Read before signing anything.
This was the painful lesson learned by the plaintiff in the case of Isaacs v. Royal Bank of Canada, 2010 ONSC 3527, after the Ontario Superior Court of Justice ruled that she was bound by the mortgage contract that she had co-signed, and the mortgagee bank was not liable to her for damages.
The plaintiff Angela and the defendant bank were both victims of fraudsters. Angela was tricked into signing the contract documents as guarantor and then left to deal with the consequences of default. The bank, on the other hand, was duped into advancing funds that found their way into the fraudsters’ pockets. By the time Angela and the bank discovered the fraud, the swindlers were long gone. The question posed to the court then was who, as between Angela and the Bank, should bear the loss?
Angela’s troubles began one day in October 2004 while having coffee at Tim Horton’s with her then husband. They were discussing money matters, and it was not rosy. Overhearing the couple’s conversation, a man approaches them, introduces himself as “Mike” and offers to help. Mike leaves them his contact number.
After two weeks, Angela’s husband makes the call. Mike claims to know someone who wanted to buy a house but could not obtain financing because of bad credit. He then offers to pay the couple $4,000. The catch? Either of them would have to co-sign the mortgage. Mike assures them that the co-signor will not be tied to the mortgage for more than six months and the real borrower will take care of the mortgage payments.
It’s an enticing offer. Angela accepts it.
A woman claiming to be a mortgage broker calls Angela and asks for her personal and financial information. Angela has second thoughts. Angela calls the woman and tells her she’s backing out. So what does the broker do to make Angela change her mind? She increases the offer to $6,000. Angela is back on board.
Angela goes to the woman’s office and signs documents without reading them or retaining copies. Angela is then told to go to the bank branch concerned. After her identity is cleared and verified by the bank, she signs some bank forms including a mortgage application indicating her and another person not known to her as co-borrowers. She reads none of the documents before signing. She would testify later on that they were not explained to her by bank representatives.
Angela goes to the office of a lawyer, per the lady broker’s instruction, and signs more documents. The documents are then submitted to the bank, which approves the loan on the strength of the documents and releases the proceeds. Title to the mortgaged property that Angela has not seen and set foot on is registered jointly in her name and that of the co-borrower. Angela gets paid what was promised her. Not bad for a day’s work, so to speak.
Or so Angela had thought. Not long after, she gets a call from the bank because of an unpaid first mortgage payment. It dawns on her that not everything is what it had seemed. Getting to the bottom of things, she discovers that the mortgaged property was not in good shape and worth far less than the appraised value.
The property had in fact been on the market for quite some time without any takers. From out of nowhere, two buyers mysteriously come along and agree to buy the property from the former owners for the full asking price and without any conditions on financing or inspection. In less than a week, the agreement of purchase and sale is assigned to an unsuspecting Angela and her co-borrower who end up with the property and mortgage obligations. This was a classic case of a “flip” transaction, and Angela was played for a fool.
The fraudsters had vanished into thin air with the money. The bank looks to Angela for mortgage payments. After all, her name appears on the mortgage documents as borrower. For a time, Angela reluctantly makes payment and assumes management of the property. She obtains an offer to buy the property, but the deal does not materialize because the bank refuses to let her off the hook in exchange for the sale proceeds. So Angela gives up on the mortgage, and the bank itself sells the property.
Aggrieved, Angela sues the bank. She claims damages representing losses sustained for keeping the mortgage afloat before the property was finally sold. According to Angela, the bank should bear those losses for failing to detect the fraud. Seeking the dismissal of the damage claim, the bank alleges that the fraud would never have taken place were it not for Angela’s assistance to the fraudsters. The loss fell squarely on her shoulders, says the bank.
While sympathetic to Angela, the court agreed with the position of the bank. The court said that if Angela “had taken the trouble to read the documents she signed, she would have immediately known that the transaction was not what she understood it to be”. The court concluded that as between Angela and the bank, it was the former who was “in the best position to notice something was amiss”.
In asserting that the bank should bear the loss for its carelessness, Angela’s counsel argued that the bank failed to consider the history of transactions involving the property, obtain a proper appraisal and verify information from the broker, aside from providing no explanation of the documents to Angela.
The arguments failed to convince the court, pointing to the kind of relationship that Angela and the bank had between them. “Their relationship is strictly that of debtor and creditor”, the court emphasizes. As creditor, the bank did not owe any duty to Angela to look after her interests. “It had no obligation to investigate the background and no obligation to ensure (Angela) understood the transaction”.
In dismissing the claim for damages against the bank, the court said that Angela had only herself to blame for putting too much trust in strangers, and for signing documents she did not read and understand. Indeed, it is good practice to take time to read documents requiring one’s signature and know what one is getting himself or herself into to avoid surprises.