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Property - Deferred Indefeasibility (2). 2417563 Ontario Inc. v. The Corporation of the City of Brampton
In 2417563 Ontario Inc. v. The Corporation of the City of Brampton (Div Ct, 2026) the Divisional Court dismissed a JR, this seeking "to quash the by-law and set aside the sale to 258" - these both relating to the sale of a narrow strip of land by the municipality.
The court considers the doctrine of indefeasability of title, here where the applicant sought to JR a municipal land sale by-law but the sale had already closed:[41] The applicants’ laches in this case is also relevant because by the time they became aware that the strip had become available for purchase it was already the subject of an agreement of purchase and sale and, by the time that this application was launched (on December 19, 2024), that transaction had already closed (on November 29, 2024). The respondents argue that this makes the application moot as the court has no jurisdiction to undo this transaction. The applicants reply that if they are successful in quashing the by-law, the transaction must be undone because the City may only sell real estate where the sale has been approved by by-law. The applicants point to Know Your City as a case where the court considered whether a resolution of council authorizing the sale of land should be quashed, and argue that, although the court dismissed the application, there was no question of the court’s jurisdiction to grant that relief in the right case.
[42] That submission is correct as far as it goes, but the difficulty with the applicants’ submission on that point is that the transaction in Know Your City had not closed at the time the application was launched or at the time of the court’s consideration of it. The parties undertook to delay closing pending the court’s decision in that case: see para. 2. I note that in North End also, where the application was allowed and the by-law quashed, there was a stay in place which prevented the sale of the property in question pending the resolution of the litigation: see para. 1. In other words, while those cases support the proposition that the court may quash a by-law authorizing the sale of real property, they say nothing about the issue of mootness where the sale has closed and been registered. The applicants point to no authority that would permit this court to unwind the sale of the strip to 258 now.
[43] Absent proof of fraud, which has not been established in this case, it is unlikely that the transaction can be undone now. The respondent 258 was a bona fide purchaser of the strip for value and the transfer to 258 has been registered. In such circumstances, the court lacks the jurisdiction to amend the land register. In the course of her discussion of the land registry rectification provisions of the Land Titles Act, R.S.O. 1990, c. L.5, and the doctrine of indefeasibility of title, Epstein J. (as she then was) wrote as follows in Durrani v. Augier (2000), 2000 CanLII 22410 (ON SC), 50 O.R. (3d) 353 (S.C.J.), at paras. 49, 51 and 54:.... Where a bona fide purchaser for value succeeds in becoming a registered owner, the fact of registration is conclusive. Indefeasibility of title is a consequence or incident of that registration. Accordingly, the court does not have jurisdiction to rectify the register if to do so would interfere with the registered interest of a bona fide purchaser for value in the interest as registered.
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As far as the court is concerned, when it comes to dealing with competing interests of innocent parties affected by registration, the interests shown in the register prevail and there is no jurisdiction to rectify the title even when, as in the matter before me, the result may appear to be inequitable.
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The significance of all of this is that while principles of equity remain relevant to the determination of issues under the [Land Titles] Act, the opening words of ss. 159 and 160[2] cannot be overlooked. In keeping with the overall objectives of the legislation, the court's ability to invoke or apply equitable doctrines is limited by the rights innocent people acquire under the [Land Titles] Act. [44] Here, as I have said, 258 is an innocent and bona fide purchaser of value. The applicants have established no basis – nor pointed to any authority – upon which the court could act to unwind the sale of the strip to 258. ....
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[46] Here, as I have already said, 258 pursued the purchase of the strip diligently, negotiated in good faith, arrived at an arm’s length price for the transaction, entered into a contract, and laid out the funds to pay for the strip. It relied on the City to execute its processes properly. It engaged in no illegality or other misconduct in executing this straightforward and ordinary purchase of real estate. To undo that transaction now – assuming that it could be undone – would be unfair and disproportionate, especially after so much time has passed: Reynolds v. A.G.C.O., 2019 ONSC 5571 (Div. Ct.), at paras. 83 – 86. . Froom v. Lafontaine
In Froom v. Lafontaine (Ont CA, 2023) the Court of Appeal considers 'deferred indefeasibility', the doctrine that holds (roughly) that while an immediate real property transfer through a fraudster is vulnerable to the original owner, that a further sale (to a 'deferred owner') can nonetheless convey valid title:(2) Deferred indefeasibility does not assist 128
[66] Under the theory or doctrine of deferred indefeasibility, the mere registration of an instrument that is void because of fraud does not cure the defect for the party who immediately acquires the property by means of that fraudulent instrument, but the next person dealing with the property may rely on the fraudulent document and its registration and takes good title. Deferred indefeasibility was explained by this court in Lawrence, at para 67:Under this theory, the party acquiring an interest in land from the party responsible for the fraud (the “intermediate owner”) is vulnerable to a claim from the true owner because the intermediate owner had an opportunity to avoid the fraud. However, any subsequent purchaser or encumbrancer (the “deferred owner”) has no such opportunity. Therefore, in accord with s. 78(4) and the theory of deferred indefeasibility, the deferred owner acquires an interest in the property that is good as against all the world. [67] Before the 2006 amendments, this court had considered the theory of deferred indefeasibility and the LTA in Household Realty Corporation Ltd. In that case, the defendant wife had forged her husband’s signature to create a fraudulent power of attorney, which she used to grant mortgages on the property. The court held that these mortgages were valid and enforceable under s. 78(4) of the LTA, despite their fraudulent origin, because the mortgagees offered good consideration and did not have notice of the fraud.[29] Although the court expressly declined to determine whether deferred indefeasibility applied under the LTA, the result was seen as a rejection of deferred indefeasibility in favour of immediate indefeasibility.[30]
[68] When the 2006 amendments were being debated, some members of the Legislative Assembly spoke of their fear that this court’s decision in Household Realty would open the doors for people to commit title fraud.[31] However, this court soon overturned Household Realty in Lawrence. Justice Gillese, writing for a unanimous five-judge panel, held that Household Realty was wrongly decided.[32] She stated that deferred indefeasibility, rather than immediate indefeasibility or absolute title, was consistent with prior case law and the plain meaning of the statute, as well as being preferable from a policy perspective.[33] As Gillese J.A. noted, a system of deferred indefeasibility “encourages lenders to be vigilant when making mortgages and places the burden of the fraud on the party that has the opportunity to avoid it, rather than the innocent homeowner who played no role in the perpetration of the fraud”.[34]
[69] Notably, Lawrence was heard based on the LTA as it existed before the 2006 amendments because those amendments did not have retroactive effect to the date of the transaction in question. However, the Attorney General of Ontario, who intervened on that appeal, advised that Bill 152, which introduced the amendments, was “intended to make clear that, as of the effective date, the [LTA] operates on the basis of deferred indefeasibility”.[35]
[70] In view of this court’s decision in Lawrence and the legislative history of the LTA, there is little doubt that the Act incorporates the doctrine of deferred indefeasibility and should be interpreted accordingly. The Act operates to put the obligation on the party acquiring the interest in land to ensure that it acquires that interest from the true owner. But, as we will explain, it does not follow that the appeal should be allowed.
[71] 128 argues that it would be consistent with the purpose of deferred indefeasibility for the court to exercise its residual discretion, which was not abrogated by the amendments to the LTA, to protect an innocent party like 128 against fraud. We reject this argument.
[72] While this court recognized in Lawrence that the LTA is predicated on a theory of deferred indefeasibility, it also held that “it is the relevant legislative provisions that must drive the analysis”.[36] 128 argues that deferred indefeasibility, as applied to protect innocent property owners against fraud, was not expressly abrogated by the 2006 amendments, so that the exceptions to s. 78(4) are not limited to those types of fraudulent activity defined in s. 1 of the Act in accordance with s. 78(4.1), relying on the court’s comments in Lawrence that the theory of deferred indefeasibility permits common law principles of real property to remain the law unless expressly abrogated.
[73] For example, while the deferred indefeasibility of title regime typically guarantees that a transfer in favour of a subsequent purchaser or encumbrancer is valid once registered, there may be an exception for a subsequent purchaser or encumbrancer with actual notice of a defect. In MacIsaac v. Salo, 2013 ONCA 98, 114 O.R. (3d) 226, this court endorsed the principle, at para. 39, “that equity continues to have application to claims governed by the Land Titles Act and that the Act has not abrogated equitable principles of actual notice”.
[74] Despite the ongoing role of equity in decisions made under the LTA, deferred indefeasibility and the principles underlying it do not assist 128 in this case. There are four reasons for this. First, this is not a case about whether a purchaser or encumbrancer had actual notice of a defect in title. The discussion in MacIsaac is thus of limited assistance. 128 does not claim that there was a defect in title to the condominium and that Seligman had notice of that defect. To the extent actual notice of a defect may defeat the interest of a bona fide purchaser or encumbrancer for value with notice of the defect, the principle would not apply in this case.
[75] Second, 128’s argument rests on a misunderstanding of deferred indefeasibility. 128 essentially argues that because Seligman was the immediate, rather than deferred, encumbrancer, the mortgage is not valid in her favour. The problem with this argument is that the doctrine of deferred indefeasibility concerns fraudulent, and therefore invalid, instruments. It is not the case that any instrument is invalid as against the immediate person who registers it simply because that person is the first to deal with it. Here, the Legislature, through the 2006 amendments, has delineated what constitutes a fraudulent instrument. For the reasons discussed above, the mortgage is not a fraudulent instrument.
[76] Third, applying the doctrine of deferred indefeasibility in this case would arguably be inconsistent with its own underlying principles. The doctrine is premised in part on the principle that, as between two innocent parties, the party who, by due diligence, has an opportunity to uncover and possibly prevent the risk of fraud ought to be the one who bears it.[37] While the motion judge’s findings of fact in this case are limited, given that his analysis proceeded on the assumption that 128’s allegations are true, it is notable that there is no allegation that Seligman should have been aware of the alleged fraud. To the contrary, in her affidavit evidence, Seligman stated that her counsel conducted a search of the corporation and obtained corporate documents. These documents identified Lafontaine as the director and officer of 128 and did not disclose any obvious fraud. 128 was better placed to avoid this fraud by due diligence than was Seligman.
[77] Fourth, and relatedly, not extending deferred indefeasibility to this case says nothing about any remedies the appellant might potentially have against Lafontaine directly. If 128 is correct that Lafontaine fraudulently revived the corporation and made herself a shareholder, officer and director, 128 might have a valid claim against her for the amounts it owes to Seligman under the mortgage. That, however, is a separate issue from whether the mortgage is valid and enforceable by Seligman.
[78] For these reasons, the doctrine of deferred indefeasibility does not assist 128. To the extent the court has a residual discretion beyond the LTA to invalidate the registration of an instrument, the motion judge did not exercise that discretion to invalidate the mortgage, nor do we. There is no doubt that, of the three parties, Seligman is entirely innocent; it is not clear how the dispute between Froom and Lafontaine over 128 will end.
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