N.S. Farm Loan Board v. Noggins Corner Farm Ltd

N.S. Farm Loan Board v. Noggins Corner Farm Ltd Court Supreme Court Date 2003-03-07 Citation 2003 NSSC 55 Docket SK 185520 Judge/Registrar/Adjudicator Boudreau, Allan (Honourable Justice) Document Type Decision Relations Library Sheet - N.S. Farm Loan Board v. Noggins Corner Farm Ltd - 2003 NSSC 55 - 2003-03-07 - Library Sheet Decision Content IN THE SUPREME COURT OF NOVA SCOTIA Citation: N.S. Farm Loan Board v. Noggins Corner Farm Ltd 2003 NSSC 055 Date: 20030307 Docket: S.K. 185520 Registry: Kentville Between: Nova Scotia Farm Loan Board Applicant v. Noggins Corner Farm Limited Respondent Judge: The Honourable Justice Allan P. Boudreau Heard: September 19, 2002, in Kentville, Nova Scotia Counsel: Stephen T. McGrath, Esq., for the applicant Adrian B. Campbell, Esq., for the respondent By the Court: INTRODUCTION: [1] The Nova Scotia Farm Loan Board (“the Board”) entered into one of its usual Agreements of Sale with one Jerry John de Graaf providing for the long term purchase of farm property. This agreement was not recorded at the Registry of Deeds. As is also not uncommon, the purchaser, Mr. de Graaf, defaulted on the agreement and the Board subsequently put the property up for resale by public tender. Before the lands were resold, two farm suppliers had recorded judgments totalling some $71,000.00 against Mr. de Graaf. The new purchaser by tender, Noggins Corner Farm Limited, (“Noggins”) raised an objection to title on the basis of the prior judgments recorded against Mr. de Graaf. The Board made the current application under the Vendors and Purchasers Act, R.S.N.S. 1989, c. 487 to have the Court determine the validity of Noggins’ title objection. This case raises the issues of the nature of the rights of Mr. de Graaf and of the recorded judgment creditors in case of default by a purchaser under such an Agreement of Sale, and the procedure to be followed by the Board in terminating any rights which may accrue to the original purchaser or the subsequent registered judgment creditors. FACTS [2] This application proceeded by way of an agreed Statement of Facts and I quote that Statement, commencing at paragraph 2, which is as follows: . . . 2. The Nova Scotia Farm Loan Board (“the Board), a body corporate under the provisions of the Agriculture and Rural Credit Act, R.S.N.S. 1989, c. 7, holds the lands in fee simple. 3. On June 20, 1995, the Board entered into an Agreement of Sale with Jerry John de Graaf (see Appendix B) for the sale of the lands for $20l,673.33 payable over 300 months in equal installments of blended principal and interest in the amount of $1,539.20 as described more particularly in the Agreement of Sale, and de Graaf took possession at that time or shortly thereafter. 4. The sale of lands contemplated by the Agreement of Sale was not completed due to a default in payment by Jerry John de Graaf. 5. On April 9, 2001, Jerry John de Graaf and Michelle Suzanne de Graaf executed and delivered a Quit Claim Deed in respect of the lands to the Board (see Appendix C). 6. The Board put the lands up for sale by public tender, with tenders to be received by March 26, 2002 (see Appendix A). 7. Noggins Corner Farm Limited, a body corporate incorporated pursuant to the laws of Nova Scotia, submitted a tender for the lands (see Appendix D). 8. The Board accepted Noggins Corner Farms Limited’s tender (see Appendix E). 9. A judgment for $53,625.63 dated August 4, 1999 between William A. Flemming Feeds and Jerry de Graaf is recorded in the Kings County Registry Office in Book 1195 at Page 650. 10. A judgment for $17,356.08 dated June 20, 2000 between Scotia Farm Services and Jerry John De Graaf is recorded in the Kings County Registry Office in Book 1227 at Page 661. 11. Noggins Corner Farms Limited has objected to title based on the judgments listed at paragraphs 9 and 10. [3] It was also agreed that the judgments mentioned in the agreed Statement of Facts were recorded before the Quit Claim Deed from Mr. and Mrs. de Graaf to the Board in April of 2001. [4] The Agreement of Sale in this case was over a period of 25 years and the monthly payments included interest at the rate of 8% per annum calculated half yearly, not in advance. Rather than conveying title to the property and taking a mortgage back, the Board retained the fee simple title to the property pending compliance with the terms of the Agreement of Sale, primarily the payment of all the purchase monies, in this case $1,539.20 per month principal and interest over the 300 months for a total of $461,760.00. In addition, the purchaser was required to pay monthly premiums for creditor group life and disability insurance. The purchaser was also responsible to pay all taxes levied against the property and to keep the property insured for the usual perils. For these and other undertakings the purchaser received immediate full and exclusive possession and use of the property. [5] The purchaser could also pay the full amount outstanding on the purchase price at any time without notice or bonus. Paragraph 16 of the Agreement further provided for additional advances to the purchaser, by way of funds or material goods, and all such future advances, with interest, were to form a first charge upon the purchaser’s right, title and interest to the lands and goods, until paid in full. This appears to be a form of floating charge. [6] Paragraph 12 is the default and forfeiture provision of the Agreement of Sale and is quoted below: 12. It is agreed between the parties hereto that if the Purchaser shall make default in payment of any of the payments mentioned in paragraphs 1, 2, 3, 6, 7 and 8 hereof for principal or interest or otherwise, either in whole or in part, within the times above limited respectively, or shall make default in the performance or fulfillment, either in whole or in part, or any of the stipulations, convenants, provisos or agreements herein contained on the part of the Purchaser to be performed or fulfilled or if the Purchaser becomes bankrupt or insolvent or if a receiver is appointed to manage the affairs of the Purchaser which shall be deemed to be a default under this agreement, the Board may determine and put an end to this agreement and retain all payments theretofore made as liquidated damages, by mailing, postage prepaid and registered, a notice signed by or on behalf of the Board determining this agreement, addressed to the Purchaser at the address of the Purchaser last known to the Board, or by serving the notice on the Purchaser personally, and upon and from the mailing or service of the notice this agreement shall become void and be at an end, and all the rights and interest hereby created or then existing in favour of the Purchaser or derived under this agreement shall thereupon cease and determine, and the Lands and Goods, shall revert to and revest in the Board (which shall be immediately entitled to the possession thereof) without any further declaration of forfeiture or notice, and without any act or re-entry or any other act by the Board to be performed or any suit or legal proceedings being brought or taken, and without any right on the part of the Purchaser to any reclamation of or compensation for monies paid under this agreement, or to damages of any kind whatever. [Emphasis added] [7] As can be seen, clause 12 terminates all rights of the purchaser, including any right of reclamation or compensation for any monies paid under the agreement. The clause also states that any rights and interests created by the agreement are terminated and revert to and revest in the Board upon default without any kind of legal procedure whatsoever, except service of notice of default upon the purchaser. Clause 10 of the agreement also contains a prohibition against assignment as follows: 10 It is agreed that no assignment of this agreement by the Purchaser shall be valid or of any effect unless and until the same shall be approved and executed by the Board in writing under its corporate seal. [8] It is worth noting again that the Agreement of Sale entered into in June of 1995 was not registered. The farm suppliers’ judgments were registered in 1999 and 2000. The Quit Claim Deed from the de Graafs dated April 9, 2001 was recorded on December 12, 2001. This Deed is in the usual form and it makes no mention of the 1995 Agreement of Sale. It does not purport to specifically release that agreement. It is not clear what alerted Noggins to the registered judgments and triggered the objection to title. In all probability it was the Registered Quit Claim Deed. It is also worth noting that Mr. de Graaf was operating the farm property for an extended period of time with no registered or public notice of any kind as to what may be his ownership or occupier status. Therefore, it appears the creditors simply recorded their judgments, possibly without any notice, actual or otherwise, of the 1995 agreement. [9] There is also no evidence that the judgment creditors had any notice of the Board’s resale of the property by tender. However, both judgment creditors had notice of this application and declined to appear or make any representations on the issues before the Court. It appears there was in excess of $190,000.00 in principal plus interest outstanding under the 1995 Agreement of Sale and the creditors were therefore not interested in participating in these proceedings. ISSUE [10] The only issue in these proceedings is whether Mr. de Graaf’s judgment creditors have an interest in the land in question such that it can give rise to a valid objection to title by Noggins? [11] In order to decide this question it is also necessary to determine what interest Mr. de Graaf himself had in the land and what effect his default and subsequent Quit Claim Deed to the Board had on his interest and the interests, if any, of the registered judgment creditors. AUTHORITIES (a) Scope of the Application: [12] This application is brought pursuant to s. 4 of the Vendors and Purchasers Act which reads: A vendor or purchaser of any interest in land or his representative may, at any time and from time to time, apply in a summary way to a judge or local judge of the Trial Division of the Supreme Court in respect of any requisition or objection or any claim for compensation or any other question arising out of or connected with the contract and the judge or local judge may make such order upon the application as appears just, and refer any question to a referee or other officer for inquiry and report. [13] Justice Hall described the scope of such applications in Rafuse v. Borne (1996), 157 N.S.R.(2d) 118 as follows: The general ambit of such applications is described in Anger and Honsberger Real Property (2nd Ed.), at page 1144 as follows (footnotes deleted): “It has been said that the procedure under the Act is a substitute for an action for specific performance when the contract is admitted and the only question is as to title . . . He went on to state: In my opinion applications should be made under s. 4 only where there is no substantial dispute as to the material facts. . . . I am also of the view that applications ought not be brought under this section where it is apparent that rights of third parties may reasonably be affected, unless notice of the application is given to them. . . . In the present case there is no dispute of fact and any affected third parties have received notice of this application. (b) Nature of Mr. de Graaf’s Interest [14] The Board relies primarily on clause 12 of the Agreement which, upon default, purports to extinguish all and any rights of Mr. de Graaf with regard to the land transaction occasioned by the 1995 Agreement. There can be no question that clause 12 appears to do precisely that. [15] Noggins contends that Mr. de Graaf had acquired an equitable interest in the land which could not be extinguished without some sort of formal procedure akin to a mortgage foreclosure. Noggins further contends that this equitable interest of Mr. de Graaf was subject to attachment or encumbrance by the registration of judgments by his creditors. Although no one has contested Mr. de Graaf’s right to extinguish any interests he may have acquired by signing a Quit Claim Deed in favour of the Board, Noggins contends this could not extinguish the attachment or encumbrance of Mr. de Graaf’s interest, which it says had already crystalized. The Board concedes that the judgment creditors’ rights, if any, were not extinguished by the default and subsequent Quit Claim Deed from Mr. de Graaf but contends that the creditors could only attach the contractual rights, if any, of Mr. de Graaf and not the land itself. It also contends that Mr. de Graaf had no interest, title or otherwise, in the land, but only a possible equitable interest in the contractual arrangements simpliciter. In the present case Mr. de Graaf apparently did not claim any interests whatsoever, contractual or otherwise. This is probably due to the large amount outstanding under the agreement. [16] There is confusing jurisprudence and text authority regarding what, if any, interest a purchaser acquires under a long term agreement of purchase and sale. There can be no question that a purchaser of property, especially under a long term agreement of purchase and sale, acquires an interest in the property by way of contract; but not by way of conveyance. Therefore the purchaser has no registered title to the property. Can it be said that the vendor holds the property in trust for the purchaser and that the purchaser is the beneficial owner of the land and, as such, liable to execution against the land by way of a trust interest. In my opinion none of the authorities cited go that far and some reject that argument or notion outright. See: Barrowman v. Fader et al (1899), 32 N.S.R. 284(S.C.); Ridout v. Fowler, [1904] 1 CH. 658; Howard v. Miller (1914), 22 D.L.R. 75. [17] Dr. Castri, Law of Vendor and Purchaser (3rd Ed.) P 1-4.1 describes the rights or interests acquired as follows: . . . the consummation of a valid and enforceable contract gives the purchaser an equitable estate in the land, this estate may be said to include: (1) an interest in the property to the extent of the deposit and purchase money paid, (2) the specifically enforceable right to call for a conveyance upon payment of the price. [18] Noggins cites the Nova Scotia cases of Blakeney v. MacDonald et al (1980), 116 D.L.R. 402 (N.S.S.C. A.D.) and Elliott v. Lowe (1969), 1 N.S.R.(2d) 187 (T.D.) for the proposition that purchasers acquire an equitable estate in property by virtue of an enforceable Agreement of Sale. It points to Coffin, J.A.’s statement in Blakeney supra, at paragraph 25: Gillis J. at p. 190 emphasized the point that an equitable estate vests in the purchaser of land under agreement of sale on the execution and delivery of the agreement. which quote was referring to the following statement of Gillis, J., at page 190 of the Elliott case, supra: The authorities are clear and none need be cited for the proposition that an equitable estate vests in the purchaser of land under an agreement for sale on the execution and delivery of the agreement. [19] These authorities do not go as far as to say that the interest or equitable estate acquired by a purchaser under an Agreement of Sale is subject to execution and sale by a third party judgment creditor of the purchaser. The case of Barrowman v. Fader et al, supra, rejected that notion and found that no such right existed at Common Law or under legislation. In that case Henry J., on behalf of the Court sitting in Appeal, stated the following at page 291: . . . Careful perusal and consideration of this last mentioned act shows, first, that its scope and purpose, like that of the legislation upon which it is based, is to render land liable to execution, land not being, under the common law, liable to execution; and, second, that excepting two instances specifically provided for, it is only legal estates or interests; as distinguished from equitable, that are governed by it. In the above quoted passage, Henry, J., was referring to the sale of land under execution legislation existing at the time. [20] In Creditor Debtor Law in Canada (Dunlop, Charles Richard Bentley (Carswell: Toronto, 1981) the author had the following to say at page 275 on the question of which interests in land are exigible: It is commonly assumed by lawyers, judges and (most important for this purpose) land registrars and sheriffs that all interests in lands are exibigle, at least where they are registered. The notion that some types of realty may simply fall outside the grasp of the judgment creditor seems to arouse deep and violent resistance in the breasts of those who operate the creditors’ rights system. Still, it must be remembered that common law interests in land were not eligible at all with the anomalous exception of chattels real. It follows that, in order for an interest in land to be caught today by a writ of execution, there must be legislation which clearly so provides. [emphasis added] [21] The current legislative schemes provided by the Registry Act, R.S.N.S. 1989, c. 392 and the Sale of Land Under Execution Act, R.S.N.S. 1989, c. 409 are not markedly different from the legislative schemes in existence at the time of the Barrowman decision, supra. There is no disagreement that an Agreement of Sale, especially a long term one, can be registered as an instrument, pursuant to the Registry Act; however, that was not done in this case. There may be good reason why such agreements are not registered. Obviously they would have to be released or a court order obtained to release them in the event the purchaser did not co-operate or agree to a release when default occurs. In the present case the Board obtained a release from the purchaser by means of a Quit Claim Deed which was then registered. The non-registration of the Agreement of Sale would appear to negate the need for the registration of a release or Quit Claim Deed. [22] The Registry Act, section 20, attaches to the land of judgment debtors as follows: Section 20 A judgment, a certificate of which is registered in the manner by this Act provided in the registry of any district, shall, from the date of such registry, bind and be a charge upon any land within the district of any person against whom the judgment was recovered, whether such land was acquired before or after the registering of such certificate, as effectually and to the same extent as a registered mortgage upon such land of the same amount as the amount of such judgment. [23] “Land” is not defined in this Act but the Interpretation Act, R.S.N.S. 1989, c. 235 defines land as follows: (n) “land”, “lands”, “real estate” and “real property” include, respectively, lands, tenements, hereditaments and all rights thereto and interests therein; . . . [24] The provision for the sale of land of a judgment debtor is found in section 4 of the Sale of Land Under Execution Act: 4 The land of every judgment debtor may be sold under execution after the judgment has been registered for one year in the registry of deeds of the registration district in which the land is situated. This Act also provides a definition of land in section 2(d), as follows: 2(d) “land” includes the possessory right and right of entry of a judgment debtor and also the interest of a mortgagor, or any equitable interest in the land which may by this Act be sold under execution: [Emphasis Added] [25] Noggins contends that the foregoing legislative provisions provide the authority for the sale under execution of the equitable estate or interest acquired by a purchaser such as Mr. de Graaf and that the registered judgments therefore attach to the land in question. That as such these judgments constitute an encumbrance against the land and a valid title objection. With all due respect, I cannot agree. [26] I find that the current legislative scheme has not changed the long established authorities in this province. The equitable interest obtained by Mr. de Graaf is not an interest which subjects the land to sale under execution by a judgment creditor. I accept and follow the reasoning earlier quoted from the Barrowman decision, supra. Any equitable interest in the land itself is limited to the contractual relationship of the parties. For example, only the parties could seek specific performance, and, as stated earlier, the agreement prohibits assignment to third parties. [27] I also find that the definition of land found in section 2(d) of the Sale of Land Under Execution Act does not assist Noggins in its argument. That section clearly only applies to any “equitable interest in the land which may by this Act be sold under execution”. There is no clear authority in the Act which overrides the Barrowman case or the common law and which provides for the sale under execution of an equitable interest in land such as we have in the present case. (See Creditor Debtor Law in Canada and Barrowman, supra). [28] Charles MacIntosh, in the Nova Scotia Real Property Practice Manual, comments on the nature of the remedies in the event of default of long term Agreements of Sale at page 2 - 51 as follows: (2.4C) Long Term Agreements of Sale Some agreements of sale, instead of calling for completion of the contract in the immediate future, provide for payments to be made by the purchaser over a longer period of time, often years, and usually give immediate possession to the purchaser. These long term agreements are often used when the purchaser is unable to obtain financing or when it might be inconvenient for the vendor to transfer title by deed at present . . . Special problems arise under default, and enforcement of the provisions to terminate them by the vendor. There would appear to be two options available to a vendor in such circumstances. The first possibility is a claim for specific performance including cancellation. The procedure is set out in Blakeley v. Moreash. The other alternative is foreclosure and sale. This procedure is illustrated in Re Buckley Estate. It should be noted that the earlier case of Penny v. Shaw indicated that the foreclosure available for mortgages was not to be used in cases of agreements of sale. The Saskatchewan case of Standard Trust Co. v. Little contains an analysis of how an agreement of sale for land is enforced. If there is no forfeiture clause in the agreement, the Court might take the position that the purchaser is entitled to the return of the money he had paid on account of the purchase if the vendor elects to rescind the agreement. [Emphasis Added] [29] In the last paragraph of the above quote, Mr. MacIntosh appears to be alluding to the equitable remedy of the return of monies already paid if the vendor elects to terminate the agreement upon default. He appears to restrict the availability of that remedy to cases where there is no forfeiture clause in the agreement; but it would seem the courts may still invoke their equitable jurisdiction to relieve from unjust or unconscionable forfeiture, even in the face of such a clause. [30] In the present case the purchaser sought no remedies of any kind, most likely due to the large amount still due under the agreement, practically the entire purchase price. [31] Obviously the Board sells these farm properties to prospective purchasers by way of long term Agreements of Sale because it is impractical or impossible for these purchasers to obtain conventional financing. By proceeding in this manner, which often involves financing one hundred percent or more of the purchase price, the Board is avoiding the more cumbersome and very expensive conventional mortgage foreclosure procedure when default occurs. If the termination of the agreement is unjust or unconscionable, it is always open to the purchaser to invoke the equitable jurisdiction of the Court to obtain relief. In such a case the equitable remedies between the vendor and the purchaser are founded upon the contract between those two parties. While the remedy of specific performance may be a possibility for both parties, it does not necessarily follow that the interest of the purchaser leads to an estate or interest in the land which is subject to execution and sale of the land by a judgment creditor. Upon default, in this case, the fee simple in the land continues to be with the vendor and it has never ceased to be so. I find there was nothing in the title to the land which judgment creditors could attach or execute against as long as the Agreement of Sale remained uncompleted. Until completed, a trust cannot result. The vendor is free to re-sell the land to another purchaser. But as I stated, the original purchaser may still attempt to pursue and enforce other equitable remedies. (c) Statutory Protection [32] I also find that the Board is afforded statutory protection regarding land it holds in fee simple while any part of the sale price or other amounts advanced to purchasers remain unpaid. [33] Section 13 of the Agricultural and Rural Credit Act, R.S.N.S. 1989, c 7 provides as follows: Notwithstanding any law, statutory or otherwise, in force in the Province, no person may, except with the consent in writing of the Board, acquire any estate, right, title, interest, lien, charge, claim or demand whatsoever in, on, to, or against any property of a borrower in priority or to the prejudice of any claim of the Board, so long as any part of the sale price or the amount of any advance made by the Board with respect to such property or any interest thereon remains unpaid to the Board. [Emphasis Added] [34] While there is no question that judgment creditors in a case as the present would not be able to advance a claim in priority to the Board, any claim to a lien or charge, etc., on the property such as to attach to the land and be susceptible to sale under execution would certainly prejudice the claim of Board. The prejudice would be in the form of a more cumbersome and much more expensive procedure to deal with default and dispose of or resell land of defaulting purchasers. As I indicated before, these agreements often provide for financing the full purchase price, and often more by additional advances of funds or material goods. The apparent objective and intent of the Agricultural and Rural Credit Act is to recognize the peculiar or particular nature of the workings of farm credit and the frequent requirement for very generous financing arrangements. If the Board was subjected to the foreclosure and resale procedures required for conventional mortgage financing, the present lending program and scheme would no doubt suffer serious financial consequences. I am satisfied the intent of the legislators was otherwise. [35] Having said that, it is clear that the purchaser acquires an equitable interest in the contract and in this case it appears to have been extinguished by agreement with the Board. The best instrument may not have been used. The Quit Claim Deed purports that Mr. de Graaf had an interest in the land which required reconveying. The Deed makes no mention of a release of the Agreement of Sale. The Agreement itself refers to the effect of default as “. . . all rights and interest hereby created or then existing in favour of the purchaser or derived under this agreement shall thereupon cease and determine, and the Lands and Goods, shall revert to and revest in the Board . . .” [36] The agreement attempts to be very specific as to what occurs upon default, but it is not very specific as to what rights or interests are acquired by the purchaser, vis a vis the land, during the term of the agreement. [37] With regard to the procedure to be followed upon default and resale, it must be kept in mind that the purchaser acquires an equitable interest in the Agreement of Sale itself. As such a purchaser could very well be entitled to some monies in certain circumstances, depending on the length of time the agreement had been in place and the amount of monies paid on account of the purchase price. It appears only just and reasonable, and to follow as a matter of common sense, that if a purchaser has such a right or interest, it is a right or interest which can be attached or liened by a judgment creditor. [38] At minimum, judgment creditors of a defaulting purchaser should be advised by the Board of any Agreement of Sale and of the details of the intended resale by tender in order that those creditors may participate in the tendering process as they deem appropriate or possibly attach any monies to which the purchaser may be entitled. One should remember that it is the Board which places the purchaser in full possession and use of a farm property. On this basis, suppliers provide goods and services to the purchaser. It follows that fairness dictates that judgment creditors of the purchaser should receive notice of the intended resale and tendering process. That was not done in this case; however, I am satisfied that, because of the subsequent notices to the judgment creditors and the positions they have taken in these proceedings, that they were not prejudiced by any lack of notice of the agreement of sale, the default and the subsequent tendering process. CONCLUSION: [39] I find that the interest acquired by Mr. de Graaf under the Agreement of Sale in question was not subject to sale under execution and the subsequently registered judgments did not encumber the land, the fee simple of which remained with the Board. For the reasons stated previously, the Board was entitled to resell the land, as it did by tender. [40] In the result,the objection to title raised by Noggins on this application is not a valid objection. The application of the Board is therefore granted. I will issue an order accordingly. The parties can make submissions to the Court by March 20, 2003, if they so wish, either in writing or orally in Chambers, on the issue of costs. Boudreau, J.