Gill – Who, between an innocent registered land owner and an innocent lender, should bear the risk of a rogue obtaining mortgage proceeds by fraud?


Gill v. Bucholtz 2009 BCCA 137

The Court of Appeal was asked to determine who, between an innocent registered owner of real property or an innocent lender, should bear the risk of a rogue obtaining the mortgage proceeds by fraud.

In this case, an unidentified fraudster forged the registered owner’s signature on a transfer and subsequently granted two mortgages to two innocent lenders who relied upon the state of title at the time that the loans were made. Section 23 of the Land Title Act provides a fraud exception to the concept of “indefeasible title”. The trial court held that, while the Plaintiff was entitled to be restored as registered owner to the property, the title would remain encumbered by the two mortgages granted to the Defendants.

On appeal, the court held that the Land Title Act preserves the “nemo dat” rule with respect to charges – even where the holder has relied on the register and dealt bona fide with a non-fictitious registered owner. The mortgagees in this case did not acquire any estate or interest in the real property on registration of their instruments because having been granted by a person who had no interest to give, those instruments were void both at common law and under the statute.

The court went on to say that “the Legislature of British Columbia would appear to have adopted the policy that the cost of frauds perpetrated against mortgagees and other charge holders should not be borne by the public but by lenders and other charge holders themselves. Whether this policy choice is a good one or not is not for us to decide”. Accordingly, the appeal was allowed and the mortgages were cancelled from title.