Residential Mortgage or Residential Agreement for Sale - Continued; Negligence, Liability of Owner/Employee of a Limited Company #126

By Gerry Neely
B.A. LL.B

Column 125 discussed how a mortgagor may be able to limit liability under the personal covenant of the mortgagee, upon the sale by the mortgagor of his residence. What is the liability of the purchaser of the residence, the person who, in the amendments, is referred to as the current owner? If the current owner assumed a liability to pay the mortgagee or to indemnify the mortgagor, then the mortgagee can sue the current owner directly, as if the current owner was an original party to the mortgage. Similarly, if the mortgagor is forced to pay the mortgagee, then the mortgagor can sue the current owner to recover the amount paid.

The onus is on the current owner to prove that he is not liable. He may discharge this onus by proving that by agreement with the person from whom he purchased the residence, he did not assume the mortgage. The current owner may also be able to avoid liability by proving that an earlier owner of the residence did not assume the mortgage at the time title to the residence was transferred to the earlier owner.

What changes in mortgage practice will result from these Amendments? Will all mortgagees put "due on sale" clauses in their mortgages? Will borrowers or lenders want the mortgage to identify the residential purpose for which the money was borrowed? What is included within family or household purposes? The purchase of the family car - yes; financing a university education - why not; the trip to Hawaii to recharge the family batteries - no, or is it just maybe? Who knows - tune in next year for some of the answers.

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From the time when limited companies became part of business activities, lawyers have advised clients that one of the advantages of incorporation is to shield the owner of the company who also works in the business, from personal liability. Judges have referred to this shield as the corporate veil which lies between the company and its shareholders and have often stated their reluctance to lift the corporate veil to attach liability to the shareholder for a negligent act of the corporation. That is changing and the corporate veil is being lifted often enough now that if the Courts sat at night, the judges would be charged as peeping Toms.

A recent case dealt with a limited company carrying on an insurance agency business. An elderly woman who suffered from angina and diabetes, and who was travelling to the United States, wanted excess medical insurance coverage for her. Her son arranged this with the owner of the limited company who was also an employee of the company. A policy of insurance was provided but it excluded coverage for any illness which had required treatment or hospitalization within one hundred and eighty days of the policy's effective date. The woman died during her visit and medical bills in excess of $40,000.00 were incurred for which liability was denied by the insurance company.

The judge accepted the evidence of the son as against the evidence of the proprietor of the insurance agency, to find that the proprietor had failed to advise the son of this exclusion. He held that the employee had a duty to warn the son of the exclusion clause since the son had specified what his mother's needs were.

The company was held to be liable for the breach of contract in failing to provide an insurance policy suiting the mother~s needs. The judge referred to a number of decisions in which an employee of a company was held to be liable for the employee's negligence and said that the owner of an incorporated business who commits a negligent act in the course of that company's business, should be in no different position to an ordinary employee. The owner/employee was held to be personally liable for negligence. He would not have been liable if there had been a breach of contract only.

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