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MORTGAGES - Mortgage agreement - Intention - Validity

Thursday, January 11, 2018 @ 8:35 AM  

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Appeal by the Tollestrup estate from a trial decision finding that certain mortgages registered against property owned by the estate were valid and enforceable and that the lawyer who recommended and prepared the disputed mortgages was not negligent. The deceased Tollestrup made a will in 2008 with the assistance of a lawyer. Her only significant asset was her home and adjoining property. Tollestrup believed the property was worth $6 million, but that was not supported by the evidence of the realtors who ultimately listed the property. Tollestrup wanted to compensate the Beazers and Jensen, who had assisted her throughout her life by giving her money and providing services to her. The lawyer prepared promissory notes and mortgages providing security to the Beazers in the amount of $400,000 and to Jensen in the amount of $100,000. Tollestrup executed an additional promissory note and mortgage in favour of Jensen in the amount of $50,000. In 2009, Tollestrup made a new will that made no provisions for Jensen or the Beazers. Jensen and the Beazers then made a demand for the money owing on the mortgages and commenced an action. The trial judge found that the mortgages were valid, but that nothing was owing on them because the mortgages referred to the future advancement of funds. The trial judge held that the parties’ common intention was that the mortgages would not create new obligations since the money had already been lent to Tollestrup. The trial judge rectified the preamble of the mortgages so that “to be lent” was replaced with “having been lent” because he found a common mistake in that the parties clearly acknowledged that the funds being discussed related to a sum which had already been advanced. The trial judge held that the mortgages had to be rectified since they and the promissory notes were created in contemplation of the disposition of the property and had to reflect the fact that the obligations created under them only crystallized upon the disposition of the property, through sale or death. The trial judge found that the lawyer was not negligent in his representation of Tollestrup with the solutions he proposed to address her concerns, or in drafting the mortgages.

HELD: Appeal allowed in part. The decision respecting the lawyer’s negligence was set aside. The appellant could not be granted relief for mistake in common law or in equity, because common mistake as to the property’s value was not fundamental to Tollestrup’s intention to grant the mortgages to repay her obligations. The trial judge’s conclusion that the mortgages were valid was reasonable and supported by the record. The promissory notes were based on past debts but stood as independent instruments with valuable consideration in the form of antecedent debt. The mortgages were collateral security for repayment of the promissory notes. As past consideration was good consideration for a promissory note and the mortgages were collateral to the promissory note, the promissory notes constituted the consideration necessary to make the mortgages valid.
Rectification was appropriate with respect to the preamble because it accurately reflected the parties’ common intention. The lawyer’s actions were to be viewed in the context of the situation in which he found himself and the information available to him. The trial judge did not err in concluding that the lawyer’s conduct in recommending the mortgages met the standard of care of a reasonably prudent solicitor. The lawyer did not, however, meet the standard when he drafted the mortgages. Although he knew that the mortgages were intended to secure past obligations, he did not amend the documents to reflect this and did not modify the documents to say the mortgages were only enforceable on sale or death, which was clearly what was contemplated. There were no future funds to be advanced as contemplated by the wording of the mortgages. The matter was directed to the Court of Queen's Bench for an assessment of damages resulting from the lawyer’s negligence in failing to properly draft the mortgages to reflect that they were given for funds already advanced and were not enforceable until Tollestrup's death or the sale of the property.

Beazer v. Tollestrup Estate, [2017] A.J. No. 1374, Alberta Court of Appeal, R.L. Berger, P.A. Rowbotham and B.K. O'Ferrall JJ.A., December 15, 2017. Digest No. TLD-January82018006