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In our last newsletter, we discussed the case of Liorti v. Menzies [2005] O.J. No. 5564. In that case, you may recall, mother’s mortgage was secondary collateral to son’s primary mortgage and the lawyers dealt only with son. We reported that the essence of the decision of the trial judge was, “son and mother were clients and since mother was liable for the full loan, the lawyers owed a duty to obtain her instructions; they did not do so and, accordingly, the payment of the proceeds was a breach of trust.”
Unfortunately, by the time that we reported on the decision, it had, unbeknownst to us, been reversed on appeal in December 2006. We had not noted up the case because, normally, all of the cases upon which we report are so recent that they are the last word. So here is a word of advice that we did not follow: always update your cases.
Reversal
The Court of Appeal reversed the trial judge at [2006] O.J. No. 4872 . The trial judge had decided that mother’s mortgage was secondary and not primary, but held that this determination was unimportant; the real question was whether the lawyers held the mortgage advance in trust for both son and mother. The Court of Appeal held that the decision that the mortgage was secondary security answered the real question. The consideration that mother received for her mortgage was the advance of the money on the primary mortgage to son; therefore, the lawyers held the monies in trust for son and not for her.
Hindsight
We made some hindsight comments in our previous analysis. The result in the case may have changed, but our comments about practising defensively do not. Had the lawyers acted for the mortgagee only, the lawyers would have obtained a direction for funds from mother and son and the action would not have arisen. Had the lawyers acted for only mother and son, the action would not have arisen. Had the lawyers acted, as they did, for both parties, but obtained a direction, as they would have done had they acted only for the mortgagee, there would have been no action.