valid title under the ontario registry...

This is a copy of an article originally published in the Real Property Reports, at 45 R.P.R. (2d) 35. The article is posted with the permission of Carswell Thomson Professional Publishing.

VALID TITLE UNDER THE ONTARIO REGISTRY SYSTEM: HOW THE FORTY-YEAR RULE WORKS

by John R. Wood1 Introduction......................................................................................................................... 1 Summary ............................................................................................................................. 1 Policy of Part III.................................................................................................................. 5 Basic Rules Before the Registry System ............................................................................ 6 Effect of the Registry System ............................................................................................. 7 Basic Rules Under Part III .................................................................................................. 7 When Part III Validates a Title ......................................................................................... 12 Interests Less Than Ownership......................................................................................... 16 The Registration Rule ....................................................................................................... 20 The Chain of Title Rule .................................................................................................... 24 Other Matters .................................................................................................................... 37 Restatement of Part III ...................................................................................................... 43 Details of Cases................................................................................................................. 48

1 JOHN R. WOOD practises with the Toronto law farm of Borden & Elliot an the area of commercial real estate, and primarily an secured lending. He is a member of the Real Property Section of the Canadian Bar Association (Ontario). He received his LL.B. from the University of London, England, in 1969, was called as an English solicitor in 1971, and was called in Ontario an 1973. He has presented papers on purchasing from governmental bodies (Variety of Vendors, 1987), estate conveyancing (Title Searching for Lawyers?, 1986), opinions (Real Estate - Update, 1989), and GST on sales of real estate (Real Estate and Mortgage Law, 1993). He thanks the editorial staff at Carswell for their help in publishing this paper; his colleagues, Evelyn Goldfarb, Paul McCarten and Murray Shopiro for their contributions; the authors of the Canadian Bar Association’s course “A Searching Analysis: Recent Ontario Jurisprudence on the Investigation of Titles” (May 12, 1994), namely: Brian D. Bucknall, Nancy L. Carnwath, Alfred J. Esterbauer, Robin W.W, Fraser, Jeremy G.N. Johnston, Garth Manning and Albert A. Strauss. for their valuable work; and his wife, Anne, and his family for their support.

Introduction

Part III of the Registry Act, R.S.O. 1990, c. R.20, sets out basic rules about title to land under the registry system. The rules came into force in 1930, and were last changed in 1981. There have been six major Court of Appeal cases about the rules - four since 1981 - as well as several lower court cases. (The cases are cited in footnotes throughout the text, and are also listed at the end of this paper, with full citations, on pp. 98-99, post. In quotations from the cases in this paper, italics will often have been added.) The last of the cases, Fire v. Longtin,2 has been appealed to the Supreme Court of Canada, and the appeal should be heard in the fall of 1995. The court is expected to clarify the law.

The main conclusions of this paper are, first, that Part III validates title to a registered interest if it meets two tests contained in what this paper calls the chain of title rule and the registration rule, and, second, that the validation occurs automatically as soon as the two tests are met, even though there is no dealing then. Most other conclusions are built around these main conclusions. The paper begins by summarizing its conclusions, and how far they are supported by the provisions of Part III and the Court of Appeal cases. The paper ends by setting out a possible restatement of Part III reflecting the conclusions.

Part III should not be interpreted in a technical manner. Its terms are more a guide to the logic of its remarkable concepts than precise provisions. And the Court of Appeal decisions on it have shown great insight into its concepts.

Summary

The conclusions of this paper may be summarized as follows:

1. Intention. Part III is intended to provide a logical scheme which allows the title to land in the registry system to be determined, as far as practicable, by searches covering a period of not more than 40 years, and under which a title shown by those searches can be relied on. It has to invalidate an interest in land (and does so without compensating the person whose interest is invalidated) where that is required to allow the title to land to be determined by those searches, but it is not intended to invalidate an interest in land that the required searches actually show.

2. Effect of Part III. Part III works by actually validating title to registered interests shown by proper searches, rather than merely extinguishing older conflicting claims. All of the Court of Appeal decisions confirm this.

3. Two tests for validation. Part III validates title to a registered interest only if it meets two tests. The tests are contained in what this paper calls the chain of title rule and the registration rule. First, under the chain of title rule, the holder of the tide must have a good chain of title. Second, under the registration rule, no registered adverse claim must have been registered in a 40-year period. Usually the title that is validated is the true title, but sometimes there is an older conflicting claim. This paper calls the older claim the “senior claim” and the newer one the “junior claim.” Where there is a conflicting senior claim, the same two tests apply.

2 (1994), 38 R.P.R. (2d) 1. All page references are to R.P.R.

Part III does not invalidate the senior claim unless Part III validates the junior claim because the junior claim satisfies both tests. A provision about a freehold title “continuously shown” confirms this. And all of the Court of Appeal decisions (except perhaps one) confirm the basic double test principle.

4. Time of validation. Part III automatically validates a title as soon as the two tests are met, even though there is no dealing then. In practice, a searcher will apply the tests when the search is made, If that search shows conflicting claims, the searcher will then, in practice, apply the tests immediately before the conflict was first shown. But, if there was a conflicting senior claim, a junior claim that is valid will often have been validated earlier than these search dates, and usually, if validation occurred after the 1981 changes, when the senior claim expired under the registration rule. The last four Court of Appeal decisions confirm that Pan III validates title independently of a dealing. But the court has so far only decided that Part III validates a title when the title is brought into question, which is consistent with the practical result of the searcher applying the tests immediately before the search first shows a conflict.

5. Interests less than ownership. The principles set out above apply not only to ownership but also, except as set out below., to interests less than ownership; Part III validates or invalidates title to them under the same two tests. Part III invalidates an interest less than ownership only if the holder of the title that will become free of the interest satisfies both tests. And Part III validates the title of the holder of an interest less than ownership if the holder has a good chain of title to the interest and no claim adverse to the holder’s title has been registered or re-registered in the 40-year period. Despite an exception in Part III for a lessee or mortgagee, Part III can validate the title to a mortgage or lease. However, as an exception, where Part III would seem not only to validate title to an encumbrance but also to validate the title of the owner free from that encumbrance, the conflict will be resolved in favour of the owner. This exception does not apply to an interest that, if it expired, would leave a gap in the tide to the ownership. The Court of Appeal cases deal only with conflicting claims to ownership. Lower courts have made decisions on how Part III applies to interests less than ownership, but all, except perhaps one, conflict with the conclusion that Part III invalidates an interest less than ownership only if the holder of the tide that will become free of the interest satisfies both tests. Thus the conclusions in this paragraph are based only on a logical interpretation of Part III and the basic principles confirmed by the Court of Appeal decisions.

6. Function of registration rule. Under Part III as it is now, the registration rule speaks mainly to the holder of an existing registered interest. It defines, using information known to the holder, the beginning of the 40-year period after which the claim can be invalidated. And it allows the holder to begin the period again by registering a notice of claim.

7. Registration under registration rule. The 40-year period begins when the claim to the interest was last registered. A claim is registered when a dealing is registered against the land (i) which purports to create or transfer a claim out of which the claim later arises, or (ii) which purports to create or transfer all of the claim. A claim is probably registered when a dealing is registered against the land (iii) which purports to contain a dealing by the holder of the claim with part of the claim. A claim is probably not registered when a dealing is registered against the land (iv) which deals with another interest and merely refers to the claim. These conclusions are based on a 1981 amendment to Part III. Originally, according to Part III, the 40-year period

began when the claim was last “acknowledged or specifically referred to or contained in an instrument registered” against the land. Part III now states that the 40-year period begins with the “registration of an instrument,” and this means an instrument that the claim is “set forth in, based upon or arising out of” In the cases that were heard by the Court of Appeal, the only decision that supports this conclusion is the trial decision of Henry J. in Camrich Developments Inc. v. Ontario Hydro, where it was decided that the period begins with a registered instrument which “creates or asserts the interest.”

8. Notice of claim. The holder of an interest may preserve the claim under the registration rule by registering the prescribed notice of claim within the period of 40 years after the claim, or a valid notice of claim for it, was last registered. Ideally, a notice of claim would also preserve a claim under Part III if the notice was registered after the 40-year period but before the claim was invalidated under the two basic tests, but the effect of a notice of claim registered after the 40-year period is not clear.

9. Function of chain of title rule. Under Part III as it is now. the first test, under the chain of title rule, governs the validation of title. This is partly because tide under the registry system can only be proved by past events. It is also because the rule requires a detailed investigation of title covering the entire 40-year period or longer, which would clearly show any registrations or re-registrations under the second test.

10. Assumption of tide before chain. The chain of title rule allows one to assume, if the chain of title is good, that the title before the chain is consistent with what is shown by the search, and only that.

11. Root of title. The chain of title for an interest must start with a “good root of title” for the interest. A transaction can be a good root of tide for an interest if it is a registered document, other than a mortgage, that purports to create or transfer the whole interest (or create or transfer another interest out of which the whole interest was later created), even if it does so subject to an encumbrance on the interest and even if it depends for its validity on a previous instrument. If the search contains nothing to cast any doubt on the tide of any of the persons creating or-transferring the interest under the earliest document registered within the 40-year period that could be a good root of title, that document is a good root for the title to the interest, however recently it was registered. If not, the root is the most recent such document registered before the 40-year period that is free of doubt. Part III clearly allows the root to be within the 40-year period, but the other conclusions set out above must be based on the common law as modified by implication. All of the Court of Appeal decisions after 1981 confirm that there can be a good root of title within the 40-year period. Despite sharp differences in the conclusions of the judges in the three most recent Court of Appeal decisions on the facts, all of the judges accepted the principle that, for a conveyance to begin the chain of title, it must be a good root of title.

12. Chain for interest less than ownership. The above rules should also apply to the root of title for interests less than the freehold, such as the interest of the holder of a lease, mortgage or easement. Where the root is a transfer of the interest, the searcher needs to refer to the lease, mortgage, grant of easement or other instrument that created the interest to find the terms of the lease, mortgage, easement or other interest, but the instrument will be referred to only to find out those terms. A chain for a title to an interest is not bad merely because instruments in the chain

of title for another interest, that is affected by the first interest, do not refer to the first interest. Neither Part III nor any of the cases deals specifically with the subject of those conclusions.

13. Period to be covered by detailed search. Where the chain of title begins with a root less than 40 years old, the tide is also affected by anything that is shown by a detailed search under the chain of title rule covering the part of the 40-year period before the root. Where the chain of title begins with a root more than 40 years old, the title is affected by anything that is shown by a detailed search under the chain of tide rule from the beginning of the chain, including the part of the period of the chain that is after the root and before the 40-year period. Despite sharp differences in the conclusions of the judges in the three most recent Court of Appeal decisions as to the facts, all of the judges accepted the principle that a junior claim is defective even though the defect appears in the search before the root of title.

14. Quality of search. The standard to be used in verifying that the search under the chain of title rule shows nothing to cast doubt on the assumption that a disposing party under the root had the right to do so is that of a person reasonably skilled in investigating title. This is implicit in the Court of Appeal decisions.

15. Evidence to be included in search. Despite the fact that Part III says, with some exceptions, that a chain of title is not affected by any instrument registered before the 40-year search period, it is not safe to rely on the provision to conclude that a defect or encumbrance does not affect the title, where the required evidence of title would show the defect or encumbrance to a person reasonably skilled in investigating title. The two most recent Court of Appeal decisions confirm that, if an instrument registered within the 40-year period shows a defect in the title to the ownership, Part III will not validate the title, even though that means that the title is affected by an instrument registered before the 40-year period.

16. Number of links in chain. A chain of title does not need more than one link; this is confirmed by the reasons of the Court of Appeal in Ontario Hydro v. Tkach.

17. Retroactivity. The tests under Part III to validate title will almost always be applied to facts shown by a search to a current date, and, when that is done, the current rules apply retroactively. Two recent Court of Appeal decisions to the contrary were contradictory, but the most recent decision confirms authoritatively that the 1981 amendments to Part III are retroactive. If a search to a current date shows a conflicting claim, the tests are applied immediately before the conflict was shown, and Part III should logically be applied as it was then, again retroactively.

18. Effect of actual knowledge. Part III validates the title to an interest when it meets the two tests, even if a holder of the interest actually knows of a conflicting claim to the interest. The reasons of the Court of Appeal in Tkach confirm this conclusion. However, if the holder knew of the conflicting claim when the holder acquired the interest, and Part III had not then validated the title, the holder may not, under general principles of law, be permitted to take advantage of the validation.

19. Effect of possession. As far as a right is legally created by adverse possession or use, it does not expire under Part III. If the right is also registered (as it often will be), Part III probably

validates it if the registered title meets the tests. An easement or similar right should not expire under Part III if the holder is openly enjoying and using it, but any other registered right, including ownership, can expire, even if accompanied by possession. The Court of Appeal cases neither deal with possession nor contain useful comments on the effect of possession.

20. Effect of fraud. Part III probably does not validate a claim where the chain includes an instrument that is void because of fraud. None of the Court of Appeal cases deals with fraud, and comments on it in some cases probably cannot be interpreted as saying what the courts thought would be the effect of fraud.

21. Possible reform. The fact that Part III does not require the root of title to have at least a certain age is a serious defect. If Part III were amended to do so, the government might take the opportunity to make two changes. First, it could amend the chain of title rule to require the root to be, say, at least 15 years old. Secondly, it could limit the detailed search under the chain of title rule to the period after the root. The government could still retain the 40-year period for the registration rule. The test under that rule would then be an important factor in validating title, because the search would still have to cover that Dart (if any) of the 40-year period before the root, but it would only be for registrations or re-registrations that would preserve a conflicting claim under the registration rule.

22. Exceptions. The conclusions in this paper are subject to a number of exceptions in Part III.

Policy of Part III

Under the registry system, a person can be shown to be entitled to an interest in land only by assessing the effect of past transactions and events. The search for those could extend back to the original Crown patent, which would often make it difficult and expensive to deal with land. Part III cures this problem by limiting the length of this search. As Osborne J.A. (dissenting) said in the National Sewer case, “The apparent policy behind the investigation of titles legislation from 1929 to date, is to reduce transaction costs and delay, as well as to facilitate the marketability of interests in land.”3

Part III achieves the purpose by validating a “junior claim” shown by the shorter search, and by invalidating any conflicting “senior claim” that is not so shown. Usually, the title that is validated is the true tide, because there is no conflicting claim to be invalidated. It is a rare coincidence for a person who has no title to acquire a good chain of title, and for there to be no registration for the true claim for more than 40 years. Despite this, courts are reluctant to decide that an interest is extinguished. Unlike the land titles system, Part III does not provide compensation for a claimant whose title is invalidated. In the National Sewer case, Finlayson J.A. said [at p. 15]: “I have difficulty in accepting a conclusion which is confiscatory of the property rights of the respondent, although I realize that in a given case, that can be the result.”

3 National Sewer Pipe Ltd. v. Azova Investments Ltd. (1993), 34 R.P.R. (2d) 1. at p. 17. All page references are to R.P.R.

The courts recognize that if Part III is to work properly, the court must determine what the rules are, and then apply the rules, even where the result may seem unjust. In National Sewer, Osborne J.A. rejected the view that the court should lean against an interpretation that could defeat legitimate ownership, saying [at p. 22]: “This view ... reflects an unwillingness to accept the basic policy set out in Part III of the Act, rather than a rational analysis and application of Part III’s provisions.

Conversely, the courts will not apply the terms of Part III where that would not achieve the purpose of making title marketable. For example, in Calabogie4 and National Sewer, the courts refused to decide that Part III extinguished a title if that would leave land without any owner. As Maloney J., the trial judge in National Sewer, said: “The alternative would be to conclude that neither of the contending parties has a good title to the subject lands, an illogical position which I am not prepared to assume.”

Basic Rules Before the Registry System

The basic common law rule, apart from a system of registration, was that a vendor of land had only to be able to show the purchaser that he or she appeared to be the owner, free from encumbrances, through a series of transactions and events (a “chain of title”), starting with a disposition that was at least 60 years old, and showed on its face the ownership of the property (a “good root of tide”). Although this rule was recognized by statute, it was based on the customary practice of conveyancers. The period had been reduced by statute in England first to 40 years and then to 30 years when the provisions of Part III first came into force. It has since been further reduced in England to 15 years.

Apart from this, the basic rules were that a person in possession or receiving the income was presumed to be the owner; that the interests of others could be extinguished by adverse possession for a period; and that interests less than ownership could be acquired by adverse use.

One feature of the common law rule was that it worked as a term of the contract between the vendor and purchaser. The rule could be varied by agreement, and was often varied to require the purchaser to accept a more recent root of title. Where an interest was not enforceable against a bona fide purchaser for value without notice of the interest, a purchaser took title free from the interest if the rule prevented the purchaser from acquiring notice of the interest. Otherwise, the rule did not affect the rights of others. Thus, the common law did not protect the purchaser of real estate (with the exception referred to above), but merely minimized the risk of a title being bad.

Another feature of the common law rules was that the record of title consisted mainly of original documents in the owner’s possession or control. In practice, a vendor prepared a summary of the title (“abstract of title”) showing the required chain of title, and delivered the abstract to the purchaser. The purchaser checked the abstract, then verified its accuracy by inspecting original documents produced by either the vendor or someone who had undertaken to produce them. On closing, the vendor delivered all of the vendor’s original title documents to the purchaser, or, if the vendor retained land that was dealt with in them, the vendor gave the purchaser an

4 Headrick v. Calabogie Mining Co., [1953] O.W.N. 761.

undertaking to produce them. Because a good chain of title did not usually itself extinguish a valid interest not shown by the chain, the purchaser could object to anything in the chain that showed some other interest, and resolving the objection might take the search back earlier than the root of tide. The vendor had a duty to disclose defects in title, and gave covenants that the vendor had not lost title. The transfer passed along to the purchaser the benefit of covenants given by others. In these ways, the vendor was encouraged to be honest, but the vendor, in practice, controlled the purchaser’s investigation of title.

The common law rules were therefore a balance between making it easier (and less expensive) to deal with land and protecting the purchaser against the risks of title being bad, but they usually did not do so by taking away the rights of persons.

Effect of the Registry System

Apart from Part III, the registry system has the following basic rules:

1. A bona fide purchaser for value without actual notice of an instrument that is not registered is not affected by the instrument.

2. A purchaser is treated as having actual notice of every instrument that is registered.

These basic rules tend to magnify weaknesses of the common law rules.

First, the registry system gave the purchaser access to all title documents rather than only those in the vendor’s 40-year abstract, and prevented the vendor from controlling the information available to the purchaser. As the common law rules usually did not protect a purchaser against third persons, they required a vendor to deal with any problem that the purchaser could find, however old. The registry system encouraged the purchaser to search back to the Crown patent, however long ago that was.

Second, where the common law rules did protect a bona tide purchaser for value without notice, the registry system undermined that protection by providing that registration was notice.

Basic Rules Under Part III

1. Introduction

The registry system undermined the common law rule mainly because the common law rule did not usually validate interests shown by the 40-year chain, or extinguish interests not so shown. To deal with this, changes were made to limit the search. These were originally contained in An Act to facilitate the Investigation of Titles of Real Estate [The Investigation of Titles Act, 1929, S.0. 1929, c. 41], passed in 1929 and effective in 1930. They are now contained in Part III of the Registry Act, and are referred to below as “Part III.”

Since the changes were made in Ontario, some American states have made similar changes. A model for these is contained in the Model Marketable Title Act drafted by the University of Michigan. The model validates a title shown by a chain of title that is at least 40 years long. It

gives the holder of an older title a way to re-register the claim, and invalidates a senior claim only where a chain of title validates the junior claim.

2. Part III

Part III sets out the two basic rules. The first rule is referred to in this paper as the chain of tide rule, and is set out as follows:

A person dealing with land shall not be required to show that the person is lawfully entitled to the land as owner thereof through a good and sufficient chain of title during a period greater than the forty years immediately preceding the day of such dealing... . [s. 112(1)]

The second rule is referred to in this paper as the registration rule, and is set out as follows:

“claim” means a fight, title, interest, claim, or demand of any kind or nature whatsoever affecting land set forth in, based upon or arising out of a registered instrument. .. Is. 111(1)]

“notice period” means the period ending on the day forty years after the day of the registration of an instrument or a notice of claim, as the case may be. [s. 111(1)]

A claim that is still in existence on the last day of the notice period expires at the end of that day unless a notice of claim has been registered. Is. 113(1)1

Part III also contains the following provisions, the second of which helps to tie the two rules together. The first provision is part of the chain of title rule:

Where there has been no conveyance, other than a mortgage, of the freehold estate registered within the title search period, the chain of title commences with the conveyance of the freehold estate, other than a mortgage, most recently registered before the commencement of the title search period. [s. 112(1)]

The second provision is part of the registration rule:

Subsection (1) does not apply to a claim to a freehold estate in land or an equity of redemption in land by a person continuously shown by the abstract index for the land as being so entitled for more than forty years as long as the person is so shown. Is. 113(6)]

3. Discussion of Pan III

Although Part III contains two basic rules, the chain of title rule and the registration rule, it does not clearly explain how the rules relate to each other. The relationship is a fundamental issue; only when it is explained can one interpret Part III satisfactorily.

Some features of the rules have made the relationship between them difficult to explain:

(a) The main purpose of Part III was to extinguish old claims. The chain of title rule is expressed much less forcefully than the registration rule. Part III does not say that, under the chain of title rule when it operates, a good chain of title actually gives a valid title. As has been explained, under the common law, a good chain of title did not usually give valid title.

(b) The chain of title rule was interpreted as requiring a chain longer than 40 years. Accordingly, a claim that had not been registered for more than 40 years could be shown in the chain of tide, even though the registration rule seemed to make it expire. In this case, the chain of title and the registration rules seemed to be in conflict.

(c) It would be natural for legislation of this kind to make the intent unmistakably clear by stating its effect in two ways. Not only would it validate a title, but it would also invalidate a conflicting claim. Because the chain of title rule validates a title shown by a good chain, and the registration rule invalidates a claim not registered for 40 years, Part III seems to state two aspects of the same rule, rather than two rules.

(d) The chain of title rule speaks to the person whose claim may be validated, whereas the registration rule speaks to the person whose claim may be invalidated. The registration rule acts as a warning that the claim can expire 40 years after it was last registered, unless the registration is renewed. If the registration rule spoke to the person whose claim might be validated, it would mean that, if a conflicting claim existed but had not been registered in the 40-year period, it could have expired.

If the registration rule worked independently of the chain of title rule, Part III could cause a serious problem. The registration rule could make a claim to ownership expire, even though, under the chain of title rule, no one else had a good title to the ownership. The registry system is based on proof of tide through a chain of tide. The rules for a chain of tide can be relaxed, but the need for some affirmative proof of title cannot be removed entirely. Thus, merely extinguishing ownership does not itself create a tide in anyone else. An interpretation that could leave the land without either of the competing owners having a good title (or that could lead to arguments that the land belonged to whoever happened to be in possession of it, or escheated to the Crown) is clearly inconsistent with the policy of Part III. The only logical interpretation is that Part III validates a title, and invalidates a conflicting claim, only if the requirements of both rules are satisfied.

This explanation makes much clearer the provision set out above that the registration rule does not apply to a freehold continuously shown by the abstract index for more than 40 years as long it is so shown. It shows that the provision is an important cross-reference between the chain of title and registration rules.

On first reading, the provision seems only to echo the other provision set out above that, where there has been no conveyance of the freehold registered within the title search period, the chain of title commences with the conveyance most recently registered before the period. The words “continuously shown by the abstract index ... for more than forty years” seem merely to be an awkward way of referring to a case where no conveyance is registered within the 40-year period. And, assuming that they merely refer to such a case, they have been explained by saying that the continuity of a claim to the freehold is cut off as soon as a conflicting conveyance is registered.

However, if the words are read as saying “continuously shown through a good and sufficient chain of title,” they become a much more significant cross-reference between the two rules. They confirm that a senior claim to ownership does not expire under the registration rule if it is the senior claim rather than the junior claim that has the good chain of title. They still also ensure

that a senior claim does not expire where there has been no conveyance of the freehold registered within the title search period. And they nicely resolve the problem of the registration rule making a claim to ownership expire even though no one else had a good title to the ownership. The intention is confirmed by the way that the words “continuously shown” pick up the idea in the words “A person dealing with land shall not be required to show.”

4. The Cases

Despite the uncertainty, at least five of the six Court of Appeal cases confirm that Part III validates a registered claim to ownership, but only if both (1) the claim is shown by a good chain and (2) a conflicting claim has not been registered for 40 years. Conversely. Part III invalidates a claim only if both (1) it is not registered for 40 years and (2) the conflicting claim is shown by a good chain.

In each of the six cases, there were two competing claims to ownership. A “senior~~ claimant based its claim on earlier registrations, a ‘junior” claimant on later registrations.

In each of the six cases, the senior claim would have expired under the registration rule, and the main issue involves how the chain of title rule affects that. First, does the chain of title rule validate a claim? Second, must the junior claimant show a good chain before the senior claim can expire?

As to the second question, the cases fall into two groups. In the first group, the junior claimant had a good chain, and the question is: did the court rely on both the registration and chain of title rules, or only on the registration rule? In the second group, the junior claimant did not have a good chain, and the question is: did that prevent the junior claim from succeeding, even though the senior title seemed to have expired under the registration rule?

All of the six Court of Appeal decisions show that Part III gives a valid title. In Algoma,5 the court decided [at p. 350] that a purchaser was “entitled to rely” on the chain of title. In Calabogie, the court accepted [at p. 762] that a person “acquires title from one who is shown to be the owner through a good and sufficient chain of title.” In Tkach,6 the court said [at p. 4] that “the essential question in this action is whether the appellant can claim good title by reason of the 40-year limit on the search of title,” and decided that he could. In Camrich, the trial judge7 ordered [at p. 287] that “the applicants’ ownership of the lands” was not encumbered by any claim of the senior claimant, and the Court of Appeal, in dismissing the appeal, accepted this. In National Sewer, the majority [at p. 9] deemed Part III to be “the statutory provision that governs the ownership” of land; it “prescribes the requirements to establish title.” The minority judge said that “the operation of Part III of the Registry Act can result in the validation of titles which would not occur at common law.” He went on to adopt a memorable sentence from a paper by Brian Bucknall, saying: “The registry system thus becomes something much more complex than just ‘a large deed box’, it becomes itself a significant factor in the definition of title.” In Fire, the court decided [at p. 7] that “the Act clearly has the effect of validating the title of the appellants

5 Algoma Ore Properties Ltd. v. Smith, [1953] 3 D.L.R. 343. All page references are to D.L.R. 6 Ontario Hydro v. Tkach (1992), 28 R.P.R. (2d) I. All page references are to R.P.R. 7 In the judgment reported at (1990), 11 R.P.R. (2d) 263 (H.C.).

to the property.” Thus, the Court of Appeal has consistently decided that Part III does not merely invalidate claims, but actually validates title.

Five of the six decisions show that Part III operates only if both the chain of title and the registration rules are satisfied. In those cases where the junior claimant had a good chain of title, the decision was based on both the good chain for the junior claim and the expiry of the senior claim. In those cases where the junior claimant did not have a good chain of title, the junior claimant failed, even though the senior claim would otherwise have expired.

The cases where the junior claimant had a good chain of title were as follows. In Algoma, the reasoning is clearly based on the junior claimant having satisfied both the registration and chain of title rules. The decision was based on the oft-quoted reasoning [at p. 350] of the judge speaking for two of the three judges: “I am of the opinion that the Investigation of Titles Act requires a search only to the first root of title prior to the 40-year period. The purchaser is entitled to rely on the form of the instruments registered and is not bound to inquire into their substance and if the instrument on which he relies as the root of the title prior to the 40-year period is on its face sufficient to convey the fee, including the mineral rights, he is entitled to rely upon it.” The fact that the court required both rules to be satisfied is confirmed by Calabogie, because that case was decided 28 days later, and two of the judges in Algoma who gave the same reasons were among the three judges who gave the same reasons in Calabogie. In Camrich, the trial judge, after deciding that the junior claimant’s chain of title was good, stated [at p. 281, 11 R.P.R. (2d)]: “In addition to the title search provisions in Part III of the Registry Act, prior to the 1981 amendments, the title search provisions provided for the extinguishment of interests in land.” This clearly shows that both rules were at work. The Court of Appeal must be taken to have accepted this, particularly as the same judges clearly did so in National Sewer, which was decided at the same time. In Fire, the court dealt in detail with various issues relating to the junior claimants’ chain of title, and decided [at p. 7] that the claim of the senior claimants “expired in accordance with the provisions of [the registration rule] in 1981. When the appellants took title in 1983, the provisions of the Act required only that the title be searched back forty years - to 1943. Within that period of time, the only persons shown to have title ... were the appellants [the junior claimants] and their predecessors ... the Act clearly has the effect of validating the title.” These decisions show that, even in the cases where the junior claimant’s chain of title was good, the Court of Appeal relied on both that and the expiry of the senior claim.

The cases where the junior claimant did not have a good chain of title were as follows. In Calabogie, the reasons for the court’s decision [at p. 762] were that Part III “does not extinguish rights or interests in land except in favour of a person who acquires title from one who is shown to be the owner through a good and sufficient chain of title.” In National Sewer, the majority decided [at pp. 14-15] that “[t]he appellants have the later root of title, and they must establish its validity before questioning that of the respondent.” Although the minority judge came to a different decision from the majority, he did not question that the junior claimant must have a good chain of title. In these cases, the junior claimant failed only because the junior claimant did not satisfy both tests under the chain of title and registration rules.

The one decision that seems equivocal is in Tkach. The court said that there were two ways to approach the problem, but preferred to approach the problem in the second way by attempting to

answer the question of whether the junior claimant had a good title, rather than by simply answering the first question, whether the title of the senior claimant, Hydro, had expired. After finding that the junior claimant had a good chain of title, the court commented [at p. 101: “It therefore becomes unnecessary to consider whether Hydro’ s title is in any event extinguished.” The comment implies that, in the event that the junior claimant had not had a good chain under the chain of title rule, the court might still have decided that the senior claim had expired. But the comment does not disagree with the view that both tests must be met; it merely leaves the question open.

The Court of Appeal decisions are not consistent on the meaning of the provision about a title “continuously shown.” In Algoma, the court used the words twice, the first time correctly in saying that the junior claimants, who had a good chain of title, were “continuously shown,” and the second time incorrectly in treating the continuity of the senior claim as cut off by the first junior transfer registered less than 40 years after the last senior registration. In National Sewer, the majority judges treated the senior claim as “continuously shown” for 40 years after it was last registered. The minority judge decided that the continuity of the senior claim ceased on the “conflicting registrations” of the junior claimant.

Parts of the Court of Appeal decisions are controversial. On the basic rules, however, the court has consistently (except perhaps in the Tkach case) based its decisions on the same basic rule that Part III validates title to an interest based on the two tests under the chain of title rule and the registration rule.

When Part III Validates a Title

1. Introduction

A Model Marketable Title Act drafted by the University of Michigan provides that, if a person has a good chain of title, the title “shall be held,” and conflicting claims are void. The model validates the title even though the land is not being dealt with, and it validates the title in favour of everyone, including the present owner. An alternative for Part III would be that it validates the title only in favour of a person acquiring an interest in the land, and only when the interest is acquired. But there are good reasons to conclude that Part III validates the title in the same way as the model Act.

2. Common Law

The common law rules applied only on a dealing. The common law rules dealt with proof of title, but they did not usually validate or invalidate titles; usually they merely minimized risk to the purchaser. Part III is very different, and goes beyond the common law, because, as explained above, it actually validates and invalidates titles.

3. Part III

The provisions of Part III as to when title is validated seem ambiguous. The chain of title rule seems to work only when there is a dealing. Part III says:

A person dealing with land shall not be required to show that the person is lawfully entitled to the land as owner thereof through a good and sufficient chain of title during a period greater than the forty years immediately preceding the day of such dealing... . [s. 112(1)]

On the other hand, the registration rule seems to work regardless of a dealing. Part III says:

A claim that is still in existence on the last day of the notice period expires at the end of that day... . [s. 113(1)]

Part III highlights the different dates by calling the 40-year period under the chain of title rule the “title search period,” and that under the registration rule the “notice period.”

4. Discussion of Pan III

Because Part III validates title only when the tests under both the chain of title and registration rules are met, the tests must work together, and at the same time. Since the provisions for the two tests seem to work at different times, one must choose one time or the other.

There are good reasons for Part III to validate a title as soon as the tests are met, even though there is no dealing then, rather than only when there is a dealing.

1. The Court of Appeal cases show that Part III works by validating an actual title. Title is a matter that affects persons generally, rather than merely the parties to a transaction.

2. A person dealing with land will usually need to determine the validity of every interest in the land. The owner needs to know what the valid encumbrances are. And, as will be explained, the validity of an encumbrance may depend on the validity of the title of the owner.

3. If Part III were intended to operate only in favour of persons acquiring interests, it might limit the protection to a person acquiring an interest in good faith, or for value. Neither the chain of title nor the registration rules says that a person acquiring an interest must have been acting in good faith, or have given value.

4. There are many cases where title is relevant, even though there is no dealing. Title might be relevant in a proceeding, for example, for trespass. A creditor might rely on a person having a good title, even though the creditor did not acquire an interest in the land. Where land is transferred into the land titles system under the Land Titles Act, R.S.O. 1990, c. L.5. or certified under the Certification of Titles Act, R.S.O. 1990, c. C.6, it must be investigated, even though there is no dealing.

5. By appearing to validate the title at the time of the dealing, the chain of title rule suggests that the validation works only in favour of the person acquiring an interest. If so, the person disposing of an interest would not be protected, and, presumably, might be sued for the loss suffered by anyone whose interest was invalidated by the dealing. This is inconsistent with the registration rule under which a claim simply expires.

6. Because the root of title usually need not now be more than 40 years old, the period covered by the search of title under the chain of title rule will usually be 40 years. If a conflicting claim had been registered, the test under the chain of title rule would usually be satisfied the day after the 40-year notice period under the registration rule, so that both tests will usually be satisfied immediately after the conflicting claim expires under the registration rule.

Thus, the better view is that Part III automatically validates title as soon as the tests under the chain of title and registration rules are met. Since the 1981 amendments to the Registry Act, Part III will usually validate a junior claim as soon as the senior claim expires, be-cause a chain of title starting in the 40-year period can be good. Once Part III has validated a title, the title remains valid until Part III validates a conflicting claim.

The time at which Part III validates the title will usually not be apparent to the searcher. The searcher will, in practice, go back 40 years before the search date. If both tests are met on the search date, the title is valid, and the searcher does not need to know whether there was ever a conflicting senior claim that was invalidated, or, if so, when the junior claim was validated. If the search going back 40 years before the search date does show a conflicting senior claim, the junior claim can no longer meet the tests if they are applied at the date of the search. But that does not invalidate a junior claim that has already been validated; the senior claim can only become valid again when it again satisfies the two tests under Part III. Thus, the searcher will need to go back 40 years before the conflict was first shown. If both tests were met before the conflict was first shown, the junior claim was valid then, and, again, the searcher does not need to know when it was validated. The practical result of searching back 40 years is that Part III seems to validate title either on the search date, or when the search first shows that the title is in question. As will be explained, the Court of Appeal decisions have focused on the latter as the date when title must be determined. Thus, there are three dates on which the validity of title may be determined. The first date is the date of the search, the second date is the date on which a conflict is first shown, and the third date is the date on which the title first met the two tests and actually became valid; the searcher will often not need to know this date.

5. Comments on the 40-Year Period

Under the registration rule, the relevant period is the period between the times when an instrument (or notice of claim) for a claim is registered. From the point of view of the holder of an existing valid claim, the holder can be sure of being protected if this period is no more than 40 years. If the period is more, that alone does not make the senior claim invalid; Part III does not validate a junior claim, or invalidate the senior claim, unless or until the holder of the junior claim also has a good chain of title under the chain of title rule

Under the chain of title rule, the 40-year period is used as a step to find a good root of title. One starts by taking a 40-year period be-fore the search date. If a search back from the search date shows a conflict, the 40-year period will be 40 years before the conflict was first shown. Until the 1981 changes, the next step was to find a good root before that 40-year period. Since the 1981 changes, the next step is to try to find a good root inside the 40-year period. It will be a rare coincidence for the root of title to have been registered at exactly the beginning of the 40-year

period. Thus, a chain of title was formerly thought always to be longer than 40 years, and is now usually shorter than 40 years.

Where, as is now usual, the period of the chain of title after the root is less than 40 years, there is a period between the beginning of the 40-year period and the beginning of the chain of title. During this period, an older claim is protected under the registration rule if it is registered (or renewed). It might seem that, during this period, a detailed investigation under the chain of title rule (going beyond merely looking for registrations or renewals) need not be made, so that an older claim should not also be protected by the chain of title rule during the period. However, as will be explained, the detailed investigation must cover the entire 40-year period.

A result of the 1981 changes is that finding a good root of title may require a search for the root of title to reverse direction. Before 1981, one found a root of title by moving back in time from the beginning of the 40-year period. If an instrument that could have been a good root was not, one continued to move back until a good root was found. After 1981, one moves forward in time from the beginning of the 40-year period to find the first instrument that could be a good root of title, usually a conveyance of the freehold. If there is no conveyance at all, one reverses the direction of the search to search back from the beginning of the 40-year period. If there is a conveyance within the 40-year period, Part III seems to imply that it must be accepted as the root of title. However, as will be explained, the better interpretation is that the chain must start with a good root. If the conveyance is not a good root, the search for a good root must be continued. The search for a good root must reverse direction in this case as well, and go back from the beginning of the 40-year period.

Where a search for a property shows a conflict, it will have a serious effect on the search of title for that property. If the conflict was shown recently, say, in the last five years, the searcher may need only to search back 45 years. But, as time passes, the length of the search will increase. If the conflict was shown 35 years ago, the searcher would have to go back at least 75 years. Where the search shows a conflict, it may take at least 40 years for the conflict to work its way out of the search. The fact that Part III does not allow a shorter search where it shows a conflict does not mean that the rules are unsatisfactory; Part III serves a useful purpose if it shortens the search in all but the exceptional cases.

6. Court Decisions

The Court of Appeal decisions show that Part III applies when the title comes under attack, or is brought into question. In Algoma, the court seems to have decided that the junior claim was good irrespective of a dealing, but in Calabogie, in which two of the judges were the same, the court decided that the senior claim would be extinguished only in favour of a person acquiring title from one who was shown to have a good chain. The Court of Appeal specifically addressed the issue for the first time in Tkach. In giving its reasons for judgment, the court decided [at pp. 4-5] that “one must view the appellant’s title as of the moment it comes under attack. ... the question is whether a hypothetical purchaser from the appellant at that time could obtain good title.” In Camrich, the trial judge used the date of trial as the relevant date, and the Court of Appeal, in dismissing the appeal, seems to have accepted that. In National Sewer, the majority of the Court of Appeal accepted [at p. 12] the parties’ agreement that “the critical date for the analysis is 1982, when title to the lands was brought into question.” The minority judge decided that “[t]he

assessment of the validity of any claim” [p. 2011 was to be made on the date on which “title to the land was brought into issue It. 261.” This was a basis for his decision on the question of notice, with which the Court of Appeal in Fire agreed. In Fire, the court [at p. 9] again accepted the parties’ agreement in National Sewer that “the relevant date for the determination of the rights of the parties was 1982,” when the senior claimant registered a conveyance showing the conflict.

Thus, the cases confirm that Part III validates title independently of a dealing. Although the court has chosen the date when the title comes under attack or is brought into question, this is readily explained because it is the practical result, from the searcher’s point of view, of Part III validating title as soon as the two tests are met, and is consistent with the conclusion of this paper that title actually becomes valid when the two tests are first met.

Interests Less Than Ownership

1. Introduction

The Court of Appeal cases deal only with conflicting claims to ownership. Even where mining rights were in issue, they were a separate part of the land, capable of being owned in fee simple. The cases confirm that the basic rules in Part III validate registered title to ownership when two tests are met, under the chain of title rule and under the registration rule. Do the same rules apply to interests less than ownership?

2. Part III

Part III deals with interests less than ownership as follows:

(a) The registration rule applies to every “claim,” with some exceptions. A claim is any interest in land based on a registered instrument, not just ownership.

(b) The chain of title rule applies to a person’s title as “owner.” “Owner” is defined as a person entitled to any interest in land “other than a lessee or a mortgagee.” [s. 111(1)]

(c) Under the chain of title rule, where no conveyance of the freehold estate has been registered within the 40-year period, the chain of title begins with the most recent conveyance registered before the 40-year period. This does not refer to interests other than the freehold estate.

(d) Under the registration rule, a claim to a freehold estate (or equity of redemption) does not expire if the register shows the claimant to be continuously entitled to it for more than 40 years. This does not refer to interests other than a freehold estate.

3. General Rules for Interests less than Ownership

The basic rules must also logically apply to an interest less than ownership. Every holder of an interest in a property needs to know the state of title to that interest, and other interests. If a searcher had to go back to the Crown patent to determine whether other interests were valid, the

purpose of Part III would be defeated. Accordingly, Part III must also validate title to interests less than ownership based on a search covering the period of not more than 40 years. This is confirmed by the fact that the chain of title rule applies to any “owner, ” which is defined to include a person entitled to any interest in land (except lessees or mortgagees, who are dealt with later).

For the purpose of the chain of title rule, the rules for an interest less than ownership must logically be as follows. As for ownership, the root of title can be an instrument creating or transferring the interest. For a mortgage, this is the mortgage or an assignment of the mortgage. For a lease, it is the lease, or an assignment of the lease. For an easement, it is the grant of the easement, or a transfer of the dominant property. If the interest was created within the 40-year period and a dealing with the interest out of which the interest was created was registered in the period, the chain includes part of the grantor’s chain. If the root was a transfer of the interest, the document creating the interest might be referred to, however old it is, to find out what the terms of the interest are, but that document is not necessary for the purpose of showing title.

A possible problem with the chain of title to an encumbrance is that the instruments in the owner’s chain may not refer to the ‘encumbrance. It might be argued that, since these instruments purport to deal with the title free of the encumbrance, they show that there is no encumbrance, and make the chain of title for the encumbrance bad. Although owners usually refer in their dealings to an encumbrance, it is not essential for them to do so. The instruments in the owner’s chain should not, merely because they purport to deal with the title free of the encumbrance, make the chain for the encumbrance bad.

Because the title to each interest is protected and validated independently, it must follow that the title to an interest less than ownership can be valid, even if the title of the owner who originally granted the interest becomes invalid.

Although the same rules normally apply to interests less than ownership, there is a possible problem with this. Lesser interests other than an encumbrance are dealt with later, and this discussion will deal only with an encumbrance. On the one hand, the rules could validate the. title of an owner free from an encumbrance. On the other hand they could validate the title to the encumbrance. To resolve this conflict, there must be a variation in the rules for an encumbrance. The variation must be that, if there is a conflict between the results for the owner and for the holder of the encumbrance, the conflict must be resolved in favour of the owner. Reasons for this are based mainly on an essential difference between the interests of an owner and of the holder of an encumbrance; if no one has title to an encumbrance, the encumbrance itself can simply expire. If a search of title covering the 40-year period does not show a valid title to the ownership, a searcher will naturally assume that there must be an owner, and search further back to find one, but if a search for the 40-year period shows a valid title to the ownership, but does not show an encumbrance, the searcher will naturally assume that there is no encumbrance. Other reasons may be found in provisions of Part III which give preferential treatment to ownership (or the freehold). For a person concerned with the encumbrance, a proper search of title must, therefore, include the title to both the ownership and the encumbrance. Resolving a conflict in favour of the owner will usually mean that an encumbrance expires if it is not registered within the 40-year period.

4. Mortgages and Leases

The chain of title rule applies to the title of an “owner.” “Owner” means a person entitled to any interest in land, “other than a lessee or a mortgagee.” The registration rule applies to any “claim,” which includes any interest in land. What is the effect of the exception for a lessee or mortgagee?

Because “claim” includes a mortgage or lease, it is clear that Part III can make a mortgage or lease expire if it is not registered in the 40-year period. Does Part III make a mortgage or lease expire, but not validate it? Does a good chain of title not validate title to a mortgage or lease, but validate title to any other interest, like an easement? If Part III did not validate a mortgage or lease, that would affect all of the owners of the land, the mortgagee or lessee and the holder of any other interest in the land. For any of them to determine whether a mortgage or lease registered in the 40-year period was valid, the search might have to go back to the Crown patent. This would defeat the purpose of Part III, which is to limit the search to 40 years.

The most likely explanation for the exception is that it confirms that a former rule for leaseholds is removed, and that a freehold interest does not include the interest of a mortgagee. Originally, Part III said that a claim did not expire after 40 years if it was continuously shown, and if it was a freehold or leasehold estate. In 1966, this provision was amended to delete the reference to a leasehold estate, and at the same time the exception for a lessee or mortgagee was added to the definition of “owner.” Part III also makes it clear that, although a mortgage (which can be regarded as granting the freehold) could be a good root of title under the common law, it cannot be a good root under Part III. Thus, the exception was probably intended to confirm that a mortgage or lease could expire after 40 years, even if it was continuously shown.

Another possible explanation is that the exception removes any special rules about what is “a good and sufficient chain of title” for a mortgage or lease. The special rule for a mortgage might have been that the chain had to be at least 40 years long, ending on the date of the mortgage. The special rule for a lease might have been that the chain of title for a lease did not have to include the title of the landlord. Removing special rules for a mortgage or lease would presumably have been intended to bring the chain of title rules for a mortgage or lease into line with those for ownership.

5. Estates Other than the Fee Simple

Real property law allows ownership to be split into segments over time. There are traditional estates, such as a life estate, which is also classified as “freehold.” The Statute of Uses allows similar legal interests to be created for a wider variety of periods. The discussion in this paper has so far dealt with ownership and encumbrances. How does Part III deal with estates other than a fee simple or similar legal interests?

The Court of Appeal has decided that Part III does not invalidate the title of a senior claimant to ownership if the junior claimant does not have a good title to replace it. The same principle should apply where Part III would invalidate a title that is less than a fee simple. Where Part III might seem to invalidate an estate less than a fee simple or to invalidate a similar legal interest, it should not do so when that would create a gap in the title to the ownership. Instead, Part III

should require a search back beyond the 40-year period to establish the title to the estate or interest. For example, if Part III would invalidate a life estate but validate the remainder, and if that meant that no one was entitled to enjoy the land until the life tenant died (in other words, that the remainder would not be accelerated), Part III should require the search to go back to find the owner of the life estate.

6. Cases

In five cases, lower courts have made decisions on how Part III applies to interests less than ownership. All of the interests were encumbrances. Four of the five judgments were rendered at a time when only two of the Court of Appeal cases had been decided. None of the cases refers to the two earlier Court of Appeal cases, in particular the Algoma case. In that case, the Court of Appeal decided [at p. 350] that Part III “requires a search ... to the first root of title prior to the 40-year period.”

In four cases, the court decided that, under Part III, the owner’s title was free of an encumbrance, even though the encumbrance was still shown by the owner’s chain of title. The four cases were decided before the 1981 changes. In Layton,8 a mortgage expired, even though it was registered after the owner’s root of title. In Jakmar,9 an easement expired, even though the grant of it was registered after the owner’s root of title, and a transfer registered in the 40-year period was subject to the easement. In Zygocki,10 two unregistered railway mortgages expired, even though the owner’s chain showed that the railway company had owned the land. In Lakhani,11 a restrictive covenant expired for one of three owners, even though the owner’s root of title was subject to the restrictive covenant. In none of these cases did the judge consider whether either the owner or the encumbrancer had a good chain of title. The decisions are therefore inconsistent with the conclusions of this paper, which would not have invalidated the encumbrance merely because the owner met the test under the registration rule. The decisions are also inconsistent with the basic principles confirmed by the Court of Appeal (albeit only for competing claims to ownership).

In the fifth case, Peoples,12 decided after the 1981 changes, the judge may indirectly have referred to the chain of title rule. Transfers of the servient property registered in the 40-year period were expressly subject to the easement, and the judge decided that the easement had not expired. The judge may have decided that the easement met the new registration rule because it was “set forth” in the transfers, or that the easement met the old registration rule because it was “referred to” in the transfers and because the 1981 changes did not retroactively remove the old rule. However, he also said that the right of way was preserved because it was “continuously shown in instruments dealing with the affected land.” This reason seems to refer to the words in Part III saying that me registration rule “does not apply to a claim to a freehold estate in land or an equity of redemption in land by a person continuously shown by the abstract index.” As 8 Layton v. Yankou, [1950] O.W.N. 337 (H.C.). 9 Jakmar Developments Ltd. v. Smith (1973), 1 O.R. (2d) 87, 39 D.L.R. (3d) 379 (H.C.). 10 Zygocki v. Hillwood (1975), 12 O.R. (2d) 103, 68 D.L.R. (3d) 55 (H.C.). 11 Lakhani v. Weinstein (1980), (sub nom. Lakhani v. Shapiro) 16 R.P.R. 305 (H.C.). 12 723046 Ontario Ltd. v. Peoples Jewellers Ltd. (August 29, 1989), Doc. Ottawa-Carleton 13912/89, Desmarais L.J.S.C. (Ont. H.C.).

explained earlier, the section confirms that Part III validates a title only if both the chain of title and registration rules are satisfied, it should be read as saying “continuously shown through a good and sufficient chain of title,” and it should be read as a cross-reference to the chain of title rule. The judge’s reasons might be taken as saying, correctly, that the right of way would not expire as long as it continued to be shown in the owner’s chain of title.

The Registration Rule

1. Introduction

Part III validates title to a registered interest based on two tests, under the chain of title rule and under the registration rule. A later section deals with what is needed to satisfy the first test, and this section deals with what is needed to satisfy the second test. The main question is: what kind of dealing must be registered for a claim to amount to a registration of the claim? The answer governs the registration rule in two ways. First, it is only a registered claim that can expire under the registration rule. Second, the claim is preserved under the registration rule only if a notice of claim is registered in the 40-year period after the claim was. last registered.

2. Provisions of Part III

Part III now says, in effect, that a claim does not expire under the registration rule until the end of a period of 40 years “after the day of registration of an instrument,” “unless a notice of claim has been registered.”

Part III originally said [as set out in, for example, s. 106(1) of the Registry Act, R.S.O. 1980, c. 445] that a claim did not expire if it had been “acknowledged or specifically referred to or contained in an instrument ... registered” against the land in the 40-year period. The 1981 changes removed those words and replaced them with the words “registration of an instrument.”

Part III does not expressly say what requirements an instrument must satisfy to amount to registration. Obviously, the instrument must relate in some way to the adverse claim; there must be some 1-ink between them.

Part III also refers to registered and unregistered interests in the following phrases: “claim under a registered instrument”; “the registration of any conflicting claim”; “an unregistered right of way or other easement or right”; and “every claim ... whether registered.” Again, these phrases imply some link between a claim and a registered instrument.

3. Interpretation of Part III

The chain of title and registration rules generally deal only with an interest that is a “claim.” This is defined as an interest that is “set forth in, based upon or arising out of a registered instrument.” These words do not purport to define a registered claim, but the words are the nearest thing to a definition of the link between a claim and a registered instrument.

A claim may be shown in a registered instrument in various ways. For example, a lease may be shown in a registered instrument in the ways set out below.

(a) An instrument may be registered which creates the interest - for example, the grant of the lease. The title to the leasehold interest would obviously be all of “set forth in, based upon or arising out of” the grant of the lease.

(b) An instrument may be registered which specifically deals with all of the title - for example, an assignment of the lease. The title to the leasehold interest itself might not seem to be “set forth in, based upon or arising out of’ the assignment of the lease. But the leasehold title of the assignee would be “set forth in, based upon or arising out of’ the assignment of the lease. An instrument that only transfers a claim must be a valid registration of the claim. Otherwise, only the Crown grant would amount to a registration of a freehold title, however many conveyances of that title might have been registered.

(c) An instrument may be registered in which the holder creates another interest out of the claim - for example, a mortgage of the lease or a sublease. The leasehold interest of the holder would not be “based upon or arising out of” the mortgage or sublease. A claim is “set forth” in the mortgage or sublease, but the claim so set forth seems to be that of the mortgagee or sub-lessee, not that of the holder of the leasehold interest. Despite this, it is inappropriate that the claim of the mortgagee or sub-lessee should be registered by the mortgage or sublease, but not that of the person upon which the mortgage or sublease depends. An instrument which amounts to a dealing with the claim by the holder of it, even though the interest dealt with is not the whole of the claim, should be a registration of the claim under the registration rule. Thus, a registered sublease or mortgage of a lease should amount to a registration of the claims of both the sublessee or mortgagee and the sublessor or mortgagor under the registration rule.

(d) An instrument may be registered which deals with another interest and merely refers to the registered claim - for example, a transfer of the freehold subject to the lease. This kind of “cross-reference” is common, but the other interest can legally be dealt with without the cross-reference. The leasehold claim would not be “based upon or arising out of’ the transfer. The words “set forth in, based upon or arising out of’ should be interpreted as being eiusdem generis. A transfer would not create a claim of any person in the leasehold interest in any way. The words “set forth” are similar to the words that were removed in 1981, namely, “acknowledged or specifically referred to or contained in.” That may show that the words “set forth” are not intended to include an instrument that merely refers to a claim. The transfer should not be an instrument by which the leasehold claim was registered, however clearly it referred to the lease. As will be explained when dealing with the chain of title rule, if the lease was referred to in the chain of title of another person, the person is probably subject to it, even though the claim to the lease is not registered (or re-registered by a notice of claim).

4. Cases

The only trial decision heard by the Court of Appeal that specifically deals with the meaning of “registration of an instrument” is the decision of Henry J. in Camrich. There, he accepted that “registration of an instrument” referred to an instrument that the claim was “set forth in, based upon or arising out of” He also decided lat p. 279, 11 R.P.R. (2d)] that, in order for an adverse claim to be “set forth in, based upon or arising out of’ the instrument, the instrument had to be

“an instrument that creates or asserts the interest,” as contrasted with an instrument that merely acknowledged or referred to the interest. He therefore decided that instruments that did not purport to deal with the claim, but had a plan attached in which the claim was referred to ~t “Hydro right of way,” did not amount to registrations of the right of way. Thus, the decision is consistent with the conclusion of this paper that the question is determined by the above words, that the instrument must create or deal with the claim, and that a mere reference to the claim in an instrument dealing with another interest is not sufficient.

5. Notice of Claim

Apart from the notice of claim, the registration rule protects a claim if there is dealing with it as set out above, which is registered in the 40-year period, and the chain of title probably protects a claim if it is shown by the chain. Whether these things happen is not fully in the control of the holder of the claim to be protected. Part III therefore allows the holder to protect the claim by registering a notice of claim.

To be consistent with the basic rules in Part III, the rules for a notice of claim should allow the holder of a claim to protect the claim by registering a notice of claim at any time until Part III invalidates the claim by validating a conflicting claim. In fact, it seems strictly that the holder sometimes cannot register a notice of claim, even though the claim is still valid.

Part III says:

In this Part,

…

“notice period” means the period ending on the day forty years after the day of the registration of an instrument or a notice of claim, as the case may be;

113. - (1) A claim that is still in existence on the last day of the notice period expires at the end of that day unless a notice of claim has been registered.

(2) A person having a claim that is not barred by this Part, or a person on that person’s behalf, may register a notice of claim in the prescribed form,

(a) at any time within the notice period: or

(b) at any time after the expiration of the notice period but before the registration of any conflicting claim.

(3) A notice of claim may be renewed from time to time by the registration of a notice of claim in accordance with subsection (2).

(4) Subject to subsection (7), when a notice of claim has been registered, the claim affects the land for the notice period of the notice of claim.

…

(6) Subsection (1) does not apply to a claim to a freehold estate in land or an equity of redemption in land by a person continuously shown by the abstract index for the land as being so entitled for more than forty years as long as the person is so shown.

(7) The registration of a notice of claim does not validate or extend a claim that is invalid or that has expired other than as a result of subsection (1).

If Part III is to say when a notice of claim can no longer be registered, it should say that the notice can be registered until the claim is invalidated. Instead, it seems to say that the notice can be registered until, for the freehold, the claim is no longer “continuously shown,” and, for any other interest, a conflicting claim is first registered after the 40-year notice period.

As has been explained, the first limit should be interpreted as meaning “continuously shown through a good and sufficient chain of title.” It would then seem to allow a notice of claim to be registered for the freehold until the freehold is invalidated under both the chain of title and registration rules. The limit is not consistent with subsection 113(2), because the exception for an interest “continuously shown” only modifies subsection 113(1), whereas it should also modify subsection 113(2).

The second limit seems to prevent a notice of claim for a claim other than the freehold from being registered after a conflicting claim is first registered after the 40-year notice period. This suggests that the mere registration of a conflicting claim after the 40-year notice period, whether it is valid or not, prevents a notice of claim from being registered, whereas a conflicting claim invalidates the older claim only if Part III validates the conflicting claim. The limit is not consistent with subsection 113(1), because that subsection purports to make an interest expire, even though no conflicting claim has been registered after the 40-year notice period.

It might be argued that these inconsistencies in the rules for a notice of claim show that the interpretation of the basic rules of Part III in this paper is not correct. However, the interpretation is strongly supported by logic and the Court of Appeal cases, and other aspects of the notice of claim rules confirm the basic rules. The notice of claim rules should not, therefore, modify the basic rules.

A better argument would be that the basic rules modify the notice of claim rules. If a notice of claim is registered while the claim is still valid but after the time limit, it should protect the claim, be-cause the claim, even though not validly re-registered, will still be shown in the chain of title. However, it may be prudent for the holder to register the claim in a more conventional way (for example by the registering a transfer of the interest from the holder to itself) rather than using a notice of claim to re-register the claim. The notice of claim is a key feature of the registration rule. It protects the holder of a claim by providing the bolder with a way to preserve the claim which is within the holder’s control, and uses information that would be known to the holder without making a search of title. It is unfortunate that Part III may prevent the holder from registering a notice of claim, even though the claim is still valid.

It might seem .that Part III should say that a person must not register a notice of claim for a claim after Part III has invalidated the claim. But the main purpose of saying that would be to make it clear that a notice of claim registered after the claim has expired is not effective. The basic rules already do that by validating the conflicting claim when the two tests are met. A less important purpose of saying that a person must not register a notice of claim for a claim after Part III has invalidated the claim would be to prevent the person from clouding the title without cause. But doing that would not seem necessary because the rules as to defamation of title would seem to give the person whose title was clouded a right to recover damages for the wrongful registration.

The Chain of Title Rule

1. Introduction

Part III validates title to a registered claim based on two tests, under the chain of title rule and under the registration rule. This section deals with what is needed to satisfy the first test.

2. The Bask Purposes of the Rules for the Chain of Title

Unless the law provides another way to establish title, past events are the only way to prove title. The registry system is based on proof of title in this way through a chain of title. A chain of title is simply a chain of documents and events that show title. Merely extinguishing ownership does not, itself, create a title in anyone else. The rules for a chain of title can be relaxed, but the need for some affirmative proof of title cannot be removed entirely. Without any special rules limiting the length of the search, it would have to go back to a time when one could be sure that the tide was good, ordinarily the Crown grant. The purpose of special rules, both under the common law and Part III, is to reduce the length of this search. Unless the Crown grant of the land is less than 40 years old, the special rules allow the chain for an interest to begin with a document that occurred during the history of the title to the interest, called the root of title. For this document to be a good beginning for the chain, the searcher must make an assumption about the title before the document.

Some of the Court of Appeal decisions may not be clear about the assumption that is made. In Algoma, the judge giving the majority’s reasons said [at pp. 349-3501:

The deeds ... were in the ordinary statutory form and would have been effective to convey the mineral rights if the respective grantors had, at the time of giving the deeds, owned them. If the respective grantors under these deeds were not in fact the owners of the mineral rights, the deeds would convey only such rights as they owned... and the owners of the mineral rights could still assert their claim if it were not for the Investigation of Titles Act. ...

…

... The purchaser is entitled to rely on the form of the instruments registered and is not bound to inquire into their substance and if the instrument on which he relies as the root of the title prior to the 40-year period is on its face sufficient to convey the fee, including the mineral rights, he is entitled to rely upon it.

The words in the last sentence seem, at first, to suggest that a purchaser can take all instruments at face value. However, when put in context, the words show that the only thing the purchaser can assume is that the person conveying under the root has title. In Algoma, making that assumption also cured the defect in the subsequent conveyances. The words have been quoted with approval in later cases, although sometimes without regard to the context.

In Camrich, the first transfer for the junior claim was an expropriation by a municipality and it was argued that the municipality had no power to expropriate land owned by Hydro because it was a Crown agency. Hydro’s claim could only have been shown by a plan attached to the expropriating by-law and another instrument. The Court of Appeal decided that the plan was not sufficient to show that Hydro had a claim. It was therefore unnecessary for the court to decide

whether a municipality had the power to expropriate the land. The court’s reasoning, presumably, was as follows. Since there was insufficient indication that Ontario Hydro had any claim, there was no interest shown that the municipality did not have the power to expropriate. The power to expropriate was therefore shown to be valid, and the expropriation transferred the land. The only assumption that had to be made was as to the ownership of the land before the expropriation.

Finlayson J.A., for the majority, started to suggest that, even if there had been a sufficient indication of Hydro’s claim, a searcher could take the expropriation at face value. He said [at p. 34]: “Any person reading the expropriation by-law would conclude that to the extent that H.E.P.C. [the Hydro-Electric Power Commission] had an interest in the right of way as indicated on the plan, it had been expropriated ... .” In the end, however, all that he said was: “I do not have to deal with the validity of the expropriation in view of my having held that the By-law is ineffective to maintain the appellant’s claim to the 30-foot strip.” On this, the Court of Appeal in Fire commented [at p. 10):

The situation was somewhat similar in the Camrich case. … As stated in the reasons, anyone looking at the abstract of title and at the by-law would assume that the expropriating authority had good title to the land. But surely that is the case when one sees a conveyance or series of conveyances valid on their face within the search period and no conflicting instrument - one would assume that the grantor under those conveyances had good title to the land. In fact, in the Camrich appeal, the court did not base its decision on the validity of the expropriation, and specifically declined to deal with that issue. The decision was based on what was shown in the appropriate abstract index - an expropriation by-law valid on its face. [Last italics added by McKinlay J.A.]

The words emphasized by the judge suggest that one can assume that an expropriation is valid without asking whether the body had the power to expropriate. The words italicized by this author suggest that, unless the search shows the interest of a body whose interest the expropriating authority does not have the power to expropriate, one can assume only that no one has such an interest. As the second meaning is consistent with what the court decided in Camrich, and with the correct principle, it is the better one.

In National Sewer, the Court of Appeal decided that the junior claim was bad, and, at one point, Finlayson J.A., for the majority, said this [at p. 12] about the root for the junior claim: “The problem that the appellants have in this case is that in the conveyance they rely upon, the grantor had no title to convey.” However, the majority decided that the junior claim was bad not only because the grantor in the root had no title, but also because a proper search showed that fact. The majority concluded [at pp. 14-15) that “the appellants must have been relying upon what conveyancers refer to as a ‘clean deed’ as their root of title. .. . it is clear from the appropriate abstract of title that ... [at the root) the subject lands were recorded as belonging to [the senior claimant) and not [the junior claimant).” The earlier words have been strongly criticised by the Court of Appeal in Fire, but in fact the majority in National Sewer accepted that a good root would have allowed the searcher to assume the title before the root.

In Fire the Court of Appeal [at p 7] cited Algoma for the proposition that “if title documents are valid on their face. .. it is not necessary to go behind those documents in order to test the validity of the title transferred.”

3. The Root of Title

Part III does not define the root of title, but it requires a “good and sufficient chain of title,” and a good chain must start with a good root of title. Two questions about the root arise. First, how old must the root be to be a good root of title? Second, must the root meet tests as to its quality if it is to be a good root of title, and, if so, what are the tests?

(a) Age

Under the common law in Ontario, a good root had to be at least 60 years old. Originally, Part III did not refer to the root of title. It merely relieved a vendor from having to show more than a “good and sufficient chain of title, save and except during the period of forty years immediately preceding the day of such dealing.” These words were changed in 1964 to relieve a vendor from having to show “good and sufficient chain of title during a period greater than the forty years immediately preceding the day of such dealing.” Although it was argued that the original words contemplated a chain less than 40 years long, lawyers and the courts required the chain to start with a root of title at least 40 years old, and lawyers continued to do so even though the 1964 amendments seemed to make the intention clearer.

The 1981 changes specifically deal with the question of how old root of title must be:

111. - (1)In this Part,

…

“title search period” means the period of forty years described in subsection 112(1).

112. - (1) A person dealing with land shall not be required to show that the person is lawfully entitled to the land as owner thereof through a good and sufficient chain of title during a period greater than the forty years immediately preceding the day of such dealing, except in respect of a claim referred to in subsection 113(5).

(2) Where there has been no conveyance, other than a mortgage, of the freehold estate registered within the title search period, the chain of title commences with the conveyance of the freehold estate, other than a mortgage, most recently registered before the commencement of the title search period.

(3) A chain of title does not depend upon and is not affected by any instrument registered before the commencement of the title search period except,

(a) an instrument that, under subsection (2), commences the chain of title; ...

These changes were intended to make it clear that a root of title within the 40-year period could be good. They are still not perfectly explicit, because they do not say exactly how one finds the root within the 40-year period.

All of the Court of Appeal decisions after 1981 confirm that a transfer within the 40-year period can be good root of title. In Tkach, the court decided [at p. 8) that “it is clear that there is no need to go beyond the 40-year period unless ... there has been no conveyance within the 40-year period.” The court did not actually have to decide that a root of title within the 40-year period

could be good because, on the relevant date, there was a conveyance outside the period, but the court based its decision on a root within the period. In Camrich, the junior claimant succeeded, even though the earliest junior transfer was within the 40-year period. In National Sewer, the earliest junior transfer was within the 40-year period. Although the majority of the court decided that the junior claim was bad, it did not do so because the root was less than 40 years old. Finlayson J.A. stated [at p. 12]: “The appellants ... submit that the amendments make it clear that the title search period shall not exceed forty years in cases where a conveyance upon which the searcher can rely is registered within such period. … I have no difficulty with this as a proposition of law.” In Fire, the earliest junior transfer was within the 40-year period and the court decided that the junior claim was valid, approving the above statement in Tkach.

Thus, if the earliest document in the 40-year period that deals with the whole title is a good root, it is the root of title, however recently it was registered. The lack of a minimum period creates unnecessary risk. The legislation would be better if it were amended to set a minimum age for the root. If Part III were changed to do so, the opportunity might be taken to make two changes. Since Part III requires two tests to be met, the tests could use different periods. The government had hoped to reduce the period of the search to 25 years. It could make the first change by amending the chain of title to require the root to be, say (as in England), at least 15 years old. The government could still retain the 40-year period for the registration rule. As will be explained, the chain of title now requires the detailed search under the chain of title rule to cover the entire 40-year period. The government could make a second change by limiting the detailed search to the period after the root. The second test would still be a factor in validating title, because the search would still have to cover that part (if any) of the 40-year period before the root, but the search would only be for registrations or re-registrations that would preserve a claim under the second test. These two amendments might be a good way of satisfying a number of purposes.

(b) Quality

The second question that arises as to the root is: must the root meet tests as to its quality if it is to be a good root of title, and, if so, what are the tests?

The common law required that the root satisfy tests as to its quality. In Williams on Vendor and Purchaser (4th edition, p. 124), a good root of title is defined at common law as:

an instrument of disposition dealing with or proving on the face of it (without the aid of extrinsic evidence) the ownership of the whole legal and equitable estate and interest in the property sold, containing a description by which this property can be identified, and containing nothing to cast any doubt on the title of any of the disposing parties.

In this definition, the words “dealing with or proving on the face of it” mean that the instrument must purport to deal with the interest. The words “(without the aid of extrinsic evidence)” mean that, if the instrument depends for its validity on a previous instrument, it must be shown to be valid under that previous instrument. A mortgage could be a good root of title. The common law tests reflected the fact that the root was the basis of the assumption about the title before the root.

Part III does not define the root of title directly, but does so indirectly. Subsections 112(2) and (3) say:

(2) Where there has been no conveyance, other than a mortgage, of the i[freehold] estate registered within the title search period, the chain of title commences with the conveyance of the freehold estate, other than a mortgage, most recently registered before the commencement of the title search period.

(3) A chain of title does not depend upon and is not affected by any instrument registered before the commencement of the title search period except.

(a) an instrument that, under subsection (2), commences the chain of title

The subsections require the searcher to go beyond the 40-year period only if there is “no conveyance, other than a mortgage, of the freehold estate” registered within the 40-year period. It has been suggested that this implies that any conveyance other than a mortgage will be a good root of title. From this it would seem to follow that the root of title need not meet any tests as to its quality.

The suggestion that any conveyance other than a mortgage will be a good root of title, so that the root of title need not meet any tests as to its quality, is probably wrong for the following reasons. The root is the basis for the key assumption about the title before the root. The primary purpose of the changes to Part III was to make it clear that the root of title need not usually be older than 40 years. The changes do not expressly remove the need for a root of title to be good; any removal would be by implication only. The changes had a secondary purpose of dealing with the question of what is a good root of title, but that would require them only to modify the rules, and not to remove them altogether. Part III does not dispense with the need to check the chain of title carefully. The 1981 amendments weaken the protection of legitimate interests because they do not require a minimum length for the chain, and removing the additional protection of requiring the root of title to be good increases the weakness.

None of the Court of Appeal decisions supports the suggestion that any conveyance other than a mortgage will be a good root of title, or that the root of title need not meet any tests as to its quality. Algoma required the root to be “on its face sufficient to convey the fee.” While these words do not fully reflect the common law definition of a good root, they confirm that the root of title must meet some tests as to its quality, even if they are only that the root must be valid on its face. And, while the words were used in a case before 1981, they have been approved in cases after the 1981 amendments. In Camrich, the root of title was an expropriation by a municipality, and it was argued that the municipality had no power to expropriate the land. the case might have decided that a transfer under a power would be a good root, even if the power was not proved. As has been explained above, the reasons of the Court of Appeal in Camrich, and the comment of the Court of Appeal on those reasons in Fire, do not support an interpretation that the expropriation would be a good root, even if the municipality did not have a valid power to expropriate. As set out below, National Sewer strongly supports the view that a root must meet tests as to its quality, and Fire must be taken to accept that interpretation. The court in Fire adopted the reasoning in Tkach and Algoma that “if the title documents are valid on their face ... it is not necessary to go behind those documents in order to test the validity of the title transferred.”

The second part of the second question is, if the root must meet tests as to its quality, what are the tests for the root to be a good root of title?

If the common law rule were changed to reflect Part III, it might say:

A good root of title for an interest is a registered document that purports to:

create or transfer the whole interest or

create or transfer another interest out of which the whole interest was later created,

even if it does so subject to an encumbrance on the interest and even if it depends for its validity on a previous instrument, and:

which is not a mortgage of the interest

and

for which the search contains nothing to cast any doubt on the title of any of the persons creating or transferring the interest.

The common law required the root to be a document. A passing of property in some way other than by document could not be a root, for example, on an intestacy. For the freehold, Part III requires a “conveyance.” The word can be used either to mean a document that conveys or to mean what occurs, that is, a conveyance in fact. It is more likely that Part III does not change the common law rule that the root must be a document.

The common law requires the root of title to purport to deal with the interest. The subsection refers simply to a “conveyance” of the freehold. If the transferor did not own the interest conveyed, the document would not in fact be a “conveyance,” because a person cannot convey what he or she does not own. Part III must mean a document that purports to be a conveyance. To purport to be a disposition, the document must show that the person making the disposition claims to be able to dispose of the interest. A document in which a person merely disposes of any interest that the person might have, such as a quitclaim, is not a good root of tide.

The root must dispose of the interest that is to be shown by the chain. As has been explained, there can be a root of title for both the freehold interest and interests less than the freehold. First, an instrument that creates the interest can be a good root for it. The Crown grant creates the freehold interest, and can be a good root for it. The grant of the lease creates the leasehold interest, and can be a good root for it. The same applies to the grant of a mortgage or of an easement; it can be a good root for the mortgage or easement. Second, a transfer of the interest can be a good root for it. A conveyance of the freehold can be a good root for the freehold interest. Similarly, an assignment of a lease or mortgage can be a good root for the lease or mortgage. A conveyance of the property that enjoys the benefit of an easement can be a good root for the easement. In these cases, the transfer would not necessarily set out the terms of a lease, mortgage, or easement. The searcher would need to know those terms, and might require the lease, mortgage, or grant of easement that created the interest, but only to show its terms. Third, a dealing that created or transferred another interest out of which the interest in question

was later created can be a good root for the interest created. A transfer of the freehold can be a good root for a leasehold interest, mortgage, or easement created after the transfer.

Under the common law, the root must dispose of the whole interest that is being searched. A conveyance of a 50 per cent interest in the freehold would not be a good root for the whole freehold.

The common law would accept a disposition of the interest subject to a mortgage as a root. Part III seems to suggest that a root for the freehold must be of an unencumbered freehold estate. However, it need not be of an unencumbered freehold estate, because subsection 113(6), which in part minors subsection 112(2) set out above, refers to “a freehold estate in land or an equity of redemption in land.”

The common law allowed a mortgage to be a good root of title, but Part III requires a conveyance other than a mortgage. Under the registry system, a mortgage would be a poor root, because a mortgage is ruled out after it is discharged.

The common law would not accept as a root of title a document depending for its validity on a previous instrument unless it was shown to be valid under that previous instrument. Subsection 112(3), set out above, makes it clear that a document may be a good root, even if it depends for its validity on a previous instrument.

The common law would not accept as a root of title a document for which the search contained anything to cast any doubt on the title of any of the disposing parties. In National Sewer, the Court of Appeal decided that the junior claim was not valid because the search gave “notice” of the senior claim. The “notice” of the senior claim came from an equitable mortgage and a discharge registered against the property before the junior claimant’s root of title, and from the succession duty release deposited for the junior claimant’s root, which was an executor’s deed. These described the land by referring to a previous deed, which in turn excepted the land in dispute, and that exception showed that the transferor in the junior claimant’s root had no right to transfer the land in dispute. The court [at p. 14] regarded the facts as showing that the junior claimants had made “faulty title searches,” and were not “relying upon what conveyancers refer to as a ‘clean deed’ as their root of title.” It was “clear from the appropriate abstract of title” [p. 15] that the land belonged to the senior claimant. The minority judge, Osborne J.A.. disagreed with the majority on the issue of whether the search in fact showed the senior claim, but he accepted the principle that it was relevant to check that the root was good. In Fire, the Court of Appeal commented [at p. 10] that it agreed with “the full and compelling dissenting reasons of Osborne J.A.” on the issue of whether the junior claimants had actual notice (within the meaning of the notice provisions of Part I of the Registry Act) of the lack of title of the transferor under the root of title. The court must also have accepted the principle that it was relevant to check that the root was good. Thus, a document for which the search contains anything to cast any doubt on the title of any of the disposing parties will not be good root for the purpose of Part III. Presumably, a transfer to oneself would never be beyond the realm of doubt.

The question of whether a passing of property caused by a death can be a good root of title under Part III is difficult to answer. At common law, a will could be a root, but only if it both transferred the property and identified it. A general gift by will could not be a root, because it

would not identify the property. A transmission on intestacy could not be a root, because it would not be a document. In Ontario, if a will gives a specific real property directly to anyone, the property can automatically vest in the beneficiary after three years. Part III requires the root to be a “conveyance,” but here it is both the will and the vesting that convey the property. If there is a later document in the 40-year period that could be the root, the safer course would be to treat the will as a conveyance and as the root. If there is no other conveyance in the 40-year period, the safer course would be not to treat the will as a conveyance and to go back to a root before the 40-year period.

4. The Chain of Title

Except for the assumption that can be made about the title before the root, the purpose of the search of title is to check that the interest in the property has validly passed, free of encumbrances, from the assumed holder of the interest at the beginning of the chain to the current holder. The search involves an investigation of the factual history of the property and the application of legal principles to it. Part III raises the questions set out below.

(a) Period of Search

The first question is: what period must be covered by the detailed search? The searches under the registration and chain 01 title rules are different. Under the registration rule, the search is only for registrations of claims. Under the chain of tide rule, the search is a detailed investigation of facts and consideration of law to determine whether claims are valid.

The common law usually required the search of the chain of tide simply to cover the period of at least 60 years after the root, and would lead one to conclude that the detailed search of the chain of tide under Part III would start with the root and cover a period after the root. The common law would lead one to conclude that only the less detailed search for registrations would be sufficient in the part (if any) of the 40-year period before the root. Relevant provisions of Part III are:

“title search period” means the period of forty years described in subsection 112(1).

…

112. - (1) A person dealing with land shall not be required to show that the person is lawfully entitled to the land as owner thereof through a good and sufficient chain of title during a period greater than the forty years immediately preceding the day of such dealing… .

…

(3) A chain of title does not depend upon and is not affected by any instrument registered before the commencement of the title search period except,… .

There are arguments for and against the proposition that the search of the chain of title must cover the full 40 years, but the result is that it probably must cover the full period of 40 years.

(i) The common law is more logical in starting with a clean root, assuming the title before the root and moving forward in time. The alternative seems unnaturally abstract. It requires a search forward to find the root, making an assumption about the title before the

root, then going back to the beginning of the 40-year period and searching forward to verify the assumption as to the title before the root.

(ii) Taking the search of the chain back to the beginning of the 40-year period seems to make the registration rule irrelevant for a person searching the title. However, this does not make the registration rule irrelevant for the holder of an existing claim, because that rule gives the holder a way of protecting the claim by registering a notice of claim within 40 years after the last. registration of the claim. Otherwise, if the holder does not deal with the claim, the holder might merely have to rely on the chance that instruments registered by others will refer to the holder’s claim.

(iii) A person searching title will usually want to know whether the holders of all interests in the property have valid title to those interests. As explained earlier, a person searching title for an encumbrance needs to know whether the title to the ownership is valid. As each interest will have its own root of title, the search should begin with the root for the interest that has the earliest root, even if that is before the root for the interest being dealt with.

(iv) Because the new chain of title rule could make the chain of title unreasonably short, it would be reasonable to assume that it was intended that the search of the chain of title should cover the full 40 years.

In National Sewer, the majority of the court decided that the junior claim was not valid because the search gave “notice” of the senior claim. The “notice” came from a registered equitable mortgage and discharge, and from a succession duty release. All of these appeared before the junior claimant’s root of title. Osborne J.A. disagreed with the majority on the issue of whether the search in fact showed the senior claim, but he accepted the principle that it was relevant to consider the material that appeared before the junior claimant’s root of title. In Fire, the Court of Appeal commented [at p. 10] that it agreed with “the full and compelling dissenting reasons of Osborne J.A.” on the issue of whether the junior claimants had actual notice (within the meaning of the notice provisions of Part I of the Registry Act) of the lack of title of the transferor under the root of title. That court must also have accepted the principle that it was relevant to consider the material that appeared before the junior claimant’s root of title. Thus, the decisions of the Court of Appeal confirm that, even though the chain of title can start within the 40-year period, the detailed investigation under the chain of title rule must cover the entire 40-year period.

(b) Assumption of Title

The second question is: what information in the 40-year period prevents the searcher from making an assumption about the title before the root?

The common law required that there be “nothing to cast any doubt on the title of any of the disposing parties” under the root. Generally, a good chain of title under the common law is one that a person reasonably skilled in investigating title would accept as good, having regard to the practice as interpreted by court decisions, and subject to any modifications made by statute. The same principle should apply in determining whether anything creates a doubt about the title before the root. For example, if, under the Registry Act, a purchaser would be affected by an

interest only if the purchaser had actual notice of it, the chain of title should not be bad unless what it showed amounted to actual notice of a conflicting title behind the root. Under the Registry Act, a reference to a person “as trustee” is not sufficient to give actual notice of the trust. If the trust was created or registered outside the 40-year period, the reference should not be sufficient to give notice of that trust, either. Thus, the chain of title rule should not require a higher standard of investigation to confirm the assumption about the title before the root than the search for defects after the root requires.

On the other hand, the law sometimes does not specifically protect a person acquiring an interest. However, if the interest arose before the period of the search, the chain of title rule may protect the person. For example, if an instrument in the period of the search is a forgery, it is void, and cannot be relied on. If the instrument is outside the period of the search, however, it should not affect the title.

Under the common law, if the chain of title revealed a possible conflicting claim, the vendor had to prove that that claim did not affect the interest sold. A transfer often says that it is subject to any easements or restrictions. Presumably this would be too vague to put the vendor under the burden of proving that the interest did not exist. But a transfer subject to a right of way over a described strip should have required the vendor to prove that there was none, if the purchaser was entitled to buy free from any such right of way.

When an instrument has been ruled out in the register, or should have been, it is ignored for the purpose of Part III. This was at first provided for in an amendment to The Investigation of Titles Act made just before it came into effect. The provision was later moved into Part I of the Registry Act.

The Court of Appeal decisions on these principles are as follows. As explained earlier, words in Algoma are misleading if taken out of context. These suggest that a purchaser is entitled to rely on the form of the instruments registered and is not bound to inquire into their substance, and that, if the instrument on which he relies as the root of title is on its face sufficient to convey the interest, he is entitled to rely upon it. The context shows that these words mean only that the purchaser can assume the title behind a good root of title. In Camrich, the senior title might have been revealed by instruments registered in the 40-year period that contained a plan showing the senior claimant’s land as “Hydro right of way.” The court decided that this did not amount to an acknowledgment of or specific reference to the senior claim under the old registration rule, because the plan did not define the interest (it described the interest as an easement rather than a fee simple interest). It is probably safe to assume that the court accepted for the same reason that the plan did not show the senior tide under the chain of title rule either. In National Sewer, the senior title could only have been shown by a registered equitable mortgage and discharge of it, and by the succession duty release deposited for the junior claimant’s root, which was an executor’s deed. The trial judge, and the majority of the Court of Appeal, required a standard of investigation that was higher than was reasonable, but their standard has now been discredited. The trial judge decided that a “thorough search” would have required the junior claimants to check the succession duty release, and a perusal of it would have made it “abundantly clear” that the deceased did not own the land. Although members of the bar, expats in the field of law in the case, had given opinion evidence, the judge said the decision was his own, “based on the law.” He also said that he was “not adjudicating upon considerations of prudent practice in the field of

conveyancing.” The majority of the Court of Appeal regarded the facts as showing that the junior claimants had made “faulty title searches” in that it was “clear from the appropriate abstract of title” that the land belonged to the senior claimant. The better standard is that applied by Osborne J.A., with whose “full and compelling dissenting reasons,” on the issue of what the search showed, the Court of Appeal in Fire commented that it agreed. Sensibly, he decided that since the Registry Act provides that, where a mortgage has been discharged for more than 10 years, the land is not affected by the mortgage, the equitable mortgage could be ignored for the purposes of a title search. And he decided that the succession duty release did not show the senior claim, since, under a retrospective exemption, the land had vested under the executor’s deed despite the absence of a full release. He approved [at p. 21] a statement in Tkach that Part III “was passed to facilitate the task of title searchers and solicitors certifying title.”

(c) Evidence Included in Search

Under the common law, the vendor had to prepare a full summary of the title, called an “abstract of title,” showing the required chain of title. Because a good chain of title did not usually, itself, extinguish a valid interest not shown by the chain, the purchaser could object to anything in the chain that showed a defect. A chain of title was good if the evidence required in the abstract of title, and required in answer to any valid objections by the purchaser, showed that the vendor had a good title. How far does this apply to Part III?

Part III incorporates the common law because it requires a good and sufficient chain of title.” However, since the 1981 amendments, Part III has said in subsection 112(3):

A chain of title does not depend upon and is not affected by any instrument registered before the commencement of the title search period except,

(a) an instrument that, under subsection (2), commences the chain of title;

(b) an instrument in respect of a claim for which a valid and subsisting notice of claim was registered during the title search period; and

(c) an instrument in relation to any claim referred to in subsection 113(5).

Under clause (a), where there has been no conveyance of the freehold estate registered within the title search period, the chain of title commences with a conveyance registered before the period. Clause (c) refers to the interests to which Part III does not, by way of exception, apply. The question is what effect clause (b) has on the evidence required to be included in the search.

Examples of situations in which the question arises are the following. The chain of tide to a junior claim to the ownership of land may contain a defect that reveals the senior claim. In the chain of title to ownership, a transfer may be expressly subject to a right of way over a defined strip, or as set out in a specific instrument. Or searches made for other purposes - for example, compliance with the Planning Act - may reveal a conflicting claim not shown by the searches in the 40-year period. The common law would lead one to conclude that these problems would prevent the title from meeting the test under the chain of title rule. Can it be argued that, because of the subsection, the chain of title is “not affected” by these problems?

There are arguments for and against saying that the subsection modifies the common law as to the evidence to be included in the search:

(i) If the subsection frees a title from a defect or encumbrance that the required search actually shows, it goes beyond the policy of Part III, which is to protect persons dealing with land from claims that are not shown by the required searches. Although a searcher no longer receives an “abstract of title,” the search still involves assembling the information required under Part III to show a good chain of title, in effect creating an abstract of title. The title should be valid only if the required evidence would show, to a person reasonably skilled in investigating title, that the title is good. This does not mean that title is subject to a defect or encumbrance merely because a searcher happens to receive actual notice of it, because, as will be explained, actual notice does not, itself, prevent Part III from validating a title. And it does not mean that title is subject to a defect or encumbrance shown by additional evidence that a prudent searcher may collect, even though not required to do so.

(ii) The 1981 changes were intended to make it clear that a root of title within the 40 years is good. Because the root need not have a minimum age, the intention had to be emphasized. As far as the subsection goes beyond emphasizing this intention, it should be ignored.

(iii) The subsection says that a chain of title is not affected by any instrument registered before the commencement of the title search period, except an instrument in respect of a claim for which a valid and subsisting notice of claim was registered during the title search period. On the one hand, this appears expressly to modify the chain of title rule. If it merely said that a claim expired if it was not registered or re-registered, it would be redundant, because the registration rule already says that. On the other hand, it does not hit the nail squarely on the head. The converse would be that a chain of title is affected by any instrument within the 40-year period, and, if such an instrument reveals a defect or encumbrance, the defect or encumbrance would affect the title. To be perfectly clear, the subsection might have said that a title is not affected by a claim shown by the chain, unless the claim is registered or re-registered in the 40-year period.

(iv) The Court of Appeal has consistently, before and after the 1981 changes, refused to validate a junior claim to ownership where the chain is defective. On the one hand, this supports an argument that the subsection has no effect beyond merely clarifying the age of the root. On the other, it might be argued that this should be restricted to cases where an instrument registered within the 40-year period shows a defect in the title to ownership, and should not apply in other cases.

(v) If the subsection did not invalidate a claim that was merely referred to but not registered in the 40-year period, a search of the title to the claim would involve finding a root of title for it beyond the 40-year period, even though, if the claim were an encumbrance, the search of title to the ownership was restricted to the 40-year period. On the one hand, that may justify simply extinguishing the claim. On the other hand, if a notice of claim was registered for the claim, it would preserve the claim, but not avoid lengthening the search, because the notice would not be a good root for the title to the

claim, and the search would still have to be lengthened to find the root for the claim. Even if Part III does not limit the search to 40 years in all cases, it still serves a very useful purpose in practice, because it must limit the search to 40 years in most cases.

(vi) Where, after the 1981 changes, the root for the ownership is before the 40-year period because there is no conveyance in the period, the subsection would invalidate a claim shown in an instrument registered outside the 40-year period after the root, but not in the root itself, because clause (a) implies that the root does affect the chain. It is illogical that a distinction should be based on the chance that the claim was shown by the root.

(vii) The changes of 1981 clearly removed the old rule under which a claim did not expire if it had been “acknowledged or specifically referred to or contained in an instrument ... registered” in the 40-year period. Instead, the interest does not expire if it is “set forth in, based upon or arising out of a registered instrument” registered in the 40-year period. On the one hand, coupled with the fact that the subsection refers to the chain of title, the intention seems clearly to have been to prevent a mere reference from preserving a claim. On the other hand, the removal of the old words applies only to the registration rule, and, in any event, the words “set forth in” may still preserve a reference if it clearly sets out the claim.

(viii) The later amendment for public utility easements shows that it was assumed that a mere reference to a claim would no longer preserve it.

With these conflicting arguments, it would not be safe to rely on s. 112(3) to conclude that a defect or encumbrance did not affect the title, even though it was shown in the required evidence of title.

Despite the sharp disagreement on the facts shown in National Sewer and Fire, the courts accepted the principle that, if the chain shows a defect in the junior claim to ownership, Part III will not validate the junior claim. In National Sewer, the majority specifically decided that the subsection did not apply, because the words saying that a chain of title is not usually affected by an instrument registered before the 40-year title search period do not alter the effect of anything shown by instruments in the chain of title registered during the period. Although it seems that searches of abutting land were probably required in the last four Court of Appeal cases, and might have revealed the senior claims, the issue was not raised.

(d) Length of the Chain

The chain of title rule requires a “chain” of title. Can a chain exist when there is only one link? These cases may be illustrated by two examples.

The first example is where, at the end of the “notice period” for the senior claim, only one instrument has been registered in the notice period that could be a good root of title for the junior claim, and it is a good root. It seems that Part III will validate the junior claim at the end of the notice period, even though the validation is based on a “chain” of one instrument in favour of the then holder of the title. This is confirmed by Tkach, where the court decided that the only junior transfer in the 40-year period, the transfer to the junior claimant himself, was a good root of title.

The second example is where, at the end of the “notice period” for the senior claim, no instrument for the junior claim has been registered, and where the first instrument for the junior claim registered after the notice period could be a good root of title for the junior claim. Part III could not, of course, have validated the junior claim at the end of the notice period, because a search would not show any junior registrations. Logically, Part III should validate the junior claim immediately after the junior root is registered, because Part III validates the title as soon as the two tests are met, and because Part III does not require the root to have a certain age before it can be good. In effect, the transferee would magically validate the transferee’s own title by registering the transferee’s own transfer. Although this seems wrong, it is a result of Part III not requiring the root to have a certain age before it can be good.

Other Matters

Retroactivity

Under Part III, after the 1981 amendments, it may seem that a claim could be invalidated even though it would have been valid had the changes not been made. This raises a question of whether the claim continues to be valid in order to prevent the changes from being retroactive. the answer is that, although Part III may have to be applied to facts as of a past date as it then stood, it does, when applied after the 1981 changes, have retroactive effect.

Part III of the Registry Act says:

This Part applies to every claim and notice of claim, whether registered before or after the 1st day of August, 1981. [s. 115(2)]

This was a new provision, not merely the re-enactment of an old provision. It seems clear that the new provision was intended to make the changes retroactive.

In 1990, Part III was amended retroactively as follows:

Despite sections 112 and 113, a public utility easement of a municipality or an easement of the Ministry of Government Services that existed on the 31st day of July, 1981 continues until the 31st day of December, 1999. [s. 114(2)]

A notice of claim in respect of a public utility easement of a municipality or an easement of the Ministry of Government Services registered before the 31st day of December, 1999 is as effective as if it had been registered on the 31st day of July, 1981. Es. 114(8)]

The 1990 changes gave compensation to persons who acquired land after the 1981 changes and before the 1990 changes where a public utility easement was retroactively continued. These provisions confirm that the 1981 changes were seen as retroactively invalidating public utility easements, and gave the holders until the end of the century to register notices of claim.

A question about applying the law as it was before the 1981 changes may arise simply because the effect of Part III must be determined as of a past date. There are two situations where it might seem that this could happen:

1. Part III has been treated as working only when there is a dealing with the land. It says that “A person dealing with land shall not be required to show ... a good and sufficient chain of title during a period greater than the forty years immediately preceding the day of such dealing.” But, as explained earlier, it is more logical to interpret Part III as automatically validating titles when its requirements are satisfied. This interpretation avoids the retroactivity issue that would arise if Part III had to be applied as of the date of a past dealing.

2 Once Part III has validated a title, the title should remain valid until Part III would validate a conflicting title. Once a title has been validated, an invalid claim may be registered, or there may be some other reference in a registered instrument to the invalid claim. If the tests under Part III were applied after that, it might seem that the tests could not be met because the invalid claim would be shown in the chain of title. Where a search shows conflicting claims, the search will usually go back to determine whether Part III has validated one of the claims on a past date before the conflict was shown. The law to be applied should be the law as it was on that date.

Where the date on which the law is to be applied to the facts is after July 1981, there may still be a question whether the law to be applied should be Part III as it was before the 1981 changes, in order to avoid retroactively invalidating a claim.

The 1981 changes to Part III might seem to have made two major changes that raise the issue of retroactivity:

1. The 1981 changes might seem to have changed a rule that the root of title had to be at least 40 years old. Thus, they might have validated a claim based on a root of title within the 40-year period, even though the claim would seem to have been invalid before the 1981 changes.

2. The 1981 changes might seem to have changed a rule that a claim could not expire until 40 years after it was last acknowledged or referred to in a registered instrument by requiring the 40-year period to start when the claim was last registered. Thus, a claim might seem to expire, even though the 40-year period for it was still running when the 1981 changes were made.

It should not be necessary, however, to consider whether a claim was valid on August 1, 1981, under the old rules, and might have been preserved. The 1981 changes were intended to clarify the law.

Arguably, for example, Part III has been intended, since 1930, to allow a root of title within the 40-year period. Title under the registry system is based on a search of past events, and the essence of Part III is to set out a policy for dealing with the past. Except, possibly, for the way that the 1981 changes seem to permit the root of title to be dangerously recent, the protection that Part III gives to older interests is strong - compared, for example, to the rules in England, where the root need only be 15 years old. Although a mere acknowledgment of or reference to a claim in a registered instrument no longer extends the protection under the registration rule, it probably preserves, despite the 1981 changes, the claim under the chain of title rule. If Part III were not

retroactive, rules would be needed to avoid retroactivity. Presumably, a root over 40 years old would continue to be required until a deed registered after July 1941 became a good root under the rules as they were before August 1981. And if the 1981 changes to Part III were not retroactive, searching title could become an extraordinarily complex exercise.

There are Court of Appeal decisions that support and reject an argument that Part III is retroactive. In Tkach, the court applied the 1981 amendments retroactively. In Camrich, the majority of the Court of Appeal commented that, if a decision had been necessary, it would have decided that a valid acknowledgment of or reference to a claim in an instrument registered before the 1981 amendments would keep the claim alive until 40 years after the registration, because, if the 1981 amendments had been intended to extinguish titles that were valid the day before they came into force, the amending Act should have said so in the clearest of language. Despite this, the majority accepted that the root of title was retroactively good, even though it was within the 40-year period. In National Sewer, the majority of the Court of Appeal relied on its reasoning in Camrich to decide that a provision in the 1981 amendments did not apply. This was the provision that a chain of title is not affected by any instrument registered before the commencement of the title search period except, among others, an instrument in respect of a claim for which a valid and subsisting notice of claim was registered during the title search period. Despite this, the majority accepted that the root of title was retroactively good, even though it was within the 40-year period. In Fire, the Court of Appeal unanimously decided that the root registered within the 40-year period was good because the 1981 amendments to Part III were retroactive. This is the most authoritative decision of the Court of Appeal on the issue of retroactivity.

In those cases where Part III is applied as it was before the 1981 changes, the searcher may have to resolve difficult questions of interpretation, because the 1981 changes were, in many ways, intended to clarify Part III, and to confirm what the provisions have meant since they were first enacted. It might be appropriate for Part III to be amended so that it applies retroactively in these cases as well.

Actual Notice

The question arises whether Part III validates the title to an interest where, even though the conflicting claim is not shown by the required search, a holder of the interest has actual notice, or actually knows, of the conflicting claim.

As explained earlier, Part III validates title when the two tests are met. In practice, a searcher will be concerned only with whether Part III could have validated title when the search is made, or, if that search shows a conflict, immediately before the conflict was first shown, but Part III could have validated title before either of those times. For the purpose of this discussion, the relevant time is when the title actually becomes valid under Part III.

If, after the tests for validation under Part III have been met, the interest is transferred, the transferee will obviously not be affected by the fact that the transferor had actual notice of the conflicting claim before the title was validated, or even by the fact that the transferee had actual notice at the time of the transfer (unless, perhaps, the transferee knew that the transferor had actual notice before the title was validated).

Part III should (subject to what is said below) validate the title, even if the holder actually knows of the conflicting claim when the tests are met for the following reasons. The registration rule says that a claim expires, and makes no exception for a case where the new claimant has actual notice. The chain of title rule suggests that title is validated on a dealing. As has been explained, title is validated when the two tests are met, even if there is then no dealing. However, even if Part III validated title when there was a dealing, Part III does not require the party to have given value, to have acted in good faith, or not to have had any kind of notice. This paper concludes that Part III validates a title when the tests are met, even though there is no dealing then. Thus, the validation takes place irrespective of an acquisition at which actual notice would be most relevant. And it is title that Part III validates, not just a transaction in favour of a person. Whether any particular holder of an interest has actually known in the past, or knows in the future, of the conflicting claim should not affect title, because title affects other persons. If the interest is an ownership interest, the validity of interests less than ownership may depend on the validity of the ownership interest.

Courts are, however, unwilling to allow a person to take advantage of a statute where that would be considered fraud. Thus, even where Part III validates the title of a person despite the person’s actual notice, a court may not allow the person to take advantage of that or treat the person as holding under a constructive trust for the person whose title was invalidated. Presumably, if the person first actually knew of the conflicting claim after acquiring the interest, a court would not prevent the person from taking advantage of the validation. And, even if the person first actually knew of the conflicting claim before acquiring the interest, a court might be influenced by what was reasonable in the circumstances. For example, a person might acquire an interest without valid title, and actually knowing of a conflicting claim, but honestly believing that the conflicting claim was unlikely to be enforced, or not really appreciating the effect of the person’s actual knowledge.

In Tkach, title would have been validated when the 1981 amendments came into force. The solicitor who acted for the junior claimant in his purchase had obtained “actual notice” of the senior claim, but certified title to the property. The court must be taken to have decided that the junior claimant’s title was good, despite his solicitor’s having actual notice of the senior claim. In National Sewer, the references to notice or actual notice in the reasons of the majority are to what a proper search would reveal, not to what the junior claimants actually knew. The minority judge did deal with actual notice, but his reasoning was inconsistent. On the one hand, he seems to have agreed with Tkach that Part III validates title despite actual notice. On the other hand, he seems to have based his decision on the fact that the evidence fell short of establishing that the junior claimants had actual notice of the senior claim. Perhaps the inconsistency can be explained by saying that the minority judge either did not regard the notice in Tkach through old instruments or to the solicitor as actual notice, or that he did not feel it should prevent the junior claimant from taking advantage of the validation. Although the Court of Appeal in Fire agreed with the reasons of the minority judge in National Sewer on the issue of notice, this applied only to notice as the term was used by the majority.

Possession

Part III deals with the recorded title, and the effect of rights based on possession or use should briefly be referred to. Part III deals with possessory rights in the following provisions:

Under the registration rule, it is only a “claim” that can expire. A “claim” is a claim affecting land “set forth in, based upon or arising out of a registered instrument.”

Part III does not apply to, among other things, a claim “of a person to an unregistered right of way or other easement or right that the person is openly enjoying and using.”

The Model Marketable Title Act drafted by the University of Michigan seems to provide as follows. A right based on adverse possession affects the title only if all or part of the adverse possession occurred during the search period of at least 40 years. Possession saves a claim that would otherwise expire under the Act only if the possession was by the same person and continued throughout that period. And an easement does not expire under the Act if it is “clearly observable by physical evidence of its use.”

A right based on adverse possession or use would be a right of ownership acquired by adverse possession, or an easement acquired by adverse use (by prescription). Unlike the model Act, Part III does not make the right expire, even if the possession or use ended before the search period. However, if the possession or use ended before the search period, someone else is likely to have acquired a similar right, or the right is likely to have been abandoned. Often, a right based on possession or use will also be registered, because it will often be dealt with in registered documents. Part III should validate a right based on possession or use if the registered title to it meets the tests.

The exception referred to above probably applies only to an unregistered right of way or other unregistered easement or unregistered right of a similar nature that, in each case, the person is openly enjoying and using. However, the word “unregistered” probably cannot be taken to have its usual meaning, because Part III does not apply to an unregistered claim anyway. The exception would be relevant only for a right that was not protected by registration, and the word “unregistered” was probably intended merely to recognize that the exception was not relevant for a right that was protected by registration. Even so, the exception probably still applies only to easements and rights like them, and would probably not save a right of ownership that was accompanied by possession. This could be doubly hard on an owner because, while the owner’s title was valid, the owner could not acquire a title by adverse possession, since the owner’s possession would not be “adverse.” Thus, a senior owner in possession would be protected only if the owner’s possession continued, usually for 10 years and sometimes longer, after the junior owner’s title was validated.

The Court of Appeal cases do not deal with possession. The facts in the Tkach and Camrich cases could have allowed the courts to deal with possession, and the courts did comment on possession, but the facts and comments do not justify any conclusions about the effect of possession.

Legislation validating title tends to emphasize recorded title, and to restrict the effect of possession or use. However, unless Part III is amended to compensate persons whose titles are invalidated, it should probably be amended to protect the title of a senior claimant in possession. The senior claimant should at least be protected if the possession, had it been adverse, would have created a title by adverse possession.

Fraud

Where Part III validates the tide to an interest in land, the title validated will almost always be the true title. Where it is not, the conflicting claim that is validated will usually have arisen because of an honest mistake. Only rarely will the conflicting claim be based on a dishonest act, or fraud.

Under the common law, an instrument that is void for fraud cannot usually create a valid claim, even for a person who was not a party to the fraud. Part III does not specifically deal with fraud. The nearest it comes to dealing with fraud is in the chain of tide rule. This requires a person to be able “to show that the person is lawfully entitled to the land as owner thereof through a good and sufficient chain of title.” The word “show” seems to emphasize outward appearances, while the words “lawfully entitled” seem to emphasize substance.

The courts would obviously not allow a person to enforce a claim if that person had been a party to the fraud. Where the person seeking to enforce a claim is innocent of the fraud, but the chain includes a void instrument, the common law would presumably apply with its full force. Presumably this would be so even if the root of tide was void, and even though a good chain of title allows one to assume that the person making the transfer in the root had a right to do so. On the other hand, if the void instrument was before the root of title, and outside the 40-year period, Part III presumably validates the title.

None of the Court of Appeal cases deals with fraud, but some contain comments on it. In Tkach, the judge giving the reasons of the Court of Appeal said [at pp. 8-9], after concluding that there was usually no need to go beyond the 40-year period for the root of title:

This conclusion creates some dangers. Remotely, an owner, 41 years after obtaining title, might lose it by an instrument registered by a stranger. It is difficult to see how there could be such an instrument without massive fraud on the part of the person registering the document, and if the owner had been in possession or had registered the required notice, he would not be affected in any event. More important, however, in my view, is that the conclusion is in accord with the manifest intention of the legislation to limit the search, subject to the exceptions, set forth in s. I 06(5), to a 40-year period. [Emphasis added.]

The comment assumes that, even if there was “massive fraud,” Part III might validate the title, and dismisses that as a factor in interpreting Part III merely because it is unlikely to happen. However, the comment should probably not be taken as authority for saying that a title can be valid even if an instrument in the chain is void for fraud, or that a person can take advantage of validation even if that person was a party to the fraud. In National Sewer, the trial judge said that if Part III were to be interpreted to dispense with the need for a good chain of title, “legitimate ownership of real property can be defeated by inadvertent errors in conveyancing or even by fraudulent conveyancing.” He did not, however, elaborate on how the chain of title rule protected ownership from fraud. The minority judge in the Court of Appeal, after saying that one could rely on a good root of title, noted lat p. 21] that this “would not validate forgeries or other fraudulent transactions.” The comments show that the courts were concerned about whether shortening the search might allow the rules to be used more easily for fraud, but should probably not be interpreted as saying what the courts thought would be the effect of fraud.

The common law rules as to a chain of title made fraud very unlikely, because a fraud would be unlikely to go undetected for 40 years or more. Part III greatly increases any risk of fraud, because it does not require the root of title to be at least a certain age. Thus, if there has been no transfer of an interest for 40 years, a person can dishonestly purport to create a new the root of title for it. Because Part III probably does not validate a claim where the chain includes a void instrument, a person acquiring an interest relying on a recent root bears more risk of title being invalid because fraud made the root void.

Restatement of Part III

This section sets out a possible restatement of Part III, using language similar to that in the Registry Act.

A Possible Restatement of Part III of the Registry Act

Definitions

111. - (1) In this Part:

“disposition” of a person’s claim to an interest, for the purpose of the rules as to the root of title, is a registered document, other than a mortgage, which purports to:

(a) create or transfer another claim out of which the claim was later created in favour of,

(b) create the claim in favour of, or

(c) transfer the claim to,

the person or a predecessor of the person, even if it does so subject to a mortgage or other encumbrance on the claim;

“Ministry of Government Services” means Her Majesty the Queen in right of Ontario as represented by the Minister of Government Services;

“municipality” means a municipality within the meaning of the Municipal Act and includes a regional, metropolitan or district municipality, the County of Oxford and a local board within the meaning of the Municipal Affairs Act;

“notice of claim” means a notice of claim registered under subsection 112(6) and includes a notice registered under a predecessor of this Part or under The Investigation of Titles Act, being chapter 193 of the Revised Statutes of Ontario, 1960, or a predecessor thereof;

“ownership interest” means a fee simple, other than a mortgage, or any other interest for which, if the claim of its holder were to expire under this Part, there would, under this Part, be neither a person who holds the interest nor a person whose interest ceases to be subject to the interest or expands to replace the interest, other than the Crown on an escheat;

“public utility easement” means an easement in respect of a water works or water supply system, sewage works, steam or hot water distribution system, electrical power or energy generating,

transmission or distribution system, street lighting system, natural or artificial gas works or supply system, or a transportation system;

“registered claim” means a right, title, interest, claim or demand of any kind or nature affecting land set forth in, based upon or arising out of a registered instrument, and, without limiting the generality of the foregoing, includes a mortgage, lien, easement, agreement, contract, option, charge, annuity, lease and restriction as to the use of land or other encumbrance affecting land;

Meaning of “registered”

(2) For the purpose of subsections 112(1), 112(2) or 112(6), a person’s claim to an interest is “registered”:

(a) when an instrument is registered in which the claim is set forth, upon which the claim is based or out of which the claim arises, and, in particular, when an instrument is registered which purports to:

(i) create or transfer another claim out of which the claim was later created in favour of,

(ii) create the claim in favour of,

(iii) transfer the claim to, or

(iv) create another claim out of the claim by,

the person or a predecessor of the person; or

(b) when a notice of claim for the claim is registered.

Effect of Part III

(3) Where there is a conflict between a provision of this Part and a provision of Part I or Part II of this Act, a provision of any other Act or any rule of law, the provision of this Part prevails.

Law to be applied

(4) Subject to section 114, the law to be applied in determining whether title to an interest becomes valid under this Part is the law as it was when the title could become valid.

Effect of amendments

(5) If the title to an interest is not valid immediately before an amendment to this Part, but could when the amendment comes into effect become valid under this Part as amended, the title becomes valid then.

Validation of titles properly shown

112. - (1) Except as set out in sections 113 and 114, the claim of a person to a registered interest in land becomes valid at a time when both:

(a) the person has a good chain of title to the interest under subsection 112(7) and,

(b) if any other person has a claim to the interest, the other person’s claim has not been registered against the land for 40 years before that time,

subject to every registered interest to which another person has a valid title under this Part and even if the person dealing with the claim under the root of title had no right to do so.

Interests other than ownership interests

(2) The claim of a person to a registered interest in land that is not an ownership interest expires (or, despite subsections 112(1) and 112(4), does not become or is not valid) at a time when both:

(a) it is not shown by the chain of title of the person having title that is valid under this Part to a registered ownership interest in the land and

(b) it has not been registered against the land for 40 years before that time.

Actual notice

(3) The title of a person becomes valid under subsection 112(1) even if the person acquired the interest with actual notice of a conflicting claim that will expire under this Part, but that does not prevent equitable principles of fraud or constructive trust from applying to that person.

Clarification

(4) For greater certainty the title of a person is valid under subsection 112(1) at any time when it could become valid under that subsection, even though it may have become valid under that subsection at an earlier time.

Invalidation of conflicting titles

(5) Subject to sections 113 and 114, when the title of a person to a registered interest becomes or is valid under subsections 112(1) and 112(4), any conflicting claim to the interest expires.

Notice of claim

(6) A notice of claim in the prescribed form may be registered for a claim to a registered interest at any time before:

(a) in the case of an ownership interest, it expires under this Part, and,

(b) in the case of any other interest, 40 years have expired after the claim was last registered or a conflicting claim to the interest is registered, whichever is later.

Chain of title

(7) A chain for a title is good if it complies with all of the following rules:

(a) The chain must begin with a good root for the title under subsection 112(8).

(b) Unless the search shows otherwise, it may be assumed that a person dealing with the title under the root of title had the right to do so.

(c) If there is a good root for the title within the period of 40 years referred to in subsection 112(1), the chain of title is affected by everything shown in the entire 40-year period, including the part of the period before the root.

(d) If there is not a good root for the title within the period of 40 years referred to in subsection 112(1), the chain of title is affected by everything shown in the entire period after the root.

(e) If the title has not become valid before an instrument is registered, the person acquiring title under the instrument cannot rely on the instrument as the person’s root of title.

(f) A good chain of title is one that a person reasonably skilled in investigating title to land would accept as showing the title.

(g) A chain for a title to an interest is not bad merely because instruments in the chain for the title to another interest, which is subject to the first interest, do not refer to the interest.

(h) The chain for the title to a lease or mortgage must conform to the same rules as those for other interests.

(i) An instrument that has been ruled out or could have been ruled out must be ignored.

(j) Even if an instrument before the root must be referred to in order to ascertain the terms of an interest, the earlier instrument is not part of the chain.

Root of title

(8) (a) If a disposition of the claim has been registered within the 40-year period referred to in subsection 112(1) and the disposition of the claim registered earliest in the period contains nothing to cast a doubt on the title of any of the persons purporting to create or transfer the claim, the disposition is a good root for the title.

(b) If a disposition of the claim has not been registered within the 40-year period referred to in subsection 112(1), or the disposition of the claim registered earliest in the period contains anything to cast a doubt on the title of any of the persons purporting to create or transfer the claim, the disposition of the claim that was registered most recently before the period that

contains nothing to cast a doubt on the title of any of the persons purporting to create or transfer the claim is a good root for the title.

(c) A disposition that depends for its validity on a previous document may be a good root of title even if it is not shown that it is valid under that document..

(9) This section does not affect any rule of law that would prevent a person from relying on a root of title, or instrument after the root, that is void.

Exceptions

113. - This Part does not apply to,

(1) an interest, whether registered or not,

(a) of the Crown reserved by letters patent, or

(b) of the Crown in unpatented land or in land for which letters patent have been issued, but which has reverted to the Crown by forfeiture or cancellation of letters patent, or in land that has otherwise reverted to the Crown;

(2) an interest, whether registered or not, arising under any Act;

(3) an interest, whether registered or not, of the Crown or a municipality in a public highway or lane;

(4) an interest, whether registered or not, of a corporation authorized to construct or operate a railway, including a street railway or incline railway, in respect of lands acquired by the corporation after July 1,1930, and,

(a) owned or used for the purposes of a right of way for railway lines, or

(b) abutting such right of way; or

(5) an unregistered right of way or other easement or right that a person is openly enjoying and using.

Continuation of public utility easements

114. - (1) A public utility easement of a municipality, or an easement of the Ministry of Government Services, that existed on July 31, 1981 does not expire under this Part until December 31, 1999.

Compensation

(2) If, but for subsection 114(1), an easement would have expired, a person who has an interest in the land acquired on or after August 31, 1981 and before June 21, 1990 is entitled to compensation for the easement.

(3) Subsection 114(2) does not apply to a person if the easement is specifically referred to in,

(a) the instrument by which the person acquired the interest; or

(b) a registered instrument executed by the person before June 21, 1990.

(4) Compensation shall be calculated as though the easement had been expropriated on the earlier of,

(a) the day the person who has an interest in the land gives the municipality or the Ministry of Government Services notice that the person claims compensation under this section; or

(b) the day the municipality or the Ministry of Government Services gives the person who has an interest in the land notice of its easement.

(5) The Expropriations Act applies with necessary modifications to claims for compensation. Abandonment

(6) A municipality or the Ministry of Government Services is relieved from paying compensation for an easement if it.

(a) removes anything placed under the authority of the easement;

(b) restores the land to the condition it was in immediately before any removal; and

(c) abandons the easement. Notice of claim

(7) A notice of claim in respect of a public utility easement of a municipality or an easement of the Ministry of Government Services registered before December 31, 1999 is as effective as if it had been registered on July 31, 1981.

Details of Cases

Court of Appeal Cases

1. Algoma. Algoma Ore Properties Ltd. v. Smith, [1953] O.R. 634, [1953] 3 D.L.R. 343. [All page references are to D.L.R.]

2. Calabogie. Headrick v. Calabogie Mining Co., [1953] O.W.N. 761.

3. Tkach. Ontario Hydro v. Tkach (1992), 28 R.P.R. (2d) 1, 95 D.L.R. (4th) 18, 10 O.R. (3d) 257, 58 O.A.C. 161. [All page references are to R.P.R.]

4. Camrich. Camrich Developments Inc. v. Ontario Hydro (1993), 34 R.P.R. (2d) 27, 14 O.R. (3d) 410, 105 D.L.R. (4th) 1, 65 O.A.C. 52, affirming (1990), 11 R.P.R. (2d) 263, 66 D.L.R. (4th) 606, 72 O.R. (2d) 225 (H.C.). [All page references to both the Court of Appeal and High Court levels are to R.P.R.]

5. National Sewer. National Sewer Pipe Ltd. v. Azova Investments Ltd. (1993), 34 R.P.R. (2d) 1, 14 O.R. (3d) 385, 105 D.L.R. (4th) 12, 65 O.A.C. 1, affirming (January 30, 1989), Doc. Toronto 6478/83, Maloney J. (Ont. H.C.). [All page references to the Court of Appeal level are to R.P.R.]

6. Fire. Fire v. Longtin (1994), 38 R.P.R. (2d) 1, 17 O.R. (3d) 418, 112 D.L.R. (4th) 34, 70 O.A.C. 226, reversing in part (March 31, 1992), Doe. Kingston 17906/87A, MacLeod J. (Ont. Gen. Div.), 1 D.E.L.E.A. 90. [All page references to the Court of Appeal level are to R.P.R.] N.B. - This case has been appealed to the Supreme Court of Canada, and should be heard in the fail of 1995.

Lower Court Cases

1. Layton. Layton v. Yankou, [1950] O.W.N. 337 (H.C.).

2. Jakmar. Jakmar Developments Ltd. v. Smith (1973), 1 O.R. (2d) 87, 39 D.L.R. (3d) 379 (H.C.).

3. Zygocki. Zygocki v. Hillwood (1975), 12 O.R. (2d) 103, 68 D.L.R. (3d) 55 (H.C.).

4. Lakhani. Lakhani v. Weinstein (1980), (sub nom. Lakhani v. Shapiro) 16 R.P.R. 305, 31 O.R. (2d) 65, 118 D.L.R. (2d) 61 (H.C.).

5. Finnegan. Finnegan v. Dzus (1955), [1956] O.R. 69, 1 D.L.R. (2d) 344 (H.C.).

6. Cifelli. Cifelli Carpentry Ltd. v. Mod-Aire Homes Ltd. (May 19, 1988), Doc. York Region 9829/88, Sheppard D.C.J. (Ont. Dist. Ct.).

7. Brown. Brown v. Coyle (July 12, 1988), Doc. Belleville M-1255/88, Honey D.C.J. (Ont. Dist. Ct.).

8. Peoples. 723046 Ontario Ltd. v. Peoples Jewellers Ltd. (August 29, 1989), Doc. Ottawa-Carlton 13912/89, Desmarais L.J.S.C. (Ont. H.C.). (This decision was applied in Camrich, and quoted at length in that case.)

9. Battison. Battison v. Ferrell (1990), 11 R.P.R. (2d) 100, 72 O.R. (2d) 655 (Dist Ct.).

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