In the very recent (judgment February, 2003) Manitoba Court of Queen’s Bench case (Willman and Ducks Unlimited, hereinafter the “Willman Case”), the Court confirmed that Section 80 of The Real Property Act (Manitoba) means what it says. Section 80 provides, in effect, that where a person acquires an interest in realty and that person registers knowing that someone else has a pre-existing interest in the land who has failed to register his or her claim, the first-mentioned person will acquire the realty free and clear of the pre-existing claim unless the first-mentioned person has acted fraudulently. Section 80 makes it clear that knowledge of the pre-existing interest is not fraud, and previous judicial authority has also stated that registering with the knowledge that such registration will subordinate (or perhaps extinguish) the pre-existing unregistered interest is not to be considered fraud in this context.
In the Willman Case, Ducks Unlimited had entered into an agreement with a farmer which gave it certain rights to come on the farmer’s land for the purpose of operating or maintaining a wetlands development/maintenance program. The agreement stated that it would run for a period of twenty-one years and Ducks Unlimited registered a caveat giving notice of that agreement against the farmer’s title. Later, the farmer and Ducks Unlimited entered into an agreement which extended the operation of the original agreement from twenty-one years to thirty years, but Ducks Unlimited did not register a further caveat to give notice of this change in the agreement’s term. Still later, the original contracting farmer sold the land to a second farmer (“Second Purchaser”), and although the Second Purchaser was aware of Ducks Unlimited’s caveat and was given a copy of the original contract whose term was for twenty-one years, the Second Purchaser was not immediately made aware of the extension agreement providing for a term of thirty years. In fact, the Second Purchaser only obtained a copy of the amending agreement about seventeen years after it was entered into. Still later, the Second Purchaser sold and transferred the property to his son (“Third Purchaser”). The Third Purchaser was aware of the Ducks Unlimited caveat, the original agreement and the amending agreement which extended the term to thirty years. At the time of the Third Purchaser’s acquisition, Ducks Unlimited had still not registered notice of the amending agreement.
The Third Purchaser took the position that he was only bound by the original (twenty-one year) agreement. Ducks Unlimited took the position that the Third Purchaser should be bound by both the original and the amending agreement because the existence of the registered caveat should have prompted anyone thinking of acquiring an interest in the land to make enquiries which would have resulted in such person acquiring knowledge of the extension of the agreement’s original term. They also took the position that it was not equitable for the Third Purchaser to acquire the property without being subject to the agreement as extended because the Third Purchaser was entirely aware of the extension of the original agreement when he purchased.
On the basis of the above legal reasoning, the Court held that the Third Purchaser was not bound by the extension of the original agreement, and even though that result might seem inequitable, the wording of Section 80 of The Real Property Act (Manitoba) is quite clear on this point.
Lawyers acting for clients who acquire interests in land which are then registered by caveat must keep in mind (and advise their clients accordingly) that if the underlying caveated arrangement is altered in any material way, a further caveat should be registered so that third parties subsequently acquiring interests in the land or thinking of doing so will be bound by the underlying arrangement as amended.