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LAWPRO To The Defense: Winning Real Estate Cases

- by Debra Rolph

When boom turned to bust during the recession of the early 1990s, many real estate investors looked for a way to recoup their losses. Lawyers, who find themselves on the front lines by the very nature of their business, often become targets as investors cast around for someone to blame. The result: Claims that often involve substantial losses and plaintiffs who are unwilling to settle for anything less than their actual loss, irrespective of whether or not the solicitor was negligent or whether or not an error actually caused the loss.

If LAWPRO believes that the insured was not negligent, or that his/her negligence did not cause the claimant's loss, LAWPRO may itself push the case to trial. In other instances, the only way a case can be resolved is at trial. In many instances, trials are both lengthy and costly; but LAWPRO recognizes that this is a cost which it must incur to fulfil its duty to its insureds. This Casebook examines three cases that went to trial and which LAWPRO won, for different reasons.

The case
The plaintiff Rose, a widow who had recently inherited a great deal of money, mortgaged her home to raise money to invest in the renovation of a multi-unit residential building. This was done at the suggestion of her ex-masseur turned real estate agent and that agent's partner. The lawyer, McKee, was retained by the Rose to process the mortgages. McKee attempted to obtain information from Rose about the proposed investment, but the plaintiff refused to provide it. She had already decided to proceed with the investment, and did not desire the solicitor's advice. When the investment was lost, Rose sued McKee for $481,950.05 plus interest, plus costs. She alleged that he should have protected her interest with respect to the investment, including eliciting further information from her, providing her with some additional information in his possession concerning her investment partners and the investment property, and refusing to act on the mortgaging of her home.

The judgment
The plaintiff's action was dismissed, largely because McKee was able to produce file notes of his telephone conversations with Rose that were clear, concise and documented his version of events. Although the evidence of Rose and McKee diverged widely on what the scope of the retainer was, the trial judge preferred McKee's evidence; at one point the judgment reads, "Rose denied that she spoke to him (McKee) about the items recorded in his notes." Later, the judgment says, " I accept McKee's evidence that after speaking to DelGrande, he telephoned Rose again and asked her more questions about the deal. I reject Rose's evidence with respect to that call. I find that McKee's contemporaneous notes accurately reflect that discussion."

The judgment makes it clear that McKee's retainer was limited to processing the mortgages. His attempts to extend his retainer to the wider transaction were rebuffed. He fulfilled his limited retainer. No fiduciary duty was owed to provide information and advice beyond the scope of his retainer. The plaintiff would have proceeded with the investment even if McKee had provided further advice and information, or had refused to act.

The lesson
The more documentation an insured can provide on a specific file, the stronger the case LAWPRO can make on the insured's behalf at trial. If your client asks you to limit the retainer, refuses to follow your advice or instructions, or the situation or instructions are out of the ordinary, make it a habit to note your instructions, conversations and discussions, wherever possible.

Rose v. McKee
[1999] O.J. No. 512 (Ont.Ct.Gen.Div.)

The case
The defendant solicitor, Wrock, was retained to act for the plaintiff, Fraser Resources, on a mortgage advance on property to be developed. The mortgage commitment specified that building permits were to be "available." Wrock contacted the township and was informed that building lots were available subject to the usual requirements on things such as grading and drainage. He discussed this with the plaintiff, who from his own knowledge and experience already knew this. The borrower eventually defaulted. The plaintiff sustained a very substantial loss on his $320,000 mortgage. Fraser Resources then sued Wrock, claiming that he would not have made the mortgage advance at all had he known that work was required to remedy drainage and grading problems before building permits were issued.

The judgment
The plaintiff's action was dismissed. The trial judge rejected Fraser Resources' submission that the wholly unfettered and unqualified availability of building permits was pivotal to the advancement of funds. If damages were to be awarded at all, their proper measure was the costs of completing the drainage and grading work-- $23,680.17-- and not all of the plaintiff's losses under the mortgage.

The lesson
In LAWPRO's opinion, which was corroborated at trial by the judgment, the claim against Wrock had no merit. The client knew as much as the lawyer did, but as is so often the case, targeted the lawyer as a likely source of compensation for its loss. LAWPRO takes a firm position that it will not settle in cases such as these, where there is clearly no liability on the part of the lawyer.

Fraser Resources et al v. Charles Wrock
Unreported, Ont.Ct.Gen.Div., File No. 96-CU-101854, Klowak, J., February 25, 1999.

The case
A sophisticated builder retained the defendant solicitor to advise him concerning a second mortgage loan. The solicitors also represented the borrower. The $20,000 loan was required to complete a garage. The solicitor did not advise the plaintiff lender that the property was subject to a construction lien, that no building permit had been issued, and that the municipality had issued a stop work order.

The judgment
The judge found that the breach of duty did not cause the plaintiff's loss, and that the plaintiff would have proceeded with this action in any event. The property had substantial equity. Even after the borrowers defaulted, the plaintiff was willing to renew the mortgage for another year. The mortgage commitment did not make the use of the funds for completing the garage a condition of the mortgage advance.

The lesson
LAWPRO's position that the lawyer's mistake was not the cause of loss was corroborated at trial.

(note: For reasons of confidentiality, and because this is an unreported case, LAWPRO has opted not to provide additional details on the specifics of the parties involved in this matter.)

 

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