One of the routine things that lenders and other creditors do is respond to requests for payout amounts. A recent Saskatchewan decision, Halpape v Bank of Montreal, 2017 SKQB 23, provides a cautionary tale for the disaster that can ensue if a creditor understates the amount that is owing, and reinforces the need for creditors to use the utmost care in responding to payout requests.
Bank of Montreal (the “Bank”) had obtained a judgment against Dara Lynne Halpape (“Halpape”), and had that judgment registered at Land Titles in Saskatchewan, including against the title to land owned by Halpape. Halpape sold the land to a third party.
As part of handling the sale transaction, Halpape’s lawyer wrote to the Bank’s payout department to request a payout statement for the Enforcement Charge. The letter to the Bank was somewhat confusing in that the “Re” line referred to “Mortgage #: Unknown”, but the body of the letter clearly made reference to an Enforcement Charge and a Provincial Judgment in the amount of $18,151.35, with a registration date and registration numbers.
The Bank misunderstood the inquiry, and responded that the amount owing was $0.00 (with a $300 discharge fee), referencing a homeowner line of credit.
A paralegal at Halpape’s law firm phoned to follow up and was again advised that the balance owing was $0.00.
The law firm then wrote to the Bank enclosing the $300 discharge fee. While the Re line again made reference to a Mortgage number, the body of the letter again referred to the Enforcement Charge – Provincial Judgment.
The sale closed shortly after the law firm sent the second letter to the Bank. Several days later, the Bank realized its mistake and advised that the correct payout amount was some $18,151 plus interest. The Bank also refused to provide a discharge of the Enforcement Charge until it was paid in full.
The problem was that the sale proceeds had been expended – Halpape’s lawyer had already disbursed the net sale proceeds to pay other creditors.
As part of the conditions governing the sale, Halpape as the seller was obliged to deliver title clear of the Bank’s Enforcement Charge. When the Bank refused to discharge, Halpape applied to the Court seeking an order to discharge that encumbrance.
The Court ordered that the Bank was bound by its statement that no payment was required to discharge the registration, and directed that the Enforcement Charge be discharged.
The Bank attempted to argue that there was a mutual mistake concerning the registration to be discharged. The Court rejected this argument. Although some ambiguity was created by the references to mortgages in the Re lines of the letters, the clear statements in the body of the letters that the requests related to a specific Enforcement Charge led the Court to conclude that the Bank would not be misled by a reference to an unknown mortgage number. To paraphrase the Court’s view, the Bank was mistaken, but Halpape’s lawyer was not, so it was not a mutual mistake.
In applying to have the Enforcement Charge discharged, Halpape did not argue that the Bank had agreed contractually to provide the discharge. Rather, she argued estoppel. The basic test of estoppel is made up of three requirements:
- The making of an erroneous representation with the intent that it be acted on by the party to whom the representation is made;
- The party receiving the representation acts (or omits to act) in reliance on the representation; and
- Detriment to such party as a result of their act or omission.
Here, the Bank had made a representation as to the amount to be paid out, with the intention that it be acted on, and Halpape had changed her position, to her detriment, in reliance on that representation. Relying on the Bank’s representation that only $300 needed to be paid to the Bank, Halpape’s lawyer paid out the rest of the sale proceeds to other creditors, so that there were no funds left to satisfy the Bank’s judgment. The Court held that the requirement for detriment was satisfied because Halpape no longer had the funds to be able to clear title.
The Bank’s error did not release Halpape from her obligation to pay the judgment. That continued to exist. However, the Bank lost its right to maintain the registration of the Enforcement Charge, which was its best and perhaps only method of obtaining payment at that time.
The potential implications are quite clear. Lenders and creditors need to exercise great care when providing payout amounts, particularly in the context of the sale of property. If a creditor provides a payout statement that understates what must be paid for the creditor to provide a discharge, then if the sale closes quickly and the lawyer disburses the funds, the creditor may be held to the payout amount that it provided, even if it later discovers that the payout amount was incorrect.
Further, if a creditor discovers such an error, it is crucial to communicate it immediately. If the sale proceeds have not been disbursed, it may be possible that the rationale in this decision would not apply (i.e., the detriment requirement of the estoppel test may not yet have been satisfied).