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Supreme Court of Canada

Solicitors—Negligence—Loan transaction—Security received substantially different from that to which client entitled—Damages.

The appellant W, who practised law in partnership with his co-appellant L, acted for the respondent R in a loan transaction whereby R advanced $50,000 to one P. The latter had proposed to secure the loan of that amount by a variety of securities including, inter alia, (1) a first mortgage on his residence, (2) a chattel mortgage on the furniture therein, (3) an assignment of a half interest in the remainder of his father’s estate, which estate was said to have a value of approximately $300,000.

Default occurred in the repayment of the loan and the respondent took some steps to realize on his security. He realized on the mortgage on P’s residence and obtained about $15,000 as a result of such action. The life tenant was still alive and, therefore, P was not entitled to any share in the estate and nothing could be realized upon that security.

The trial judge found that W was negligent in certain particulars in the carrying out of the loan transaction. However, in his view, there was no evidence upon which he could find that R had sufferred at the time of the trial any pecuniary loss because of W’s acts or omissions. The decision as to whether any loss would be suffered by R rested upon the termination of the life interest. Accordingly, the trial judge determined that he could only allow nominal damages to the respondent. On appeal, the Court of Appeal allowed the appeal and awarded damages to the respondent. The appellants then appealed to this Court.

Held: The appeal should be dismissed.

[Page 866]

When the respondent turned to realize on the assignment of P’s interest in the estate of his late father he found that, as a result of his solicitor’s negligence, rather than having available for sale an absolute one-half interest in an estate of $300,000 subject only to a life interest he had an assignment of one-half interest in the estate should the assignor survive the life tenant. Moreover, such conditional interest in the residue of the estate was subject to the possible encroachment thereon by the life tenant with the consent of the executors and was also subject to certain assignments which would take priority over this assignment although it had been purported to be an absolute first assignment.

There was no reason why the respondent should have been compelled to await the death of the life tenant of the estate before he realized on his security. He could have assigned that interest for value and with the proceeds of such assignment have paid off his indebtedness. Therefore R had suffered a loss through the negligence of his solicitor so soon as there was default on the loan.

The measure of R’s damages would be the difference in the value of the security which he had and upon which he could realize by sale upon the default occurring, and the value of the security which he was entitled to have, and which he could have realized by sale upon default occurring. In view of the practical difficulty of assessing damages in such a formula, the Court of Appeal correctly directed that judgment should go in favour of R against W and L for the net amount owing at the date of the payment of the judgment on the loan, together with the costs of the trial. Upon payment of that amount and of the costs, R was to assign to W and L the loan and all the securities held by him with respect to such loan.

Chaplin v. Hicks, [1911] 2 K.B. 786; Whiteman v. Hawkins (1878), 39 L.T. 629; Yardley v. Coombes (1963), 107 Sol. Jo. 575; Lake v. Bushby, [1949] 2 All E.R. 964, referred to; Building and Civil Engineering Holidays Scheme Management Ltd. v. Post Office, [1965] 1 All E.R. 163, applied.

APPEAL from a judgment of the Court of Appeal for Ontario[1], allowing an appeal from a judgment of Moorhouse J. Appeal dismissed.

[Page 867]

C.A. Keith, for the defendants, appellants

Claude Thomson, for the plaintiff, respondent.

The judgment of the Court was delivered by

SPENCE J.—This is an appeal from the judgment of the Court of Appeal for Ontario1 pronounced on October 4, 1968. By that judgment, the said Court allowed an appeal from the judgment of Moorhouse J. pronounced after trial on February 21, 1968. In that judgment, Moorhouse J. had found for the plaintiff, the respondent in this Court, but had awarded only nominal damages in the sum of $10. The Court of Appeal were of the opinion that the plaintiff, here respondent, was entitled to an award of damages and made an award in terms which will be discussed hereafter.

The respondent Rowswell was the client of the appellant Allan C. Wilson, who was carrying on the practice of law in the City of Toronto in partnership with his co-appellant Leonard J. Lugsdin. The respondent had, prior to the transactions involved in this appeal, made several investments and had retained the appellant Allan C. Wilson to carry out the legal work in reference thereto.

The transaction with which this appeal is concerned arose through a Mr. Butt introducing to the respondent Rowswell a prospective borrower Norman Bernice Pettit of the City of Owen Sound. Mr. Pettit desired to borrow $50,000 and proposed to secure the loan of that amount by a variety of securities including, inter alia, (1) a first mortgage on his residence premises in the City of Owen Sound, (2) a chattel mortgage on the furniture therein, (3) an assignment of a half interest in the remainder of the estate of the late Clarence Robertson Pettit, the father of the borrower, which estate was said to have a value of approximately $300,000.

The learned trial judge has found that this assignment was to be an assignment of an absolute right to have one-half of the total of the said estate after the life interest and that the assignment was to be a first assignment of such prospective interest after the death of the life tenant.

[Page 868]

The details in reference to the carrying out of this transaction need not be discussed but the learned trial judge has found that the appellant Wilson was negligent in eight particulars and in his reasons for judgment the learned trial judge outlined those particulars as follows:

(1) His failure to obtain and report to his client with an adequate credit report as he admits he was instructed to do. He has no definite knowledge of what he did with the information he obtained other than a telephone call from his bank saying Pettit paid his cheques. He made no record of this item or many others for that matter.

(2) His failure to immediately make a copy of or to retain ex. 1 if he did not then retain it.

(3) His failure to inform his client the real estate was not clear as represented in ex. 1.

(4) His failure to inform his client the real estate was in the name of Pettit’s wife.

(5) I think it not unreasonable to have expected the credit report would refer to Pettit’s company since it was giving a substantial promissory note of $50,000 to Pettit. Rowswell says Pettit told him the purpose of the loan was to put in a business. This may have been the business.

(6) He seems to have relied without due caution upon both Butt and Pettit. Butt was an agent who introduced the borrower and the lender and who was being paid a substantial fee out of the loan by Pettit. Wilson issued a cheque to Butt.

(7) He disbursed the loan moneys before he was entitled on his instructions to do so without

(a) registering the land mortgage;

(b) making any subsearch, although charged for, or a search for executions;

(c) upon the word of Pettit only that one or two prior mortgages had been paid and before a discharge thereof was registered or to his knowledge, available. A discharge of the Gray mortgage is dated the 30th of June 1960 and it is not too difficult to infer that the discharge may have been obtained by the cheque for $12,000 to which I will later

[Page 869]

refer. One duplicate of the mortgage not being in form for registration, he sent the mortgages to Pettit’s solicitor in Owen Sound, with no instructions for a subsearch, but only to correct and register;

(d) ascertaining from the executors of Clarence Robertson Pettit’s Estate the position of the estate and whether or not that interest was unencumbered. His telephone conversations with Guaranty Trust Company and to Pettit’s brother, a co-executor, both of which Wilson described as “cool” should, in my opinion, have been a warning signal to be cautious. The loan was at a high rate of interest. Wilson does not endeavour to shield himself by saying Pettit was an executor and he acted upon his representation;

(e) obtaining any written directions from Pettit’s wife for disbursement of the mortgage funds the title being in her name;

(f) obtaining any evidence of independent advice to Pettit’s wife on the signing of the mortgage by her.

(8) In my respectful opinion he did not obtain a proper primary security having regard to the nature of the transaction (some of those reasons I have previously outlined). It is said the promissory note (ex. 7) is not a promissory note in law. I do not find it necessary to make a determination of that question, though it is pointed out that it has two dates. In any event, there is a change opposite the signature of Pettit which has not been initialled nor is the change explained in the evidence. In view, however, of Pettit’s bankruptcy and no defence of change having been set up, it is not crucial to my determination. Reference is made to repayment “upon payment of a bonus” without any indication of the amount of the bonus or how it is to be computed. In my respectful opinion, the meaning of this document is not certain. I think the plaintiff was entitled to expect that the meaning would be clear and explicit.

Neither in the Court of Appeal nor in this Court did the appellants contest that finding of negligence.

[Page 870]

The learned trial judge having outlined the negligence as I have set out above continued:

There is no evidence upon which I can find the plaintiff has suffered at the time of this trial any pecuniary loss because of Wilson’s acts or omissions.

It was for that reason that the learned trial judge determined that he could only allow to the respondent nominal damages which he fixed at $10 and the costs of the action.

The promissory note evidencing the advance of $50,000 by the respondent to Norman Bernice Pettit called for payment of $502.30 on the first day of each month commencing on August 1, 1960. Twenty-five only of such payments were made default occurring on the payment due on September 1, 1962, and no further payments were made thereafter. Pettit made an assignment in bankruptcy on September 6, 1963, and he has subsequently been discharged from bankruptcy. The respondent took some steps to realize upon his security in light of such default. The respondent realized on the mortgage on Mr. Pettit’s residence and obtained about $15,000 as a result of such action. At that time and up to the date of the trial, the widow of Clarence Robertson Pettit was still alive and, of course, therefore, Mr. Pettit was not entited to any share in the estate and nothing could be realized upon that security. The fact remains, nevertheless, that the security which the respondent held in reference to the estate of Clarence Robertson Pettit was not an assignment of an absolute interest in one-half of the estate subject to the termination of the life interest but was an assignment of the interest which Norman Bernice Pettit had should he outlive the life tenant and was subject, in addition, to the fact that the will provided that the life tenant might encroach upon the principal with the consent of the executors. The executors were four in number, a trust company, the life tenant, the borrower Norman Bernice Pettit, and his brother. Moreover, and most important, there had been registered with the executors prior to the assignment of Norman Bernice Pettit’s interest to the respondent two other assignments of the said interest and prior to the time that the

[Page 871]

appellant Wilson registered the assignment in favour of his client the respondent Rowswell there was registered a third assignment of the interest, that in favour of the Toronto Dominion Bank. The judgment at trial proceeded on the basis that it could not be determined whether the respondent Rowswell would suffer any loss through the negligence of the appellant Wilson until after the death of the life tenant of the estate of Clarence Robertson Pettit when it could be assessed whether the portion of the estate which would then become payable to Norman Bernice Pettit if he were at that time still alive would support the payment of those assignments which were prior to that to the respondent Rowswell and, in addition, discharge the full debt remaining to the respondent Rowswell.

With respect, I am of the opinion that the Court of Appeal for Ontario was correct in finding that this analysis of the situation was at fault. The loan was in default. The respondent Rowswell, as the lendor, was entitled to realize upon his securities. The respondent did realize on one security, the first mortgage on the home of Norman Bernice Pettit, but only was able to discharge the debt to the extent of about $15,000 by such means. When the respondent Rowswell turned to realize on the other and much the most important security this assignment of the debtor’s interest in the estate of his late father, Clarence Robertson Pettit, he found that rather than having available for sale an absolute one-half interest in an estate of $300,000 subject only to a life interest he had an assignment of one-half interest in the estate should the assignor survive the life tenant. Moreover, such conditional interest in the residue of the estate was subject to the possible encroachment thereon by the life tenant with the consent of the executors and was also subject to at least two and perhaps three assignments which would take priority over this assignment although it had been purported to be an absolute first assignment.

There was no reason why the respondent Rowswell should have been compelled to await the death of the life tenant of the estate of Clarence Robertson Pettit before he realized on his security. He could have assigned that interest for value and with the proceeds of such assign-

[Page 872]

ment have paid off his indebtedness. As an example, if the security had been bonds which were payable in 1975 he would not have had to wait until 1975 to present the bonds for payment. He could have sold them to any investment dealer in the ordinary course of business and perhaps upon reasonable notice to the debtor. Therefore, the creditor, the respondent Rowswell, had suffered a loss through the negligence of his solicitor, the appellant Wilson, so soon as there was default on the loan. It need not be considered whether the loss would have occurred at such time or earlier upon the acts of negligence which were committed by the appellant Wilson. No question of limitation arises although such question might and probably would arise were the respondent forced, as the learned trial judge was of the opinion he was forced, to await the death of the life tenant before taking the action to recover the damages which he would then have suffered.

With respect, therefore, I am in agreement with the view of the Court of Appeal for Ontario that the respondent Rowswell had suffered damages for which he should be compensated. The measure of those damages would be the difference in the value of the security which he had and upon which he could realize by sale upon the default occurring, and the value of the security which he was entitled to have, and which he could have realized by sale upon default occurring. This exact measure of damages was suggested by the Court of Appeal in the reasons given by McGillivray J.A. McGillivray J.A. realized, of course, that the assessment of such damages would be a difficult and time consuming task. Such a circumstance, however, has never been held to bar the injured party’s right to have damages estimated and to hold him to an award of merely nominal damages.

The learned author of Mayne & McGregor on Damages, in the 12th edition, at p. 163, said:

On the other hand, where it is clear that some substantial loss has been incurred, the fact that an assessment is difficult because of the nature of the damage is no reason for awarding no damages or merely nominal damages.

[Page 873]

In the interesting case of Chaplin v. Hicks[2], Vaughan Williams L.J. said at p. 791:

It is said that in a case which involves so many contingencies it is impossible to say what was the plaintiff’s pecuniary loss. I am unable to agree with that contention. I agree that the presence of all the contingencies upon which the gaining of the prize might depend makes the calculation not only difficult but incapable of being carried out with certainty or precision. The proposition is that, whenever the contingencies on which the result depends are numerous and difficult to deal with, it is impossible to recover any damages for the loss of the chance or opportunity of winning the prize… I only wish to deny with emphasis that, because precision cannot be arrived at, the jury has no function in the assessment of damages.

And Fletcher Moulton L.J. said at p. 795:

I think that, where it is clear that there has been actual loss resulting from the breach of contract, which it is difficult to estimate in money, it is for the jury to do their best to estimate; it is not necessary that there should be an absolute measure of damages in each case.

Counsel for the appellants cited Groom v. Crocker[3], but that was a case in which in fact the plaintiff had suffered no damages as he had been completely indemnified by his insurance company. Ford v. White & Co.[4], another case cited by counsel for the appellants, was one in which it was held that the plaintiff had suffered no damage when he had received, through breach of contract, not what he had bargained for but something which had the same market value as he had paid. The case, in my view, is irrelevant in considering the present situation.

A decision much closer to the present circumstances is that in Whiteman v. Hawkins[5]. In that case, a borrower had requested that his lender increase the advance by £400. The lender agreed to do so but required that a small additional piece of property purchased by the borrower after the first advance be included in the security. Due to a solicitor’s negligence, the lender was not informed that that small piece of property was subject to an equitable mortgage amount-

[Page 874]

ing to £46. When the loan went into default, the lender was in the course of realizing upon his security and discovered this equitable mortgage. In order to make title on the properties sold, he paid off the equitable mortgage. He had not yet completed realization on all securities but he took action against the solicitor claiming this £46 item as damages for negligence. Denman J. said at p. 631:

Then he [the County Court Judge] came to the conclusion that the only damages that could have been awarded were nominal damages. I think from his note it is clear that he did so on the erroneous supposition that, so long as there was a possibility of the plaintiff recouping himself, he could give him no damages. I know of no such law. Have we then the materials before us now for assessing the damages in this action? It appears to me that we have. The amount of damage proved was £46; and there was no evidence in contradiction of that. I think that prima facie the damages would be the amount of money the plaintiff was out of pocket by the transaction.

In Yardley v. Coombes[6], Edmund Davies J. considered a case where a solicitor had allowed the period of limitation to pass before issuing a writ against a defendant in a damage action. It was held that it was the duty of the Court to assess, in view of the various factors, the plaintiff’s possibility of success in such an action and to award him such a valuation which would represent his possible success. The learned trial judge was of the opinion that £3,000 would have been awarded as damages and by an estimate of the contingencies of the action awarded the plaintiff £1,000.

An interesting example of the estimation of damages due to a solicitor’s negligence is a case cited by counsel for the respondent, Lake v. Bushby[7]. There, Pritchard J. said at p. 969:

The result is that the plaintiff bought for £880 land plus what I may call a secure building and

[Page 875]

what he got was land plus a threatened building, and, if it is possible to arrive at a figure which represents his loss calculated in that way, that is the figure which the second defendants ought to pay in respect to the damage occasioned by their breach of duty.

The learned trial judge then considered the various factors and assessed the damages against the second defendants at £100.

In the present case, the learned trial judge in his judgment provided that the right was reserved to the plaintiff to commence an action for loss if so advised when the estate of Clarence Robertson Pettit was ready for distribution. Both counsel agreed in argument in this Court that such a purported reservation of right and attempt to defeat the provisions of the Statute of Limitations was not within the power of the Court. It was the submission of counsel for the appellants that the fact that a plaintiff’s right to recover any damages might be defeated by the operation of the Statute of Limitations was irrelevant in considering whether he should have a right to an action prior to the time when the loss could be assessed citing Schwebel v. Telekes[8]. That decision, however, illustrates the proposition that the Statute of Limitations commences to run at the time of the breach and not at the time the breach was discovered and the fact that the breach might not have been discovered until after the period of limitation had run out did not permit any extension of the period. The argument that any difficulty in ascertaining the loss prior to the realization of the securities must result in the postponement of a right of action and a right to claim damages until such time was, however, dealt with in Building and Civil Engineering etc. v. Post Office[9]. Lord Denning M.R. said at p. 169:

I pressed him on this point to say, when did the cause of action arise? Only, he said, when the stolen stamps were presented for payment. That is palpably wrong. The cause of action arises as soon as the goods are lost or damaged in transit. Indeed the period of limitation (which is only one year) begins

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to run as soon as the packet is posted; see s. 5(3) of the Law Reform (Limitation of Actions &C.) Act, 1954. If the plaintiffs had to wait until the stolen stamps were presented and paid, they might lose their action before they had it; which is absurd.

With respect, I also view as absurd the proposition that the respondent Rowswell had in this case to wait until the termination of the life interest before he could prove any damages due to the solicitor’s negligence.

The Court of Appeal realizing the practical difficulty of assessing damages in a formula which I have set out above and which that Court adopted, consulted counsel and counsel agreed that if there were damages which were payable then the device adopted in McLellan v. Milne[10] should be followed. The Court, therefore, directed that judgment should go in favour of the plaintiff, here the respondent, Rowswell against the defendants Wilson and Lugsdin, here appellants, for the net amount owing at the date of the payment of the judgment on the loan made by the respondent to Pettit, together with the costs of the trial. Upon payment of that amount and of the costs then the respondent Rowswell was to assign to the appellants Wilson and Lugsdin the loan and all the securities held by him with respect to such loan. I am of the opinion that such an order was an accurate and efficient manner to deal with the problem of difficulty in assessment of the damages and I would affirm the judgment of the Court of Appeal for Ontario. The respondent is entitled to the costs of the appeal to this Court.

Appeal dismissed with costs.

Solicitors for the defendants, appellants: Keith, Ganong & Roberts, Toronto.

Solicitor for the plaintiff, respondent: Malcolm Robb, Toronto.



[1] [1969] 1 O.R. 22, sub. nom. Rowswell v. Pettit et al.

[2] [1911] 2 K.B. 786 (C.A.).

[3] [1938] 2 All E.R. 394 (C.A.).

[4] [1964] 2 All E.R. 755.

[5] (1878), 39 L.T. 629.

[6] (1963), 107 Sol. Jo. 575.

[7] [1949] 2 All E.R. 964.

[8] [1967] 1 O.R. 541.

[9] [1965] 1 All E.R. 163 (C.A.).

[10] [1937] O.R. 742.

 

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