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BANKING - Negligent acts (duty of care)

Thursday, February 11, 2021 @ 6:11 AM  

Lexis Advance® Quicklaw®
Action by Toronto Dominion Bank (TD) for damages for breach of contract in relation to a mortgage fraud. The defendant Whitford was used as a strawman in a mortgage fraud. The two principal fraudsters, a former acquaintance and a realtor, persuaded him to take part in a residential home purchase, telling him it would offer him several benefits. Instead, through their deceit, as well as through failings on the part of the bank representative and the questionable handling by the solicitor involved, Whitford now stood alone to answer to a $583,733 deficiency that TD was seeking to recover. Whitford was 25 years old at the time and was inexperienced. He did not ask many, if any, material questions on how the deal was to work. He received $5,000 for his role in the scheme. Whitford stated that he only realized he was involved in a mortgage fraud scheme after the mortgage went into default. Whitford took the position that the doctrine of ex turpi causa should prevent TD from enforcing the mortgage in this case. Applying a wide interpretation to the contents of the statement of defence, it was clear that the pleadings set out negligence on the part of TD. Whitford alleged that the bank’s representative, Hussein, was involved in the fraudulent scheme. TD took the position that there was no evidence that it was a willing participant in the mortgage fraud scheme.

HELD: Action dismissed. Whitford was more careless and naïve than dishonest. He had no fraudulent intent when he entered into the mortgage transaction. The conduct of Hussein, the bank representative, disclosed an immoral or illegal act that was sufficient to trigger the ex turpi causa doctrine. There was a lack of meaningful oversight to ensure that Hussein followed bank policies. TD was vicariously liable for Hussein’s acts. Applying the doctrine of ex turpi causa, the loss remained where it lay, and TD was precluded from recovering the deficiency against Whitford pursuant to the terms of the mortgage. However, to avoid unjust enrichment, Whitford was required to repay to TD the $5,000 he received for his participation in the transaction, plus interest. If the court were in error on the application of the doctrine of ex turpi causa, Whitford would have been found liable on the mortgage deficiency, but only as to the deficiency in the principal and interest up to Dec. 31, 2013. A duty of care existed, whether based on an analogous duty or novel duty, and TD manifestly failed to meet the standard of care for each duty. TD failed to inquire about suspicious or questionable behaviour. TD was vicariously liable for Hussein’s negligent conduct. However, Whitford was contributorily negligent and failed to mitigate his losses. He failed to read the documents that he signed, and he received a financial benefit for his participation in the mortgage transaction. Whitford was 35 per cent liable. He was also to pay $15,000 toward TD’s legal costs.

Toronto Dominion Bank v. Whitford, [2020] A.J. No. 1463, Alberta Court of Queen's Bench, December 30, 2020. Digest No. TLD-February82021007