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McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
30) Ngari borrowed $250 000 from Phoebe. As security for the repayment of that loan, he
created a mortgage over a piece of land called Blackacre. Ngari has repaid part of the loan
to Phoebe, but he still owes $150 000. He is unable to repay the outstanding amount. Which
of the following statements is TRUE?
a. Ngari has no reason to object to the remedy of foreclosure unless the current market
value of Blackacre is more than $250 000.
b. The remedy of foreclosure was created by the courts of law in order to counterbalance
the equity of redemption that was created by the courts of equity.
c. Depending upon where Blackacre is located in Canada, Phoebe may not be entitled to
exercise the right of foreclosure until after an attempt has been made to sell the property.
d. If the market value of Blackacre is now $300 000, Phoebe is entitled to exercise the
remedy of foreclosure, but only if she pays $50 000 to Ngari.
e. The remedy of foreclosure is available only if Blackacre is located in a land titles system
jurisdiction.
31) A person who occupies a piece of land without any right or permission to do so is
legally known as
a. a dweller in situ.
b. a sitter.
c. a resident in transitu.
d. a squatter.
e. an indigent occupant.
32) A purchaser’s lien
a. is available only as long as the purchaser has possession of the property.
b. is usually found within a mortgage document.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
c. is a form of security.
d. allows a purchaser to occupy a piece of land before the full purchase price is paid.
e. usually results in an order for specific performance.
33) As used in the context of a mortgage, the legal concept of a “charge”
a. means that the land is located in a part of the country that uses the land titles system.
b. refers to the interest that the mortgagee must pay on the loan.
c. occurs when the mortgagor demands possession of the property.
d. means that the land must be subject to some pre-existing, unregistered interest.
e. requires title to the property to be transferred at the outset.
34) As used in the context of a mortgage, a “prepayment privilege”
a. means that the lender can demand repayment of the loan sooner than expected.
b. means that if the borrower misses a payment on the loan, the entire amount becomes due
immediately.
c. is used to allow certain payments to be made without penalty.
d. arises in connection with an insurance contract.
e. is prohibited in many Canadian provinces.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
35) Suki was recently involved in a successful application of the insurance principle under
the land titles system. This most likely means that
a. the system made sure that she retained title to her land.
b. she received a benefit under an insurance policy that she purchased from a private
company.
c. by checking the records carefully, she satisfied herself that she was at the end of a good
chain of title.
d. she acquired title to a new piece of land.
e. the doctrine of indefeasibility has deprived her of an interest in land.
36) Solomon recently purchased a piece of land for $200 000. A short time later, however,
the land was seized by the government and sold. That is true even though Solomon never
breached any obligation and always paid his debts on time. Which of the following
statements may best explain this set of events?
a. Solomon purchased a piece of land that contained squatters.
b. The land is subject to a public easement.
c. Solomon’s vendor was subject to a writ of execution before Solomon acquired the land.
d. Solomon exercised a purchaser’s lien.
e. An official at the registry office wrote Solomon’s name on the wrong certificate of title.
37) Alpha Inc is interested in purchasing a particular piece of land. The company’s
president is, however, worried that the land may be worth less than the current owner
claims. The company should therefore retain the services of
a. a surveyor.
b. a medical doctor
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
c. an appraiser.
d. an inspector.
e. a financier.
38) Primus Inc has agreed to purchase a piece of land from Cherie. That agreement is
subject to a “condition” (as that word was used in this context in Chapter 16). The condition
reflects the fact that Primus must arrange financing through a bank in order to afford the
purchase. Which of the following statements is most likely to be TRUE?
a. The parties will not have a contract until the condition is satisfied.
b. Neither party is required to do anything while waiting to see if the condition is satisfied.
c. The condition has the effect of suspending the need for Cherie to transfer the land to
Primus.
d. The condition can also be called a condition subsequent.
e. The land must be located in a jurisdiction that uses a registry system.
39) Stanislav contractually agreed to sell a piece of land to Tien for $250 000. When the
time came to transfer title, however, Stanislav refused to complete the transaction. Tien
consequently refused to pay any part of the price and justifiably sued for specific
performance. At that time, the market value of the land was $300 000. The case was not
decided by a court for five years. The judge then held that Stanislav was liable for breach of
contract. At that time, the land was worth $400 000. Which of the following statements is
TRUE?
a. If the court awards damages, Tien is entitled to receive $250 000.
b. If the court awards damages, Tien is entitled to receive $400 000.
c. If the court awards damages, Tien is entitled to receive $300 000.
d. If the court awards damages, Tien is entitled to receive $150 000.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
e. If the court awards damages, Tien is entitled to receive $50 000.
40) Hofflehaus Inc owns a large piece of land known as Schwarzermorgen. It wanted to use
that land as security for loans totaling $6 million. When it explained the situation to Primus
Bank, however, it was told that it qualified for a loan of only $4 million. The company
accepted the offer of that loan and allowed Primus Bank to take a mortgage over
Schwarzermorgen. Primus Bank did not, however, immediately register its mortgage. The
next day, the company approached Deuce Bank, asked for a loan of $2 million, and offered
security in the form of a mortgage over Schwarzermorgen. The company did not mention
that it had already granted a mortgage to Primus Bank and Deuce Bank had no other way of
knowing about that first mortgage. Deuce Bank then (1) checked the records at the land
registration office and found that there were no interests registered against
Schwarzermorgen, (2) loaned $2 million to the company, and (3) immediately filed its own
mortgage. The next day, Primus Bank finally registered its mortgage. And later that same
day, the company suffered a devastating financial loss. That loss wiped out virtually every
asset that the company had, including the $6 million that it had borrowed from the two
banks. The company’s only remaining asset is Schwarzermorgen. The value of
Schwarzermorgen has, however, dropped to $1.5 million. That land has now been sold and
the only question before the court concerns the disposition of the $1.5 million in cash.
Which of the following statements is TRUE?
a. Each bank will receive half of the value of Schwarzermorgen.
b. Primus Bank will receive $1 million and Deuce Bank will receive $500 000.
c. Deuce Bank will receive $1 million and Primus Bank will receive $500 000.
d. Primus Bank will receive $1.5 million and Deuce Bank must pay $4.5 million to Primus
Bank.
e. Deuce Bank will receive $1.5 million.
41) Reginald lives in Alberta and wants to buy a farm. Kevin owns a farm in Alberta, but
he has been living in Norway for the last 5 years. His sister, Colleen, has been living at the
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
farm while he is gone. Reginald purchases the farm from Colleen. Six months later, Kevin
returns from Norway. Which of the following is true?
a. Colleen has committed mortgage fraud.
b. Kevin can receive compensation from the insurance principle.
c. Reginald should conduct a title search to ensure whom the true owner of the land is.
d. Because of the curtain principle, Kevin no longer has rights in the land.
e. The chain of title suggests that Kevin still has rights in the land.
42) Yun-Fat wants to start a new manufacturing plant and needs to buy a factory in which
to run it. Marlon sells a factory to Yun-Fat and the land titles office issues him a certificate
of title. Afterwards, it is revealed that Marilyn is the true owner and that the land titles
office mistakenly issued the certificate. Which of the following statements is true?
a. Merilyn has no way to be compensated.
b. Yun-Fat is probably in Western Canada.
c. Yun-Fat is at fault for failing to search the registry.
d. Yun-Fat should have used a real estate agent to find him a better factory.
e. Yun-Fat will only be able to keep the property if he had it inspected.
43) Jessica wants to purchase an old house to turn into a museum. Which of the following
would be the most advantageous to have as a condition of the sale?
a. That the neighbours of the house give the current owner permission to sell
b. That the pool in the back yard be removed
c. That the lot is approved for commercial zoning
d. That the current owner swears the house has historical significance
e. That the house has proper humidification installed for housing paintings
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
44) Dianne is interested in a new condo being built in Hamilton, so she puts down a
deposit. The condo is to be completed in 18 months. Nine months later, Dianne decides she
no longer wants to move to Hamilton, so she asks for her money back and the seller
refuses. In order to actively get her money back, Dianne should
a. arrange a purchaser’s lien.
b. prepare for a vendor’s lien.
c. sSue the vendor.
d. hope the vendor changes his mind; her only hope is to have him voluntarily give back the
money.
e. hope the vendor voluntarily sells or mortgages the condo to someone else.
45) Flora lives in Winnipeg and has recently defaulted on her mortgage. Which of the
following will likely occur?
a. The mortgagee will have the property made available to them.
b. Flora will have her property taken and be sued for the outstanding debt.
c. Flora will be sued for the outstanding debt.
d. The mortgagee will exercise their charge over the land.
e. Flora will transfer ownership of the land to the mortgagee.
46) Barton owns a large property called Greenfield worth $1 million. On August 24, in
order to put his daughter through university, he takes out a loan with Primus Bank for $100
000. Prima registers the mortgage on September 18. On September 16, Barton takes a
subsequent mortgage on Greenfield with Nether Bank for $800 000 in order to expand his
business. Nether registers on September 17. By November, Greenfield is worth only $700
000. If Nether forecloses on Barton in November, which of the following is likely to
happen?
a. Both parties will be repaid in full.
b. Primus will be paid in full because the mortgage was created first and Nether will get the
remainder.
c. Neither will be paid in full.
d. Nether will be paid in full because the mortgage was registered first.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
e. Each party will receive a portion of their mortgage back equivalent to the new value of
Greenfield.
47) Vigo has just decided on a new house to buy and is getting ready to sign the mortgage
contract. Which of the following should Vigo not expect to see?
a. A term stating that if Vigo misses a single payment, he must immediately repay the full
amount of the loan
b. A term stating that the mortgagee has the option to request additional payments after the
debt has been repaid
c. A term indicating that the mortgagee is entitled to a certain amount of money to pay
taxes
d. A term requiring fire insurance on the property
e. A term prohibiting Vigo from killing the grass on the property
48) Mike owned a piece of property known as Blackacre. The Bank of Montreal has a
mortgage against Blackacre in the amount of $200 000. The property is worth $400 000.
Mike borrows $100 000 from Bob and created a mortgage over Blackacre in favor of Bob.
Mike subsequently borrows $100 000 from Jack and created a mortgage over Blackacre in
favor of Jack. Due to Mike’s gambling habit he has not paid back any part of the loans to
either Bob or Jack. The economic downturn has recently caused the value of Blackacre to
drop to $300 000. Which of the following is true?
a. It is possible that Jack may be a subsequent mortgagee to the Bank of Montreal, but have
priority over Bob.
b. If Blackacre is sold for $300 000, the Bank of Montreal, Bob, and Jack, will each get
$100 000 .
c. If Blackacre is sold for $300 000, the Bank of Montreal will get $200 000, Jack will get
$100 000, and Bob will get $100 000.
d. The concept of the equity of redemption is irrelevant with respect to subsequent
mortgages.
e. The terms of a subsequent mortgage must reflect the mortgagor’s equity of redemption.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
Essay Questions
1) Briefly explain the need for some form of land registration system.
2) Briefly explain the relationship between the mirror principle and the curtain principle in
the context of a land titles system.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
3) In the context of land registration systems, what is the insurance principle? Is this
principle applicable under a registry system or under a land titles system?
4) Salvatore is considering buying a piece of land called Blackacre that previously
contained a chemical factory. He has hired an environmental auditor. As Salvatore
explained, “It’s a good move from a risk management perspective. By hiring that person, I
may avoid liability in the first place and I may have access to a source of compensation if
something goes wrong later on.” Explain the meaning of Salvatore’s statement.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
5) Irene agreed to sell a piece of land called Blackacre to Noriel. That contract was subject
to a condition precedent. The condition precedent was concerned with Noriel’s ability to
arrange suitable financing. Does a contract already exist? Is either party required to do
anything immediately? If the condition is not met, can either party be held liable? Explain
your answers.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
6) On January 1, Ichiro contractually agreed to sell a piece of land called Blackacre to
Mandy for $250 000. The sale was scheduled to close, and the price was expected to be
paid in full on December 1. Before that date, however, the value of Blackacre increased to
$350 000 because of a general increase in the real property market. Ichiro now refuses to
complete the transaction by transferring Blackacre to Mandy. She admits that she wanted to
purchase the property for investment purposes only. Nevertheless, she claims that if she
does not receive specific performance, she will not enjoy the benefit of the contract. Will a
court award specific performance? If not, is there any other way for Mandy to enjoy the
benefit of the contract? Explain your answers.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
7) Pascale bought a piece of land called Blackacre from Jeff. The purchase price was $500
000. The purchase was made entirely on credit. Although Pascale has taken possession of
Blackacre, she has not paid any part of the purchase price, despite being required to do so
by the sales agreement. Jeff wants to have Blackacre seized and sold in order to provide a
fund with which the purchase price can be paid. Unfortunately for him, he did not receive a
mortgage over Blackacre. Is there any other basis upon which he can take action against
Blackacre in order to receive payment? Explain your answer.
8) On March 1, Eleanor entered into a contract to buy a piece of land called Blackacre from
Hershey. The purchase price was $200 000. Eleanor paid $20 000 immediately and
promised to pay the remainder when the sale closed on June 1. On June 1, however,
Hershey refused to complete the sale. He also refused to refund Eleanor’s $20 000. He
honestly explained that while he has Blackacre, he simply does not have any money so he
needs the deposit money to live on. What remedy should Eleanor use? Explain your
answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
9) Raj bought a piece of land called Blackacre from Erin for $200 000. In making that
purchase, he created a mortgage over Blackacre. Explain a situation in which the sale and
the mortgage involved only Raj and Erin. Explain a situation in which the sale and the
mortgage involved Raj, Erin, plus another person.
10) Syd borrowed $100 000 from Marnie. To secure repayment of that loan, he created a
mortgage over a piece of land called Blackacre. Syd has now repaid the loan and complied
with all of the terms of the mortgage. Under what circumstances will Marnie be required to
complete a re-conveyance of title? Under what circumstance will she be required to
complete a cessation of charge?
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
11) Monique owns a piece of land called Blackacre. Blackacre is worth $500 000. Monique
created a mortgage in Bjorn’s favour to secure repayment of a $200 000 loan that she
received from him. A short time later, she created a subsequent mortgage in Mike’s favour
to secure repayment of a $250 000 loan that she received from him. Does the existence of
two mortgages expose Monique, Bjorn, or Mike to a substantial risk of financial loss?
Explain your answer.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
12) Belinda owned a piece of land called Blackacre. On Monday, she used it to create a
mortgage in favour of Johnny. On Tuesday, she used it to create a subsequent mortgage in
favour of Humphrey. Humphrey registered his mortgage on Thursday. Johnny registered
his mortgage on Friday. Explain a situation in which Johnny’s mortgage has priority over
Humphrey’s. Explain a situation in which Humphrey’s mortgage has priority over Johnny’s.
13) Zelda owned a piece of land called Blackacre. She borrowed $200 000 from the Bank
of Regina. As security for the repayment of that loan, she created a mortgage over
Blackacre. During the next 12 months, Zelda made several payments on the loan. At the
end of that year, her debt to the Bank of Regina was reduced to $175 000. She then agreed
to sell Blackacre to Fabio for $250 000. Fabio’s lawyer has told him that there are two
options for paying the purchase price. Under the first, Fabio would fulfill Zelda’s obligation
to repay the loan to the Bank of Regina. Under the second, Fabio would pay the purchase
price by borrowing money from the Bank of Moncton, and by creating a new mortgage in
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
favour of that bank. Explain in greater detail how each of those options would work. How
would Fabio decide which option to use?
14) Evan borrowed $100 000 from Joanna. As security for the repayment of that debt, he
created a mortgage over Blackacre. Blackacre consists of a piece of land and a house.
Explain why is it important to both parties that Blackacre is protected by insurance.
McInnes/Kerr/VanDuzer: Managing the Law: The Legal Aspects of Doing Business, Fourth Edition
Chapter 16: Real Property: Sales and Mortgages
15) Identify and briefly explain why the remedy of possession often is not particularly
attractive to a bank that is a mortgagee.
