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Hear No Evil

Posted on June 1, 1997 | Posted in Lawyers' Issues

Litigation cases are almost invariably decided on the facts. This was demonstrated in graphic detail in Szelazek Investments v. Orzech, an unreported 1997 decision of the Ontario Court (General Division).

Players

The plaintiff is a corporate private lender, represented by Woan. The mortgagor is a commercial property owner represented by Raven or her corporations. The Thickson property is a residential property owned by Raven or her corporations. The Lawrence property is a commercial property owned by Raven or her corporations. The defendant lawyer is the sole tenant of the Lawrence property and Raven is the lawyer’s largest client. Woan is called by a mortgage broker and told that Raven needs money.

Plaintiff’s Story

Woan wanted to meet the lawyer. On August 31, he arrived at the lawyer’s office at the Lawrence property and was given a tour by Raven. The lawyer met them in his boardroom. The deal was made. Woan is to bridge finance the Thickson property for 35 days at 13% for a $7,500 finder’s fee. He is to receive a first mortgage on the Thickson property to be held in trust for him by Raven’s corporation, and a second mortgage on the Lawrence property. The lawyer assures Woan that Woan will be the “owner” of the Thickson mortgage.

The next day Woan met with Raven. He advanced the mortgage money to Raven and received a post-dated cheque 35 days hence for the principal plus interest. He signed a document acknowledging that the lawyer was acting for him and Raven.

One week later Woan received from Raven a promissory note for $150,000, a copy of the Thickson mortgage, and an unsigned letter from the lawyer on the lawyer’s letterhead. The letter stated that “in accordance with your instructions … we have today registered a mortgage against the (Thickson) property..” The letter was dated August 31.

  Another week later, Woan received a letter from the lawyer reporting on the registration of a mortgage on the Lawrence property. It is a third mortgage subject to a first of $568,000 and a second of $112,500 that “will be paid off in the near future”. Woan did nothing as he expected the proceeds to be within weeks.

Raven told Woan the post-dated cheque would bounce. The lawyer did not return Woan’s calls. The Thickson mortgage was discharged by the trustee, the Lawrence property was sold under power of sale, and Raven and her corporations went bankrupt.

Defendant’s Story

The lawyer denied that he was at the original meeting between Woan and Raven or that he was jointly retained. He alleged that he was retained by Raven to register a mortgage on the Lawrence property and he did so. He recalled meeting Woan after the monies were advanced and being told that Woan liked to receive “a letter from a lawyer”. He therefore wrote a letter to Woan reporting on the Lawrence mortgage. The lawyer had no file on Thickson because the clients agreed that anything relating to Thickson was to be replaced by the mortgage on Lawrence. Since Woan never retained the lawyer, the lawyer had no duty to tell Woan that the prior mortgagee had already commenced power of sale proceedings on the Lawrence property.

The Documents

The lawyer’s secretary, on instructions from Raven, prepared the Thickson documents. This was not an unusual practice for the lawyer – even though the lawyer admitted that this was not desirable for a careful solicitor.

The solicitor kept a diary, but had no notes to indicate where he was on August 31, the date of Woan’s alleged meeting with the lawyer and Raven.

The Lawrence file contained “no dockets, no search records, and no instructions to a real estate conveyancer”. There was a letter to Woan. As the judge stated, “to put it mildly, the letter is almost a complete fabrication”. The letter falsely claimed that the lawyer had verified taxes and insurance. Unfortunately the lawyer had done no searches and all his information came from Raven. Of course, if Woan never retained the lawyer, why was the lawyer verifying taxes and insurance.

The Lawrence file contained a joint direction to the lawyer from Raven and Woan regarding the Lawrence mortgage. The lawyer was “puzzled by the existence of this document in his file”.

The letter from the lawyer to Woan stated that the Lawrence mortgage “constitutes a valid charge”. The lawyer stated that this phrase had no meaning and was not a certificate of title. The same letter concluded that the lawyer “was pleased to be of assistance”. The lawyer maintained that Woan was not his client and that the letter was not a reporting letter.

Crunch Time

     Is there any doubt as to what the judge found the facts to be? She found that the letter written on the lawyer’s letterhead was binding on him even though unsigned. She found him responsible for the Thickson mortgage documents prepared by his secretary on instructions from Raven – including the subsequent discharge of the mortgage. She found that the lawyer was at the first meeting with Woan on August 31. She stated, “I believe that if he had been elsewhere than at this meeting, he would have been able to verify this”. Finally, she found that Woan retained the lawyer for the entire transaction.

Decision

With these findings, the decision was inevitable. The lawyer was held negligent. He was ordered to repay the entire lost amount of $150,000, less the finder’s fee.

There were many problems with the client’s story. However, the documents and, in particular, the lack of them, were so obviously contrary to the lawyer’s version of events that he was simply not believable.

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