Legal Blog

Strategy

There are times when a dispute must be played like a chess game. One of the better chess games that we have seen was outlined in Griffiths v. Zambosco (2001), 54 O.R. (3d) 397 (C.A.).

Story Time

Husband and wife are in the throes of a marriage breakup. In 1988, while separated, they sell an investment property for $800,000 and take back a $500,000 mortgage. The agreement states that there is to be a clause in the mortgage setting out that the mortgage is payable on the subsequent resale of the property. The lawyer who acts for them is the wife’s brother-in-law.

The lawyer registers the mortgage without the “due on sale” clause. The mortgaged property is sold twice within the following year, once for $1.275 million and once for $1.5 million. Then, of course, the real estate market tanks, the husband and wife sell the property under power of sale, and there is a $279,000 deficiency.

The Game

The husband sued the lawyer for the deficiency. He claimed that had the agreed-upon clause been in the mortgage, the mortgage would have been repaid upon the first subsequent sale and there would have been no loss.

The wife did not want to join in the action and, accordingly, the husband obtained an order joining her as a party defendant. He was attempting to ensure that she too would get a judgment against the lawyer that the husband could then seize. The parties had executed a settlement in which they had agreed that the wife owed the husband an equalization payment of $164,000.

In addition, the husband knew that the wife had three execution creditors to whom she owed the aggregate amount of $151,000. He astutely purchased from the creditors all of these executions for an aggregate payment of only $89,000.

To ensure that there was an absolute assignment, the husband must have notified the wife of the assignment. The wife was not pleased. She then counterclaimed against the husband for occupation rent for his use of their matrimonial home.

At Trial

The trial judge held that the lawyer was negligent because he had received no instructions from the husband to omit the “due on sale” clause. The lawyer had hotly contested this issue. However, his fate was sealed by virtue of a letter that he wrote after the sale to, we think, the lawyer of the original purchaser. In that letter, the lawyer referred to his failure to include the clause as a “solicitor’s error”.

The trial judge also held that the husband owed the wife $80,000 for occupation rent and that the wife owed the husband “chargebacks” of $64,000 plus $89,000 for the executions. We could not determine from the judgment whether these chargebacks included the equalization payment.

The trial judge ordered that the lawyer pay $279,000 to the wife and the husband jointly and severally and that the executions against the wife were satisfied.

The lawyer and the husband appealed.

On Appeal

The lawyer was not happy for two reasons. First, the issue of liability; the court gave him short shrift on that ground. Second, he was held liable to pay $279,000, which included the wife’s half share, when the wife had never sued him.

The court noted that just because the husband and wife were joint tenants did not mean that a breach of duty to one was a breach of duty to the other. For example, it was not at all clear that the wife had not given the lawyer instructions to delete the clause. It was clear, or at least found to be clear, that the lawyer had not received those instructions from the husband. In any case, the court held that before someone can obtain a judgment against another, the person has to sue. Since the wife never claimed against the lawyer, he was liable only to the husband for $139,500.

The husband was not happy that his executions had been cleared, after receiving credit for only $89,000. The court agreed. Section 53(1) of the Conveyancing and Law of Property Act fully dealt with the situation. An absolute assignment of which the debtor receives notice means that the assignee has a full right to claim for the debt. The amount that the assignee pays to obtain that right is irrelevant.

The wife argued that this was unjust enrichment. However, before there can be unjust enrichment, there must not only be an enrichment, there must be a corresponding deprivation. The wife was deprived of nothing. She owed $151,00 before the assignment and the same amount after. Further, there must be no juristic reason for the enrichment and, in this case, there was one: section 53(1) of the Act.

Upshot

The wife’s judgment against the husband was almost wiped out by the chargebacks and the wife was still bound by the executions for almost their full amount. The lawyer had to pay half of what had originally been ordered. The wife was ordered to pay the lawyer’s costs of the appeal and half of the husband’s costs of the appeal.

We have often used the technique under section 53(1) of the Act to advance the interests of our clients. As examples:

1.   Acting for a general contractor against a subcontractor, we have purchased the liens of subsubcontractors at 60 cents on the dollar so that any judgment by the sub against the general could be reduced by the judgments of the subsubs against the sub.

2.   Acting for a debtor, we have settled with a major creditor for 3 cents on the dollar and taken an assignment of the debt through a friendly third party. That debt then discouraged any other creditors from pursuing the debtor because the debt was four times the aggregate of all other debts combined.

3.   Acting for LPIC, we have settled a claim against a lawyer for not registering a writ of seizure and sale in the correct jurisdiction, took an assignment of the original claim, and then collected at least as much from the original debtor than LPIC paid on the settlement.

It is all a matter of strategy.