Liability for Both a Limited Company and the Employee, Resulting From the Actions of the Employees #14

Dec 01, 1981

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By Gerry Neely
B.A. LL.B.

A recent case illustrates the liability which may attach to both a limited company and the employee of the limited company, resulting from the actions of the employees. The case involves a mortgage brokerage firm that took applications from prospective borrowers who wished to raise money secured by mortgages or real property. The firm then found an investor who, if the loan was approved, took an assignment from the mortgage brokerage firm of the mortgage given to it by the borrower. In this case, an investor agreed to provide $55,000.00 on the security of a second mortgage to be registered behind a first mortgage of $127,000.00. $10,000.00 of the $55,000.00 was to be held back until an appraisal established that the improvements to be constructed by the borrower would result in the total of the first and second mortgages not exceeding 75% of the value of the property. The investor approved the loan on the strength of a statement by the employee of the mortgage brokerage firm that the value of the property was $229,000.00. The total of $127,000.00 and $45,000.00 was just slightly in excess of 75% of such value, which was acceptable.

The investor received 8 monthly payments before the borrower defaulted on both the first and second mortgages. For reasons which are not clear from the reported decision, the $10,000.00 holdback was advanced without appraisal. In the subsequent foreclosure action, the value of the land and improvements was insufficient to cover the amount due on the first mortgage, with the result that the investor received nothing on the security of his second mortgage. The investor sued both the employee and the firm and at the trial the evidence indicated that the land and improvements had been appraised at $200,000.00, and that the appraiser had then given a supplementary appraisal stating that on the basis of slightly larger lot boundaries and site work, the value of land and improvements was $229,000.00. The appraiser qualified this larger valuation by stating that $229,000.00 "was not to be considered as being an estimate of market value of the land and improvements if sold as they were." The investor reviewed the $200,000.00 appraisal but the evidence was not clear whether he received the supplemental appraisal. It had been discussed, however, and other documents prepared by the employee had consistently referred to the $229,000.00 value. The Court held that all parties had that value in mind when approval of the loan was given by the investor.

Because of these facts, the Court did not find that there was a deliberate misrepresentation constituting fraud, on the part of the employee. It did find the employee to be negligent in his representations regarding the value of the property. Negligence arose firstly because the employee was a person who should have known and understood the contents of the appraisal and the qualification contained in the supplementary appraisal. Then having undertaken to make representations to the investor as to the value of the property, the employee had a duty to give the investor accurate information. Finally, the investor relied and acted upon the representations made by the employee.

On behalf of the employee, it was argued that he should not be liable personally since his misrepresentation was made in the execution of the duties which were imposed upon him by the contract between his employer and the investor. The Court held, however, that his negligence was independent from that of his employer because the misrepresentation led up to, or was preliminary to, the contract which resulted from the assignment of the mortgage from the mortgage brokerage firm to the investor.

The company was liable in contract for breach of warranty. In addition, it was liable in tort for negligence of its employee, which occurred in the course of his employment.

Damages of $48,363.15 were awarded against both the employee and the mortgage brokerage firm.

  1. Herrington et al v. Kenco Mortgage and Investments Ltd. et al,29 B.C.L.R. 54.

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