LAWPRO defends lawyers: Lawyer owed no duty of care to non-client intermediary that paid out funds against client’s forged instrument
LAWPRO defends a wide variety of cases in any given year. In almost 80 per cent of the claims files we handle, there is ultimately no finding of negligence against the lawyer that was the subject of a claim.
Occasionally, our work on a lawyer’s behalf is made easier by having compelling facts on our side. But even where the facts are more balanced, LAWPRO counsel strive to put forward rigorous and well supported defences on the part of our insured − not only to avoid a loss in any particular case, but also in the interest of creating precedents and standards of care that are fair to all lawyers. Here is one of the cases we successfully defended in 2013:
Lawyer owed no duty of care to non-client intermediary that paid out funds against client’s forged instrument
A lawyer represented a client, who turned out to be an impostor, in obtaining a mortgage.
After receiving the mortgage proceeds, the impostor client used them to purchase a bank draft. He forged an endorsement on the draft, and presented it to the claimant intermediary (a “payday loan” – type company). The intermediary paid the impostor cash on the note.
The forgery was discovered, and the issuing bank reversed the payment. The intermediary’s account was debited. The intermediary sued the impostor’s lawyer (among others). The court held that the lawyer, who acted for the mortgage lender and the purported mortgagor, owed no duty to the intermediary.
Justice Stinson rejected the intermediary’s contention that a lawyer in a mortgage transaction owes a duty of care to parties who subsequently negotiate a cheque or bank draft purchased with the proceeds of the mortgage to ensure that the transaction was legitimate and that the cheque or bank draft was valid and negotiable. Because the client’s endorsement was forged, and therefore entirely ineffective to convey title to the bank draft, the intermediary converted it. The courts have so far refused to import negligence considerations into the strict liability regime governing the conversion of bills of exchange.
This article was originally published in the “2013 Annual Review” issue of LAWPRO Magazine. All past issues of LAWPRO Magazine can be found at www.lawpro.ca/magazinearchives