Royal Bank of Canada v Security Trust Company
| Jurisdiction | Bahamas |
| Judge | Bourke, P.,Hogan, J.A.,Archer, J.A. |
| Judgment Date | 02 July 1973 |
| Neutral Citation | BS 1973 CA 5 |
| Docket Number | No 1 of 1973 |
| Court | Court of Appeal (Bahamas) |
| Date | 02 July 1973 |
Court of Appeal
Bourke, P.; Archer, J.A.; Hogan, J.A.
No 1 of 1973
Leonard J Knowles for the appellant.
Mr. Ernest Callender QC and Mr. Colin Callender for the respondent.
Real property - Mortgage — Priority of an unregistered legal mortgage over a subsequent registered debenture
I agree with the judgment of Hogan JA, and feel that there is nothing that I can usefully add.
The respondents (hereinafter referred to as the trust Company) held considerable areas of land at Coral Harbour in New Providence. On 20 September 1968, they agreed with the Carl G Fisher Core (hereinafter referred to as the corporation) to sell to the corporation some 460 acres of this land for $900,000, of which $200,000 was to be paid in cash or by certified cheque and the balance by a purchase money mortgage for $700,000 secured on the land. There was provision for the postponement of the closing date for any period not exceeding 12 months at the option of the purchasers. The date was deferred by agreement on more than one occasion and beyond the originally stipulated period of 12 months until, on 16 December 1969, the parties agreed to extend the date to 19 February 1970.
On 19 February 1970, it was agreed that the parties would execute, as of that date, a conveyance of the property and a purchase money mortgage in respect of the unpaid balance of the purchase price, as provided in the original agreement; that the executed deeds of conveyance and mortgage would be held in possession and custody of the trust Company, as escrow agent, until such time as the corporation paid $200,000 to the trust Company and that such payment would be made on or before 90 days from 19 February 1970.
There was a further condition that the corporation would pay interest at 8% from 19 February 1970 on the $200,000 until it was paid and that time was to be of the essence of the contract. The deeds were executed and held as agreed but the corporation did not pay the $200,000 within the stipulated period.
On 4 June 1970, the corporation issued a debenture in favour of the appellants (hereinafter referred to as ‘the bank’).
So far as material, cl 4 of that debenture reads as follows:
‘The Company as Beneficial Owner hereby charges with the payment and discharge of all moneys and liabilities intended to be hereby secured … all its undertaking goodwill and other property whatsoever and wheresoever both present arid future including uncalled capital for the time being.
The charge hereby created shall be:
(a) ….
(b) a fixed second charge on the real property of the Company described in the first schedule hereto…..
(c) a fixed second charge on the real property of the Company described in the second schedule hereto … and
(d) a fixed first charge on all other the present freehold and leasehold property of the Company and the fixed plant and machinery thereon
Save and Except the freehold property brief particulars of which appear on exhibit “A” hereunto annexed and purchase moneys payable in respect thereof or any part thereof and
(e) a fixed first charge on all future leasehold property of the Company and the fixed plant and machinery thereon.
And as to all other premises hereby charged shall be a floating security but so that the Company is not to be at liberty to create any mortgage or charge upon and so that no lien shall in any case or in any manner arise on or affect any part of the said other premises either in priority to or pari passu with the charge hereby created it being the intention that the Company shall have no power without the consent of the bank (which will not be unreasonably withheld) to part with or dispose of any part of such other premises except by way of sale in the ordinary course of its business. Any debenture mortgages or charges hereafter created by the Company (otherwise than in favour of the bank) shall be expressed to be subject to this debenture. The Company shall deposit with the bank and the bank during the continuance of this security shall be entitled to hold all deeds and documents of title relating to the Company's freehold and leasehold property which is the subject of this security (save that described in the first and second schedule hereto so long as the said mortgages shall subsist).’
By clause 8 the corporation gave the bank power to appoint a receiver over the property included in the debenture, who would be the agent of the corporation.
The debenture was recorded in the Registry of Records on 30 June 1970 in accordance with the provisions of the Registration of Records Act (cap 193).
On 19 August 1970, the corporation, which, it is said, had in the meantime changed its name to Hemisphere Hotels Corp, wrote to the trust Company asking for an extension up to 19 September 1970 of the prescribed period for payment of the $200,000 together with interest from 19 February 1970. This proposal was accepted by the trust Company. No reference was made to time being of the essence of the contract. The $200,000 was not paid on 19 September 1970. On 20 November 1970, the bank appointed a receiver. On 30 April 1971, the receiver wrote to the bank telling them of the agreement to purchase 461 acres at Coral Harbour and of an option to purchase a further 747 acres. He continued:
‘In January of this year it was agreed that the option should be exercised as to 92 acres and both transactions should be closed on or before the 30th April. The amount of cash required to close the transactions is $465,813.80. 1 am satisfied that it will be to the advantage of the Company and its creditors to buy this land as the contract price is, so I am advised, much less than the market value.’
The receiver went on to say that the Company did not have the money and applied to the bank for a loan saying that he was advised that he could authorise the Company to give a mortgage on the property to be acquired to secure repayment of the sum advanced to purchase it; that he undertook to procure the execution of a mortgage by the Company to rank immediately after the purchase mortgage; and that the mortgage would be in addition to and not in lieu of any charge which the bank had under the debenture.
On the same date, 30 April 1971, the trust Company and the corporation agreed to extend to 30 April 1971 the original closing date in the agreement of 20 September 1968.
Apparently, the bank advanced the amount requested and, upon payment, the deed of conveyance and the mortgage executed on 19 February 1970 were released from escrow.
The concluding paragraph of the letter addressed to the trust Company by the receiver, forwarding the payment, and the ensuing acknowledgment by the trust Company are in the following terms:
‘Please confirm, by signing this letter, that the above is satisfactory to you and that you are prepared to close on this basis, and that the said payment is accepted in full discharge of the amounts required for such closing, and that the documents delivered to my attorneys by Mr. Leon Potier in escrow, are now released from such escrow.
We, Security Trust Company, acknowledge to have received the sum of $465,813.80 in the amount needed to complete the sale and purchase of various tracts at Coral Harbour, and accept the mortgages for the unpaid balance of the respective purchase prices, on the understanding that the documents relate back, and shall have effect, from their respective dates, to the intent that the powers vested in Security Trust Company as legal mortgagee shall be exercisable on the dates of such respective mortgages, in accordance with the terms of the documents.
We understand that you will deliver all of the deeds and mortgages involved in the transaction to Mr. Leon R. Potier, our attorney so that he can record the deeds and mortgages simultaneously.’
Differences arose between those concerned as to the relative priorities of the securities held respectively by the bank and the trust Company with the result that, on 23 May 1972, the trust Company took out an originating summons in which the corporation, the bank and others were named as defendants and which sought, as against the corporation: (1) payment of the money due under the covenants in the mortgage of the 19 February 1970; (2) An account of what was due to the trust Company by virtue of the said mortgage for principal, interest and costs; (3) An inquiry whether anything was due and if so what to the trust Company for costs, charges and expenses in respect of the said mortgage beyond costs of the action; (4) An order that the mortgage may be enforced by foreclosure or sale; (5) Further or other relief:
On 21 June 1972, Mr. Knowles, as counsel for the bank, and Mr. Ernest Callender QC and Mr. Colin Callender, as counsel for the trust Company, appeared before the learned Chief Justice to argue the matter and, as a result, on 21 July 1972, he delivered a ruling that, when the money was paid on 30 April 1971, the condition of the escrow was fulfilled; that, for the purposes of title, the commencement of the corporation's title, as purchaser, and of the trust Company as mortgagee, was thrown back to the date of the original delivery., i.e. to 19 February 1970; and that the effect of the appointment of the receiver, on 20 November 1970, was to crystallise the floating charge contained in the debenture. The ruling concluded with the following two paragraphs:
‘If, then, the commencement of the title of CGF Corp to the land and the title of the trust Company as mortgagee is, in each case thrown back to 19 February 1970, it seems to me to follow that, when the floating charge crystallised in November 1970, it became a’ fixed charge, or must be taken to have become a fixed charge, on the property subject to the mortgage, because if the titles so relate back, that, in...
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