Jason Bryk 

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May 2019


The basic landholding/restriction/prohibition/permission rules in The Farm Lands Ownership Act (Manitoba) (the "Act") are as follows:

  1. The following "persons" (defined very broadly) can acquire farm land (see Section 4 of the Act):

(a)          a person acquiring "in conformity with the provisions of Section 2 or Section 3 of the Act"; and

(b)          a person acquiring which would result in that person having, directly or indirectly, interests in farm land that do not exceed 40 acres in aggregate.


Pursuant to Sections 2 and 3 of the Act, the following persons may acquire farm land:


(i)            an eligible individual (essentially, a Canadian citizen or a landed immigrant) (Section 2(a));


(ii)           a family farm corporation (essentially, a corporation owned and controlled by farmers and persons related to farmers) (Section 2(b));


(iii)          a municipality, a local government district and an agency of the government (Sections 2(c), 2(d) and 2(e));


(iv)          a qualified Canadian organization, "subject to any limitations provided for in the regulations (as at May 17, 2019, I have not been able to discover any regulations dealing with this matter).  A "qualified Canadian organization" (essentially, any business entity including LPs and trustees) where eligible individuals own the organization, excluding "corporations which have any shares listed on a stock exchange";


(v)           subject to Section 3(16), a "qualified immigrant";


(vi)          persons who are specifically permitted to acquire ownership interests in farm land by the Farm Industry Board (Section 3(3));


(vii)         a person who acquires an interest in farm land which secures a bona fide debt obligation - typically, a mortgage (Section 3(4));


(viii)        a "retired farmer" - Section 3(8) - essentially, this is a natural person wherever resident "who has been a farmer for a period of at least 10 years and who has retired from farming in Canada".


There are several other more exotic and less encountered specific permissions to hold farm land to a greater or lesser degree, found primarily in Section 3 of the Act.

  1. "Farm land" is defined to mean "real property which is situated outside a city, town, village (including an unincorporated village) or hamlet and that is used or is reasonably capable of being used for farming, excluding mines and minerals" (other than sand and gravel) and a couple of other exceptions.
  2. "Farmer" means an eligible individual "who receives a significant portion of his income either directly or indirectly from his occupation of farming and who spends a significant portion of his time actively engaged in farming".
  3. "Farming" includes "tillage of the soil, livestock production, raising poultry, dairying, fur farming, tree farming, horticulture, bee keeping, fish farming or any other activity undertaken to produce agriculture products, but does not include the purchase and resale of agricultural products, or the commercial processing of agricultural products".
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August 2010


It is probably generally understood amongst those who provide and consume banking type services that in most situations, where a fraudster has forged a bank's customer's cheque and funds have thereby been removed from the customer's account, as between the bank and its customer, the bank is responsible for the loss and must recredit its customer's account.  Section 48(1) of the Bills of Exchange Act (Canada) unequivocally states that a forged signature on a cheque is "wholly inoperative".


There are many ways in which funds may be removed from a customer's account without the customer's authorization.  Fraud is often behind an unauthorized removal, but sometimes an unauthorized removal occurs by reason of mistake.  In an attempt to minimize their responsibilities for unauthorized removals, most banks (and other deposit taking financial institutions) will usually require their customers to enter into an "Account Verification Agreement" or "Account Operation Agreement".  These arrangements will typically provide that if there is an unauthorized withdrawal, it must be reported to the bank within a limited period of time (usually 30 days) from when the bank provides its customer with a written summary of the customer's account's activity over the immediately previous period (usually, a one month period).


The recent (July, 2010) OntarioCourt of Appeal decision (hereinafter, the "SNS Products Case") illustrates how the Courts will interpret the provisions of these types of agreements strictly against their authors (ie, the banks).  In the SNS Products Case, a fraudster, over a period of time, forged a number of cheques on the customer's account, but the customer did not complain to the bank until after having received a number of account statements which (one supposes) would have - if the customer had carefully reviewed same - revealed the fraud.  The bank claimed that it wasn't responsible for the customer's losses on the basis that the wording in its account verification agreement completely excused it from having to reimburse its customer if the customer failed to notify the bank of the losses within the specified time limit.  The agreement referred to the need for the customer to report to the bank (in a timely manner) any "error", "irregularity" or "omission".  The agreement did not contain any references to unauthorized withdrawals caused by forgery or other fraud.  The Court held that in the absence of specific language referring to forgery and fraud, the agreement did not protect the bank, with the result that the bank had to make good the amount of the forged cheques.


While arguably "error" and "omission" do not properly describe forgery or other fraud, one could argue that forgery or fraud constitute an "irregularity".  Nevertheless, the Court took the traditional (and thus well established) position that documents are to be construed against those who create them, and that accordingly, it is up to the author of a document to be as explicit as possible in the wording used, in particular, for those provisions of the document which are intended to protect the interests of the document's author.

From a practical perspective, the SNS Products Case suggests:

  1. Banks and other financial institutions taking deposits against which cheques may be written will have to shore up the protective language contained in their account agreements; and
  2. Customers of such institutions should pay close attention to their bank statements and to the cancelled cheques or other payment instruments which usually accompany same.
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May 2019


A lender ("Lender 1") makes a particular loan (the "Loan") to a debtor (the "Debtor") on the security of a real property mortgage (the "Mortgage"). The Loan is for five million ($5,000,000.00) dollars and the loan agreement between Lender 1 and the Debtor provides for amortization of twenty-five years and a term of five years. Nearing the end of the initial five-year term, the Debtor decides that it wishes to refinance the Loan with a different lender ("Lender 2"). The refinanced Loan with Lender 2 may continue on precisely the same payment/repayment terms as were stipulated in the loan agreement between the Debtor and Lender 1, or they may be substantially the same lending terms, but with a change in the interest rate and/or a change in the initial term of the financing with Lender 2. In either case, the Debtor wishes to end up in substantially the same position that it had with Lender 1, except the Loan would now be with Lender 2 with, depending on what is agreed upon between the Debtor and Lender 2, slightly revised payment/repayment terms.


Lender 2 can secure its position in one of two ways:


(i)    by acquiring an entirely new mortgage from the Debtor securing an entirely new loan (from Lender 2), the proceeds of that new loan being used to pay out the (original) Loan owed to Lender 1; or

(ii)   by getting Lender 1 to assign its rights under and with respect to the Loan to Lender 2, together with an assignment of Lender 1's rights and interests under the (originally granted Mortgage).


What if Lender 1 takes the position that while it is to receive payout in full of the Loan, it is not prepared to assign the Loan and the Mortgage to Lender 2?


Section 6(1) of the Manitoba Mortgage Act (the "MMA") provides that:


"Where a mortgagor is entitled to redeem he may require the mortgagee, instead of giving a certificate of payment or re-conveying, and on the terms on which he would be bound to be re-convey, to assign the mortgage debt and convey the mortgaged property to any third person, as the mortgagor directs, and the mortgagee is bound to assign and convey accordingly". Section 6(5) of the MMA additionally provides that "This section has the effect notwithstanding any stipulation to the contrary."


Clearly, Lender 1 must assign the Loan and the Mortgage to Lender 2 where the Debtor pays the balance owing under the Loan to Lender 1 and directs and requires Lender 1 to assign to Lender 2. And this is so even if Lender 1 had previously got the Debtor to agree that when paying off the Loan, the Debtor would then only be entitled to a discharge, not get an assignment to a third party.


Two of the main reasons why a mortgagor - and its new intended lender - might prefer to have the original mortgagee assign the debt and the mortgage to the new lender are:

(a)  in most cases, it will be less expensive for the new lender to take an assignment of the existing loan and mortgage than for an entirely new mortgage to be in place; and

(b)  by taking an assignment of the existing loan and the mortgage which already exists and is in place (and presumably duly registered, etc.), the new lender should be able to gain priority over other parties who have acquired interests in the mortgagor's realty between the time that the existing mortgage was registered and the time that the new lender acquires the mortgage by assignment.


Section 6(2) of the MMA provides that the mortgagor's right to require its mortgagee to assign the mortgage to a third party is a right which is also exercisable by each encumbrancer.  So a second mortgagee has the right to tender payment (in full) to a first mortgagee and require the first mortgagee to assign its mortgage to the second mortgagee.  The Section also provides that: (i) if both the mortgagor and a subsequent mortgagee directs the Transfer to the prior mortgagee, the subsequent mortgagee's requirement to assign prevails over that of the mortgagor.  Finally, the Section specifies that where there are, say, three mortgages, the requirements to assign by the second mortgagee prevails over the requirement to assign issued by the third mortgagee.  IN other words, the highest ranking mortgage out of two or more mortgagees, all of whom wish to redeem a mortgage holding priority over all of them, has the overriding right to redeem the higher ranking of the requesting mortgagees - here, the second mortgagee - prevails over that of the third mortgagee.


Where another existing mortgagee wishes to pay off a prior mortgagee and get an assignment of the debt and the mortgage, Section 6(4) of the MMA stipulates that the mortgagor's entitlement to so direct the new lender or the other existing mortgagee is contingent upon the prior mortgagee being provided with "sufficient official certificates or evidence showing the number and order and amounts of the encumbrances and the names of the encumbrancors and also proof by statutory declaration of the existence of each subsequent encumbrance, and that it is wholly or partly unsatisfied, as the case may be." Thus the mortgagor/its new lender/the other existing mortgagee must ensure that the prior mortgagee (ie, the mortgagee being paid out) receives such documentation and information before or concurrently with the direction to assign. The word "encumbrance" is defined in the MMA to include a mortgage as well as "a trust for securing money, and a lien by registration of a judgment or otherwise, and a charge of a portion, annuity, or other capital or annual sum".

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January 2014


ALL OBLIGATIONS MORTGAGES


  1. What is an "All Obligations" mortgage?  It is a mortgage of real estate (or a real estate interest) which, by its terms, secures all of the from time to time existing obligations owed by the mortgagor (or mortgagors) to the mortgagee, up to, from time to time and at any time, the maximum stated principal or face amount of the mortgage. 
  2. Nomenclature.  All obligations mortgages are sometimes also called "all purpose", "multi-purpose", "general liabilities" and "collateral mortgages".
  3. Broad scope of an all obligations mortgage's coverage.  An all obligations mortgage, if properly worded, will provide "automatic" security for:

(a)          all existing direct borrowing obligations owed by the mortgagor(s) to the mortgagee;

(b)          all existing obligations owed by the mortgagor(s), other than "direct borrowing" obligations, including guarantee and indemnification obligations, and for that matter, all other legally enforceable monetary obligations owed to the mortgagee; and

(c)          all future, and for that matter, not yet even conceived of, obligations arising out of future dealings between the mortgagor(s) and the mortgagee.

  1. Need for the mortgagee to ensure that each obligation to be secured is properly "documented".  Because an all obligations mortgage secures, or is capable of securing, multiple presently existing and future arising obligations, it would be difficult, and with respect to future yet to be dreamed of obligations, it would be impossible, for the mortgage to contain particulars of each obligation (each loan, line of credit, guarantee, indemnification or other obligation).  Thus it becomes particularly important for the parties to set out, outside of the four corners of the mortgage document itself, precisely what are the agreed to terms of each obligation.  Contrast this situation with the more "ordinary" form of real property mortgage which secures one loan only (or perhaps one guarantee only) which will typically spell out all of the agreed upon (eg, the amount of the credit made available, the terms of repayment thereof, the applicable interest rate, and the terms of payment/repayment/prepayment and the agreed to prepayment rights of the mortgagor(s), if any).
  2. Typical all obligations mortgage wording.  Please see the attached Schedule "A" which contains extracts from an all obligations mortgage, in particular, dealing with the definition of the "Obligations Secured" and the specification of the interest rate (and the method of calculation/compounding thereof) typically found in an all obligations mortgage.  Note also the provisions under the heading "NATURE OF MONETARY OBLIGATIONS" (which emphasizes that it is indeed all, types of, obligations which are to be secured), and the provisions under the headings "INTERMEDIATE REPAYMENTS OR SATISFACTIONS NOT TO EXHAUST SECURITY" and "CHANGES IN THE NATURE OF THE MONETARY OBLIGATIONS NOT TO ADVERSELY AFFECT SECURITY" (which attempt to make it clear that notwithstanding certain changes to the underlying obligations or amendments to the underlying documentation evidencing or providing for the obligations - such as complete or whole debt repayments and the advancement of new credit - the mortgage security continues to secure all obligations, no matter how changed or restated).  
  3. Is it necessary for an all obligations mortgage to contain a stated maximum principal or face amount?  Some lawyers believe that it is permissible to create an all obligations mortgage which has no stated maximum principal or face amount.  Where this may be legally permissible, it would certainly be a "plus" for the parties (the mortgagee in particular) in that it would further increase the flexibility of the use of an all obligations mortgage.  Unfortunately, it is this writer's opinion that based on the current state of the law applicable in Manitoba, it is necessary to have a stated maximum principal or face amount contained in a mortgage.  This is essentially due to two reasons:

(a)          Section 17 of The Manitoba Mortgage Act - the opening (and for this purpose, the relevant) wording of Section 17 is: "To remove doubts, every mortgage duly registered against the lands comprised therein is, and subject to section 31 of The Builders' Liens Act, shall be deemed to be, as against the mortgagor, his heirs, executors, administrators, and every other person claiming by, through or under him, a security upon the lands to the extent of the moneys or money's worth actually advanced or supplied to the mortgagor under the mortgage (not exceeding the amount for which the mortgage is expressed to be a security)…" (the underlining here is the writer's for emphasis purposes).  The underlined words pretty much dictate the need to have a stated maximum principal or face amount for a real property mortgage.  Given the broad definition of the word "mortgage" in The Manitoba Mortgage Act, it is the writer's view that the need for a stated maximum principal or face amount applies not only to "ordinary" mortgages in the form prescribed for registration under The Manitoba Real Property Act, but also to any other type of real property mortgage, including mortgages of real estate interests other than freehold ownership (whether or not titled).

(b)          An Ontario case (Re Lambton Farmers Ltd. (1978) 91 D.L.R. 3(d) 290, Ontario High Court) - in this case, the Court considered this matter in relation to virtually identical language to Section 17 of The Manitoba Mortgage Act, found in the Ontario Registry Act.  The Court held that the section "deals with the priority of advances made under a mortgage subsequent to its registration as against the interests of subsequent registrants…it does not purport to set out rights as between the mortgagor and the mortgagee as parties to (the) mortgage…".  Thus, as between a mortgagor and a mortgagee, but not as between a mortgagee and third party claimants claiming against the mortgaged realty, the absence of a maximum principal or face amount in a realty mortgage does not invalidate a mortgage.  Where third party claimants are concerned, the mortgagee may lose priority for its advances to the subsequent claimants where there is no stated maximum principal or face amount.  Presumably, the rationale behind this is to encourage the inclusion of stated maximum principal or face amounts in mortgages so that subsequent potential encumbrancers are able to see what is or could be the maximum prior principal exposure that they may be subject to if they acquire an interest in the lands.

  1. A common scenario where an all obligations mortgage could and should be used.  Imagine a situation where a business borrower obtains certain credit facilities from a financial institution (the "Lender").  Those facilities may comprise, for example, two term loans, a line of credit and in addition, the customer may also have provided the Lender with a guarantee of the obligations owed to the Lender by a person or business related to the customer.  In the aggregate, the Lender's monetary exposure is, say, $10,000,000.00.  In this situation, my advice to the Lender - and as well to the customer - is to use an all obligations mortgage and to specify therein a maximum principal or face amount far in excess of the aforementioned $10,000,000.00.  This is to provide future flexibility to the parties, should they agree upon the provision of additional credit by the Lender to the customer.  Although I may suggest this, I have (on a number of occasions) been met with the following objections:

(a)          To have a higher maximum principal or face amount in the mortgage would increase the registration and legal costs to be incurred by the customer.  In fact, the Manitoba Land Titles system has not charged registration costs for mortgages based on the maximum principal or face amount since 1986, yet some people (including people in the lending business) continue to think that this is the case.  As for increased legal costs, while there may in some instances be an increase in the legal costs by reason of the fact that the security being drafted is for a greater amount, thus potentially exposing the lawyer involved to a greater risk if something goes wrong, it is this writer's experience that in most cases, most lawyers will not increase their legal fees solely for this reason, if for no reason other than the existence of competitively priced legal services.

(b)          Customers will sometimes complain that while they have no objection to the public record (the Land Titles Office) showing a maximum principal or face amount (in my hypothetical scenario) of $10,000,000.00, if a higher amount - say $20,000,000.00 - was stated, then third parties searching the register might conclude that the customer was "into the Lender" for far more than the customer is (or will likely be) indebted to the Lender.  Of course this is a fallacious argument because all mortgages state a maximum principal or face amount, but at any given point, especially as time moves on, the actual principal balance outstanding under a mortgage may very well - and often does - decrease without there being any corresponding downward adjustment of the principal or face amount of the mortgage in the records at the Land Titles Office.

(c)          Some customers will take the position that if, in this example, the mortgage states a maximum principal or face amount of $20,000,000.00, that will then somehow obligate the customer to borrow more money from the Lender, up to the maximum of $20,000,000.00.  This too is a fallacious argument because, as we know, in order for the customer to increase its debt (in my example, beyond the maximum aggregate $10,000,000.00 amount), it would be necessary for the customer and the Lender to enter into new and further loan or credit agreements (or guarantees), and the customer always has the choice of not so proceeding,

Assume that the customer refuses to use an obligations mortgage with an (initially) much higher maximum face or principal amount, and further assume that one year later, with the customer's business doing very well and the customer needing further loan monies from the Lender, (and with the Lender more than willing to provide further credit), the parties now decide to increase the aggregate potential exposure of the Lender to, say, $20,000,000.00.  Unfortunately, with the maximum principal or stated amount of the mortgage being only $10,000,000.00, any debt incurred above $10,000,000.00 will not be secured by the mortgage, unless either a new mortgage is provided to the Lender or (more likely) the parties enter into a mortgage amending agreement to increase the maximum principal or face amount from $10,000,000.00 to $20,000,000.00.  This will involve additional legal costs which could have been avoided if my original suggestion (in this scenario) was accepted and, at the outset, the maximum principal or face amount stated in the all obligations mortgage was pegged at $20,000,000.00, not just $10,000,000.00.

  1. Utilization of all obligations mortgages in personal/consumer financing and a potential problem regarding both consumer and business borrowers.  One particular segment of the financing business has massively adopted the use of all obligations mortgages (with relatively high stated maximum principal or face amounts) to achieve future flexibility and (usually) to decrease borrowing costs.  This is the personal or consumer loan market where a person (the "Homeowner") mortgages his/her/their residential property to a Lender to secure not only a conventional residential property mortgage loan, but also to secure present and future debt obligations owed to the Lender arising out of personal lines of credit, credit card arrangements, automobile financing, etc.  For a Homeowner whose home is worth, say, $500,000.00, and whose conventional mortgage debt is, say, at a level of $100,000.00, the use of an all obligations mortgage is attractive to both the Lender and the Homeowner.  It allows the Homeowner to "tap" into the unencumbered equity value of the Homeowner's property, and because all debt thereby secured is covered by real property mortgage security, the Homeowner is usually able to access credit for other loans (including in particular, personal lines of credit) at interest rates less than what the Lender would charge for provision of such credit facilities where they were not covered by real estate security.  This is attractive to the Lender because the Lender is now secured by a particularly valuable asset (ie, the Homeowner's property equity) and the Lender will usually ensure that the Lender's maximum potential exposure is limited to, in the aggregate, say (in my example) $300,000.00, thereby leaving a reasonably large "equity cushion" in case the property falls in value.  There is however a potential problem in this sort of arrangement which could arise with both business borrowers and personal/consumer borrowers.  Where, notwithstanding the existence of an all obligations mortgage with a relatively high or maximum stated principal or face amount, the Lender, for whatever reason or reasons, chooses not to provide further credit to the borrower, the borrower may be "stuck".  The borrower still has plenty of equity in the borrower's realty but is unable to induce the Lender/mortgagee to advance further credit.  But what if the borrower finds one or more other potential credit grantors ("New Lender") who would be quite willing to provide credit to the borrower on the security of the borrower's equity in the borrower's property, and to do so, notwithstanding that any such New Lender would hold a second mortgage behind the (original) Lender?  The borrower and the New Lender might approach the original Lender/mortgagee and request that the (original) Lender/mortgagee enter into an intercreditor agreement with the New Lender which would provide, in effect, that the original Lender/mortgagee's realty security would secure up to a maximum principal amount of, say, $10,000,000.00 only (with interest and costs in the usual manner), notwithstanding that the original Lender/mortgagee's mortgage has a stated maximum principal or face amount of $20,000,000.00.  This way, the New Lender could take a (second) mortgage against the remaining equity in the property and be adequately secured.  Bear in mind that this problem is usually only a potential problem; it becomes a real problem where the original Lender/mortgagee refuses (for whatever reason) to enter into an intercreditor agreement along the lines of what the writer has just suggested.  While the writer has no statistics to back up this hunch, it is the writer's strong suspicion that where a business borrower is involved, the original Lender/mortgagee will be more likely to enter into an intercreditor agreement with a new subordinate mortgage holder, than would be the case where the borrower is a personal/consumer borrower.
  2. What happens when the realty subject to an all obligations mortgage is transferred to a new owner?  Section 77 of The Manitoba Real Property Act provides, in effect, that when titled land is transferred, then, "unless otherwise expressed", among other things, the transferee(s) are deemed to covenant to the existing mortgagee of the land that he/her/it/they (ie, the transferee(s)) will pay the obligations secured by the mortgage "at the rate and the time specified in the instrument creating (the mortgage), and, that the transferee(s) will be bound by all covenants, terms and conditions contained in the mortgage.  Where - in a typical all obligations mortgage situation - the original owner has undertaken several different obligations to the Lender/mortgagee and secured same with an all obligations mortgage, what does this mean for the transferee(s)?  Does it mean that the transferee(s) are, in effect, in the same position as if they had co-obligated themselves to the Lender/mortgagee with the original owner for all of the original owner's obligations?  For example, assume that the original owner has entered into three different loan/credit facility agreements with the Lender/mortgagee for, say, two term loans and one line of credit, and that the original owner has also guaranteed payment to the Lender/mortgagee of the obligations from time to time owed to the Lender/mortgagee by a business entity related to the original owner.  Is the result of Section 77 to put the transferee(s) in the same position they would be if they had, upon acquisition of mortgaged realty, "co-signed" in favour of the Lender/mortgagee the original owner's three loan/credit facility agreements and the original owner's guarantee?  Given the language of Section 77, it is the writer's strong suspicion that the Legislature intended this Section to apply to a more traditional or "ordinary" mortgage which secures one only loan, and not one that secures multiple obligations.  Further, assume that in this example, the Lender/mortgagee (coincidentally) enters into a provision of financial services arrangement with the transferee(s), thereby providing the transferee(s) with, say, two (new) term loan agreements and two (new) operating lines of credit.  Is the legal result that the transferee(s) are somehow deemed to "step into the shoes" of the original owner/mortgagor with respect to all of the original owner's obligations, and, with the all obligations mortgage then and thereafter providing security to the Lender/mortgagee additionally for all of the transferee(s)' (new) obligations owed (or to be owed) to the Lender/mortgagee?  Frankly, the writer doubts that a Court would hold this to be the legal result.  However, a Court might so hold (and probably would so hold) if the transferee(s) entered into some sort of an agreement with the Lender/mortgagee to the effect that all obligations of the transferee(s) from that time forward (and for that matter, some or all of the original owner's obligation(s)) were to be secured by the mortgage.
  3. Acceleration and realization of security where not all of the debts secured are in default.  It would not be unusual for an all obligations mortgage to secure, at any particular time, say, two term loans, both repayable by way of installments of principal with interest.  Because there is only one mortgage involved as security for both loans, it is essential for the mortgagee that if one loan goes into default, the mortgagee must be able to treat the other loan as also being in default - whether or not it actually is in default.  This allows the mortgagee to realize its security primarily to recoup the debt which is in default.  Clearly, it would not be possible for the mortgagee to realize its security (typically, sell the mortgaged realty) to recoup the debt in default and still somehow preserve the mortgage as ongoing security for the loan which is not in default.  The mortgage security must be utilized to try to recoup both loans at the same time.  Thus for a single mortgage to stand as security for multiple obligations, it is necessary that the debtor agrees that default under any one or more of the secured debts is deemed to be default under all of them, with the result that the mortgagee can accelerate and demand...
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