J.C. E. IN THE QUEEN'S BENCH JUDICIAL CENTRE OF ESTEVAN BETWEEN: MURRAY ALAN FLECK and NATHANIEL DAVIDSON, Executor of the Estate of Thomas Davidson, Sr. and ESSO RESOURCES CANADA LIMITED DEFENDANTS P.D. Elash on behalf of the plaintiff R.B. Morris P.E. Bood on behalf of the defendants JUDGMENT KYLE J. November 7, 1995 The facts of this case are relatively simple. When Thomas Davidson, Sr. sold his farm to his son, Thomas Davidson, Jr., in 1968, he retained the right to continue receiving the rentals arising from four surface leases which he had previously granted to oil companies in respect to producing oil wells. When, in 1973, his son, Thomas DavidsonJr., granted an option to purchase to the plaintiff, asrepresented by his agent, the agreement contained thefollowing paragraph: (11) It is understood and agreed between the Parties hereto that there are four (4) wellsites for the production of petroleum and/or natural gas located on the South Half of 14- 4-5-W2 and Roadways thereto and that all benefits and advantages and rentals and emoluments to be paid or derived pursuant to such surface leases are not being transferred to the Optionee but have been reserved by the predecessor in title of the Optionor of the Second Part and the Optionee covenants and agrees to enter into separate agreement with the Optionor of the Second Part and with the Executors of the estate of Thomas Davidson Senior with reference to the reservation of such surface leases. The option was exercised and a fee simple title wasissued to the plaintiff in 1973. The title was encumbered by,inter alia, caveats protecting the surface leases but therewas no reference to the rent charge reserved or excluded bythe option agreement. The parties are neighbours; the families are friends and it was the wish of the sellers to assure that the land fell into the family of which the plaintiff was son, one who needed to expand his farming operation. From 1973 until 1988 the proceeds of the surface lease rentals were paid to the holder of the rent charge. During this period review conducted pursuant to surface lease legislation required the consent of the landowner and the plaintiff gave that consent. He took legal advice in 1985 or 1986 as to his chances of avoiding the reservation in such way as to assure that he got the money instead of the defendants. He was apparently advised that since he had an unencumbered fee simple title he need not recognize the contractual reservation and this action ensued. It is based upon s. 237 of The Land Titles Act, R.S.C. 1978, c. L-5 which provides as follows: 237(1) No person contracting or dealing with or taking or proposing to take transfer, mortgage or lease from the owner of any land for which certificate of title has been granted shall, except in case of fraud by such person, be bound or concerned to inquire into or ascertain the circumstances in or the consideration for which the owner or any previous owner of the land is or was registered or to see to the application of the purchase money or of any part thereof, nor shall he be affected by notice direct, implied or constructive of any trust or unregistered interest in the land, any rule of law or equity to the contrary notwithstanding. (2) Knowledge on the part of any such person that any trust or unregistered interest is in existence shall not of itself be imputed as fraud. On its face it appears that the section has the effect of enabling purchaser to take advantage of the owner of known but unregistered interest in land even in the face of contrary contractual obligation as between the purchaser and his vendor. There are many, many cases of situations where an unregistered interest has come into conflict with registered interest. See V. Di Castri, Q.C., Registration of Title To Land, Vol. 2, (Carswell, 1987, as updated to Rel. 4, 1995), chapters 18 and 19. Rarely, if ever, has there been case where, as here, purchaser has contracted to obtain the property under an instrument clearly accepting the unregistered equitable interest, then has obtained fee simple title, then has permitted the unregistered interest to continue unimpeded for 15 years and then, perhaps tiring of the inconvenience of the lease and thinking that the money would be useful, has decided to seek an order of this Court terminating the other interest and directing that it be paid to him. In fairness, his counsel made no suggestion that the plaintiff had moral claim, it is purely an attempt to secure by legal means that which he had previously agreed to forego. The courts, anxious to protect equitable claims but equally anxious not to disturb the indefeasibility of title, have resolved claims of various owners of unregistered interest in many ways, usually depriving the owner of the unregistered interest in favour of the purchaser. This is a court of equity as well as a court of lawand as such it is repugnant that the court be called upon tovest in an applicant an interest which he has heretoforefreely recognized to be the property of another, both beforeand after receiving his transfer under The Land Titles Act. True, one could have registered caveat to protect the rent charge, but the effect of caveat is purely one of notice to potential purchaser of an interest to which he might be subject if he acquired the interest of the registered owner. In this case there was no need for notice to the plaintiff as the contract under which he acquired his right to transfer specifically reserved from the lands being optioned the rent charge now before the court. In Reeves v. Konschur (1909), 10 W.L.R. 680 (Sask.) question of similar nature arose and there resulted an examination of the impact of the indefeasibility provisions of The Land Titles Act when they come into conflict with equitable rights. The plaintiff asserts that whatever rights arose fromthe option agreement were merged in the transfer andeffectively disappeared upon the registration of the transferand the issuance of a new, and for this purpose, unencumberedtitle. It is true that in many cases such merger would take place, however, in Reeves v. Konschur, supra, at p. 689 Lamont J. held that unless the provisions of The Land Titles Act bar the relief sought by the appellant, the court, on its equitable jurisdiction being invoked, should deal with the rights of parties on the footing of there being no merger. Itis apparent in this case that there was no intention that therent charge would be merged since it was recognized andallowed to continue in the hands of its holders for a periodof about 15 years. At p. 692 Lamont J. went on to say: [W]hile it is settled that certificate of title in the hands of registered owner who in good faith purchased relying upon the register is conclusive as against adverse claimants, it is not to be understood that the certificate of title cannot be questioned at all in Court of law. In Wilkie v. Jellett, [1896 CanLII 49 (SCC), Terr. L.R. 133, 26 S.C.R. 282] McGuire, J., said: "I cannot accept the proposition that court exercising equitable jurisdiction is powerless, when confronted with certificate of title, to question the ownership therein set forth". And at p. 693: The conclusion, therefore, at which have arrived, is, that the Land Titles Act is only intended to confer indefeasible titles on those who deal with the registered owner, and deal with him on the faith of his registered title. It affords no protection to registered owner against equitable rights which he himself has created, and is no defence when his own title is attacked by person rightfully entitled to the land. If, therefore, person employed to buy land for another takes the title in his own name, his certificate of title is no defence against the rightful owner. He is merely trustee for him, and the Court will enforce the trusts unless the rights of the bona fide purchaser in the meantime intervene. This and similar cases are summarized in V. Di Castri, Q.C., supra, in the following way (p. 767): In any event, it was never intended that registered owner, merely by exhibiting certificate of title, should be able to escape the performance of contracts he has entered into prior to, contemporaneously with or subsequent to the registration of his interest, or to deny trusteeship which he has created or one which may be fastened upon him by law. As between transferor and transferee the doctrines of equity as to mistake, accident, rectification and constructive trusts continue to operate. The owner of an unregistered equitable interest, of course, runs the risk of his interest being cut out by the intervention of bona fide purchaser for value. On the basis of the foregoing analysis and with aneye to s. 250 of The Land Titles Act which seems to underlinethe jurisdiction of this Court, the declaration which hasbeen sought is denied. The right of the estate of Thomas Davidson, Sr., or persons claiming through and under that estate to continue to receive the surface lease rentals here in question has not, because of the provisions of the option agreement under which the plaintiff acquired his title, been negated. The absence of a caveat protecting the rent chargehas had no affect because of the plaintiff's continuedownership of the property. number of arguments were put forth during the trial relating to privity of contract, the interpretation of the will of Thomas Davidson, Sr., estoppel and various other matters. Those arguments have been considered in making the above finding. The plaintiff's action is dismissed withcosts.
When Davidson, Sr. sold his farm to his son he retained the right to continue receiving the rentals arising from four surface leases which he had previously granted to oil companies in respect to producing oil wells. The son granted an option to purchase to the plaintiff which was exercised and a fee simple title was issued in 1973 subject to encumbrances including caveats protecting the surface leases. There was no reference to the rent charge reserved or excluded by the option agreement. The plaintiff asserted that whatever rights arose from the option agreement were merged in the transfer and effectively disappeared upon the registration of the transfer and the issuance of a new unencumbered title. HELD: Declaration denied. Plaintiff's action dismissed with costs. 1)The absence of a caveat protecting the rent charge has had no affect because of the plaintiff's continued ownership of the property.  2)Rarely, if ever, has there been a case where, as here, a purchaser has contracted to obtain the property under an instrument clearly accepting the unregistered equitable interest, then has obtained a fee simple title, then has permitted the unregistered interest to continue unimpeded for 15 years and then, perhaps tiring of the inconvenience of the lease and thinking that the money would be useful, has decided to seek an order of this Court terminating the other interest and directing that it be paid to him. His counsel made no suggestion that the plaintiff had a moral claim, it was purely an attempt to secure by legal means that which he had previously agreed to forego. This is a court of equity as well as a court of law and as such it is repugnant that the court be called upon to vest in an applicant an interest which he has heretofore freely recognized to be the property of another, both before and after receiving his transfer under The Land Titles Act. 3)It was apparent that there was no intention that the rent charge would be merged since it was recognized and allowed to continue for 15 years.