Legal Blog

CBAO to Rescue

There are times when the Canadian Bar Association (“CBA”) and Canadian Bar Association – Ontario (“CBAO”) must blow their own horns – no one else will it do it for them. Since this writer is the treasurer of CBAO, now seems to be as good a time as any.

Intervention

CBAO will intervene in a court case when a decision, usually at the trial level, seems to run contrary to good legal practice and, as such, will cause difficulty for lawyers. It goes hand in hand with the first credo of CBAO – advocate for lawyers. CBAO intervened in the case of Silaschi v. 1054473 Ontario Ltd. (2000), 48 O.R. (2d) 313 (C.A.).

Vendor’s Lien

The deal was a simple real estate deal that experienced real estate practitioners have seen hundreds of times. A property is sold; the purchaser pays some money up front and pays further monies by way of a first mortgage; and the vendor takes back a second mortgage for the balance of the sale price. On closing the lawyers register the deed, the first mortgage, and the second mortgage – in that order. The only wrinkle in the Silaschi case was that the first mortgage was to be used by the purchaser to erect a home on the land and the monies were not to go to the vendor. The mortgagee advanced $55,000 of a $110,000 mortgage on closing.

The purchaser had financial difficulties and never built the house. The land was sold but the sale price was insufficient to repay both of the mortgagees. The second mortgagee claimed that he should have priority over the first mortgagee because he had a vendor’s lien for unpaid purchase monies, a vendor’s lien that takes priority over the registered title. The trial judge bought this argument.

Good for Lawyers?

No! It is a recipe for disaster. It turns normal conveyancing practice on its ear. Any lawyer, who did not know about this decision, would be subject to a negligence claim if the first mortgagee was not protected by way of a specific agreement postponing the vendor’s lien. That is why CBAO decided to intervene.

Court of Appeal

The CBAO’s part was expressed in the first paragraph of the judgment. “The decision created a sufficient stir among the real estate practitioners that the CBAO sought, and was granted, leave to intervene to support the appellant.”

The Court noted that a vendor’s lien was a creature of equity and that if it was created by equity, it was subject to the equities of the situation. The Court noted: “There is no equity favouring the second mortgagee. The only possible interpretation of the intention of the first and second mortgagees was that the vendor’s lien was not to be enforced as between them. Otherwise, their agreed priorities (agreed to by order of registration) would be reversed and the business sense of the transaction would be skewed.”

The Court further stated: “As a general conclusion and to provide some certainty to the practice of conveyancing, I would say that it must invariably be the case that a vendor’s lien gives way to a first mortgage when the first and a second purchase money mortgage are placed on title on closing.”

Messrs. Lancaster and Carter acted for CBAO and charged disbursements only.

CBA’s Stand

Do you like First Canadian Title marketing itself directly to real estate purchasers and mortgagors and taking control of the conveyancing process from the lawyers? We do not. We enclose an excerpt from the August Council meeting of the CBA dealing with this issue.