Toronto Dominion Bank (TD Canada Trust) v Kevin I Peddie Professional Corporation (West Edmonton Law), 2016 ABQB 26

Court of Queen ’ s Bench of Alberta Citation: Toronto Dominion Bank (TD Canada Trust) v Kevin I Peddie Professional Corporation (West Edmonton Law), 2016 ABQB 26 Date: 20160129 Docket: 1403 06568, 1303 03948 Registry: Edmonton Between: 1403 06568 The Toronto Dominion Bank carrying on business as TD Canada Trust Plaintiff(Appellant) - and - Kevin I.

Peddie Professional Corporation also operating as West Edmonton Law and Barry & Peddie LLP, Kevin Ian Peddie also operating as Barry & Peddie LLP, Fuoco Holdings Ltd., Emilio Fuoco and Dan Currie Defendants(Respondents) - and - Fuoco Holdings Ltd., Emilio Fuoco, Brent Craig, Wesley Craig, and Karen Craig Third Party Defendants And Between: 1303 03948 Dan Currie Plaintiff - and – Brent Allan James Craig, Ana Maria Craig, Wesley Craig and Karen Craig Defendants/Plaintiffs by Counterclaim - and –

Dan Currie, Emilio Fuoco and Fuoco Holdings Ltd. Defendants by Counterclaim _______________________________________________________ Reasons for Judgment of the Honourable Madam Justice D.A. Sulyma _______________________________________________________ Introduction [ 1 ] The narrative facts are properly stated in the Reasons for Judgment of Master Schlosser dated December 23, 2014.

Master Schlosser also identified the issue before him as “a case about the ostensible authority and the fraud of an agent in a Land Titles setting.” [ 2 ] The position of the TD and the Plaintiffs by Counterclaim, the Craigs, is similar. That is that the Master erred in that he decided incorrectly that the Defendant Currie is not bound by the actions of Fuoco and/or Fuoco Holdings, and TD and the Craigs are not entitled to a discharge of the Currie mortgage.

They submit that the agents Fuoco and/or Fuoco Holdings of Currie had actual and/or ostensible authority to issue the payout statement and to receive funds pursuant to the payout statement on behalf of Currie. The Peddie Defendants are taking the position of the Toronto Dominion Bank that the Fuoco parties were agents of Currie and that Master Schlosser was incorrect in his conclusions and that he erred in finding that Mr. Currie was not bound by the payout statement. [ 3 ] TD and the Craigs also submit that the Master erred in dismissing the whole of TD’s claims against Mr.

Currie in the within action when this specific remedy was not actually sought and not all of TD’s claims against Mr. Currie were fully argued or considered. Grounds of Appeal [ 4 ] As a result of the appeal, the issue before me is whether: (

a) the Master erred in finding that Mr. Currie is not bound by the payout statement provided and the payout funds received by Fuoco Holdings, an issue determined by the law of agency; and (

b) the Master erred in dismissing the whole of TD’s claims against Mr. Currie in the within action when the specific remedy was not actually sought and not all of TD’s claims against Mr. Currie were fully argued or considered; and (c), in the alternative, if the Currie mortgage is not discharged, the amount outstanding on the Currie mortgage should be calculated according to the payout statement dated May 30, 2011. [ 5 ] The facts as stated in the Master’s judgment are by and large not in dispute.

The Master quotes the fact underlying the Appellants’ claims that the Fuoco parties were at all times agents of Currie. For the purposes of this decision, I note that the real issue arises as a result of the Craigs having paid money for what they were advised was to discharge the mortgage and that those funds were misappropriated by the Fuoco parties. Submissions of the Parties [ 6 ] TD submits that the evidence is contradictory as to whether Mr.

Currie actually knew of and agreed to the Craigs agreement; a fact which has significant impact on the actual authority of Fuoco Holdings and, submitted to be an error on the Master’s part as he did not address the issue. [ 7 ] Further, and in any event, that even in absence of actual authority, the question is not whether Fuoco Holdings had the ostensible authority to provide the payout statement and receive the payout funds in its own name. Rather, the question was and is whether Fuoco had the ostensible authority to provide a payment statement and receive payout funds on Mr.

Currie’s behalf. [ 8 ] The Appellants submit that as the administrator of the Currie Mortgage, the only person to have contact with the Craigs on behalf of Currie in respect of the Currie Mortgage, and the party expressly authorized by Currie to produce a Mortgage Statement for Payout Purposes, Fuoco is both included in the definition of "mortgagee" in the Currie Mortgage and was expressly put forward by Currie as his agent. [ 9 ] At the Original Application Currie made much of the fact of the seven cheques from the Craigs to Currie dated September

2010 to March 2011 to argue that such cheques established that Currie had not authorized Fuoco to receive any payments directly onbehalf of Currie. [10] However, the law relating to actual or ostensible authority is that: Where a debtor, instead of paying his creditor, chooses to pay a third party, he does so at his peril.

Where the money is not turned over tothe creditor, the onus is then on the debtor to establish either: (1) that the creditor actually authorized the third party to receive themoney on his behalf, (2) that the creditor held the third party out as being so authorized, or (3) that the creditor by his conduct orotherwise induced the debtor to come to that conclusion, or (4) that a custom of trade exists to the effect that in that particular trade and inthose particular circumstances, both the creditor and the debtor normally would expect the payment to be made to the third party.

C.P.Ships v Industries Lyon Corduroys LTEE, (FC), [1983] 1 F.C. 736. [11] Upon review of the facts, it is evident that Fuoco and Fuoco Holdings was Currie’s agent and had actual and ostensibleauthority to deal with all aspects of the Currie Mortgage, including to provide payout statements to third parties for discharge purposes,as well as to accept payment in accordance with such payout statements. Inter alia: a. In the Currie Mortgage document, Fuoco Holdings is explicitly listed, along with Currie, as the Mortgagee, and up to November2012, the two were still being advanced as one and the same; b.

In both the Currie Mortgage document and the registration in Land Titles, Currie chose to list Fuoco Holdings as the sole contactfor any third parties dealing with the Property or the Currie Mortgage (including TD, Peddie, and the Craigs); c. Currie accepted Fuoco as mortgage administrator of the Currie mortgage, and knew and permitted Fuoco and Fuoco Holdings torepresent themselves as same; d. All payment on the Currie Mortgage, which include payments made on both principle and interest, were, with Currie’s knowledgeand consent, made to Fuoco and Fuoco Holdings; e.

Currie did not nor attempt to communicate with the Craigs with respect to the Currie Mortgage during the relevant time. Rather,he left Fuoco and Fuoco Holdings in charge of conducting all negotiations and handling communications; f. The foregoing is particularly telling, given that only four payments were made on the Currie Mortgage and that the Craigs were indefault during for much of term of the Currie Mortgage; and g.

Currie knew and permitted Fuoco and Fuoco Holdings to accept and respond to requests for payout statements for dischargepurposes. [12] Prior to the Payout Statement being provided by Fuoco, he had negotiated, as Currie's agent and mortgage administrator aswell as a mortgagee of the Currie Mortgage, a transaction with the Craigs which would have resulted in the Currie Mortgage beingdischarged in exchange for the payment by the Craigs of $75,000 and a Promissory Note signed by Brent and Ana Craig being availableto Currie in the amount of $160,000 (the ''Transaction”).

Following payment on the Payout Statement, by way of an e-mail dated April18, 2013, Fuoco confirmed the Transaction to the Craigs and also that he had discussed the same with Currie. [13] Also, Fuoco was a RECA authorized mortgage broker at the time, operating by way of Fuoco Holdings as a RECA registeredbrokerage, and was obligated by the RECA Rules as well as the Real Estate Act to, among other things: 1) Have entered into a service agreement with Currie which expressly acknowledged, in writing, the trust arrangement betweenthem and which set out the terms on which the money received on account of the Payout Statement would be received, held, anddisbursed; 2) Maintain a separate trust account in Alberta, including complete records of any funds received or disbursed into such trustaccount on account of the Payout Statement; 3) Ensure that the terms of the trust created by Peddie were in writing and agreed to by both Currie and the Craigs; 4) Ensure that the funds received on account of the Payout Statement were paid out only in accordance with the terms of the trustcreated by Peddie. [14] In other words, the process of Fuoco transferring physical cheques to Currie is substantively, if not technically, identical to theprocess of Fuoco Holdings maintaining funds in trust for release to Currie, which is exactly what Fuoco and Fuoco Holdings wereobligated to do pursuant to the REA and the Real Estate Act Rules. [15] As such, Currie cannot (

i) shield himself from the purported misdeeds of Fuoco in entering into the Transaction while Fuocowas his agent, (ii) validly allege that any of the funds paid on account of the Payout Statement were ever paid to or properly receivableby Fuoco or Fuoco Holdings, nor (iii) validly assert that counsel for the Craigs acted contrary to any valid custom of the trade or againstnormal expectations in the industry in making payment on the Payout Statement. [16] The Appellants submit that the law provides that in such a case as this, he who enabled the loss (Currie) must sustain it.

Submissions of the Respondents [17] The Respondents made an argument with respect to the standing of the TD Bank here. Currie was frank in noting that theCraigs have brought the same application. I do not find that this is a substantive argument that bars the TD bank’s submissions.

[ 18 ] The Respondents respond to the main argument that by the words of the Currie mortgage, Fuoco was acknowledged as an agent with the authority to renegotiate the terms of the mortgage and to accept a payment of a partial amount owing on the mortgage in exchange for a discharge. That is that the mortgage must be analyzed by a consideration of the promissory note signed by the Craigs on September 9, 2010. The Respondents submit that the note is clear that the funds are payable to Dan Currie and does not mention the Fuoco parties.

The Respondents submit that the definition of mortgagee in the mortgage is no more than a reference to Currie and cannot be considered as a reference to the Fuoco parties after the word “c/o”. On consideration of the promissory note, and the requirements of the Land Titles Act , Currie submits that the designation “c/o” is merely an address for service. [ 19 ] Currie submits that there is a heavy onus on the Applicants here to establish the agency relationship.

It is not enough for the Applicants to show that Fuoco was the agent; they must also show that he had specific authority to renegotiate the Currie mortgage and accept a partial payment of the mortgage in exchange for a discharge. [ 20 ] Contrary to the finding of the Master, Currie submits that it is clear on the evidence there was no actual authority given by Currie to the Fuoco parties.

His evidence is that Fuoco was not his agent and he had no authority to receive payments or renegotiate the terms of the Currie mortgage. [ 21 ] The Respondents submit that as there was no actual authority that the issue is really one of implied authority or ostensible authority. The onus lies on the Applicants to prove not only that Fuoco was the agent, but he as agent had implied or ostensible authority to accept payments and renegotiate the mortgage.

The Respondents go on to cite the lack of evidence about a custom or trade that would apply in these circumstances that a mortgage broker would be able to accept a partial payment of the mortgage in exchange for a discharge. Here the evidence is clear that no payment was ever made directly to Fuoco Holdings Ltd. or Emilio Fuoco. [ 22 ] Also, that although Fuoco arranged for Currie to lend money to the Craigs that his arranging a partial payment for a discharge and receiving that payment directly was entirely opposite to previous dealings with the parties.

Thus, there is no evidence upon which to base implied authority. [ 23 ] The Respondents then point to the test for ostensible authority set out in: Lyon Developments Ltd. v Airways Compressor Sales Ltd. , 1985 CarswellAlta 56 . Importantly, any representation made that gives rise to ostensible authority must be clear and unequivocal. [ 24 ] Here, the only representation relied on by the Applicants are the words “c/o Fuoco Holdings” in the Currie mortgage.

That is not a clear and unequivocal representation of agency or that Fuoco had the authority to renegotiate the Currie mortgage and accept a partial payout in exchange for a discharge. At the very least, these words are equally consistent with only being an address for service. I note this is similar to the previous submissions on representation. [ 25 ] The Respondents further submit that representations had to come from Currie directly and that the Applicants cannot rely on any representations made by Fuoco himself. [ 26 ] The last argument relates to want of authority.

The Respondents state that even if there is implied or ostensible authority, if the third party has notice of a lack of authority then the principal will not be bound. The Respondents point to the facts here that:

a) Payments were made by cheque made out to Currie and at no time was a payment ever made by the Craigs directly to Fuoco; and

b) The promissory note requires payment to Currie and does not mention Fuoco. [ 27 ] The Respondents state that Peddie had the opportunity to discover these facts and could have discovered these facts by simply inquiring whether his clients ever made payments to Fuoco directly and by asking Fuoco for a copy of his agreement with Currie, or by contacting Currie directly. He did none of those things. [ 28 ] Currie then states that the doctrine of implied or ostensible authority does not apply to a person who is put on inquiry by the facts of the transaction.

The Respondents point to an expert report detailing facts that it submits indicates Mr. Peddie was negligent and breached the standard of care for these reasons:

a) Peddie should have obtained a signed payout from Dan Currie directly;

b) Peddie should have made a cheque payable to Dan Currie directly or obtained a Direction to Pay from Dan Currie directly;

c) Peddie should have obtained a discharge of the Currie Mortgage prior to advancing funds; and

d) Peddie should not have sent funds to Fuoco and imposed a trust condition on a non-lawyer. [ 29 ] The Respondents quote similar facts on the premise that the Craigs should have been put on an inquiry into the authority of Fuoco as follows:

a) all payments were previously made directly to Currie;

b) Peddie received a payout statement signed by Fuoco and not Dan Currie;

c) the payout statement for the Currie Mortgage was $75,000.00 even though the Mortgage was signed only a few months before the TD Mortgage, was for $220,000.00 and provided for interest only payments (furthermore, Peddie was not aware of the “new” arrangements made by the Craigs);

d) there was a request to make the cheque payable to Fuoco and not to Currie;

e) Peddie was paying out a private mortgage without first obtaining a discharge;

f) that Currie would agree to discharge his mortgage on the Edmonton Property as opposed to postpone his mortgage when therewas a charging clause in the Promissory Note dated May 20, 2011;

g) this was a private mortgage and no lawyer was involved on behalf of Currie; and

h) the Currie Mortgage was to be discharged against two properties in exchange for a new Promissory Note that would only beregistered on the Edmonton Property.

Furthermore, the new note would have been subsequent to a TD Mortgage on the EdmontonProperty which was for the entire value of the Edmonton Property (in other words there was no equity in the Edmonton Property tosupport the new Promissory Note). [30] The Respondents also submit that if a third party is negligent that may prevent the doctrine of ostensible or implied authorityfrom applying. [31] The Respondents in their brief distinguish the facts that led to the Court of Appeal decision in Kohn and Kohn v DevonMortgage Ltd. (supra) which dealt with the issue of limitations on the authority of an agent.

Importantly, the Court of Appeal foundthere that there was actual authority given by the principal to the agent to collect payments. That in this case, payments were always to bemade directly to Currie and that there was therefore no holding out by Currie that Fuoco could receive payment directly or the ownershad at least constructive notice that all payments were to be made directly to Currie, including a payout of the mortgage.

TheRespondents submit that in this case, the Court of Appeal would find that Fuoco was not the agent of Currie, or if he was, that there wasnot any implied or ostensible authority to renegotiate the terms of the mortgage and accept a partial payout of the Currie mortgagedirectly. [32] Finally, submissions on the basis of the Real Estate Act are premised on an agreement in writing. There was no suchagreement here. [33] They submit that the TD and the Craigs, through the negligence and carelessness of their lawyer, enabled Fuoco to committhese acts.

As such, TD and the Craigs should bear the loss. [34] They further submit that the application of TD and the Craigs for a discharge of mortgage is statute barred. [35] Further, that regards to remedy, if Currie is bound by the actions of Fuoco, the proper remedy is postponement of the Curriemortgage, not discharge. The Law [36] The parties did not disagree that the standard of review on appeal from a Master to a Judge on all issues is correctness: Bahcheli v Yorkton Securities Inc., [2012] 524 A.R. 382, 2012 ABCA 166. [37] The principles of ostensible authority under the laws of agency are agreed.

In law, the onus of establishing ostensible authorityof an agent is on the person seeking to rely on same, and the representation relied upon must be clear and unequivocal. However, if thereis a limitation on the agent’s authority, the onus is on the principal to notify third parties: Kohn and Kohn v. Devon Mortgage Ltd. and Glass, 1985 ABCA 10 , [1985] 65 A.R. 73, 20 D.L.R. (4th) 480, cited to A.J.

No. 1071 (C.A.). [38] The underlying error that is cited here is based on the fact that the Master determined that Fuoco Holdings was indeed Mr.Currie’s agent with respect to the Currie mortgage and had actual authority to issue the payout statement signed by Currie, but, went onto find that Fuoco Holdings did not have the actual or ostensible authority to provide the payout statement and receive the payout fundsin its own name. Analysis [39] The facts are integral to this appeal. The Appellants have submitted that these are the important facts: (

a) As detailed above, and very importantly, Mr. Currie, by his own choice, made Fuoco Holdings the sole and only contact for theCurrie Mortgage; (

b) By his own admission, Mr. Currie never attempted to establish any direct communications with TD or any of the other parties. Rather, he left all communications in the hands of Fuoco Holdings and Fuoco; (

c) Mr. Currie accepted payments on both principal and interest of the Currie Mortgage through Fuoco Holdings and Fuoco; and (

d) Currie did nothing to alert any third parties of any limitations in Fuoco Holding's authority to administer the Currie Mortgage. [40] Put another way, TD and the Craigs could only obtain payout statements from and send payout funds to Fuoco Holdings.They did not have any way nor could it be expected to distinguish between an authorized and unauthorized payout statement receivedfrom Fuoco Holdings. Mr. Peddie sent the payout funds to Fuoco Holdings in trust for Mr. Currie.

He forwarded a trust cheque to FuocoHoldings in trust on the condition that a registerable discharge of the mortgage be provided. [41] I acknowledge the standard of review as stated above. [42] I do find that the Master was in error, on a standard of correctness.

[43] Although the evidence is contradictory, as to whether Currie actually knew of and agreed to the Craig agreement, the questionis whether Fuoco Holdings had the ostensible authority to provide a payout statement and receive payout funds on Curries behalf. I agreethat that is the issue. [44] The law relating to actual or ostensible authority is that: Where a debtor, instead of paying his creditor, chooses to pay a third party, he does so at his peril.

Where the money is not turned overto the creditor, the onus is then on the debtor to establish either: (1) that the creditor actually authorized the third party to receive themoney on his behalf, or (2) that the creditor held the third party out as being so authorized, or (3) that the creditor by his conductor otherwise induced the debtor to come to that conclusion, or (4) that a custom of trade exists to the effect that in that particulartrade and those particular circumstances, both the creditor and the debtor normally would expect the payment to be made to thethird party. [emphasis added] C.P.

Ships v Industries Lyon Corduroys LTEE (FC), [1983] 1 F.C. 736. [45] The Master discounted the mortgage payout statement itself as being a representation by the agent of the agent’s authority as,he stated: “All the bank knew was that Dan Currie was the mortgagee and Fuoco Holdings was his address.” He found that Dan Curriewas not operating as Fuoco Holdings Ltd. and that therefore the mortgage could not be interpreted to mean that both Dan Currie andFuoco Holdings were the mortgagees.

Despite the fact that the only person to have contact with the Craigs on behalf of Currie regardingthe mortgage and the party expressly authorized by Currie to accept mortgage payments was Fuoco.

Also, despite the fact that Currieknew and permitted Fuoco to accept and respond to requests for payout statements. [46] I am of the view that the Master erred in law in failing to perceive that these facts were integral to the issue he had to define.The mortgage may not have gone as far as to include the Fuoco parties as “mortgagees” but was more than a mere address for service.There must be a meaning attributed to the whole phrase which commences “c/o”. [47] In addition, in my view, it was also an error of law for Master Schlosser to find that the fact of seven cheques going from theCraigs to Currie during September 2010 to March 2011 in some manner, rebutted a finding of apparent or ostensible authority.

Surely thepattern is relevant to the issue of representation. That representation indicated that it was reasonable and indeed inevitable for the Craigsand the TD to conclude the Fuoco parties were Currie’s agent and had actual and ostensible authority to deal with all aspects of themortgage and to conclude that Fuoco and Fuoco Holdings had the authority to provide a payout statement and receive payout funds.

Thatis, on Currie’s behalf. [48] In this latter conclusion, the question of ostensible authority is answered yes and therefore Currie is bound by the payoutstatement and deemed to have received the payout funds in full and complete satisfaction of the Currie mortgage. [49] Mr. Peddie was in a similar, if not worse, position regarding the representations he received. The Appellants positions arecovered by the law: The law supports that one party is the agent for another where the evidence establishes that the purported agent had actual or ostensibleauthority to administer a mortgage for the purported principal.

Similar conclusions have been reached where the purported agent is (i)an employee or a representative of an insurance company in respect of a particular policy of insurance, or (ii) the "managing clerk"conducting the conveyancing business of a law firm without supervision. Kohn and Kohn v Devon Mortgage Ltd. and Glass (supra). [50] In this case, I find the evidence establishes that the Fuoco parties had ostensible authority to administer this mortgage forCurrie. The Payment Statement was Binding in any Event [51] The Master did not address this ground of appeal separately.

The Craigs argue that the payout statement was and is a bindingstatement on Currie as to the amount of principal, interest and any other charges owing on the Currie mortgage. That, given the initialrequest for the payout statement was directed by the Craigs’ solicitor to the address of the mortgagee on the mortgage and registered ontitle that the actual payout statement remains a binding statement upon Currie as to the amount outstanding on the Currie mortgage. [52] Master Schlosser did not address this issue separately.

I have found that the Fuoco parties had ostensible authority to issue thepayout statement and receive funds and therefore, this separate argument on behalf of the Craigs need not be addressed. [53] My findings above allow for overturning his decision and allowing for discharge. The decision on limitations becomesirrelevant. [54] For the same reasons, I do not have to address the issues raised regarding the Real Estate Act and regarding the expert opinion. Premature Dismissal of All Claims [55] This issue affects TD only as the Master dismissed all claims in the within action as against Mr.

Currie based on the limitationperiod under the Limitations Act. As the remedy was not sought against Mr. Currie, there was no opportunity for TD to meet the issue.Also, the Master did not have opportunity to completely consider all of TD’s claims prior to dismissing the whole of the action. On thatbasis, I am of the view that the Master erred in dealing with that issue as he did. In my view, clearly the facts raised by the TD claimwarranted a proper canvass of the Master of those claims.

Result [ 56 ] The Master’s decision is overturned and the declarations vacated. In my view, vacating the title of the Currie mortgage, not postponement is the appropriate remedy. Heard on the 2 nd day of July, 2015. Dated at the City of Edmonton, Alberta this 29 th day of January, 2016. D.A. Sulyma J.C.Q.B.A. Appearances: Patty P. Ko, Bishop & McKenzie LLP For TD Canada Trust Stuart J. Weatherill, Emery Jamieson LLP For Kevin Ian Peddie et al Anthony J. DiLello, Eric Lowenstein & Co. LLP For Dan Currie Ryan P. Pelletier, Pelletier Law For the Craigs