Legal Blog

Writs Bind

Before closing a land transaction, real estate lawyers search for writs of execution that may be filed against the vendor. Why? Because writs against a debtor will bind the lands of that debtor and a purchaser will take title subject to those writs. But do all writs bind the land? That question, which most real estate lawyers assumed had an affirmative answer, was dealt with in Dhatt v Beer 2021 ONSC 770 (SCJ).

Mess

It started as a simple real estate transaction and turned into the case from hell. The vendors decided in their wisdom not to close the transaction. The purchasers sued and obtained a judgment for specific performance and an order for costs to be paid from the purchasers’ purchase price. The vendors did not like this decision and appealed it. The previous lawyers for the vendors were also not pleased with this decision and, more importantly, were not pleased that the vendors had not paid their fees.

The lawyers, who were removed as lawyers of record well before the trial, sued the vendors, obtained a judgment, and filed a number of writs of seizure and sale (the “Writs“) that would ordinarily have bound the vendors’ lands. It seems that the lawyers moved with haste to obtain the judgment – because they were concerned that the vendors’ only asset was the land, which, if transferred before judgment, could have rendered their claim for fees unenforceable.

As the motion judge stated:

“Unfortunately, the thought that the parties were rational economic actors seems to have been misplaced. The plaintiffs (sic-defendants) own a house that their expert says has nearly doubled in value from the purchase price of $835,000 to over $1.4 million last March. (The lawyers) took a claim for some $26,000 in legal fees and worked it up to $71,000 as a result of numerous court appearances and costs awards in their rush to obtain judgment and enforce writs of seizure and sale against the defendants before the house was lost to the plaintiffs.”

Lawyers Pounce

The lawyers must have obtained their judgment at least 6 months before the trial judgment in the real estate action because, just after the trial ended, the lawyers scheduled a sheriff’s sale of the land. The trial judge was having none of that and stayed the sale pending the release of her decision, which, when released, ordered specific performance and costs.

The trial judge appointed another well-known real estate lawyer (the “Closer“) to close the specific performance purchase and sale. He needed to deal with the Writs and took the position that, because the Writs were filed after the original agreement of purchase and sale between the vendors and purchasers, the Writs did not bind the equitable right that arose on the signing of the agreement. Accordingly, because the sale proceeds were insufficient to pay secured claims that properly bound the land and the lawyers, the lawyers would not share in the sale proceeds.

Motion

The lawyers were unhappy with this position and brought a motion to (i) set aside the order for specific performance and replace it with a judgment for damages and (ii) set aside the order that authorised the awarded trial costs to be deducted from the purchase price. One can well understand why the lawyers wanted this. The equity had skyrocketed and would have been sufficient to pay for all damages against the vendors. If the vendors’ sale proceeds were limited to the sale price in the agreement and the vendors had to pay from those proceeds the costs awarded to the purchasers, then the net sale proceeds were insufficient to pay all the claimants.

The lawyers had to fit themselves into a Rule that would allow them, as non-parties, in effect to appeal an order of the court. Well, good luck with that.

The lawyers acknowledged that “a complete stranger could not come to court and seek to re-open the trial under Rule 52.01 (3). Rather, … the rule is only available to a person with a sufficient legal interest in the proceedings. That is, he needs standing as that concept is understood. Standing is typically afforded to a person whose legal interests will be affected by a particular decision.”

The motion judge disagreed that the lawyers had that standing. He said, “the unsecured claims themselves are not affected legally. They are and remain perfectly valid claims against the insolvent debtor’s general assets. That is all that they ever were or are. It is the very nature of unsecured claims that they apply to the residue of the debtor’s assets that remain after prior claims are satisfied.”

Accordingly, the motion judge held that the lawyers had no standing to attempt to re-open the merits of the trial decision, with which the motion judge in any case agreed. The motion judge therefore dismissed the lawyers’ motion.

Priority

The purchasers had brought their own motion. Since the sale proceeds were insufficient to pay all claimants, then, if the Writs bound the land, the purchasers would be subject to the Writs. The purchasers took the Closer’s position that the Writs did not bind the land to the extent of their interests.

The judge noted that it was common ground that writs of seizure and sale only bind a debtor’s interest and are subject to all equities that bind the debtor. The purchasers therefore contended that, once the agreement was signed, the Writs could not encumber their equitable right to the land.

The motion judge reviewed the jurisprudence and concluded that:

“… the right that arises in the purchaser on the signing of an agreement of purchase and sale is a right in equity to compel the vendor to convey the land once the purchaser has paid the price and done all things required under the agreement of purchase and sale. The vendor holds the land as trustee for the purchaser pending the fulfilment of the contractual terms. Until then, the owner can still validly encumber his or her title…. However, vendor no longer has the right to bind the land in a way to interfere with the purchaser’s entitlement to specific performance if later found appropriate by the court. Hence, subsequent writs of execution that bind the vendor’s interest, cannot attach to the purchaser’s equitable title or right to specific performance once the agreement of purchase and sale is signed.”

Accordingly, the purchasers’ motion was allowed. The lawyers were out of luck and, we expect, also had a whack of costs to pay.

Reflections

Given this decision, we need three things for a perfect storm:

1. An agreement, whether being specifically performed or just being performed in the ordinary course.

2. A writ of seizure and sale being filed after the agreement is signed.

3. The equity in the land being insufficient to pay that late-filed writ and all of the claims of creditors that bound the land (e.g. mortgages, unregistered and registered liens against the land, writs of seizure and sale filed before the agreement, etc.).

Epilogue

The Court of Appeal dismissed the vendors’ appeal on the merits of the original judgment. We assume that the house was transferred to the purchasers and that the lawyers received nothing.

 

Image courtesy of Sprinter_Lucio.

Written by Jonathan Speigel, the founding partner of Speigel Nichols Fox LLP, leads the litigation and construction practices.