248 Effect Of Cancellation

CROSS REFERENCES AND OTHER SOURCES OF INFORMATION

See Di Castri, Registration of Title to Land, vol. 2, §12:30 and §13:162.

CASE LAW

Effect of Forged Discharges

The registration of a forged discharge of a second mortgage was effective in discharging the mortgage. A subsequent mortgagee acquired its interest in the land bona fide and for value because it did not take any interest from or through the second mortgagee, and because it did not take under a void instrument. Therefore, s. 297(3) of the Act did not apply. Once the second mortgage was discharged it could “no longer affect the land in respect of which it was registered” within the meaning of s. 248 of the Act. The subsequent mortgagee’s mortgage then became the new second mortgage, not because it took any interest from the original second mortgagee, or any greater interest from the mortgagor, but because the registration of the original second mortgage had been fraudulently cancelled (Canadian Commercial Bank v. Island Realty Investments Ltd., 1988 CanLII 2966 (BC CA)).

The petitioner’s mortgage was fraudulently discharged by the mortgagor. The mortgagor subsequently obtained funds from the respondent life insurance company, also by fraudulent means, to make improvements on the property. The life insurance company did not rely on the state of title and was not a bona fide purchaser for value. The petitioner sought a declaration that its mortgage had priority over the equitable lien claimed by the respondent. The declaration was granted. Section 248 was not applicable. The fraudulent discharge of the petitioner’s mortgage was void ab initio, such that it was as if the discharge never occurred (Royal Bank of Canada v. Zavitz, 1989 CanLII 2664 (BC SC)).

Effect of Mistake

The applicant brought this action for an order to determine the priority of claims to the proceeds of sale in foreclosure proceedings after payment in full to the petitioner as first mortgagee. Before the foreclosure, the applicant held two mortgages over the respondents’ property. The respondents made arrangements with S to obtain a new second mortgage subject to their undertaking to discharge the applicant’s mortgages. The applicant executed a discharge which was registered in the land title office. At the time, the applicant was unaware that the discharge discharged both of her mortgages and she received funds sufficient only to pay out one of the mortgages. The court found that the applicant’s mistake in this case was not a mistake as to the nature of the transaction but rather a mistake as to the contents of the release and accordingly that the principle non est factum did not apply. However, because these were not bankruptcy proceedings, the court found that applicant had rights to recover from the respondents other than as an unsecured creditor. The court also found that S had relied on the discharge to its detriment because its funds were advanced on the condition that the applicant’s mortgages would be discharged and that S would end up with the second mortgage. In rectifying the mistake, the court ordered the applicant’s mortgage restored to title but ranked in priority subsequent to the mortgage of S and several other liens and charges registered bona fide for value without notice after the discharge (Coastal Community Credit Union v. Abel, 2005 BCSC 730).