group of companies, by leasing certain equipment to it.  The principal of the Canada North Group, Mr. McCracken, approached the principal of Weslease, Mr. Talbot, about a proposed sale and lease back transaction in relation to a wastewater treatment plant that was owned by 191.  Mr. Talbot took the position that Weslease would need personal guarantees from Mr. McCracken and his wife, along with mortgage security from them, as part of the transaction.  Mr. McCracken instead proposed that the transaction would be guaranteed and mortgage security would be provided by two other companies within the Canada North Group, 1371047 Alberta Ltd. (“137”) and Canada North Camps Inc. (“CNC”).

The following documents formed part of the transaction:

  • Approval of Lease and Lease – where the lessees were 191 and Mr. McCracken
  • General Security Agreement – where the debtors were 191 and Mr. McCracken
  • Promissory Note – where the borrowers were 191 and Mr. McCracken
  • Collateral Mortgage – from 137
  • Collateral Mortgage – from CNC

The issue was that the collateral mortgages stated that 137 and CNC were securing the indebtedness that they owed to Weslease under the “Lease Agreements”, however 137 and CNC were not parties to those Lease Agreements.  Weslease argued that even though there was the absence of the word “guarantee” in the collateral mortgages, it was intended and understood that 137 and CNC would be guaranteeing the obligations of 191 and therefore the mortgages should be construed so that this guarantee existed.

Section 4 of the Statute of Frauds[3] still applies in Alberta.  When a person guarantees the debt of another, the Statute of Frauds requires that this promise be in writing.

The wording of the collateral mortgages did not create a debt.  The wording only acted as security for a debt that otherwise existed.  Neither 137 nor CNC were listed as co-lessees or guarantors.  As such, there was no underlying debt that the collateral mortgages secured.  Further, neither 137 nor CNC received any consideration for granting the collateral mortgages and they were not executed under seal, which constitutes consideration at law.  A finding that 137 or CNC granted an enforceable guarantee would require the Court to rewrite the written agreements between the parties, which is not something that the Court does.  The documents clearly stated that the collateral mortgages were given to secure the debts of 137 and CNC, not the debts of 191 and Mr. McCracken.

Weslease argued that the Statute of Frauds was avoided because of the doctrine of part performance.  “Part performance is an equitable doctrine that grew out of concern from common law judges that the application of the Statute of Frauds may lead to injustice in situations where contracts had been partly performed”[4] but the contract was not in writing as required by the statute.  The Court held that the doctrine of part performance does not apply to guarantees.

Because the alleged guarantees were not in writing and there was no underlying debt instrument to the collateral mortgages, the Court directed that the mortgages be discharged from title.

This case confirms that lenders will want to be cautious when using collateral mortgages.  Lenders need to ensure not only that there is a mortgage from the borrower, but also that there is an underlying debt instrument whereby the borrower is making its promise to pay to the lender.  Without this underlying debt instrument, the lender will have no security or claim against the borrower.

[1] 2018 ABQB 1048 (Alta. Q.B.)

[2] R.S.C. 1985, c. C-36

[3] (1676), 29 Car II, c. 3

[4] Supra, note 1 at para. 42

Bankruptcy STILL is not the end!

In our blog post Bankruptcy – it’s not the end! Posted on August 21, 2013[1] we discussed case law which permitted a lender to obtain a deficiency judgment against a mortgagor notwithstanding that the mortgagor had filed for bankruptcy.  In CIBC Mortgage Corp. v. Stenerson,[2] the Court permitted the deficiency judgment even though the mortgagor was bankrupt because the mortgagor had made payments under the mortgage post-bankruptcy.  The Court held that by making the payments, the mortgagor had affirmed the mortgage contract and therefore continued to be liable.

However, other cases disputed imposing such liability on the mere basis of payment and a divergent line of authority developed.[3]  “These cases hold that mere possession and continued payment is insufficient to warrant liability on a personal promise to pay.  Rather, there must be a clear acknowledgement of the continuing obligation…some Courts impose the additional requirement of fresh consideration.”[4]

The conflicting line of cases was recently considered by Justice Topolniski of the Alberta Court of Queen’s Bench in Servus Credit Union v. Sulyok (“Sulyok”).[5]  In Sulyok, the debtor granted a high ratio mortgage to Servus Credit Union (“Servus”).  Years later the debtor filed for bankruptcy.  Servus filed a proof of claim as a secured creditor in the bankruptcy.  The debtor was separated from his spouse during the bankruptcy period and she continued to make the payments on the mortgage.  After the debtor was discharged from bankruptcy, the debtor’s wife stopped paying the mortgage.  The debtor notified Servus that he intended to move back into the property and make the payments.  The debtor made partial payment of the arrears and cured the default on payment of the condominium arrears.  Servus started foreclosure proceedings once the debtor advised that he could not make any more payments.  Servus obtained an Order – Sale to the Plaintiff.  The issue was whether the debtor was still liable for the deficiency given his prior bankruptcy.

At the initial hearing, the Master refused to grant the deficiency judgment.  The Master stated that further consideration was required and that there needed to be evidence that the parties had turned their minds to the continuation of personal liability.  Servus appealed.

On the appeal, Justice Topolniski reviewed the provisions of the Bankruptcy and Insolvency Act (“BIA”).[6]  She made particular note that when the BIA was amended in 2009, the issue of reaffirmation of contracts was considered in the Senate Reports.  The reports specifically recommended that reaffirmation of contracts post-bankruptcy be prohibited for unsecured transactions and that a principled approach be adopted for the reaffirmation of secured transactions.  Parliament chose not to follow these recommendations.

The Justice found that the requirement of fresh consideration or an express reaffirmation failed to adequately balance the rights of all stakeholders involved in these situations.  The Court quoted, “The rehabilitative purpose of s. 178(2) [of the BIA] is not meant to give the debtors a fresh start in all aspects of their lives.  Bankruptcy does not purport to erase all the consequences of a bankrupt’s past conduct.”[7]

The Court found that where a debtor remains in possession of property after bankruptcy and continues to make payments due under the contract then the debtor has affirmed the contract, including the covenant to pay.

Lenders should be particularly happy with this decision as they do not have to turn their mind to whether new consideration is provided or take any extra steps to get the borrower to reaffirm their contractual obligations subsequent to bankruptcy.  At least in Alberta, all the lender has to do is carry on with the contract in the normal course if the debtor is also prepared to do so.

[1] http://www.albertaforeclosureblog.com

[2] 1998 CarswellAlta 388 (Alta. Q.B.)

[3] Scotia Mortgage Corp. v. Winchester, (1997) 205 A.R. 147 (Alta. Q.B.); Day c. Banque Laurentienne du Canada, 2014 QCCA 449 (Que. C.A.); Scotia Mortgage Corporation v. Berkers, 2016 NSSC 12 (N.S.S.C)

[4] Servus Credit Union v. Sulyok, 2018 ABQB 860 (Alta. Q.B.) at 62

[5] Ibid.

[6] R.S.C. 1985, c. B-3

[7] Quoting from Alberta (Attorney General) v. Moloney, [2015] 3 S.C.R. 327 at 83

Watch Your Wording


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Ksena J. Court and Francis N. J. Taman

Lenders are cautioned to be very clear in the wording of their mortgages when it comes to how interest is to be calculated.  In Nussbaum v. Stoney,[1] the Alberta Court of Queen’s Bench applied a strict interpretation to the wording of the interest calculation in a mortgage.

The mortgage in question was a “tick the box” mortgage which stated that the interest rate was “to be calculated monthly”.  The issue was whether the lender was entitled to compound the interest monthly.

The Court held that the words of the mortgage are to be clear and unambiguous.  If there is ambiguity in a mortgage, then it should be resolved in favour of the mortgagor who did not draft the terms of the mortgage.  If the lender wanted the interest to be compounded on a monthly basis, then it should have stated so in the mortgage.  As such, the lender was only entitled to simple interest and it was directed to recalculate the amount owing under the mortgage.  Further, the lender was directed to repay any overpayment to the mortgagor.

In light of this decision, lenders may want to take a second look at the wording of their standard mortgage documents to ensure that the terms of their security actually reflect the interest calculation that they intend to apply.

[1] 2017 ABQB 774 (Alta. Master)

Legal Costs in Condominium Proceedings – A Province Divided

by Ksena J. Court and Francis N. J. Taman

In our blog article, Lending to Condo Owners – Risky Business?[1], we reviewed the decision of Master Schulz in Bank of Montreal v. Bala.[2]  In that decision, Master Schulz disagreed with prior decisions respecting the priority of legal fees paid by condominium corporations over mortgages.  That prior line of cases stemming from the King[3] decision states that if the bylaws permit legal fees incurred by the condominium corporation to be considered a “contribution” or “assessment”, then they will take priority over the mortgage.

Master Schulz’ ruling in Bala was appealed and the decision of Justice Feehan was released earlier this year.[4]

Justice Feehan reviewed a number of prior decisions respecting the priority positions, including the King line of cases.  It was held that the powers granted to a condominium corporation and the wording of the Condominium Property Act, (the “Act”)[5] are to be read strictly.

Section 42 of the Act provides that where a condominium corporation takes collection steps, it may recover legal expenses “from the person against whom the steps were taken”.[6]  If a caveat is registered, then it may recover “from the owner” all reasonable expenses with respect to the preparation, registration, enforcement and discharge of the caveat.

In this particular case, the condominium corporation brought an application to vary the Redemption Order granted in foreclosure proceedings brought by the Bank of Montreal.  Justice Feehan held that those legal expenses were properly payable by Bank of Montreal because that was an application brought “against” Bank of Montreal.  However, they did not become a “contribution” and did not attract statutory priority over the mortgage.

Further, any legal costs relating to the preparation, registration, enforcement and discharge of the caveat[7] are not to be equated to a “contribution” and given priority over a registered mortgage.  “Those charges remain recoverable only in personam ‘from the owner’”.[8]

We understand that a dichotomy has developed between the North and the South in the treatment of legal fees claimed by a condominium corporation.  In the Southern areas of the province, the King decision continues to be followed – ie. legal costs of the condominium corporation can gain priority over the mortgage if the bylaws permit them to be considered as a “contribution” or “assessment”.  In the North, the practice of the Court has been to disallow the condominium corporation’s claim for priority of its legal costs over the mortgage, unless the legal costs were incurred in an application specifically “against” the mortgagee.  It is likely that this dichotomy will continue to exist until such time as the issue is addressed by the Court of Appeal.

Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.

[1] https://albertaforeclosureblog.com/tag/foreclosure-alberta-condominium-fees-condominium-plan-no-0210034-v-king/

[2] 2015 ABQB 166 (Alta. Master) (“Bala”).

[3] Condominium Plan No. 8210034 v. King, 2012 ABQB 127 (Alta. Q.B.) (“King”); see also our blog on the King decision at https://albertaforeclosureblog.com/category/foreclosure/condominium-fees/

[4] 2017 ABQB 38 (Alta. Q.B.) (“Justice Decision”).

[5] R.S.A. 2000, c. C-22.

[6] Section 42(a) of the Act.

[7] Section 42(b) of the Act.

[8] Justice Decision at para. 82.

Too much reliance can be a bad thing

by Ksena J. Court and Francis N. J. Taman

Yet another mortgage fraud has raised its ugly head.  This time it involves fraud at the level of the mortgage broker.  In Toronto-Dominion Bank (TD Canada Trust) v. Currie[1], the Alberta Court of Appeal left the first lender holding the bag at the end of the day.[2]

Mr. Currie loaned the Craigs money.  The loan was secured by a mortgage (the “Currie Mortgage”) against two properties owned by the Craigs.  The financing and mortgage were negotiated by a licenced mortgage broker, Fuoco Holdings and Emilio Fuoco (collectively referred to as the “Broker”).  In the mortgage, the mortgagee was described as “Dan Currie c/o Fuoco Holdings”.  The mortgage matured and went into default.  The mortgage was foreclosed off of one of the two properties.  With respect to the second property, the Craigs applied for and were approved refinancing from Toronto-Dominion Bank (“TD”).  This refinancing was to be secured by a mortgage in first position (the “TD Mortgage”).  The lawyer retained to do the refinancing for the Craigs requested a payout statement from the Broker.  The Broker sent a payout statement to Mr. Currie for approximately $250,000 (the “First Payout Statement”) and requested that he sign it.  The Craigs did so.  Subsequently, the Broker sent a payout statement to the lawyer showing that the balance owing on the mortgage was $75,000 (the “Second Payout Statement”) and instructed the lawyer that the refinancing funds were to be made payable to Fuoco Holdings Ltd.  Neither the lawyer nor the Craigs were aware of the First Payout Statement, and Mr. Currie was not aware of the Second Payout Statement.

The lawyer prepared and registered the TD Mortgage and sent the $75,000 to the Broker as directed by the Second Payout Statement in trust for a discharge of the Currie Mortgage.  Unfortunately, the Broker absconded with the payout funds and the requested discharge of the Currie Mortgage was never sent.  The question arose as to whether the Currie Mortgage had priority over the TD Mortgage.  The answer lay in whether the Broker was Mr. Currie’s agent.  Mr. Currie argued that the Broker was not his agent and the Broker had no authority to issue the payout statement or to receive the payout funds.  Because the Broker exceeded his authority, according to Mr. Currie, he was not bound by the Broker’s actions and the Currie Mortgage remained a valid mortgage against the title to the property.

The general rule is that a principal is bound by the fraudulent acts of his or her agent if the agent had actual or ostensible authority to perform the particular actions at issue.  The general principles regarding ostensible authority are:

“(a) Representation about the authority of the agent must come from the principal; an agent cannot clothe himself or herself with authority…

(b)  The onus is on the person who is relying on the act of the agent to prove ostensible authority;

(c)  However, when the agent has actual authority, but that authority is subject to limitations, the onus is on the principal to prove that the limitations were conveyed to the third party who relied on the agent…

(d) These general principles apply to the specific situation where a debtor pays money to the agent, rather than directly to the principal, as happened in this appeal…”[3]

The Court of Appeal found that the Broker had extensive actual authority for a number of reasons:  (1) the Broker negotiated the Currie Mortgage; (2) Mr. Currie never had any direct communication with the Craigs; and most importantly (3) the Broker was referred to as the being the contact person for Mr. Currie on the face of the Currie Mortgage and third parties were entitled to take what is registered at the Land Titles Office at face value.

With respect to this last point, if the Broker was not to be acting on behalf of Mr. Currie, then it was up to Mr. Currie to make this clear to third parties.  It was appropriate for the lawyer to write to the Broker for the payout statement as this was the address that was on the title, and according to the terms of the mortgage the address where mortgage payments were to be made.  Mr. Currie was aware that the Broker was sending payout statements as he signed the First Payout Statement.  If he did not want the Broker acting in this regard, he ought to have admonished the Broker for exceeding his authority.  No such limitations on authority were ever communicated to either the Craigs, their lawyer or TD.  The Court of Appeal stated that at the very least the Broker also had ostensible authority to act as Mr. Currie’s agent.

Given that the Broker had authority to issue the payout statement, the Court of Appeal also found that the Broker had authority to decide what was to go in the payout statement.  In the absence of any circumstances that would put the recipient of the payout statement on notice that something was wrong, the recipient was entitled to rely upon the payout statement provided, and that the Broker was operating his business in accordance with the law.

“In conclusion, Currie has been defrauded by [the Broker], the agent of his own choosing” and ultimately “must bear the loss resulting from [the Broker’s] dishonesty”.[4]

It is unfortunate that the lender in this instance was taken advantage of by his agent.  Individual or smaller occasional lenders should do as much due diligence as possible if they are looking to hire an agent to represent them in negotiating and administering the loan.  There are a number of reputable Alberta based lenders out there that provide such services.  Additionally, if a lender intends to put limits on its agent’s authority, it should clearly state so in all public documents.

[1] 2017 ABCA 45 (Alta. C.A.)

[2] Patty Ko, an associate with our Edmonton office, represented TD in these proceedings.

[3] Supra, at para. 7

[4] Supra, at para. 20

WRITHOLDERS – The New Sandwich Generation

Francis N.J. Taman and Ksena J. Court


We’re going to continue our theme regarding writs and priorities.  While not technically a mortgage case, Singh v. Mangat[1] raises some interesting implications when considered together with our last blog post.

It is not unusual to find individuals in financial trouble who are also undergoing marital difficulties.  In Singh, Mr. Mangat was also involved in a matrimonial property dispute with his wife which began in 2007.  One of the assets of the marriage was a house which was jointly owned by the spouses and a third party (the “House”).  Each of the owners had a 1/3 interest in the house[2].

In 2012, some 5 years after the matrimonial property action had commenced, the plaintiff obtained a judgment against Mr. Mangat which was registered against Mr. Mangat’s interest in the House.  A second writ by a different creditor was also registered against the House.[3]  Finally, a civil enforcement agency (“CEA”), engaged by the plaintiff, registered a notice of intention to sell the House under the Civil Enforcement Act[4].

It was at this point that Mrs. Mangat realized that no Certificate of Lis Pendens (“CLP”) had been registered against the House with respect to her claim under the Matrimonial Property Act[5]. This was done in February 2013.  Five additional writs were registered after the CLP.  This created what was described as a “writ sandwich”.

Mr. Mangat’s 1/3 interest in the House was eventually sold by the civil enforcement agency to a relative of Mrs. Mangat. There was not enough money to pay out all the writs on title. The question arose as to how the proceeds of sale of the House should be distributed.  Everyone agreed that the CLP under the MPA did not have priority over the writs filed before the CLP.  The issue was whether the wife’s claim under the MPA had to be resolved before the writs were paid.

The Court canvassed two possible approaches.  First, one could pay the Prior Writholders their claims as if the CLP was not registered and then resolve the MPA  claim of the wife.  The idea here appears to be that between the writholders, the CLP doesn’t affect their respective entitlements.[6]  The Prior Writholders would get their proportionate share of the total of the writs.  The distribution of the balance would be dealt with once the amount, if any, of the husband’s interest in the house was determined.  The issue with this approach is that the amount received by the Prior Writholders could be delayed and they may actually receive less than they should considering their priority.

The second approach would be to pay the Prior Writholders 100% of their claim and then permit the MPA claim to be resolved.  If there was any amount left over after the MPA claim was settled, then that would be shared amongst the Subsequent Writholders pari passu.[7]  This would lead to the Prior Writholders being paid more than they should under the CEA.

Ultimately, the Court followed neither of those approaches.  After a careful analysis of the MPA and CEA provisions that applied, Master Robertson determined that the writholders as a group took priority over the MPA claim.  The reasoning centred on the fact that writ proceedings to sell the house had begun prior to the registration of the CLP.

The MPA adjusts ownership between spouses.  However, the filing of the claim does not create an interest in land.  It is merely a claim that, after the matrimonial claim is resolved, may become an interest in land.  There is a priority for the CLP over the writs registered by the Subsequent Writholders because section 35 of the MPA creates that priority.  However, it does not affect the priority of prior writholders.

The CEA specifically states that where there is a subsequent interest in land, the lands which have a writ registered against the title are subject to writ enforcement proceedings as if that subordinate interest in land did not exist.[8]  Where an interest in land is sold under the writ proceedings pursuant to the CEA, a “distributable fund” is created.  Prior registered interests are paid out and the purchaser obtains title clear of all prior and subsequent financial registrations.[9]

Section 96 of the CEA states that money realized through writ proceedings must be dealt with in accordance with Part 11 of the CEA.[10]  Part 11 of the CEA puts an interesting twist on the situation.  It says that any money received to which Part 11 applies is a distributable fund when received by a Civil Enforcement Agency.[11]  It then goes on to note that all related writs that are in force have eligible claims against the distributable fund.[12]  Those funds are then paid pari passu among the eligible claims after paying expenses associated with the writ proceedings and the $2000 priority granted to the creditor who undertook the writ proceedings.[13]

Master Robertson also noted that the CEA only contemplates a single distributable fund being created, so the idea of splitting the amounts recovered from the sale of the lands into two separate funds and dealing with each separately goes against the scheme of the CEA.  As a result, Master Robertson, essentially sets out a two stage analysis.  First, it must be determined whether any of the writs have priority over the CLP.  If any of the writs do and if writ proceedings have commenced, then the amounts recovered will be distributed amoungst all eligible writholders regardless of whether they are registered before or after the MEP CLP.

The question that arises is whether this analysis will be extended to non-MEP CLPs and other intervening registrations.  One difference between an MEP CLP and many other CLPs is that the MEP CLP gives notice of what would essentially be a change in ownership of the land or, if you will, an interest that may arise. Most other CLPs give notice of litigation regarding either a registered[14] or unregistered[15] interest that already exists.  Caveats and other registrations also provide notice of existing interests.  The analysis, however, could apply to pre-existing interests as well.

At the end of the day, however, the takeaway for lenders is clear – if you have a writ registered, you should be doing a debtor name search and registering your writ against the title to any property that is identified as being owned by the debtor by that search.  Additionally, it is also likely in your best interest to commence proceedings to have the land sold under your writ.  One of the principles that has survived from the confusing array of case law under the prior Execution Creditors Act is that although a writ binds all of a debtor’s exigible land that it is registered against, it is not the same a seizure.  A seizure or writ proceedings require service and registration of a Notice of Intention to Sell..  Since some significance was placed on the fact that writ proceedings had been commenced when the CLP was filed in this instance, it would be prudent to place oneself in as favourable a position as possible.

Francis N.J. Taman and Ksena J. Court practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.


[1] 2016 ABQB 349 (Master) (“Singh”).

[2] While it did not explicitly play a role in the decision, it would appear that they were tenants in common

[3] We will refer to Mr. Singh and the second writholder as the “Prior Writholders”.  The balance of the writholders will be referred to as the “Subsequent Writholders”.

[4] R.S.A. 2000, c. C-15 (“CEA”).

[5] R.S.A. 2000, c. M-8 (“MPA”).

[6] To use the language adopted later in the judgment, there would be no separation of writholder claims.

[7] This means in proportion to the amounts of their respective claims and is the approach set out in the CEA.  This approach was described as the separation of writholder claims.

[8] CEA,  section 34(2)(a)

[9] Non-financial registrations such utility rights of way and easements would generally remain on title.

[10] CEA, s. 96(1).

[11] CEA, s. 97.

[12] CEA, s. 99(1)(a).  Section 99(1)(b) notes that costs that the Court orders to be paid out of the fund under Section 103(2) also constitute an eligible claim.

[13] CEA, s. 99.

[14] In the case of a mortgage which is being foreclosed upon.

[15] For example, fraud.



Ksena J. Court and Francis N.J. Taman

Occasionally when we are in Court, we hear novel arguments that attempt to challenge what was thought to be previously settled law.  On one such recent Court attendance, we heard such arguments being made in Classic Mortgage Corp. v. Bourgeois and Haylow,[1] which changes the way net sale proceeds in a foreclosure action are distributed to subsequent encumbrancers after the first mortgagee is paid out.

In this case, the defendants were owners of a home as joint tenants.  The home was sold through the foreclosure proceedings and the remaining equity of approximately $75,000 was paid into Court.  There were several writs filed against the property.  Canada Revenue Agency received the first $20,000 of the equity based upon its claim of priority under the Income Tax Act.  The remaining writholders had claims registered only against Mr. Bourgeois’ interest.  The largest writholder asked the Court to pay the all of the remaining proceeds out to the writholders pro-rata.  The issue before the Court was whether half of the remaining proceeds should be paid to Ms. Haylow, as a joint tenant, with the other half being paid pro-rata to the writholders.  We were in Court on February 2, 2016 when arguments were made, and Master Laycock reserved his decision.  As the decision has a large impact upon the advice that we give to many of our lender clients, we were interested in the outcome.

Counsel for the writholder argued that because the defendants were joint tenants at the time that the writ was registered, the writ attached to the whole of the net sale proceeds, not just half.  This argument is based upon the principles of joint tenancy.  “Although as between themselves the joint tenants have separate rights, as against everyone else they are in the position of a single owner…Each joint tenant holds the whole and holds nothing.  That is he holds the whole jointly and nothing separately.”[2]

On February 5, 2016, Master Laycock rendered his decision and did not deviate from what he considered to be prior similar decisions.  In La France[3] and Re: Finley[4], the Court had held that writs registered against the interest of only one joint tenant did not affect the other joint tenant’s entitlement to half of the net sale proceeds.  Notwithstanding that the case before Master Laycock was a forced sale through foreclosure proceedings rather than a voluntary sale by the owners, he felt bound to follow these decisions.  As such, Master Laycock held that Ms. Haylow was entitled to half of the remaining net sale proceeds and the writholders shared the remaining half pro-rata.

The decision of Master Laycock was appealed, and Justice Anderson overturned the decision.  Justice Anderson found that Canadian Imperial Bank of Commerce v. 3L Trucking Ltd.[5] was a case on point.  In that case, the Court referred to the above quoted principle that joint tenants are in the position of a single owner.

Counsel for the primary writholder also argued that under s. 100 of the Civil Enforcement Act,[6] a distributable fund (which would include excess proceeds in a foreclosure sale) first goes to pay eligible claims and it is only after those eligible claims are paid that the remaining balance gets paid “to the enforcement debtor or to any other person who is entitled to the money”. [emphasis added]

The Court also noted that Ms. Haylow took no steps to protect her interest by seeking formal severance of the joint tenancy.  Thus, the Court concluded that the full amount of the remaining sale proceeds should be distributed to the writholders on a pro-rata basis.

In our view, the arguments made by the writholder make sense.  Under the Civil Enforcement Act, a writ attaches and binds the interest in the property of the debtor at the time that the writ is filed.  If the debtor is a joint tenant, he has an interest in the whole of the property.  If the writ is filed before the joint tenancy is severed in the foreclosure proceedings or otherwise, then the writ should attach to the debtor’s whole interest, not just half.  When lenders lend to joint tenants, they lend based upon the whole of the equity in a property, not just half.  While this creates some risk to the non-debtor joint tenant that they could be “made liable” for a debt that they didn’t incur, often the non-debtor joint tenant is related in some fashion to the debtor, and if the non-debtor receives some of the equity, it could be funnelled back to the debtor through this relationship.  It will be interesting to see how the Court responds to this balancing of interests between the non-debtor joint tenant and the writholder.

Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.


[1] Action No. 1401-08766, February 2, 2016, Alta. Master (unreported), appealed April 5, 2016, Alta. Q.B. (unreported).

[2] Ibid. as quoted by Master Laycock from Megarry and Wade’s The Law of Real Property, 7th Ed. And J.G. Riddall’s Land Law, 7th Ed.

[3] [1983] 1 W.W.R. 168 (Alta. Q.B.)

[4] [1977] 7 A.R. 26 (Alta. Dist. Ct.)

[5] [1996] 2 W.W.R. 637 (Alta. Q.B.)

[6] R.S.A. 2000, c. C-15.

The Boundaries of the Interest Act


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Ksena J. Court and Francis N. J. Taman

In foreclosure proceedings, we are often asked by lenders why certain default fees, other charges or interest rate changes that are clearly chargeable based upon the terms of the mortgage are not collectable through the Court proceedings.  Our answer has been that in part it is because some Masters or Justices feel that such fees, charges or interest rate changes are a “penalty” under the Interest Act[1].  The Supreme Court of Canada recently released its decision confirming what fees and interest can and cannot be charged in mortgages.

In Krayzel Corp. v. Equitable Trust Co.,[2] which is commonly referred to by the Calgary Bar as the “Lougheed Block” case, Lougheed Block Inc. (“Lougheed”) granted a mortgage to Equitable Trust Company (“Equitable”) to secure a $27 million loan.  The initial interest rate in the mortgage was 2.875% per annum.  When the mortgage matured, Lougheed and Equitable agreed to a renewal for a 7 month term.  The interest rate in the renewal was prime plus 3.125% for the first 6 months and then 25% for the 7th month.  The term of the first renewal expired on March 1, 2009.

On April 28, 2009, the parties entered into a second renewal agreement which was made effective as of February 1, 2009 (a month before the expiration of the first renewal period).  Under the second renewal agreement, the interest rate was 25% per annum.  Lougheed was required to make monthly interest payments.  However, the monthly “pay rate” was not at the 25% rate of interest.  Rather, the “pay rate” was set at 7.5%, or prime plus 5.25%, whichever was greater.  The difference between the stated rate of 25% and the “pay rate” was to accrue to the loan, and if Lougheed did not default then the accrued interest would be forgiven.

As one might guess, since the matter was being litigated, Lougheed defaulted (in its first payment) under the second renewal agreement and Equitable sought payment at the 25% interest rate.  Lougheed claimed that the interest rate changes infringed the Interest Act.

Section 2 of the Interest Act states that a person can contract for any rate of interest that is agreed upon, except of course if it violates anything else stated in the Interest Act, or any other piece of legislation.  Section 8 of the Interest Act is one of those limiting sections.  It states:

No fine, penalty or rate of interest shall be stipulated for, taken, reserved or exacted on any arrears of principal or interest secured by mortgage on real property…that has the effect of increasing the charge on the arrears beyond the rate of interest payable on principal money not in arrears.

One of the purposes of s. 8 is to “protect landowners from charges ‘that would make it impossible for [them] to redeem, or to protect their equity’”.[3]  Essentially, if the borrower is already in default, the legislators felt that it was unfair for the mortgagee to be able to put the borrower further in the hole by charging a default fee or higher rate of interest on default.

The majority of the Court held that the substance of the clause will determine whether it violates the Interest Act, not the labels used.  It matters not whether the mortgage terms are described as a “bonus”, “penalty”, “discount”, or “benefit”.  “If its effect is to impose a higher rate on arrears than on money not in arrears, then s. 8 is offended”. [emphasis added][4]

The majority of the Court made it clear that an interest rate increase due solely to the passage of time, and not due to a default, does not offend the Interest Act.  As such, the terms of the first renewal agreement were fine.  However, the terms of the second renewal agreement were not.  The effect of the second renewal agreement was “to reserve a higher charge on arrears (25 percent) than that imposed on principal money not in arrears (7.5 percent, or the prime interest rate plus 5.25 percent).”[5]  Essentially, the higher interest rate only came into effect in the event there was a default and therefore imposed a penalty.  It mattered not that the terms described as a discount or that the higher interest rate would be “forgiven” if there was not default.  The Court allowed interest at the higher of 7.5% and prime plus 5.25%.

In light of this decision, lenders should review their mortgage paper and may wish to reconsider the effect that certain mortgage terms have and whether or not certain fees, charges or interest will be collectible.

 Ksena J. Court and Francis N.J. Taman practice commercial and residential foreclosure and secured and unsecured debt collection at Bishop & McKenzie LLP in Calgary, Alberta.

[1] R.S.C. 1985, c. I-15, ss. 2 and 8.  Fees and charges are also disallowed by the Court as penalty under Section 10 of the Judicature Act, R.S.A. 2000, c. J-1, which allows relief from forfeiture for all “penalties and forfeitures”.

[2] 2016 SCC 18 (S.C.C.)

[3] Ibid. at paragraph 21

[4] Ibid. at paragraph 25

[5] Ibid. at paragraph 35

Please Release Me!


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Francis N.J. Taman and Ksena J. Court

It is interesting how a bit of time can change one’s perspective. We review a number of current services trying to keep current on new foreclosure and insolvency decisions.  When Zypherus Holdings Inc. v. Dorais Estate[1] was reported by one of the current services recently, we looked at it with some interest. Court of Appeal cases dealing with foreclosure issues are uncommon.  When we pulled it up, it turned out to be a 2013 case that Francis had looked at as a possible blog topic when it first came out.  Rereading it, it became evident that the case was far more significant than it had appeared to be at first glance in that it contained a bit of obscure law that had the potential to significantly impact lenders who are trying to do workouts with clients.

The facts of Zypherus are a bit unusual.  S and D were co-owners of equal undivided interests in two properties.  D needed some funds and got S to agree to take out a second mortgage on the properties to obtain those funds.  The debt under the mortgage was joint and several.  To protect S, who received no real benefit from the loan, D executed an indemnity agreement in favour of S guaranteeing payment of the entire debt under the mortgage.  When the mortgage matured, D couldn’t repay.

Rather than repay the mortgage himself, S bought the debt and mortgage through a holding company called Zypherus.  A writholder of D’s registered their writ against the title to the properties, making it impossible for D to transfer his interest to S unencumbered.  D passed away and his estate declared bankruptcy.  S had Zepherus release him and then tried to foreclose solely on D’s joint interest in the properties.

The Master refused to grant the foreclosure order on the basis of marshalling, a legal doctrine relating to the order in which a creditor can recover its debt when it has security on multiple properties.  At the Justice and Court of Appeal levels, the argument surrounded the release of S by Zypherus.

The interesting part of the decision at the Court of Appeal surrounds its discussion of the law relating to the release of a co-debtor (or co-obligor).  The basic rule of law is that if two debtors are jointly or jointly and severally liable to another person (the “Releasing Party”), and the Releasing Party signs a release with one of the debtors, the effect of that release is to release both debtors.  It is irrelevant that it may not have been the intention of the Releasing Party to do so.  Over time, the Courts recognized that this is perhaps somewhat harsh and developed some exceptions.  One exception is where there is clear wording in the release that shows the Releasing Party intended to reserve their rights against the other joint or joint and several debtor.[2] In this particular instance, the majority of the Court of Appeal presumed such wording existed in the release because the release was not put into evidence and the appellant had acknowledged in their factum that it was not defective.[3]

It’s quite alarming that it is possible for a Mortgagee’s decision to settle with one of two joint debtors could effectively eliminate the right of recovery against the other.[4]  The saving grace is that normally one is more likely to release a guarantor than a joint debtor.  Those are unconnected obligations, so the principle does not apply.  But even then, there remains the potential for a lender, if there is a joint and several guarantee, to inadvertently release the deep pocketed guarantors when settling with a guarantor who has very little in the line of wealth.  Thankfully, most guarantees include wording that permits one guarantor to be released without the other guarantor also being released.   While the traditional common law rule did not permit one to look outside the release, it appears at least in Alberta,[5] that such wording in other documents can be considered, at least with respect to guarantees.[6]  Those looking to rely upon documents other than guarantees may face various public policy arguments as to whether such rights can be waived.[7]

The takeaway for lenders is that caution is necessary when settling with some debtors but not others.  The nature of the debt and of the obligations needs to be analyzed as do the various pieces of security granted to the lender. If it is potentially joint or joint and several liable, a great deal of care needs to be taken in drafting any settlement documents.  Otherwise, you risk giving up more than you bargained for.

[1] 2013 ABCA 287 (“Zypherus”).  Leave for appeal to the Supreme Court of Canada has been denied so we will not have their perspective on the issue, which is unfortunate for lenders engaging in inter-jurisdictional loans.

[2] Another exception is where instead of releasing the one joint debtor, you enter into an agreement not to sue the joint debtor who you wanted to release.  Since an agreement not to sue is not technically a release, the law regarding release of joint debts does not apply.  For more on this odd bit of law, see G.L. Williams, Joint Obligations (London: Butterworth, 1949).

[3] Interestingly, the wording in the mortgage permitting release of the Mortgagor was not discussed by the majority, though the dissenting Justice held that the wording in the mortgage did not support the release of just one of the Mortgagors.

[4] To be clear, this applies regardless of the number of joint debtors.  The idea is that there is a single debt owed by all the debtors collectively, so to release the debt for one releases it for all, unless the right to sue is somehow preserved.

[5] Other jurisdictions need to be approached with some caution.  In Ontario, for example, it appears that the common law rule regarding the release of joint obligors has been abolished by statute – see Courts of Justice Act, R.S.O. 1990, c. C.43, s. 139(1).  In British Columbia, Shoker v. Vollans, 110 B.C.A.C. 225 suggests that, at least where a co-guarantor has paid their proportionate share of their obligation under a guarantee, they may be separately released without affecting the obligation of the other joint or joint and several guarantors.

[6] Re: Koska, 2003 ABCA 87.  This appears to be the sole Alberta Court of Appeal decision on the issue. Interestingly enough,  Re: Koska, was not cited in Zypherus.

[7] See the dissenting decision in Zypherus at 62.