London Loan & Savings Co. of Canada v. Brickenden, [1933] SCR 257

Supreme Court of Canada

London Loan & Savings Co. of Canada v. Brickenden, [1933] S.C.R. 257

Date: 1933-03-29

Biggs et al. Plaintiffs;

and

The London Loan and Savings Company of Canada et al. Defendants.

The London Loan and Savings Company of Canada et al. (Plaintiffs by Counterclaim) Appellants;

and

Brickenden et al. (Defendants by Counterclaim) Respondents.

1932: November 29, 30; 1932: December 1; 1933: March 29.

Present: Rinfret, Lamont, Smith, Cannon and Crocket JJ.

ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ONTARIO.

Solicitor and client—Benefit to loan company’s solicitor from loan made by company—Liability of solicitor to company—Basis of damages.

A transaction between solicitor and client, in which the solicitor takes a benefit, cannot be supported unless the solicitor has taken care that his client is fully acquainted with the facts and properly advised upon them, and the onus of proving this is upon the solicitor. (Ward v. Sharpe, 53 L.J. Ch. 313, at 319).

Where (as found by this Court) the solicitor for a loan company had benefited from a loan made by the company to B., by receiving out of the proceeds of the loan payment of certain mortgages from B. to the solicitor and certain commissions and fees in connection with said mortgages, it was held, under the circumstances of the case, that the solicitor must be held to have been guilty of a breach of duty to the company and that he was liable to it for loss suffered through the transaction.

The majority of the court (Rinfret, Lamont and Smith JJ.) held that the company was entitled to recover from the solicitor (with right of the solicitor to subrogation) the full amount of damages sustained (Nocton v. Lord Ashburton, [1914] A.C. 932), this being (the loan turning out to be a highly improvident one) the full amount of the loan and interest less the amount of a bonus retained by the company out of the loan and less an amount based on a reduction (for the purpose of calculating the damages) of the interest rate payable to the company under its mortgage. Cannon and Crocket JJ. were in favour of limiting, under the circumstances, the amount recoverable to the amount which the solicitor had received out of the proceeds of the loan and interest at said reduced rate (with right of the solicitor to subrogation).

[Page 258]

APPEAL from the judgment of the Appellate Division of the Supreme Court of Ontario[1], which, in respect of the matter in issue in the present appeal, reversed the judgment of Raney J.[2] Raney J. had held that the interest of the defendant by counterclaim, Brickenden, in a certain loan transaction was in conflict with his duty as solicitor for the London Loan and Savings Company of Canada, one of the plaintiffs by counterclaim, and that under the circumstances in question he was liable for loss suffered by the company in connection with the loan, and gave judgment against him for the balance owing on the mortgage given to the company to secure the loan, the mortgage to be assigned to him upon payment by him.

The material facts of the case, as found by this Court, for the purposes of the present judgment, are sufficiently stated in the judgment of Crocket J. now reported.

The appeal to this Court was allowed with costs here and in the Appellate Division, and the judgment of Raney J. restored with a variation as set out in the judgment of Smith J. (Cannon and Crocket JJ. differed from the majority of the court as to the amount recoverable, being in favour of further limiting the amount, as set out in the judgment of Crocket J.)

W.N. Tilley K.C. and G.T. Walsh K.C. for the appellants.

I.F. Hellmuth K.C. and G.F. Macdonell K.C. for the respondents.

The judgment of Rinfret, Lamont and Smith JJ. was delivered by

SMITH J.—I am in agreement with what my brother Crocket has written in this case, except as to the remedy.

I am of opinion that the appellant Loan Company should be placed as nearly as possible in the position in which the appellants would have been had there been no breach of duty on the part of Brickenden; that is, that the appellant Loan Company is entitled to the full amount of damages sustained. Nocton v. Lord Ashburton[3].

[Page 259]

Under this case, I do not think the amount to which the appellant is entitled can be limited to the amount that the respondent received out of the transaction, but is to be measured by the amount of loss sustained by the appellant.

I am of opinion, however, that the $1,000 bonus retained by the appellant Loan Company out of the loan, and the full 8% interest mentioned in the mortgage, are not losses sustained by the appellant Loan Company. If the transaction had not gone through, they would have received no such bonus, nor would they have been able to invest the $12,500 on proper security at 8%. Properly speaking, there should, perhaps, be a reference to ascertain the actual rate of interest that could have been earned on proper security; but, to avoid the delay and expense of such a reference, I am of opinion that justice would be done by allowing the legal rate of 5%.

There should, therefore, be a reference back for recalculation of the amount payable by respondents on the mortgage, by deducting the $1,000 from the principal and calculating the interest at 5%, instead of 8%.

With this variation, the appeal should be allowed and the judgment of the trial judge restored with costs to the appellant of both appeals.

The judgment of Cannon and Crocket JJ. was delivered by

CROCKET J.—This is an appeal from a judgment of the Appellate Division of the Supreme Court of Ontario setting aside a judgment of Raney J., which held the respondents liable for all moneys due upon two mortgages made by one Walter H. Biggs and his wife, of London, on November 8, 1924, in favour of the appellant, The London Loan and Savings Company, to secure a loan to Biggs amounting to $13,500.

There is really but one respondent, G.A.P. Brickenden, “G.A.P. Brickenden & Co.,” being merely a firm name under which he practised law. Notwithstanding the joinder of so many parties in the counterclaim and the numerous charges of fraud and collusion stated therein against him in conjunction with Mr. and Mrs. Biggs and George G.

[Page 260]

McCormick, his father-in-law and president of the Loan Company, in respect of two previous mortgage loans of $18,000 and $12,000 made by the Company to Biggs, as well as in respect to the later one of $13,500, this appeal concerns only his conduct as an interested solicitor in connection with the last mentioned loan, the learned trial judge having based his judgment against him on the ground that he had a personal interest in the transaction which was in clear conflict with his duty as solicitor for the Company and did not make a full disclosure of all material facts in connection therewith. He held that there was no legal claim against Brickenden in respect of the two earlier mortgages, and dismissed the counterclaim as against McCormick.

That Brickenden was the general solicitor of The London Loan and Savings Company and acted as solicitor for the Company as well as solicitor for Biggs in connection with the putting through of the two previous mortgage loans as well as the $13,500 loan directly in question, is not disputed. Neither is it disputed that when he sought this loan from the Company for Biggs he held four registered mortgages in his own name, as security for three loans which he had personally made to Biggs, for $5,000, $2,000 and $1,200 respectively, after the Loan Company itself had declined an application for a further loan of $8,400 in addition to its $18,000 and $12,000 loans, which mortgages covered the properties Mr. and Mrs. Biggs had previously mortgaged to the Loan Company. The $5,000 loan was secured by two mortgages dated July 13, 1923, and the $2,000 and $1,200 loans by mortgages dated respectively August 24, 1923, and January 13, 1924. The $5,000 loan was payable, under the terms of the two mortgages by which it was secured, in two years from date, and the interest quarterly, with the privilege to the mortgagors of paying the whole or any part of the principal on any interest day. The $2,000 and $1,200 mortgages provided for the re-payment of the principal moneys in monthly instalments with interest payable quarterly. All three loans bore interest at eight per cent. Brickenden admitted, in his discovery examination, having exacted a bonus or commission of $1,000 from Biggs on the $5,000 loan, $120 commission on the $2,000 loan in addition to $73.85 for fees

[Page 261]

and disbursements, and $300 on the $1,200 loan, and that he settled a claim which Mr. and Mrs. Biggs subsequently brought against him for these bonuses and commissions and other overcharges by paying them back $1,000.

The record also conclusively shews that when Biggs sought the $13,500 loan from the Company through Brickenden in November, 1924, he had fallen behind in his interest payments on the Company’s $18,000 and $12,000 mortgages to the amount of $1,636.14, but had kept down the interest on the three Brickenden mortgages and had made all his monthly payments as they fell due on the principal of the $2,000 and $1,200 mortgages, so that these had been reduced to $800 and $600 respectively; and that, when the loan was put through, Brickenden received from its proceeds $1,993.33, in payment of the balance due on the two last mentioned mortgages and a charge he made of $500 for fees, commissions and disbursements (the disbursements amounting to but $8.85) for putting through this latest loan, while the Loan Company retained $5,000, for which it assumed his $5,000 mortgage, besides a bonus payment of $1,000, which it exacted from Biggs on the loan, and $1,636.14 in payment of the overdue interest on its $18,000 and $12,000 mortgages.

Brickenden’s position as the solicitor of both the borrower and the lender in the negotiation and completion of a mortgage loan in which he was so directly and largely interested, was one which could only be justified by the observance on his part of the utmost frankness and good faith towards both parties. That it was his imperative duty in such circumstances to fully disclose to his clients all material facts within his knowledge in relation to the transaction and treat with them upon a perfectly equal footing cannot be doubted. Moreover, it must now be taken as an established rule of law that when a solicitor acts for a client in a matter in which he is himself financially interested the onus rests upon him, if the propriety of the transaction is called in question, to shew that the negotiations were honestly conducted and that the transaction was fair and just and in no way disadvantageous to his client. This is the clear effect of the judgments in Gib-

[Page 262]

son v. Jeyes[4]; Edwards v. Meyrick[5]; McPherson v. Watt[6]; Ward v. Sharpe[7]; and In re Haslam & Hier-Evans[8]. The law for the purposes of this case is perhaps most concisely summed up in the following extract from the judgment of North, J., in Ward v. Sharpe⁷:—

A transaction between solicitor and client, in which the latter [former] takes a benefit, cannot be supported unless the solicitor has taken care that his client is fully acquainted with the facts and properly advised upon them; and the onus of proving this is upon the solicitor.

Another passage which may usefully be quoted in the present case is the following from the judgment of Lord O’Hagan in McPherson v. Watt⁶:—

An attorney is not affected by the absolute disability to purchase which attaches to a trustee. But, for manifest reasons, if, he becomes the buyer of his client’s property he does so at his peril. He must be prepared to shew that he has acted with the completest faithfulness and fairness; that his advice has been free from all taint of self interest; that he has not misrepresented anything or concealed anything; that he has given an adequate price, and that his client has had the advantage of the best professional assistance which, if he had been engaged in a transaction with a third party, he could possibly have afforded. And, although all these conditions had been fulfilled, though there has been the fullest information, the most disinterested counsel and the fairest price, if the purchase be made covertly in the name of another without communication of the fact to the vendor, the law condemns and invalidates it utterly. There must be uberrima fides between the attorney and the client, and no conflict of duty and interest can be allowed to exist.

Notwithstanding the grave charges made against him in the counterclaim, Brickenden refrained on the trial from even so much as attempting to vindicate his conduct in the negotiation and completion of the loan transaction, and left the case for decision upon the testimony offered in behalf of the appellants, which included portions of the evidence he had given on his examination on discovery. He left quite unsolved the mysterious fact that while the two mortgages to the Loan Company, by which the $13,500 loan was secured, were executed and acknowledged by Mr. and Mrs. Biggs on November 8, on which date he obtained from Biggs an order on the Loan Company to pay him his $1,993.33, covering the balances due on his $2,000 and $1,200 mortgages and his $491.15 bonus or commission and other charges, the application for the loan was laid over by the Board of Directors for consideration on November 11, and

[Page 263]

was not actually authorized by the Board until November 17, as shewn by the Company’s minute books, during which interim, on November 12, he registered the two new mortgages to the Loan Company, and the certificates discharging his $2,000 and $1,200 mortgages and signed his certificate of title to the Loan Company before presenting for payment on November 13, his $1,993.33 order from Biggs.

The application for the loan is unsigned, but the record shews that there is no doubt it was made through Brickenden. It bears no date on its face, but has the following memorandum endorsed upon it:—

Nov. 17, 1924. E. & W. Biggs $13,500. Wanted. Lend at 8% with bonus of $1,000. Geo. C. McC., President.

Presumably the application was prepared before the new mortgages were executed. It stated that the money was to be applied to pay the arrears of interest on the Company’s present mortgages of $18,000 and $12,000, and sundry accounts amounting to $7,500, and a second mortgage of $5,000 held by Brickenden which will mature about March, 1925, and that as security the Company would receive a new mortgage for $13,500 on the property already mortgaged to the Company.

Although the properties proposed as security were stated in the application to be subject to two other mortgages than those which the Loan Company already held, one by Ed. Barrell for $7,000 and the other by Huron and Erie for $10,000, no mention was made therein of either the Brickenden $2,000 or $1,200 mortgages, which were not discharged on the records until November 12, or of the fact that any portion of the proceeds of the loan was to be applied towards paying off the amounts due Brickenden upon them, though it is stated that $5,000 of the loan money is to be applied to the payment of the $5,000 mortgage. No mention is made either of the fact that Biggs was to be required to pay Brickenden $500 for fees, commissions and disbursements in addition to the $1,000 bonus he promised to pay the Company.

The result of the transaction, so far as Brickenden is concerned, was that he got his $5,000 mortgage loan, and the balances due on two subsequent mortgages paid off by the London Loan & Savings Company, besides receiving a bonus or commission of $491.15 and legal fees from the proceeds of the loan—a total of $6,993.33. The Loan Com-

[Page 264]

pany received a bonus of $1,000 and $1,636.14 overdue interest on its $18,000 and $12,000 mortgages, leaving $3,870.53 for Biggs with which to pay the “sundry accounts amounting to $7,500” mentioned in the application. Apparently the “sundry accounts” covered not only the balance of Biggs’ mortgage indebtedness to Brickenden but his bonus and commission as well.

Brickenden’s certificate of title was dated, as already stated, on November 12, the day on which his $2,000 and $1,200 mortgages were discharged before his order of November 8 for $1,993.33 had been accepted by the Company, and made no mention of these two mortgages, though it set out nine different mortgages, which were on that date outstanding against different parcels of the lands comprised in the new mortgages to the Loan Company, amounting in all to $61,300, including his own $5,000 mortgage, numbered the ninth, and which last mortgage he stated in the certificate the London Loan was assuming. To his certificate of title he added a note to the Loan Company, stating that all the mortgages listed were to be removed except the Barrell and Huron & Erie mortgages for $7,000 and $10,000 respectively, and the Loan Company’s $18,000 and $12,000 mortgages. If all other mortgages than those indicated were removed, there would still remain on the mortgaged premises five mortgages for a total of $47,000, to which the Company was to add two more to secure the new loan of $13,500, making a grand total of $60,500.

It is perfectly obvious that the intention from the beginning was that Brickenden was not only to unload his $5,000 mortgages upon the Loan Company, but that he was to be paid the balances of principal and interest due on his two subsequent mortgages out of the proceeds of the proposed loan, as well as his exorbitant commission money. Brickenden has not testified that he advised the manager of the Loan Company or any of its directors or officers of this fact, which was surely a very material fact, having regard to the much encumbered state of the title of the properties of Mr. and Mrs. Biggs. On the contrary, the application itself would seem to have concealed both these material facts by the statement that $7,500 of the proceeds of the loan was to be applied to the payment of “sundry accounts.” This statement the record shews was untrue.

[Page 265]

Why did the application not mention the $2,000 and $1,200 Brickenden mortgages as well as the $5,000 mortgage? Why was it that the application was laid over at the Directors’ meeting on November 11, and the certificate of title held back till November 12—four days after the execution of the new mortgages, and until Brickenden discharged his third and fourth mortgages, before presenting his order from Biggs for $1,993.33 to the Company’s manager for payment? Brickenden has chosen not to explain any of these things and must be held to have been guilty of a breach of duty to his client, the London Loan and Savings Company.

It is quite apparent that Brickenden must have obtained the consent of the managing director (Kent) to put the loan through, cash his $1,993.33 order from Biggs and arrange for the Company’s assumption of his $5,000 mortgages, without waiting for the authorization of the Board of Directors. How he did so is left entirely to conjecture. Unfortunately Kent passed away before the trial of the action and Brickenden vouchsafes no information. The consent of the managing director does not help him unless it is shewn that it was obtained upon full disclosure of all material facts and this is not shewn. Kent himself may or may not have been influenced to violate his own duty to the Company, and it may be that, but for a breach of duty on his part and on the part of other directors and officers of the Company, the loan would not have been made. The learned trial judge has found that at the time of the loan there was no equity in the mortgaged properties above the prior mortgages, not including Brickenden’s $5,000 mortgages. I take this to mean he held the new mortgages to be worthless, which would surely point to a marked laxity and dereliction of duty on the part of the managing director and other officers of the Company, for the record shews that the managing director was advised by Brickenden’s certificate of title before the completion of the loan of the prior mortgages, including the Brickenden $5,000 mortgages, though not of his $2,000 and $1,200 mortgages. While it may for this reason well be said that Brickenden was not wholly responsible for the unfortunate transaction, he cannot invoke the connivance or dereliction of others as an excuse for his own breach of duty. It only renders his own

[Page 266]

breach of duty the more indefensible. He assuredly ought not to be allowed in such circumstances to excuse himself on the ground that the managing director or any other director or officer of the Company with whom he negotiated ought not in any event to have accepted his proposal.

That the transaction was highly improvident and one which was fraught with disaster to both Biggs and the Loan Company, and advantageous only to himself, is perfectly obvious from the documentary evidence concerning the transaction itself and the subsequent history of the mortgages and the Loan Company. The Loan Company was obliged by the Provincial Government Inspector to clear off its first two mortgages for $18,000 and $12,000, and it did so by arranging in December, 1927, with the Consolidated Trusts Corporation, of which McCormick and Brickenden were also president and solicitor respectively, to make a new loan to Biggs to the amount of $33,600 on two fresh mortgages at six and one-half per cent. on the same properties, for $20,000 and $13,600, of which $33,542.26 was paid to the London Loan for the amounts then due it for principal and interest, and by itself guaranteeing the new loans and giving additional security. The $13,500 mortgages the London Loan retained until it assigned all its remaining assets to the Huron & Erie Mortgage Corporation on July 3, 1929. On November 1 of the latter year the total indebtedness of Mr. and Mrs. Biggs on these three mortgage loans was found by the local master, to whom the mortgage accounts were referred for investigation, to amount to $56,887.23.

On November 6, 1929, the Consolidated Trusts Corporation transferred all its assets to the Canada Trust Company, this transfer covering the $20,000 and the $13,600 Biggs mortgages above referred to, as replacing the original $18,000 and $12,000 Biggs mortgages, guaranteed by the Loan Company as aforesaid. Both these corporations were joined with the London Loan and Savings Company as co-plaintiffs in the counter-claim, together with the Huron & Erie Mortgage Corporation and the London Loan Assets Limited. The last mentioned company was incorporated under the provisions of the Ontario Loan and Trust Corporations Act for the particular purpose of carrying out the terms of an agreement which was entered into on July 3,

[Page 267]

1929, between the London Loan and Savings Company, the Huron & Erie Mortgage Corporation and the newly created company, for the liquidation of the affairs of the London Loan and Savings Company, and which provided for the transfer of all its assets, first, to the mortgage corporation and then to the new company, including all rights of action which were capable of assignment.

There can be no doubt of Brickenden’s breach of duty to the London Loan and Savings Company or that the Company suffered a serious loss in consequence thereof.

The difficulty is to determine the amount of that loss which is fairly attributable to him. Having regard to the subsequent transfer of these two $13,500 mortgages, together with all the Company’s other assignable assets, to the Huron & Erie Mortgage Corporation and the London Loan Assets Limited, for the liquidation of its indebtedness, under the agreement of July 3, 1929, and to the large increase of the mortgage indebtedness which the accumulation of the mortgagors’ interest, taxes and other arrearages have since produced while these mortgages have remained in the hands of the assignees unrealized and presumably unrealizable, I cannot satisfy myself that Brickenden can justly be charged with all of these arrearages as the learned trial judge has decreed.I am satisfied that he should not be charged with the $1,000 which the Loan Company withheld out of the proceeds of the loan in payment of its bonus charge, nor, in the circumstances, with the $1,636.14, which it also withheld to pay itself the arrears of interest on its two prior Biggs mortgages. The latter amount cannot, in my opinion, fairly be said to have been lost to the Company as a result of the loan.

That Brickenden, on the other hand, ought not in the circumstances to be allowed to retain any of the benefits which he personally derived from the transaction and should indemnify the Loan Company to this extent at least is clear to my mind. As already stated, he received $6,993.33 of the proceeds of the loan, including the $5,000 for the first two of his four Biggs mortgages. It is true that he cannot now be restored precisely to his former position in respect of these mortgages, but these were in effect all merged in the larger $13,500 mortgages, which, it must

[Page 268]

be taken, the Loan Company was induced by his breach of duty to accept, and which, it is clear from the Master’s report and the evidence throughout, were practically worthless as a security for the moneys advanced.

While in strictness of law the right of action for damages resulting from Brickenden’s breach of duty lay in the London Loan and Savings Company and did not pass to its assignees under the agreement of July 3, 1929, the worthless mortgages did pass, with all other assignable assets of that Company, but only for the purpose of liquidation in the Company’s interest. The Huron & Erie Mortgage Corporation and the London Loan Assets Limited are both parties to the counter-claim and before the Court on this appeal, and I can see no objection to treating the moneys which improperly came into Brickenden’s hands out of the proceeds of the loan for his own use and benefit as moneys of the London Loan and Savings Company, for which he is still liable to account to that Company or to its assignees under the agreement referred to, or in subrogating him, to the rights of that Company or its assignees under these mortgages to the extent of the moneys he may be required to pay back. One or other of the corporations named is entitled to the fruits of the action, and, having regard to the terms of the assignment, it makes no difference in the result which of them actually receives the money. In the end it goes to the London Loan and Savings Company or to the London Loan Assets Limited for its benefit.

In my opinion, the ends of justice would, in the circumstances, best be served by a decree requiring Brickenden to restore to the London Loan and Savings Company or to the Huron & Erie Mortgage Corporation or the London Loan Assets Limited the $6,993.33, which he improperly received out of the proceeds of the loan, together with interest at the statutory rate from November 12, 1924, the date of the completion of the loan, until judgment, and declaring that upon payment of the said sum and interest, he shall be subrogated to that extent to the rights of the London Loan and Savings Company or its assignees under the said mortgages.

[Page 269]

The appeal should be allowed and the judgment of the trial judge varied as here indicated, costs throughout to be paid by the respondent.

Appeal allowed with costs, and judgment of trial judge restored with variation as set out in judgment of Smith J.

Solicitors for the appellants: Braden & McAlister.

Solicitors for the respondents: Slaght & Cowan.