Error and estoppel in creditor claims

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Clerical errors are an unfortunate fact of business life. When they happen, they are typically reversible, with the appropriate apologies. But when the payout of creditor claims is involved, that may not always be the case.

In Halpape v. Bank of Montreal, the bank made an error as to the payout amount required to clear a judgment registered against the judgment debtor’s land.

The applicant, Halpape, had agreed to sell her land. Prior to closing of the sale, her lawyer requested a payout statement from the bank. In a letter to the bank, Halpape’s lawyer listed the mortgage number as “unknown” but gave other information on the property and specifically mentioned the judgment charge against the land in favour of the bank by registration number. The bank replied that the payout figure was zero, but there was a discharge fee of $300.

Just prior to closing, a paralegal with Halpape’s lawyer contacted the bank’s representative again who reconfirmed that the payout amount was zero, with a $300 discharge fee. In the process of clearing Halpape’s other debts, the law firm paid the $300 fee to the bank, conditional on the bank providing a registerable discharge, and dispersed the balance of the sale proceeds to other creditors. Halpape herself apparently received none of the sale proceeds.

When the bank discovered its error, it advised Halpape’s lawyer that the required payout was $18,151.35, plus interest, and refused to provide the discharge. The lawyer had no funds to pay any additional amount, as all proceeds had been disbursed to other creditors, and Halpape herself had no funds to pay the amount. The lawyer was on an undertaking to the purchaser to clear title.

Application was made to the Saskatchewan Court of Queen’s Bench for an order discharging the judgment from title. The application was based on the principle of estoppel — that a party is precluded from asserting as fact any statement contrary to a previous statement or action. To establish the claim for estoppel, one must show that:

  • a party made a representation by word or deed with the intent to induce a course of conduct by another person;
  • the other party acted or omitted to act as a result of that representation; and,
  • the party, as a result of acting or omitting to act as a result of the representation has suffered a detriment.

The court found all conditions to establish a claim for estoppel to be present. It said detriment was present because Halpape’s lawyer had relied on the bank’s statements to distribute all of the sale proceeds to other creditors. Accordingly, the court ordered that the charge registered against the land be discharged. The original judgment against Halpape remained in effect but, without an charge on land in her possession, the bank lost one method to enforce its claim.

Two takeaways are clear: some mistakes are not reversible. Where payout statements are concerned, the onus is on creditors to ensure accuracy.

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