2006 BCSC 1016 Paterson et al v. Ridout et al

Before: Master McCallum

Reasons for Decision

Counsel for the Petitioners	William R. Southward
Counsel for the Respondent, Ruby Michelle Ridout	F. Kenneth Walto
Counsel for the Respondent, David Hugh Ridout	Robert W. Nelford
Date and Place of Hearing:	June 27^th, 2006
	Duncan, B.C.

[1] In 1993 Gertrude Marguerite Ridout created a trust (“Trust”) in favour of her son David Ridout (“David”) and appointed the Petitioners in this proceeding as her trustees. In 1995 David and his wife Ruby Michelle Ridout (“Ruby”) bought a house and mortgaged the house to secure a loan to them from the trust. The loan was advanced as a demand loan and bore no interest. No payments were required on the loan and none were made. In April 2006 the Petitioners commenced this proceeding demanding payment of the loan secured by the mortgage. Ruby says the foreclosure proceeding is statute barred and the Petitioners cannot foreclose on the mortgage.

BACKGROUND FACTS

[2] The Trust created in 1993 was put in place for the benefit of David. The trustees were directed to invest the capital of the trust and pay the net income to David during his lifetime. The Petitioners in their capacity as trustees have broad discretion as to income payments and are authorized to encroach on capital for David’s benefit as they determine.

[3] The trustees have the power to invest the capital of the Trust as they see fit and they are not limited to investments authorized by law for trustees. In 1995 David and his wife Ruby bought a house and the trustees determined to lend them $124,500 to assist in the purchase. The loan was secured by way of a mortgage granted by David and Ruby and registered against the title to the house.

[4] The mortgage is drawn in favour of David Allan Paterson and John Reid McMillan “in Trust”. The loan is stipulated to be without interest and payable on demand. No payments are required on the loan and none were made. The loan funds were advanced on or about September 28, 1995, being the date of registration of the mortgage.

[5] David and Ruby separated in 2001 when David moved out of the mortgaged premises. Ruby has remained in the premises. Ruby commenced divorce proceedings in 2002. The Petitioners in this proceeding are defendants in the divorce proceeding in their capacity as trustees of the Trust. David was ordered to pay interim support to Ruby at the rate of $800.00 per month commencing November 1, 2002. There are apparently significant arrears accumulated under that support order.

[6] On January 2, 2002 the Petitioners wrote to counsel for David and Ruby to confirm certain details of Trust payments being made for the benefit of David and Ruby pursuant to directions from David. The Petitioners also suggested in that correspondence that they wished to have the “Mortgage debt” repaid to the Trust and that the property ought to be transferred to the Trustees to facilitate a sale. The Petitioners agreed that if the property sold for more than the amount of the mortgage debt any balance would be held for the benefit of David and Ruby.

[7] On January 10, 2002 David’s counsel replied to the letter of January 2, 2002 stating that David “agrees with the house being sold and the mortgage loan being repaid to the Trust”.

[8] On February 7, 2002 Ruby’s counsel replied to the letter of January 2, 2002 observing that Ruby would need alternate accommodations if the property were sold and stating “ it is premature for Ms. Ridout to agree to transfer the mortgage to the trust”. I digress to note that the reference to transfer of the “mortgage” must have been meant to be transfer of the house. The mortgage was already the property of the Trust.

[9] On April 11, 2006 the Petitioners commenced this proceeding in their own names claiming foreclosure of David and Ruby’s interest in the property and judgment against them for $124,500 being the amount owing under the mortgage. The petition was set down for hearing on June 21, 2006.

[10] Ruby filed a motion in response asking for a declaration that the debt secured by the mortgage had been “extinguished by operation of the Limitation Act”. If Ruby’s motion fails she agrees that an order nisi of foreclosure should go with the usual 6-month redemption period. At the conclusion of the hearing an order was made in Ruby’s favour for conduct of sale of the property pending determination of Ruby’s motion and the order nisi application.

DISCUSSION

[11] Ruby says that the Petitioners commenced this proceeding out of time. She says the appropriate limitation period is 6 years and the proceeding had to be commenced before September 30, 2001 being the 6^th anniversary of the date of the mortgage. A plain reading of section 3 (6) (a) of the Limitation Act [RSBC 1996] Chapter 266 (the “Act”) would seem to confirm that:

(6) Without limiting subsection (5) and despite subsections (2) and (4), after the expiration of 6 years after the date on which right to do so arose an action may not be brought:

(a) by a secured party not in possession of collateral to realize on that collateral;

[12] The Petitioners say that the appropriate limitation period is 10 years as provided for in section 3(3)(d) of the Act:

(3) After the expiration of 10 years after the date on which the right to do so arose a person may not bring any of the following actions:

(d) to recover trust property or property into which trust property can be traced against a trustee or any other person;

[13] Although the proceeding was commenced outside even the 10-year period from the date of the mortgage the Petitioners also say the cause of action was confirmed within the 10-year limitation period. If that were so, section 5 of the Act provides that the time prior to the confirmation is not to be included in the reckoning of the limitation period and the proceeding would have been commenced before the period expired.

[14] The Act defines trust as including “an express, an implied and a constructive trust” but excluding “the duties incident to the estate or interest of a secured party in collateral”. In order for the Petitioners to succeed in their submission this proceeding would have to be found to be an action to recover trust property. This proceeding is not one brought to recover trust property since David and Ruby never had trust property. They had the proceeds of a loan made to them by the trustees from the capital of the trust. This proceeding is clearly one of those contemplated by section 3(6)(a) of the Act.

[15] Assuming the proceeding could be characterized as one to recover trust property the Petitioners would still face the hurdle of establishing that Ruby confirmed the debt during the 10-year period following the making of the loan. Absent that finding the 10-year limitation period would preclude a proceeding to recover trust property and Ruby would be entitled to her declaration that the Petitioners could not recover against her.

[16] Ruby’s counsel made the reply set out in paragraph 8 of these reasons. The words used could not be interpreted to be an acknowledgment of the debt. Her counsel acknowledged only that the Petitioners were anxious to know Ruby’s position with respect to the suggestion that the property be sold in some fashion. Her reply is ambiguous at best and cannot be taken as an acknowledgment of the debt.

[17] The Petitioners’ proceeding was brought out of time even assuming a 10-year limitation period because there were no payments and no acknowledgment of the debt as required by the Act. In fact, the proceeding is by a secured party not in possession of collateral to realize on the collateral and is governed by the 6-year limitation. There is no suggestion that the debt was acknowledged during that limitation period. These circumstances are indistinguishable from those described by Edwards J. in Bilkey v. Paul 2004 BCSC 167. The court there found that where a demand loan was secured by a mortgage the 6-year limitation period commenced to run from the making of the loan and that demand was not necessary.

CONCLUSION

[18] Ruby is entitled to the declaration she seeks. The Petitioners’ application for order nisi is dismissed. The Petitioners’ cause of action is statute-barred and the proceeding must be dismissed. The Registrar of Titles is directed to cancel the registration of mortgage EJ104747 and the Certificate of Pending Litigation registered in this proceeding.

[19] Ruby is entitled to costs on Scale 3 as against the Petitioners.

“Master William McCallum”

Citation:	*Paterson et al v. Ridout et al,*
	2006 BCSC 1016