Instructor’s Manual

Chapter 8
Property
Teaching Suggestions

I usually devote about an hour to property. I don’t deal too much with personal
property since it has already been discussed under the topics of sale of goods and
personal property security. However, I spend time at the start explaining how personal
property is distinguished from real property. As well, I review the distinction between
tangible personal property (goods or chattels) and intangible personal property (a
chose in action). I also point out that intellectual property is a subset of personal
property and will be discussed as a separate topic.

I then spend a few minutes on found property pointing out that the finder has good
title against anyone except those who have prior claim such as the original owner. I
then distinguish between a gratuitous bailment and a bailment for value. After
describing the various forms of bailment I stress that the standard imposed on the
bailee is to take reasonable steps to protect property in his care.

I begin the discussion of real property by explaining where the idea of a fee simple
comes from and pointing out that ownership includes air above “ground level” and the
land beneath that is practically usable by the owner and note exceptions. I explain
what happens when a life estate is given. Leasehold interests also give exclusive
possession but for a specified period of time. A periodic tenancy is for a specific time
(one month or one year) but is automatically renewable unless notice is given to
terminate.

I then explain the nature of an easement, which does not convey any right to exclusive
occupation. A right of way is a specific type of easement where someone is given the
right to cross over the property to get to another property but not to stop on the
property in the process. A restrictive covenant limits the way a property can be used
or what can be built there. This interest runs with the land and binds future owners if
it is worded in a negative way. I explain that a building scheme is similar, but it binds
all of the homes in a subdivision. A building scheme resembles zoning but is usually
imposed by the original developers to control future development and protect the
owners’ interest in how future development may be done.

I then look at the distinction between joint tenancy and tenancy in common. With a
tenancy in common each owner has an undivided interest in the property. If one
owner dies that deceased owner’s interest goes by way of inheritance to their heirs.
With a joint tenancy the owners have a shared ownership of the property and when
one dies the other(s) as survivor(s) takes over the whole interest. This is called the
right of survivorship. I also discuss the difference between a land registry system and
a land titles system in place in various parts of Canada. With the land registry system
the registry is a depository of documents that determine the rights of the parties. In a
land titles jurisdiction the land title officers inspect the transfer documents and then
issues a certificate of title. That certificate determines the rights of the parties with
respect to that property.

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I deal with landlord and tenant briefly by pointing out that there are few regulations
with respect to commercial tenancies and the relationship depends on the contract
(lease) agreed to by the parties. In contrast, I explain that for residential tenancies all
jurisdictions have passed legislation that is essentially consumer protection legislation
controlling primarily what landlords can and can’t do. This varies from province to
province but covers such things as condition of the premises, rent controls, how often
rent increases can be imposed, security deposits, notice periods with respect to
termination and restrictions on a landlord’s right to enter and inspect the property.

When I discuss mortgages I first explain that this is a method of providing security to
a creditor for a debt owed, the transfer of the title to the creditor being the security. I
explain the historical development pointing out what original principles govern the
law today. I point out that it was the Courts of Chancery that recognized that when the
title to the property had been transferred as security for debt, the debtor (mortgagor)
still had an equity of redemption in the property, which was a right to redeem that
property by paying what was owed even after default. The Court of Chancery also
recognized the creditor’s (mortgagee) right to have a time limit set with respect to that
equity of redemption (the process of foreclosure). I then point out that the mortgagor
retaining an equity of redemption can use that as security for a second mortgage.
When there is a default, the second mortgagee usually asks the court for an order for
judicial sale so that his interest is not foreclosed out by the first mortgagee. This sale
takes place within the period ordered by the court to allow the mortgagor to redeem
the property (redemption period) and as a result effectively reduces the period the
mortgagor has to redeem the property.

I don’t usually have time to deal with environmental matters other than stress that
there are now many environmental restrictions and regulations that control the use of
property and impose obligation on the owners and users to maintain land, air and
water quality. These regulations are found at the federal and provincial level as well
as to a limited extent based on the common law.

Finally, I deal briefly with insurance. The key is to understand the nature of an
insurable interest. The insured must have a sufficient financial interest in what is
being insured so that if a triggering event takes place, he will suffer a loss and the
insurance benefit will be compensation for that loss and not a windfall. It is important
to match the amount of insurance to the value of the property, neither over nor under
insuring.

With life insurance the extent of the insurable interest is deemed to be whatever the
life has been insured for.

I also go over the insurance company’s right to salvage and subrogation. That is if
they pay out an insurance claim for the loss of a vehicle they have the right to salvage
the parts from that vehicle or rebuild it to recover some of what they have paid out.
Similarly, if they pay out for such a loss they also have the right to step into the shoes
of the insured and sue the person who caused the accident. This is called subrogation.
I also mention bonding, which is like insurance and provides coverage when the
bonded person does something wrong, but the bonding company has the right to go
after the person bonded to recover their loss. Often an employee or agent who is in a
trusted position handling valuables or confidential information will be bonded against

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theft or other wrongdoing. This is a fidelity bond. Often a construction company will
be required to put up a bond to ensure that they do a good job of what they have
contracted to do. If they fail to do a proper job, the bonding company will be called on
to honour the bond and compensate for the damages. This is referred to as a
performance or surety bond.

Chapter Summary

Real property consists of land and buildings

Personal property may be tangible or intangible
Property law explains your rights to possess and use something as against the rest of
the world

Personal Property
Tangible personal property is called chattels or goods
Possession gives right to goods over all but someone with prior claim
Bailment involves one person holding goods of another
Standard of care higher where property held by bailee “for value” that for gratuitous
bailment
Where bailment for value, duty is determined by contract or industry standards
Duty of common carriers and innkeepers now determined by statute
Bailee for value can hold goods when not paid
Personal property can become part of real property when affixed to it

Real Property
Real property above and below ground is limited to what the holder can reasonably
use
Mineral rights usually withheld by crown
Fee simple estate equivalent to ownership today
Governments have power to control or acquire land
Note obligation not to interfere with neighbours
Life estate lasts for life of grantee and then reverts back to grantor
Leasehold estates are for specified time but may also be periodic
Easement gives others the right to use the land
Right of way is a type of easement, giving someone the right to cross property
Restrictive covenants must be negative and restrict how property can be used
Restrictive covenants bind future owners
Building schemes are like restrictive covenants but bind whole subdivisions
A licence does not convey an interest in land
Joint tenancy includes right of survivorship
Tenancy in Common does not include the right of survivorship
A joint tenancy can be changed to a tenancy-in-common, called severance
Statutes now allow fee simple separated vertically and horizontally: condominiums
Condominiums involve shared property and rules
Special levy for unusual expenses
Cooperatives involve people owning a share in the whole property
Option to purchase holds offer to sell open for specified time
Options often used by developers and speculators
Mortgages on property used to secure loan

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Registration
Registration protects creditor’s security against third party
Land Registry is depository of documents
In Land Title jurisdictions title is guaranteed by certificate
Transfer by deed in land registry jurisdiction
Criminal offence to falsify or conceal title documents
Form submitted to transfer title in Land Title jurisdiction
Right to land may be obtained by adverse possession or prescription in Land Registry
jurisdiction
Right to land cannot be obtained by adverse possession or prescription in a Land Title
jurisdiction

Mortgages
Mortgage involves transfer of title to creditor as security
Equity of redemption allows debtor to regain property even after default
Foreclosure puts time limit on debtor’s right to redeem
Final order ends equity of redemption
Equity of redemption can be used to secure further debt
Second mortgagee must be prepared to pay out first
Mortgage doesn’t actually transfer title in land titles jurisdiction
The exercise of the power of sale/judicial sale shortens the redemption period
A less common remedy involves taking possession of the property

Landlord and Tenant

A lease conveys possession of property for a specified period
Periodic leases involve automatic renewal until notice
Statute of Frauds require longer leases to be evidenced in writing
Frustration applies to leases in some jurisdiction by statute
Leases are binding on a subsequent purchaser if registered
Agreement determines obligations in commercial lease
Landlord must deliver vacant possession and quiet enjoyment
Responsibility for repairs is subject to agreement
Tenant must use premises as agreed
Commercial lease terminated at end of specified lease period
Where a periodic lease is involved, one clear rental period notice is required
Tenant must comply with agreement and may be required to pay utilities and taxes
In the event of default, the landlord can evict tenant
In the event of default, landlord can seize tenant’s goods
If tenant defaults, landlord can sue for rent for remaining term
Landlord has no obligation to mitigate
Injured party can seek damages or injunction
Normally neither party is required to pay for normal wear and tear
Court may authorize tenant to pay less rent to pay for repairs
Lease also may provide right for tenant to renew, to sublease, or assign
Tenant’s fixtures can be taken with them when they go, if they've caused no damage
Commercial tenancy statues normally allow parties to determine lease obligations

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Residential tenants
Legislation creates protection for residential tenants
Standard form leases often required
Landlord obligated to make general and emergency repairs
Tenant are obligated to pay for damages they cause
Neither party required to repair normal wear and tear
Landlord restricted from entering premises
Tenant can sublease or assign with landlord’s permission
Amount and purpose of security deposits restricted and must be returned with interest
Rent increases normally limited to one per year with substantial notice
Notice period for landlord to terminate lease is extended
Tenant can give notice when rent is paid in some jurisdictions
Landlord must maintain services
Landlord may give reduced notice where tenant is in default
Landlord cannot seize tenant's property and must mitigate loses
Statutes establish tribunals to hear complaints
Frustration applies to residential tenancies
Property owners and occupiers responsible for immoral acts on property

Environment
Increasing environmental regulation has become important concern of business
Riparian rights are the right to continued quality and quantity of water flow
Riparian rights are often overridden by statute
Nuisance can be used to stop pollution
Common law is not efficient in protecting the environment
Environmental regulation comes from all levels of government

Federal regulations
Federal environmental regulation may apply even to local projects
Statute authorizes government department to regulate
Controls imposed and whistle blowers protected
Enforcement officers given significant powers of inspection and enforcement
Spills must be reported and remedied
If a company fails to act, costs can be imposed on the violator
Significant penalties are imposed on company and its directors
In most cases due diligence is available as a defence
Limited civil remedies are provided

Provincial Regulation
Provinces also require environmental assessment process
Provincial departments enforce environmental protection provisions
Municipalities also have power to impose controls on business
Overlap of regulation poses a serious problem for business

Insurance
Insurance involves paying a premium to spread the risk
Insurance companies will often reinsure to cover their risk
Insurance agents represent the company whereas insurance brokers represent the
insured

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Insurance policies may include riders or endorsements that modify or add to the
original terms
Take care to read the contract, especially the fine print
An insured must have an insurable interest in order to recover for a loss
Shareholders now have an insurable interest in a company’s assets
Be careful not to over insure
Be careful not to under insure
Insurer has right to salvage what they can from the loss
Once paid, insurer assumes insured’s right to sue
Insurance is also available to cover business downtime
Liability insurance covers injury or loss caused to others
Bonding is available to cover wrongful acts of employees or failure to perform
contractual obligations
Life insurance pays beneficiary when insured dies
Businesses often obtain life insurance on key personnel
Health and disability insurance are also common
A comprehensive policy covering all or many risks may be the best solution

Questions for Review

1. Distinguish between real property, personal property and intellectual property.

Distinguish between a chattel and a chose in action. Explain how personal property
can be used to secure a loan.

Answer: Real property refers to land and buildings and things affixed to it. Personal
property consists of tangible, moveable chattels and intangible assets called choses in
action. Intellectual property is a subcategory of personal property. As noted in
Chapter 5, personal property can be provided as additional loan security through the
provisions of the Personal Property Security legislation in place in each province and
territory. If the loan is not repaid, the personal property can be seized and sold with
the proceeds used to pay any loan shortfall.

2. Explain how the expression “finders keepers” relates to property law. Explain
who is entitled to goods found in the public or private part of a building.

Answer: With personal property, the finder of goods in a public part of a building has
good title against all but someone with a valid prior claim (e.g. original owner), hence
“finders keepers”. If it is found by in a private part of the building the property goes
to the property owner.

3. Explain bailment and how the obligations of the bailee varies when it is a
gratuitous bailment for the benefit of the bailee or for the benefit of the bailor. What if
the bailee is an innkeeper or common carrier?

Answer: Bailment takes place when one person is given and accepts possession and
care of chattels belonging to another. If that bailment is for the benefit of the bailee,
the obligation of the bailee to care for them is very high but if for the benefit of the
bailor that obligation is reduced. If the bailee is an innkeeper or common carrier the
duty and standard of care is set out in applicable legislation passed specifically for
such parties and situations.

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4. Explain what is meant by a fee simple estate in land and what limitations there
are to a person’s right to that land. How can personal property become real property?

Answer: Fee simple is the closest thing to ownership of land that we have. It is limited
in the sense that the state has the right to restrict what is done on that land and in some
circumstances to expropriate it for community projects. Goods can become part of the
real property when they are affixed or attached to that real property for the purpose of
improving the use of the real property.

5. What is the nature of a life estate? Who is entitled to the reversion and what
obligations are imposed on the holder?

Answer: The life estate divides the fee simple so that the person given the life estate
has the right to possess and occupy the property during their life time and the
remainder will go to another (the remainderman) upon death. Alternatively, the right
to the property will revert to the person or estate of the person who created it (the
reversion). During the time a person holds the land by way of a life estate, they must
take reasonable steps to maintain the property (including any buildings on the land)
and not take any steps or allow any other people to devalue the property: e.g. take
away topsoil or valuable minerals or deposit toxic materials on the land.

6. Distinguish between an easement, a right of way, a restrictive covenant, and a

building scheme.

Answer: An easement involves a right to cross over or intrude onto another’s land.
Common easements include permission for utilities to place a power line, water, or
sewer line permanently crossing over or under one property in order to service
another or to allow one building to permanently overhang another. When the intrusion
is not permanent, but is simply the right for a vehicle or individual to cross over one
property to get to another, it is called a right of way. A restrictive covenant is a
restriction on what can be built on the land or what it can be used for. If the covenant
is expressed in negative terms it runs with the land and is binding on future owners. A
building scheme is the same idea but is binding on a whole development of properties.

7. Compare a joint tenancy and a tenancy in common, and explain severance and
its effect on such tenancies.

Answer: With a joint tenancy both parties own the whole property and if one dies the
other retains ownership of the whole property thus acquiring the exclusive right to it
by survivorship. With a tenancy in common both parties only have an undivided
interest and if one dies the deceased’s portion of the property goes to his heirs.
Severance is the process of changing a joint tenancy into a tenancy in common, which
eliminates the right of survivorship.

8. Explain the nature of a mortgage and how it is used to secure a loan. Identify
the parties to the mortgage.

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Answer: In a mortgage arrangement the owner of the property (the mortgagor)

temporarily conveys the title of his property to the creditor (the mortgagee) as security
for the loan. In the event of a default the mortgagee can claim the property or force its
sale with the proceeds being used to pay the loan.

9. Distinguish between the effects of registration in a land registry and a land

titles jurisdiction, and explain why registration of interests in land is important. How
does a mortgage affect the title in these jurisdictions?

Answer: Registration in a land registry district just notifies the parties of the
documents that can affect title. The parties still have to determine the effect of those
documents. In a land title jurisdiction registration involves the creation of a certificate
of title that determines the rights of the parties. In a land registry system the title is
transferred to the mortgagee as security, whereas in a land titles system the title is not
transferred but the rights created are the same.

10. Explain what is meant by adverse possession and prescription, and the role
these principles play in a land titles and land registry jurisdiction.

Answer: Adverse possession takes place when someone openly (notoriously) occupies
property and the owner does nothing about it for 20 years. After that they acquire title
by adverse possession. Prescription is similar in that a person openly crosses property
or makes some other use of it and after 20 years a right or easement to use that
property is created by prescription. These two ways of acquiring a right to land can
only happen in a land registry jurisdiction, not a land title jurisdiction.

11. Describe an equity of redemption, foreclosure, and the redemption period.

Why are they important to mortgage transactions?

Answer: In a mortgage situation the creditor/mortgagee has title. But the owner
retains the right to get the property back even after default. This is called the equity of
redemption. Foreclosure is an application by the creditor/mortgagor to end this right
to redeem. The redemption period is the period the court designates within which that
right to redeem must be exercised or be forever foreclosed. Foreclosure is a court
order to end the redemption period.

12. Explain what is meant by a lease and distinguish the lease from other types of
interests in land. What is meant by a periodic lease and how is it ended?

Answer: The lease gives an exclusive right to land that is for a specific period of time.
An easement or right of way allows a person access to or through a property but does
not allow that person to exclude others as a leasehold interest does. A periodic lease is
automatically renewed at the end of each period, e.g. monthly until notice is given to
end it.

13. Summarize landlord’s and tenant’s obligations with respect to commercial

tenancies and the effect of lease terms on those obligations. Indicate the amount of
notice that must be given by the parties to terminate the tenancy or to increase the
rent?

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Answer: Repair obligations are usually set out in the lease agreement. Landlord must
deliver vacant possession and quiet enjoyment; tenant must pay rent and use the
property properly as per the agreement. Tenant must pay for any damage he does
more than simple wear and tear. Unlike residential tenancies, there are no statutes in
Canada that dictate terms as to notice or rent increases. Rather, if the parties want
such terms, they must be included in the lease agreement.

14. How do most residential tenancy statutes modify the obligations of the parties
to make repairs to the premises? Explain how the rights of the landlord to enter
residential premises have been restricted.

Answer: Tenants must repair what they damage. Landlords must make major repairs.
There is no obligation on a tenant to repair normal wear and tear. The landlord can
only enter during daylight hours after giving specified notice

15. Explain the nature of a security deposit and any restrictions on how much can
be taken and what it can be used for.

Answer: Security deposits are only for rent or for damage depending on province.
Amount limited also varies with province, e.g. 1/2 of one month’s rent

16. Explain the landlord’s obligations with respect to services provided during the
term of the tenancy. What can a landlord do when a tenant defaults in a residential
tenancy?

Answer: The landlord’s services must be maintained during the tenancy. If the
landlord fails to do so, the tenant can apply to the residential tenancy board for an
order requiring the landlord to do so. If the tenant defaults the landlord can ask him to
leave or bring an application to the residential tenancy board for the termination of the
tenancy and if necessary the eviction of the tenant. The landlord cannot seize the
property of the tenant for unpaid rent in a residential tenancy.

17. How does federal legislation with respect to the environment become
important for landowners and business people?

Answer: Most local streams are fish bearing or potentially so and so the regulations
of the Fisheries Act and other federal legislation apply.

18. Explain the role of the Canadian Environmental Protection Act and how its
objectives are realized.

Answer: The Act provides for research (gathering, compilation, storage, evaluation,
and publication of information and data); setting of standards, guidelines, and codes
of conduct; monitoring and inspection; identification of prohibited and controlled
activities; and the enforcement, remediation, and imposition of penalties when
offences and violations take place.

19. Explain the role of enforcement officers appointed under the Canadian
Environmental Protection Act and how they can interact with business.

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Answer: Officers can enter and inspect premises, stop and inspect conveyances to
take samples, detain vehicles and material to make tests, and examine records and
computers. They can issue environmental compliance orders, which may involve,
among other things, the requirement that a person refrain from or stop doing
something in contravention of the Act. Finally, they can charge individuals with
offences where violations do occur.

20. Who can be charged with an offense under the Canadian Environmental
Protection Act?

Answer: Anyone in Canada that commits one of the designated offenses under the Act
including individuals, companies and officers and employees of that company.

21. Explain what is meant by an insurable interest, and distinguish between an

insurance agent and a broker.

Answer: A broker represents the person seeking insurance and the insurance agent
acts for the insurance company supplying that insurance. An insurable interest is some
interest in the thing insured so that if the feared event happens the insured will suffer a
loss. Thus the insurance payment is compensation, not a windfall.

22. Explain the nature of the insurance policy, a rider, an endorsement and
reinsurance. Summarize the different types of insurance that are available to
businesses.

Answer: Insurance policies usually take the form of a standard form contract dictated
by regulations. A rider provides added coverage related to the unique needs of the
particular customer. When modifications to an existing policy are needed, an
endorsement outlining the specific change is added. Liability insurance covers
negligence caused to a customer or the public, property insurance covers losses to
buildings and assets (may have to be specified as fire, loss, theft etc.), life insurance
of partners and key people in the organization may be taken out. Business interruption
insurance may also be obtained.

23. Distinguish between liability, property, and life insurance. Explain the
difference between whole life and term insurance, indicating why life insurance might
be important for a business or for professionals to acquire.

Answer: Liability insurance covers accidents caused by the employees of the business
to customers, other businesses, and the public. Property insurance covers loss to
property, both real and personal. Life insurance provides a payment upon the death of
the insured. Term insurance is intended to merely provide a specified benefit when a
person dies whereas whole life insurance has an investment aspect to it and a benefit
will be provided even where the insured doesn’t die. A business might take out life
insurance on key personal to pay for assistance or compensate for the disruption and
loss caused if they were to die.

24. Distinguish between a bond and insurance. Explain the difference between a
fidelity bond and a surety bond.

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Answer: Instead of accidents, bonding can cover wrongful action such as theft on the
part of the person bonded. A fidelity bond covers wrongful conduct by employees. If
an employee steals or cheats clients, the bonding company will provide compensation,
but retains the right to go after the employee to recover what they have to pay out.
Sometimes a construction company will be required to put up a bond to ensure they
will perform as required in a contract. This is a surety bond and guarantees
performance of a contract rather than compensation for wrongful conduct.

Questions for Further Discussion

1. There is a considerable difference between the laws with respect to residential and
commercial tenancies. Most of the statutory changes favour the tenant and have led to
much complaining by landlords about the difficult position they find themselves in.
Do you feel that the changes introduced by statute have unfairly interfered with what
should be a relatively simple commercial relationship? Is this another instance of
government imposing inappropriate regulation that unfairly restricts a landlord’s right
to manage his or her property? Consider this as a form of consumer protection
legislation and ask what problem it was intended to solve, whether an adequate
solution has been arrived at, and whether the solution creates more problems than it
solves.

Comment: This deals with the question of interference in the freedom to contract
between landlord and tenant. Is the approach taken really fair to both parties or does it
favour the tenant? Is that a good idea? Look at the laws in place in your jurisdictions.
The last part of this question, whether the statute effectively solves the problem it was
designed to deal with, is a very good way to get a discussion going that goes right to
the heart of the matter. The problem obviously is control of abusive landlord practices
which take advantage of less sophisticated tenants. Do the controls imposed go too
far? Are there any provisions that protect landlords from abusive tenants?

2. Bailment involves one person putting his or her personal property into the care of
another. The responsibility to look after that property is often limited in the contract
creating that relationship. Do you think that a party agreeing to be responsible to look
after another’s property, either in the process of repair, storage, or otherwise, ought to
be able to contract out of their responsibilities with an exemption clause? This
question really is much broader. This is because, whenever an exemption clause is
included in any contract, one party is severely disadvantaged. Should the parties to
contracts, especially where the bailment of goods is involved, be able to contract out
of such basic responsibilities? In your discussion, consider the often unequal
bargaining power of the parties, the consideration between the parties and standard
form contracts.

Comment: This asks again the question as to whether contracting parties ought to be
free to put exemption clauses into their contract that favour one side at the expense of
another, especially where one of them might be an unsophisticated consumer. In the
area of bailment these exculpatory clauses exempt or reduce the bailee’s
responsibility to care for the goods: e.g. “not responsible for goods left”. The other
contracting party may not be aware of the significance of the term even where it is
specifically brought to his attention. On the other hand, by imposing restrictions are
you taking away the freedom of the parties to contract or to put in whatever they

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want? Remember that the price and charges imposed will reflect the risks. The
presence of an effective exculpatory clause will, to a large extent, determine the
extent of that risk.

3. Consider the laws that have been imposed on individuals and businesses to
control pollution and reduce waste. Is this a reasonable demand? Consider how these
policies might affect Canadians who move their businesses abroad, perhaps to evade
these costly requirements. Who should pay for the damage caused by pollution and
the costs of cleanup, including “brownfield” sites?

Comment: This again is a question of balancing of interests. In the past very little
attention was given to such questions and other than a few ineffective common law
rules very little was done to check pollution. Today we are reaping the consequences
in terms of air and water quality as well as the problems associated with global
warming. The more regulations we impose the costlier it becomes to do business here
and many businesses relocate offshore. That hurts our economy. On the other hand if
we reduce those regulations that adds to the pollution here. More recently, many
Canadian jurisdictions have enacted legislation to make all owners of a property, past
and present, share financial responsibility and liability for the cost of cleanup. Past
owners must prove they had no role in the accumulated pollution to avoid that
liability. The question remains: where is the balance?

4. A serious problem that often arises for an insured claiming on an insurance

policy is the requirement that all information be accurate or that any changes in
circumstances be communicated to the insurance company. Benefits have been denied
when the loss takes place when the premises were left vacant, where the use of the
premises has changed, or where the information on the application is accidentally or
knowingly incorrect -even if the information has nothing to do with the event giving
rise to the claim. Discuss whether such an approach is too harsh and gives too much
advantage to the insurance companies and whether consumers are adequately
protected from abuse.

Comment: Insurance contracts are considered to be contracts requiring the exercise of

good faith between the parties and absolute truth and disclosure of all pertinent
information is considered to be an essential part of this relationship. In many
jurisdictions statements of fact that is incorrect or where important information is not
disclosed that might affect the rates will defeat the contract and make it
unenforceable. But when this is done innocently and the insured has suffered a loss,
should the insurance company be allowed to avoid their obligation to pay the claim?
Even if the misinformation or failure to disclose was done deliberately if it didn’t
relate to the reason for the loss should it affect the claim? The other side is that the
insurance company may have charged higher rates or even refused coverage if the
truth had been disclosed. So they are being cheated if this is allowed. Maybe the
harsher approach should be restricted to business insurance where both parties are
somewhat sophisticated in these kinds of transactions. Where consumers are involved
and failure to disclose or misinformation might be better tolerated with rates simply
adjusted accordingly.

Cases for Discussion

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1. Backmirzie v. 1500569 Ontario Ltd. Ont. S.C.J., Howden, J., Dec. 06/06,
Digest No. 2634-018 [2006] O.J. No. 4831; 153 A.C.W.S. (3d) 982

Parvanh Backmirzie left two valuable Persian rugs with La Moquette Fine Rugs and
Furnishings to be sold on consignment. But they were not sold and while waiting to
be picked up by Backmirzie they were stolen during a break-in at the store. This
action is brought by Backmirzie against the company owner of the store demanding
compensation for the loss. Explain the basis of this action, the arguments that could be
advanced by both parties and the likely outcome. Would your answer be affected by
the additional information that several days before the break-in the proprietor of the
store phoned Backmirzie saying she should pick up the rugs as she had observed two
men in the store looking at them and they appeared to be “casing” the store and she
feared a break-in. But she delayed picking them up and the rugs were stolen.

Decision: As the rugs had been left at the store to be “sold on consignment” by which
the store would have received a portion of the sale proceeds, the Court ruled that the
store held the rugs as a “bailee for reward”. In doing so, the Court accepted
Backmirzie’s contention that the store was required to exercise “reasonable care” in
storing and protecting the rugs until they were sold or retrieved by Backmirzie. (It is
important to note that the obligation to take reasonable care does not make the bailee
a guarantor or insurer as against loss.)

Ultimately, the Court accepted the store’s contention that they had exercised
reasonable care as:
• The store was always locked after store hours;
• The store moved the carpets to a place behind other carpets in order to
prevent visibility from the street;
• The store was equipped with a working alarm system which was activated
when the rock went through the window and the police responded within 5
minutes;
• The store staff noticed the suspicious activities of two men prior to the theft
and alerted Backmirzie to her concerns, asking her to remove the goods; Ms.
Backmirzie agreed to do so but failed to act with immediacy;
• the store had not insured the goods against theft but neither had the plaintiff
and there was nothing in their contract requiring the defendant to insure the
goods.

2. Lawrence v. Maple Trust Company 2007 Ont. C.A. 74 (CanLII) (2007), 84

O.R. (3d) 94, (2007), 278 D.L.R. (4th) 698, 220 O.A.C. 19

Susan Lawrence owned a home in Toronto. A person, posing as Ms. Lawrence, went
to a lawyer with a forged agreement to purchase and had the property transferred to
another person who called himself Thomas Wright. He obtained a mortgage for $291
924 from Maple Trust Company, which was duly registered against the property. An
existing mortgage on the property in favour of the TD Bank was paid off and the
imposters took the remainder. Maple Trust had no knowledge of the fraud and had in
fact lived up to their due diligence requirements with respect to the transaction. Ms.
Lawrence was also innocent, having no idea of what had happened. This happened in

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a land titles jurisdiction. Who should bear the loss in this situation? Explain the
arguments on both sides and the likely outcome.

Decision: The Trust Company contended that their mortgage should be deemed valid
as they inspected the registry and acted on the fact that the property was registered in
the name the fraudster used (Thomas Wright) and the registration scheme is intended
to allow lenders to rely on the registration details in carrying out their business. Ms.
Lawrence contended that the fact of registration cannot overcome transactions which
are fraudulent at the outset. The Court went through a detailed analysis in deciding
how far the fact of registration should prevail in Ontario. Ultimately, the Court held
that Wright never took valid title to the Property because he obtained it by fraud. He
was, therefore, not a registered owner. In accordance with s. 68(1) of the Act, only a
registered owner may give valid charges on land. Maple Trust was an intermediate
owner of an interest in the Property. It had an opportunity to avoid the fraud. It did not
take from a registered owner. Therefore, despite registering its charge, Maple Trust
loses in a contest with the true registered owner, Ms. Lawrence. Accordingly, the
charge against the Property in favour of Maple Trust was set aside.

3. Flying Saucer Restaurant Ltd. v. Lick’s Leasing et al, 2011 ON SC 718

(CanLII)

The Flying Saucer Restaurant leased their premises to Lick’s Leasing Ltd., who in
turn sublet to a tenant who left without paying. The plaintiff then looked to Lick’s
Leasing for compensation as per the lease, but Lick’s had no assets and paid nothing.
In this action the Flying Saucer Restaurant is seeking the rent owed from the principal
of Lick’s leasing, Mrs. Meehan, as well as from several related companies. Explain
the arguments for each party. Would it affect your answer if Mrs. Meehan had made a
personal guarantee for the rent? What if that guarantee was verbal? What if she had
made a misrepresentation? What if the other related corporations were successful, had
funds, and were owned by the same people?

Decision: In his reasons for dismissing all claims put forward by Flying Saucer, the
Judge stated: “The plaintiff, owned by a wily businessman, sued a cluster of
companies, owned by a wilier businesswoman, in a desperate attempt to find a pocket
with money. As part of this Hail Mary effort, the plaintiff also included the
businesswoman, personally, as a defendant, alleging misrepresentations, and a
guarantee, by her”

As to the claim based on “guarantee”, the Judge confirmed that no claim could be
allowed on that basis as Ontario law requires and such guarantee to be in writing and
that did not occur in this matter. As Flying Saucer specifically entered into the
agreement with the corporate entity, Ms. Meehan could not be held liable as there was
no basis to “pierce the corporate veil”, especially given that Flying Saucer had the
benefit of legal advice and assistance from their lawyer in drafting the lease
document. Finally, the Judge rejected the assertion that any misrepresentation was
made or relied upon in entering into the lease agreement.

This case is a good example of how important proper documentation and pre-
contractual due diligence is to ensuring sound business agreements are made.

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4. R. v. Petro-Canada 2003 CanLII 52128 (ON CA), (2002) 222 D.L.R. (4th)
601 (Ont. C.A.)

Petro-Canada was charged with “discharging a contaminant into the environment”, an

offence under the Ontario Environmental Protection Act. In fact, a pipe had failed and
leaked gasoline but Petro-Canada responded quickly. It was also established that there
were a number of safety systems and procedures in place. Petro-Canada claimed due
diligence as a defence. Explain what must be established to succeed in a due diligence
defence and on which side the onus of proof resides. How would it affect your
deliberations to know they had used piping “not up to industry standards”?

Decision: In this case Petro-Canada argued that the obligation was on the Crown to
show that they had not shown due diligence. The appeal court found that this was not
the case. Once the prosecution established that the contamination constituting the
offence had taken place the onus was on the accused to show that they had exercised
due diligence. There was no obligation of the crown to show that they had failed to
exercise due diligence. Petro-Canada had not met the onus of establishing due
diligence and were convicted.

5. Dhingra v Dhingra 2012 ON CA 261 (CanLII) Mr. Dhingra had a substantial

life insurance policy when his wife, who was the beneficiary of the policy, murdered
him. Do you think she should be allowed to collect? What if she was found not
criminally responsible on the basis of her own mental disorder?

Decision: . The Court of Appeal confirmed the longstanding public policy rule that a
person cannot “profit from their own crime”. As such, a person who murder’s an
insured cannot receive the insurance proceeds. However, the Court went on to rule
that the public policy rule that a person who kills another should not be permitted to
profit from the crime does not apply where that person has been found not criminally
responsible of the killing on account of mental disorder. As a person found not
criminally responsible is not morally responsible for his or her act, there is no
rationale for applying the rule. In the result, Ms. Dhingra was entitled to receive the
insurance proceeds.

6. Clemmer Steelcraft Technologies Inc. v. Bangor Metals Corp. 2009

ONCA 534 (CanLII); 55 C.B.R. (5th) 177; 169 A.C.W.S. (3d) 671

Brute Manufacturing Ltd. operated a manufacturing business and was under the
supervision of the Companies’ Creditors Arrangement Act. With the court’s approval
they sold certain heavy equipment to Steelcraft, including a large spray booth used in
the process of painting large equipment. But they were also a tenant of Bangor Metals
Corp. at the time of the sale and Bangor claimed they were entitled to the spray booth
as a permanent fixture. Explain the arguments for both sides and who would likely be
ultimately entitled to the spray booth. Would it affect your answer to know that the
spray booth was very large, was fastened to the floor and roof and connected to the
electrical and natural gas supply? What if the terms of the lease provided it could not
be removed without the permission of the landlord?

Decision: Clemmer contended that it was entitled to the spray booth as the Court had
approved the sale of that item to Clemmer as part of the listed items included in the

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asset inventory approved by the Court. On a subsequent hearing in Superior Court the
presiding Judge reviewed his earlier decision and ruled that the spray booth was not
validly included given the terms of the original lease making the device the property
of the landlord given the scope of incorporation into the rented premises. The Court of
Appeal ultimately sent the case back to the Ontario Superior Court for further hearing
as it ruled the original Superior Court Judge failed to properly consider all the
necessary evidence to rule on whether the spray booth was now a fixture and/or
became the property of the landlord pursuant to the terms of the lease.

Sample Examination Questions

Multiple Choice Questions

1. Jane asked her friend Harry to look after her very valuable Stradivarius violin
while she was away on vacation. Which one of the following statements is correct
with respect to the legal relationship created?
a. This is an example of a gratuitous bailment for the benefit of the bailee
b. This is an example of a gratuitous bailment for the benefit of the bailor
c. This is an example of an involuntary bailment
d. Because he is doing his friend a favour Harry has no legal duty to be careful of
the violin
e. Because the violin is a Stradivarius this is an example of a bailment for value

Answer: B

2. In which one of the following would Joe be able to collect the entire amount of
insurance claimed?
a. Where Joe insures his law partner's life for $500,000 and the amount he
actually lost when the partner died was only $100,000. Joe claims $500,000.
b. Where Joe's house suffers $20,000 damage and he only had it insured for
$100,000 when the actual value was over $250,000. Joe claims $20,000.
c. Where Joe owns a one half interest in a house valued at $100,000 which is
completely destroyed in a fire. The house is insured for that amount and Joe
makes a claim for $100,000.
d. Joe insured the club house of a Hell's Angels motorcycle club located in the
next block for $75,000 which is valued at about that amount. The clubhouse is
subsequently destroyed in a fire. Joe claims $75,000.
e. Joe takes out a life insurance policy on his wife for $500,000 and shortly
thereafter during a fight when he was in a drunken rage he struck his wife causing
her death. Joe claims $500,000

Answer: A

3. Which of the following is correct with respect to the principle of subrogation as it

relates to insurance law?
a. Subrogation refers to the insured right to demand payment from the insurance
company if the insured against event takes place.
b. Subrogation refers to the principle that the insured cannot benefit from his
own wrong doing

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c. Subrogation refers to the principle that if the insured does not take out enough
insurance he will be taken to be responsible for a portion of any loss incurred
d. Subrogation refers to the principle that if an insurance company pays out on a
policy they assume all of the rights of the insured, against the person causing the
loss
e. Subrogation refers to the practice of the insurance companies taking out their
own insurance where the policy involves potentially large losses or high risk

Answer: D

4. Which of the following statements is correct with respect to bonding?

a. Bonding is another term for insurance. The two terms, bonding and insurance,
are interchangeable
b. If a person is bonded and that person commits some wrongful act such as
stealing a client's money the bonding company is bound to compensate him
for any losses he suffers from being caught.
c. Bonding provides protection to the victim injured by the wrongful conduct of
the person bonded
d. Bonding provides protection against loses incurred because of fluctuations in
the financial markets
e. Bonding is a government certification system whereby the government
guarantees that a person so bonded or certified will do the job he is hired to do
as set out in the bonding certificate

Answer: C

5. A husband and wife own lot A as joint tenants and lot B as tenants-in-common.
The husband's will reads: “I leave lot A to my son John and Lot B to my daughter
Mary”. Who takes what when the husband dies?
a. The son, John, gets Lot A and daughter Mary gets Lot B just as their father
wished and designated in his will.
b. John will get Lot A but Mary will not get Lot B because it was co-owned with
the mother as tenants-in-common so the mother takes Lot B as the other
tenant-in-common.
c. Mary will get all of lot Lot B but John will not get Lot A because it was co-
owned with the mother in joint-tenancy so the mother takes Lot A as the
surviving joint tenant.
d. Mary will get her father's interest in Lot B, but John will only get a life
tenancy in Lot A.
e. Mary will get her father's interest in Lot B, but John will get no interest in Lot
A.

Answer: E

6. Which of the following is false with regard to real property law?

a. A registered interest less than an estate, e.g. a right of way, binds the parties to
the contract and also binds the subsequent purchasers of either the dominant or
servient tenement because it “runs with the land”.

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b. When documents concerning an interest in land are filed in the Land Title
Office, each document is examined and, if it is in order, the title certificate is
amended to show the change.
c. If a person wants to live in a co-operative, he will be buying a share in a
company which entitles him to lease one of the units; he will not be buying the
fee simple interest.
d. If a first and only mortgagee, unpaid, proceeds to have the house sold under an
order for judicial sale, all the money realized from the sale of the property
goes to that mortgagee even if it is greater than the debt owed plus costs.
e. The right to foreclose is a remedy from the Court of Equity which allows the
mortgagee to end the mortgagor's equitable right to redeem.

Answer: D

7. Below are the mortgages registered against Bingo’s berry farm when it defaulted,
and the amounts owed on each: first - in favour of Canada Trust for $100,000
second - in favour of Kits Credit Union for $50,000 third - in favour of uncle
Isaac for $20,000 Canada Trust petitioned for foreclosure. Which of the following
is false?
a. The respondents in the action include all the others whose interest in the
property will be affected by the proceedings.
b. If Canada Trust eventually received the order absolute of foreclosure, the
interest in the land of all those ranking below it would be lost because it
forecloses the equity of redemption and that is all the others have.
c. The mortgagor is responsible to pay any shortfall from the judicial sale. .
d. If the property is sold by way of a judicial sale and the first and second
mortgagees are paid in full, but the third is not paid in full, the third is out of
luck; he has no further remedy.
e. If the property goes to the first mortgagee by way of foreclosure and is then
sold the mortgagor is not responsible for any shortfall. .

Answer: D

8. Which one the following is false with regard to real-property law?

a. Property includes not only the land but also the buildings attached to it.
b. The "fee simple" interest in land is the greatest interest that can be granted and
bestows the rights to use or sell the property.
d. If two people own land as joint tenants, the surviving joint tenant takes the
interest of the deceased co-owner.
d. A legal, registered restrictive covenant “runs with the land”, i.e. it can bind
subsequent owners who were not parties to the original contract under which it
arose.
e. A person who owns an interest less than an estate, e.g. a right of way, has a
right to exclusive possession of that property.

Answer: E

9. Which of the following is false with regard to interests less than estates?

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a. A valid easement is an interest less than an estate and can run with the land;
that is, it can bind subsequent purchasers of either the dominant or servient
tenement
b. An easement gives the owner of the dominant tenement the right to enter the
servient tenement for a purpose that will enhance the enjoyment of the
dominant tenement
c. If a person habitually exercises a right over the neighbouring land of another
for a long period of time, he will acquire an easement by prescription in some
provinces.
d. A subsequent owner of property can be in breach of a building scheme by
failing to do something the scheme requires, e.g. building within a specific
time period.
e. An easement may restrict an owner's use of his property where another
property benefits from the restriction (dominant tenement).

Answer: D

10. People living on rivers in Canada are entitled to have the water to come to them
in undiminished quality and quantity. This is an expression of what kind of rights?

a. Natural law
b. Environmental rights
c. riparian rights
d. Res Ipsa Loquitur
e. The rule in Rylands v. Fletcher

Answer C

11. The main concern about environmental legislation from a business point of view
is?

a. The costs of compliance

b. the government regulatory red tape
c. the need to comply with environmental impact studies
d. the threat of massive fines and penalties
e. all of the above

Answer E

Short Answer Questions

1. Distinguish between a bailment for value and a gratuitous bailment.

Answer: Bailment for value involves a contractual relationship where the goods
are being taken by the bailee pursuant to an obligation to repair, use, store, etc.,
whereas in a gratuitous bailment no such contract is involved.

2. Explain what is meant by an insurable interest.

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Answer: An insurable interest is an interest that the insured has in the property or
matter being insured, such that if the insured against event takes place, he will be
economically hurt, resulting in the insurance payment compensating him for a loss
rather than being a windfall profit.

3. Distinguish between a fidelity bond and a surety bond.

Answer: A fidelity bond involves a person or an employee being bonded against

his own wrongful conduct for actions such as theft, whereas a surety bond is
intended to provide assurance that one party through a contract will properly
perform their side of the contract, for example, a contractor on a construction
project.

4. Distinguish between an easement and a right of way.

Answer: A right of way is a particular type of easement giving the holder of it the
right to cross the land to get to another location but not to stay on that land
whereas an easement may involve some permanent intrusion onto the property
such as an overhanging portion of a building or a sewer line

5. Distinguish between a tenancy in common and a joint tenancy.

Answer: A tenancy in common is where two people share an estate on the same
property, each owning an undivided one-half interest. When one dies the heirs
inherit that half interest. In a joint tenancy, on the other hand, each of the two
parties owning the property own the whole property and when one of them dies,
the other retains the entire title by survivorship.

6. What is the main difference in the effect of a registration of a certificate under

certificate of title jurisdiction such as British Columbia as compared to a title
registration system in other parts of Canada?

Answer: In the title registration system, the registry contains the documents that
can affect title but it is up to the person searching that title to determine the effect
of those documents. In a land title system, however, a certificate of title is granted
and the title is, thereby, guaranteed by the registry to be as stated on the certificate
of title.

7. Explain what is meant by a landlord’s obligation to provide quiet enjoyment.

Answer: It is the landlord’s obligation to insure that nothing happens to interfere

with the tenant’s use of the property.

8. Indicate what residential rent control regulations are in place in your jurisdiction.

Answer: This will vary with the jurisdiction, but should include not only
restrictions on the amount of rent that can be charged but also the control of how
often such rent increases can be imposed.

9. Explain what is meant by the equity of redemption in a mortgage transaction.

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Answer: The equity of redemption was a right created by the courts of chancery
which gave the debtor the right to reclaim the property by paying what was owed
even after default. The value of the equity of redemption is the market value of
the property minus the amount that is owed on it; hence, the term equity.

10. Joe owned property against which he had given a first mortgage to Sam for
$100,000.00 and a second mortgage to Harry for $75,000.00. Because of a slump
in the market, the value of the property was only $150,000.00 when Joe defaulted.
Sam foreclosed. The court granted a six-month redemption period. Harry obtained
an order for judicial sale. The property was sold for $150,000.00. Sam was paid
$110,000.00 which included the amount of the loan plus interest payable because
of payments missed, plus legal costs. Harry only realized $40,000.00 against his
claims of $80,000.00, representing the interest on payments not made, plus his
legal costs. Explain what rights Harry has under these circumstances.

Answer: Harry can sue Joe for the $40,000.00 deficiency if he thinks it is worth
his while.

11. Which level of government, federal or provincial, has the power to pass legislation
dealing with the environment?

Answer: Both, the federal and provincial, depending on the types of activities or
the areas involved.

12. Explain what is meant by riparian rights.

Answer: A person living on a river has the right to have water come to them in
undiminished quantity and quality.

Essay Topics

1. Discuss the various obligations of bailees when looking after the property of
others.

2. Distinguish the various different types of insurance that are available and
under what circumstances each would be appropriate.

3. Discuss the advantages and disadvantages of the land title system of

registration versus the normal system of registration of land as it is used in
Canada.

4. Discuss how the normal rules in relationship to residential tenancies have been
modified in your jurisdiction by statute and discuss the effectiveness of such
changes in terms of the objectives of the statutes.

5. Discuss the principle of the equity of redemption as developed by the courts of

chancery, and indicate its importance in the field of mortgage law today.

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6. Consider the various remedies that are available to the mortgagee in the event
of a default, and discuss the various effectiveness of each.

7. Discuss the areas of threat to our environment and what steps have been taken
in the various jurisdictions in Canada to counter those threats.

8. Consider the various statutes that have been passed in the environmental area
in terms of the objectives of such legislation. In your answer consider whether
those objectives have been realized.

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