Krook et al. v. Yewchuk et al.

MARTLAND J.:-By an agreement, in writing, dated June 30, 1959, the appellants agreed to sell to the respondents, who agreed to purchase from the appellants, an hotel, situated at Cold Lake, Alberta, with the furniture, furnishings, fixtures and equipment therein, for a total price of $90,000. The initial payment was $20,000, paid partly in cash and partly by the transfer to the appellants of some lands in Edmonton, subject to mortgage. The remaining 1 (1961-62), 36 W.W.R. 547, 30 D.L.R. (2d) 754.

balance of $70,000 was to be paid, with interest at the rate of 7 per cent per annum, by monthly payments of $1,000, commencing on September 1, 1959.

CUX It was agreed that on September 1, 1959, the appellants would transfer clear title to the respondents of the lands on which the hotel was situated and would give a bill of sale of the goods and chattels clear of all liens, charges and encumbrances. The respondents agreed to execute and deliver to the appellants a first mortgage on the lands and premises to secure payment of the balance owing and a chattel mortgage on the other property transferred as collateral thereto. It is clear that these mortgages were to be delivered to secure payment for both the land and the chattels.

Pursuant to the agreement, a transfer of the lands was registered, and on November 5, 1959, a mortgage from the respondents to the appellants, executed on August 31, 1959, was duly registered, securing the payment of the sum of $70,000.

On August 25, 1959, the appellants executed a bill of sale of the goods and chattels in favour of the respondents, who, on August 31, 1959, executed a chattel mortgage on the same goods and chattels, in favour of the appellants, to secure payment of the sum of $70,000. Both these documents were registered on November 4, 1959.

The bill of sale stated that the goods and chattels were transferred in consideration of the sum of $20,000 paid by the respondents to the appellants. There is no evidence as to how this figure was determined, but it is the amount of the initial payment made under the agreement of June 30, 1959. There is no evidence as to the consideration disclosed in the transfer of the land, which was not filed as an exhibit at the trial.

The chattel mortgage recited the indebtedness of the respondents to the appellants in the amount of $70,000 under the agreement for the sale of the hotel, and recited that it was a term of that agreement that that sum should be secured by a mortgage on the land and a collateral mortgage on the personal property, included in the sale. It was stated in the chattel mortgage that it was collateral to the mortgage on the land.

The respondents fell into arrears in respect of the KnooK stipulated monthly payments and the appellants commenced foreclosure proceedings in respect of the lands and YEWctUK the chattels. A judgment was obtained declaring that, as at its date, June 19, 1961, there was due and owing by the Martland J. respondents the sum of $67,954.82 to be realized by sale of the mortgaged lands, goods and chattels, in default of which foreclosure might be ordered. A six months period of redemption was fixed, with a provision that this might be extended to twelve months if the respondents paid to the appellants $750 per month commencing July 1, 1961, with a right to apply for a further extension.

On appeal from this judgment, the Appellate Division of the Supreme Court of Alberta' refused foreclosure of the goods and chattels, holding that the chattel mortgage was invalid.

The main issue in this appeal is as to whether the chattel mortgage was invalid by reason of the provisions of s. 34(17) of The Judicature Act, R.S.A. 1955, c. 164, the relevant portions of which provide as follows:

In an action brought upon a mortgage of land whether legal or equitable, or upon an agreement for the sale of land, the right of the mortgagee or vendor thereunder is restricted to the land to which the mortgage or agreement relates and to foreclosure of the mortgage or cancellation of the agreement for sale, as the case may be, and no action lies (a) on a covenant for payment contained in any such mortgage or agreement for sale,

The Court below has stated its conclusions in the following terms:

It seems to me that the only logical conclusion in relation to the facts of the present case is that it is an action based upon a mortgage of land. While it is true that the original transaction was one in which both lands and chattels were agreed to be sold, nevertheless the chattels were paid for in full, according to the consideration expressed in the bill of sale dated the 25th day of August 1959. Having obtained clear title to the chattels, the appellants several days later gave a chattel mortgage to the respondents expressed to be collateral to the land mortgage. The position of a mortgagee under that chattel mortgage cannot be any higher than if the mortgagors had pledged goods other than those they had obtained under the bill of sale.

The land mortgage contains a personal covenant requiring the appellants to pay to the respondents the sum of 870,000 in lawful money of Canada, together with interest as stipulated in the mortgage.

1 (1961-62), 36 W.W.R. 547, 30 DL.R. (2d) 754.

With respect, I do not agree that subs. (17) of s. 34 of The Judicature Act renders the chattel mortgage invalid. The reasoning in the Court below would appear to be based upon the view of the transaction between the appellants and the respondents expressed in the first paragraph of the portion of the reasons for judgment above quoted; namely, that the chattels had been paid for in full and that thereafter the appellants' position was no different from what it would have been if the respondents had pledged goods other than those which they had obtained under the bill of sale. I do not share this view of the arrangement. The transaction between the appellants and the respondents is set forth in their agreement of June 30, 1959. It was, essentially, for the sale of an hotel business as a going concern, including both land and chattels. It was not intended under this agreement that the initial payment should be applied solely in respect of the purchase of the chattels, leaving the balance relating entirely to the land, and I do not think that the intent of the agreement is affected by the fact that the bill of sale showed as its consideration the amount of the down payment under the agreement. Under that agreement title to the chattels was to be vested in the respondents, but the bill of sale which transferred that title must be considered as being only one stage in the total transaction, which contemplated payment for both the land and the chattels in instalments, with security being given to the appellants for payment in the form of mortgages upon both the land and the chattels.

It is true that both the agreement and the chattel mortgage refer to that mortgage as being collateral to the land mortgage, but, as used in those documents, this does not mean anything more than that the security on the chattels is in addition to that on the land. I do not construe it as et meaning that this security was subordinate to that upon the land. (See Earl Jowitt's Dictionary of English Law, p. 403.) In my opinion, the appellants were possessed of two securities for the respondents' indebtedness, and the question then is as to whether s. 34(17) of The Judicature Act precludes the enforcement of the security on the chattels. It provides that in an action brought upon a mortgage of land the right of the mortgagee thereunder is restricted to the land to which the mortgage relates and to foreclosure of the mortgage. In its context, the word "thereunder" must refer to the mortgage, for it is by virtue of the mortgage, not the action, that the mortgagee has a "right". The section, therefore, limits the right of a mortgagee of land who brings action upon it to the right to the land conferred by that mortgage.

The effect of para. (a) is that in an action on a mortgage of land no action lies on a covenant for payment contained "in any such mortgage". This takes away the right to bring action on the covenant for payment in a land mortgage. I do not find anything in this provision which forbids a debtor to give security for a debt on property in addition to a mortgage on land or which forbids the creditor to enforce such security. It derogates from the common law rights of a mortgagee of land and, consequently, I see no reason to read into it any intention beyond what is to be determined by a strict consideration of the words actually used. The cases mentioned in the portion of the judgment of the Appellate Division, previously quoted, do not deal with this issue.

Macdonald v. Clarkson' dealt with an earlier provision The Judicature Act, R.S.A. 1922, c. 72, s. 37(o) (i), which stated that, unless otherwise ordered by the Court or a judge, a judgment in an action brought on a mortgage land should provide for realization, in the first instance, pro tanto, by a sale of the mortgaged land. A mortgagee, who had transferred his mortgage to the plaintiff, with a covenant to pay the mortgage if the mortgagor made default, was sued on that covenant. The mortgagor was a defendant in the same action to a suit brought in respect of the mortgage. The case held that the action was an action on a mortgage, within the subsection, and that personal judgment could not be obtained on the covenant for paye. ment until after sale of the land.

This decision was applied in Holland-Canada Mortgage Co. Ltd. v. Hutchings' in an action brought on a bond by which the defendant became a surety for the repayment of a mortgage. It was held that he had the right to compel the plaintiff to add the mortgagors as parties to the action. British American Oil Co. Ltd. v. Ferguson related to the application of the provisions of the predecessor of the subsection involved in the present case, but related to an action on a bond given by the individuals who, as a partnership, had agreed to purchase lands, whereby they were obliged to pay the amount of the purchase price if the partnership failed so to do.

Crang v. Rutherford' dealt with the earlier provision of The Judicature Act, and involved a "guarantee" by the mortgagors to pay the mortgage debt, without the mortgagee having to resort to foreclosure. This covenant was given in consideration of an extension by the mortgagee of the time for payment of the mortgage debt. It was held that the action, so far as it was based on the so-called guarantee, was an action brought on a mortgage of land, within the section.

Each of these cases was an action on a separate covenant for the payment of the amount payable either under a mortgage or an agreement for sale of land. In two of them the covenant was given by a surety. In the other two it was given by the debtors themselves. The reasoning in these cases may be summarized in the following extracts from two of them.

In the case of Macdonald v. Clarkson, at p. 692, Clarke J.A. said:

S.C.R.

debt upon the covenantors. Certainly an action against the mortgagor alone Kn-upon the covenant in a mortgage under The Land Titles Act would be an action brought upon a mortgage and if the covenants of the appellant were contained in the mortgage it would be an action upon the mortgage. YEWCHUK What difference does it make that the covenant is contained in another instrument? It is still a covenant to pay the mortgage debt.

Martland J.

In British American Oil Co. Ltd. v. Ferguson, at p. 110, W.

It seems to me that the whole transaction and the only transaction between the parties was one relating to the sale of land. This transaction, at plaintiff's insistence, was expressed in two documents, and the two together constitute the agreement covering the sale of the land. They should be read and considered together.

In vol. II, Corpus Juris (Secundum), under the title "Bonds," para. 43, the following proposition, for which a number of authorities are cited, appears:

It may be stated generally that, where a bond and another contract or instrument relate to and form one and the same transaction or the bond refers to such other instrument or is conditioned for the performance of specific agreements set forth therein, such instrument with all its stipulations, limitations, or restrictions becomes a part of the bond, and the two should be read together and construed as a whole. In form, the liability of the defendants in this action arises under the obligation imposed by the terms of the bond, but in substance it is an action based on an agreement for the sale of land and its purpose is to recover the purchase-price of the land. When the two documents are read and construed as a unit, the action on the bond comes within the scope of The Judicature Act, RSA, 1942, ch. 129, sec. 36 (o), as completely as would an action based on the purchaser's covenant to pay.

In another decision of the Appellate Division, in the case of Martin v. Strange and Stocks Co-op. Credit Society', the Court expressly reserved the question of the applicability of the predecessor of the present subsection in respect of security collateral to an agreement for sale of land.

In my opinion the taking of the chattel mortgage in the present case was not an indirect method of attempting to enforce the personal covenant contained in the land mortgage, nor was this action, in so far as it sought foreclosure of the chattel mortgage, an action based on a mortgage of land, whose purpose was to recover the debt referred to in the land mortgage. The essence of the present transaction is that it consisted of a sale of a totality of assets, consisting partly of land and partly of chattels, under the terms of which the vendor was to be entitled to security on all assets sold. The chattel mortgage was a security upon a specific 11943] 2 W.W.R. 4 DL.R. 367.

part of those assets and its enforcement is not, in my view, merely an indirect attempt to enforce the covenant for payment contained in the land mortgage.

The respondents also contended that the Supreme Court of Alberta did not have jurisdiction to foreclose the chattels secured by the chattel mortgage because of the provisions of The Seizures Act, R.S.A. 1955, c. 307, and of The Conditional Sales Act, R.S.A. 1955, c. 54. In view of the decision of the Appellate Division on the first point, it did not have to deal with this issue.

The former statute, as its title indicates, is "An Act respecting Executions, Seizures under Writs of Execution, and Seizures under Powers of Distress". Clearly the present case does not relate to an execution or a seizure under a writ of execution.

"Power of distress" is defined in s. 2(h) as follows: "Distress" is defined in s. 2(d):

Section 22 provides:

The Act contains provisions as to the procedure to be followed where goods have been seized under a distress warrant.

The Act restricts the appellants' rights regarding the taking of possession of the chattels mortgaged under power of distress. It does not, however, expressly or by implication, purport to prevent proceedings for the foreclosure of a chattel mortgage.

I agree with the statement made in Barron & O'Brien on "Chattel Mortgages & Bills of Sale", 3rd ed., p. 128, that "It seldom happens in practice that a mortgagee of personal chattels seeks the assistance of the Court by foreclosure, yet such a course is open to him." In my opinion the Supreme Court has jurisdiction to entertain such proceedings and there is nothing in The Seizures Act which precludes it from so doing.

The provisions of The Conditional Sales Act on which Jthe respondents rely are the following:

Proceedings for Purchase Price

(1) When any goods or chattels are hereafter sold and after delivery the vendor has a lien on them for all or part of the purchase price, the vendor's right to recover the unpaid purchase money, if he seizes or causes the said goods or chattels or a portion thereof to be seized under a conditional sale agreement, is restricted to his lien on the goods or chattels and his right to repossession and sale thereof, in which case no action is maintainable for the purchase price or any part thereof notwithstanding anything to the contrary in any other Act or in an agreement or contract between the vendor and purchaser.

(2) Instead of seizing or causing to be seized the goods or chattels or any of them under the provisions of the conditional sale agreement, the vendor may elect to bring an action against the purchaser for the purchase price or part thereof of any of the goods or chattels so sold.

(3) If the said goods or chattels or any of them are seized under an execution issued pursuant to a judgment obtained in the said action, then the vendor's right to recover under the said judgment in so far as it is based on the purchase price of the said goods or chattels is restricted to the amount realized from the sale of the said goods or chattels so seized and the said judgment, to the extent that it is based upon the purchase price of the said goods or -chattels and the taxed costs, shall be deemed to be fully paid and satisfied.

(4) This section applies to all instalment sales whether effected by way of a conditional sale agreement or lien note or by way of an agreement or arrangement made at the time of sale or subsequent thereto whereby the purchaser gives to the vendor a chattel mortgage or bill of sale covering the whole or part of the purchase price of the goods or chattels sold.

If, by virtue of subs. (4), the provisions of s. 19 are applicable in the present case to the agreement of June 30, 1959, I do not see how, in the present proceedings, that section does anything more than to limit the remedy of the appellants, in respect of the chattel mortgage, to the chattels mortgaged, just as s. 34(17) of The Judicature Act limits their rights, in respect of the land mortgage, to the land. The appellants are not, in these proceedings, seeking anything more than foreclosure of the land and of the chattels. They do not ask for a judgment over in respect of any deficiency and the judgment given by the learned trial judge does not purport to give them anything more.