Executive Summary: Key Legal and Evidentiary Issues

• Central issue concerns how to interpret s. 44(12.3) of The Saskatchewan Farm Security Act (SFSA): whether “mortgage that is made… solely for the purpose” refers to the agreed purpose at execution or the actual use of loan funds.
• Scope of homestead protection under s. 44(10) SFSA versus the automatic exemption in s. 44(12.3), and whether the mortgaged “home quarter” could be sold by judicial sale despite those protections.
• Significance of documentary evidence (mortgage terms, Schedule B declaration, and the Pioneer Log Homes contract) in proving the purpose for which the mortgage was made.
• Effect of the lender’s discretionary “advances” clause on its right to stop further lending after the log house was destroyed and the implications for alleged non-compliance with the SFSA.
• Procedural question whether a King’s Bench judge could set aside an earlier order nisi for sale on the basis that it allegedly contravened statute, and when such an “exceptional circumstance” exists.
• Appellate issues of mootness (order nisi no longer operative) and standard of review (correctness on statutory interpretation) in resolving the continuing rights of the parties despite the failed sale.

Facts of the case

Donald and Sandra Monastyrski owned and lived on a quarter section of farm land in Saskatchewan that qualified as their “homestead” under s. 2(1)(h) of The Saskatchewan Farm Security Act, SS 1988-89, c S-17.1 (SFSA). The land was both their bona fide farm residence and the home quarter on which their house and buildings were situated. In July 2016 they obtained loan financing from Affinity Credit Union 2013 in the principal amount of $281,250, secured by a mortgage over this homestead property. The mortgage documentation expressly recorded the purpose of the loan as “Build [a] new log cabin on property that they own.” In Schedule “B” to the mortgage, the parties further agreed and stated that an order of the Farm Land Security Board excluding the mortgage from homestead protection under s. 44 was “not required because this mortgage is made solely for the purpose of purchasing a homestead, new construction on a homestead or making improvements on a homestead.” This language directly tracked the wording of s. 44(12.3) SFSA, which creates an automatic statutory exemption from the homestead protections in Part III where a mortgage is made solely for the purpose of purchasing or constructing or improving a homestead. In parallel, the mortgage contained an “Advances” clause that reserved broad discretion to Affinity whether to advance any particular portion of the principal. The clause provided that all advances on the mortgage were at Affinity’s discretion and that neither executing or registering the mortgage, nor advancing a portion of the principal, obligated Affinity to advance or readvance any further monies. After the mortgage was granted, the Monastyrskis contracted with Pioneer Log Homes in British Columbia for a log home to be built, transported to Saskatchewan, and erected on a foundation to be constructed on their land. Pioneer’s contract price was $168,745.40, payable in three equal instalments at execution, mid-construction, and completion prior to delivery. Affinity, through the borrowers’ lawyer, advanced two instalments that were passed on to Pioneer: $75,000 in August 2016 and $56,540 in January 2017. Affinity also advanced funds directly to the Monastyrskis for construction of the foundation, which was outside the Pioneer contract. Pioneer began work but never delivered the home. In the summer of 2017 it advised the Monastyrskis that the log structure built for them had been destroyed in a fire. The borrowers informed Affinity of the loss. After learning of the destruction and despite having advanced only about half the principal, Affinity declined to advance further funds, relying on the discretionary advances clause. Over time the Monastyrskis fell into arrears. By August 2021 they were in default under the mortgage.

Procedural history and foreclosure steps

Once default occurred, Affinity initiated the structured enforcement path mandated by the SFSA for “farm land.” Under Part II (Farm Land Security), a mortgagee cannot commence an action with respect to farm land without first obtaining an order under s. 11, after notice, mandatory mediation, and a review by the Farm Land Security Board. Affinity provided the required 150-day notice to both the borrowers and the Board and participated in mediation and Board review as required. On February 26, 2023, Affinity obtained an order under s. 11(1)(a) that clause 9(1)(d) SFSA (“no person shall commence an action with respect to farm land”) did not apply, permitting it to sue on the mortgage. Affinity then issued a statement of claim in May 2023 in the Court of King’s Bench seeking foreclosure relief. Mediation did not resolve the dispute. On October 31, 2023, Affinity obtained an order nisi for sale by real estate listing with respect to the mortgaged homestead. The property was listed, two offers were received, and the selling officer accepted one offer. Affinity then applied for an order confirming the judicial sale. In response, the Monastyrskis applied to set aside the order nisi. They argued that because the property was their homestead, s. 44(10) SFSA prohibited the court from making any order for sale of the mortgaged homestead and that the earlier order nisi was therefore unenforceable and should be set aside, or at minimum that the sale should not be confirmed.

Arguments and issues before the Court of King’s Bench

The litigation at first instance focused on the interaction between the broad homestead protections in Part III of the SFSA and the statutory exemption in s. 44(12.3). Section 44(10) provides that, notwithstanding any other law, no order for sale of a mortgaged homestead may be made in a foreclosure action or in an action for other relief by the mortgagee, and no contractual power of sale may be exercised. This is the core “home quarter protection” that can leave a lender with no remedy to force sale of the homestead so long as it remains a homestead. However, s. 44(12.3) removes Part III protection for a mortgage that is made solely for the purpose of purchasing a homestead, solely for the purpose of new construction or improvements on the homestead, or for both purposes. The dispute centred on how to read the phrase “mortgage that is made… solely for the purpose.” The Monastyrskis argued that because the SFSA has a highly protective, remedial purpose—“security for Saskatchewan family farms”—the exception in s. 44(12.3) should be interpreted narrowly. In their view, “solely” referred not just to the declared purpose at the time of the mortgage but also to the actual use of the loan proceeds over time. They contended that where construction did not occur, or where funds were not in fact used entirely for construction or improvements, the exemption should not apply. On that logic, lenders were said to carry an implied obligation to ensure that monies advanced under a homestead mortgage were in fact deployed “solely” for construction or improvement; if any portion was diverted or the project failed, the lender would “lose the benefit of the exemption.” Affinity took the opposite position. It accepted that the SFSA’s object is to protect farmers from losing their land but stressed that lender confidence and credit availability must also be preserved. It argued that s. 44(12.3) must be interpreted based on the parties’ agreed purpose at the time the mortgage was made, as evidenced in the mortgage and its schedules, not by retrospective tracing of how every dollar was spent. Affinity submitted that lenders need certainty at the time they advance funds; if exposure to homestead protection hinged on later construction contingencies and exact use of funds, lenders would hesitate to grant such mortgages at all. Affinity also argued that as a matter of procedure, it was inappropriate for one King’s Bench judge to set aside an order nisi made by another judge except in exceptional circumstances, and that the borrowers should have raised s. 44(10) before the order nisi was granted.

Decision at first instance: interpretation of s. 44(12.3) and result

The King’s Bench judge first held that the borrowers’ application to set aside the earlier order nisi was properly before him despite it having been granted by another judge. He reasoned that if the order nisi had been made in contravention of a statute—specifically, if s. 44(10) barred any sale of the homestead—this would constitute an exceptional circumstance justifying reconsideration. On the substantive issue, however, the judge rejected the borrowers’ interpretation of s. 44(12.3) and accepted Affinity’s. He interpreted the phrase “a mortgage that is made… solely for the purpose” in s. 44(12.3) as referring to “the purpose that is agreed between the lender and the farmer, at the time of making the mortgage,” not to “how the mortgage funds ultimately are used.” On the evidence, there was no dispute that at the time of the mortgage in 2016, both Affinity and the Monastyrskis agreed that the mortgage was being made solely to finance new construction of a log home on their existing homestead, and the mortgage and Schedule B clearly so stated. Because the mortgage was made solely for new construction on the homestead, the judge concluded that s. 44(12.3)(b) applied, rendering the general prohibition in s. 44(10) inapplicable to this mortgage. As a result, there was no statutory bar to an order for sale of the homestead. The judge therefore refused to set aside the existing order nisi, found no exceptional circumstance to invalidate it, and granted Affinity’s application to confirm the judicial sale of the land. In the end, the prospective purchaser withdrew, so the particular sale the judge confirmed did not close, but the legal conclusion that s. 44(12.3) exempted the mortgage from homestead sale restrictions remained critical to the relationship between the parties.

The appeal: issues, mootness, and standard of review

The borrowers appealed to the Court of Appeal for Saskatchewan under s. 106 of the SFSA, which allows appeals on questions of law from orders made under the Act. The central question was again the proper interpretation of s. 44(12.3) and whether the trial judge had erred in law. Before turning to the merits, the Court of Appeal considered whether the appeal was moot because the accepted offer had collapsed and the specific order nisi was no longer in effect. The Court held that, although the immediate controversy over that particular sale had ended, it remained appropriate to decide the interpretive question. Clarifying the operation of s. 44(12.3) would determine the parties’ rights in any future foreclosure or application for a new order nisi on the same mortgage and would resolve a live, ongoing adversarial issue between them. In contrast, the Court declined to address the borrowers’ additional arguments about exceptional hardship and Affinity’s alleged failure to advance the full principal or to comply properly with the SFSA, noting that those matters were more appropriately raised in the Court of King’s Bench should Affinity seek a new order nisi. On standard of review, the Court held that statutory interpretation is a pure question of law and that the judge’s interpretation of s. 44(12.3) was subject to review for correctness.

Appellate analysis: text, context, purpose, and legislative history

Justice Kalmakoff, writing for a unanimous panel, applied the “modern principle” of statutory interpretation, now codified in s. 2-10 of The Legislation Act, which requires that statutory words be read in their entire context and in their grammatical and ordinary sense, harmoniously with the scheme and object of the Act and the Legislature’s intention. Starting with ordinary meaning, the Court observed that a “mortgage” is made when the parties execute the agreement by which an interest in land is conveyed as security for a debt. “Purpose” denotes the aim or end to which an action is directed, and “solely” suggests exclusivity of that purpose. The language in s. 44(12.3) makes no reference to the future use of funds or to whether the intended construction proceeds to completion; it speaks of the purpose for which the mortgage is made and limits the exemption to certain enumerated purposes. On its face, the text therefore points to the jointly agreed purpose at the time the mortgage is executed. The Court then considered the broader context, including the SFSA’s scheme and legislative history. Part II (Farm Land Security) and Part III (Home Quarter Protection) both seek to protect farmers but in different ways and to varying degrees. Case law has emphasized that while the SFSA is remedial and must be interpreted liberally in favour of farmers, it also seeks to balance farmers’ protection against lenders’ legitimate need to realize on security; if enforcement were too constrained, farm credit would “grind to a halt.” The specific homestead protections of Part III are stronger, at times leaving lenders with no effective remedy so long as land remains a homestead. Yet the Legislature has also built in mechanisms—such as s. 44(12) Board orders and s. 44(12.3) automatic exemptions—to allow homestead mortgages in defined situations without undermining lending markets. Legislative history confirmed this balancing aim. The homestead stay of foreclosure originated in s. 7 of The Farm Security Act, 1944, and was carried forward into the SFSA. When the SFSA was first enacted in 1988, exclusionary orders from the Board were required in all homestead foreclosure cases, including where the mortgage secured purchase money or construction. The 1992 amendments, following extensive consultation by the Farm Debt Advisory Committee, introduced s. 44(12.3) specifically to exempt purchase-money and construction/improvement homestead mortgages from the need for repeated Board waivers. The Committee and the Board viewed such mortgages and the corresponding waivers as ordinarily in the farmer’s own best interests, and the previous case-by-case waiver process as unnecessary, costly, and burdensome for farmers, lenders, and the Board alike. This history showed that s. 44(12.3) was intended to provide an automatic, predictable exemption whenever a mortgage was made for those particular purposes, thereby encouraging lenders to extend homestead-secured financing for purchase and construction. Against that backdrop, the Court rejected the borrowers’ interpretation, which would make the exemption contingent on the actual use of the funds and the ultimate success of the construction. Requiring lenders to monitor every expenditure related to a construction mortgage—on pain of losing the exemption if the farmer later established that any portion of the funds was not used strictly for the stated purpose—was found to be inconsistent with the SFSA’s structure and with the legislative intent behind s. 44(12.3). Such a reading would create serious practical and economic obstacles to homestead lending, likely deterring lenders from financing home quarter purchases or construction at all, and would undermine the very object of the amendment. The Court also noted that the limited existing case law applying s. 44(12.3) had treated the exemption as turning on the purpose for which the mortgage was given, not on tracing the subsequent deployment of funds. Finally, the Court invoked the presumption against absurdity in statutory interpretation. An interpretation that forced lenders to “look over the farmer’s shoulder” throughout construction or risk losing all security if even a single dollar were spent outside the project would be extremely unreasonable and incompatible with the legislative objective of maintaining access to farm credit.

Outcome of the appeal and costs

Justice Kalmakoff concluded that contextual and purposive analysis reinforced the plain meaning of the text. Section 44(12.3) refers to the purpose agreed between the lender and the farmer at the time the mortgage is made and does not impose on the lender an obligation to ensure that mortgage funds are used for that purpose. Applying that interpretation, the Court held that because the mortgage in this case was undisputedly made solely for new construction on the homestead, the automatic exemption in s. 44(12.3)(b) applied and the general prohibition on orders for sale in s. 44(10) did not. The King’s Bench judge had therefore interpreted s. 44(12.3) correctly and rightly refused to set aside the order nisi on the basis advanced by the borrowers. The Court of Appeal dismissed the appeal and affirmed that, as between these parties, the mortgage is not subject to the homestead sale bar in s. 44(10). On costs, the mortgage contained a provision entitling Affinity to solicitor-client costs in enforcing its security. The Court acknowledged that such contractual terms do not displace the court’s inherent discretion over costs and that a court may refuse to enforce solicitor-client provisions where doing so would be excessive or unduly onerous in the circumstances. Exercising that discretion, the Court fixed the costs of the appeal in favour of Affinity Credit Union at $1,500 and declined to award solicitor-client costs. Accordingly, Affinity Credit Union 2013 was the successful party on the appeal. The only quantified monetary award expressly ordered in the appellate decision is costs of $1,500 in its favour; any additional monetary consequences arising from foreclosure or sale (such as debt recovery, sale proceeds, or deficiency) were not quantified in this judgment and therefore cannot be determined from the decisions provided.