Agent’s Authority to Receive Mortgage Payments #50

By Gerry Neely
B.A. LL.B.

Usually you would assume that if you are making monthly payments on a mortgage to a mortgage broker, that you could safely pay the principal amount required to pay the mortgage in full to the broker, and obtain a release from the mortgagee. A recent case once again raises the question of the authority that the principal has given to an agent, and indicates the necessity for caution when dealing with the agent rather than the principal.

The plaintiffs in the action bought property subject to a mortgage in favour of Devon Mortgage Ltd., which had been transferred to a Bertha Glass. Both the mortgage and its assignment were registered before the sale was completed. Shortly after the purchase, the plaintiffs were advised by Devon to make all monthly payments to it and to provide fire insurance showing loss payable to Glass. Although the mortgage did not fall due until December 1, 1982, in February, 1982, Devon advised the plaintiffs that the mortgage would be payable on March 1, 1982, and as a result of that advice, the plaintiffs paid the mortgage balance to Devon. Payment was made through the plaintiffs' solicitors who forwarded the cheque to Devon upon trust to discharge the mortgage. Devon received the monies but failed to pay them to the mortgagee, Glass, who in turn refused to provide a discharge of mortgage. The plaintiffs sued for a declaration that Devon was the agent for Glass who was bound therefore to provide a discharge of her mortgage to the plaintiffs.

The evidence established that Devon was the agent for Glass to administer her mortgage for a negotiated fee. It did not have actual authority to receive the pay out of the mortgage (actual authority arises out of a contractual relationship between a principal and agent). The question to be decided was whether the agent had apparent authority to act on behalf of Glass. Apparent authority commonly arises as a result of representation by conduct, as where the agent is permitted to act in some way in the conduct of the principal's business with another person.

The plaintiffs argued that by allowing Devon to collect nine monthly payments without her having made any direct contract with the plaintiffs, Glass represented to the plaintiffs that Devon had authority to request and to receive a pay out. The Court looked at a number of cases where the Court had to decide where the loss is to fall when a debtor pays money to a person other than his creditor, and the money is misappropriated by the person to whom it is paid. These cases establish the following rules:

1. If payment is made to the person other than a creditor, the onus is on the party making the payment to show by clear evidence that the payment was authorized by the creditor.
2. The mere authority to receive payment of interest does not prove authority to receive monies on account of principal.
3. Express authority to receive payment of principal before it falls due must be clearly proved. Such authority cannot be inferred from any ordinary course of dealings between the parties.

As a result of these precedents, the Court held that Glass was not obliged to deliver a discharge of mortgage until the amount owed to her had been paid by the plaintiffs. The result is not unreasonable in that the plaintiffs should have been aware from reading their own mortgage that it did not mature for another eight months. This should have alerted them, as well as their solicitors, to question the authority of the agent.

There are several other points to be gained from this case, if your mortgage is not held by an institutional lender. The first is to do a search of title before paying out a mortgage, to satisfy yourself not only as to who is entitled to receive the mortgage monies, but also as to whether the mortgagee may have judgements registered against his or her interest in the mortgage. The second is that wherever possible, try to exchange a cheque for a registrable discharge of mortgage.

To subscribe to receive BCREA publications such as this one, or to update your email address or current subscriptions, click here.

Without limiting the Terms of Use applicable to your use of BCREA's website and the information contained thereon, the information contained in BCREA’s Legally Speaking publications is prepared by external third-party contributors and provided for general informational purposes only. The information in BCREA’s Legally Speaking publications should not be considered legal advice, and BCREA does not intend for it to amount to advice on which you should rely. You should not, in any circumstances, rely on the legal information without first consulting with your lawyer about its accuracy and applicability. BCREA makes no representation about and has no responsibility to you or any other person for the accuracy, reliability or timeliness of the information supplied by any external third-party contributors.