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Damages - Fraud. McKenzie-Barnswell v. Xpert Credit Control Solutions Inc. [where fraud]
In McKenzie-Barnswell v. Xpert Credit Control Solutions Inc. (Ont CA, 2025) the Ontario Court of Appeal considered a contractual severance remedy where mortgage principle funds were added to as a result of a contractual addition that was tainted by fraudulent misrepresentation:(b) Failure to Sever the Mortgage
[55] The second error lies in the trial judge’s decision to set aside the entire March 2017 mortgage. It is true that the monies advanced for the performance of the construction contract were rolled into the March 2017 mortgage. That part of the March 2017 mortgage must fall with the invalidation of the construction contract. But it is far from clear that the entire debt should be set aside. The invalidation of the construction contract did not invalidate the entire mortgage. Nor does the finding of unconscionability compel that result.
[56] Mortgages are severable. Where some, but not all aspects of a mortgage are void for fraud, it is appropriate to determine whether other aspects of the mortgage are enforceable: Ontario Hardwood Flooring Co. v. Dowbenko, (1957) 7 D.L.R. (2d) 111 (Ont. C.A.), at p. 115. In this case, the monies advanced for the construction contact, invalidated by fraud, did not taint the entire March 2017 mortgage.
[57] Similarly, while some aspects of the blanket March 2017 mortgage were unconscionable, other aspects of the debt are enforceable.[1] The respondent received advances and used the funds for various purposes. For example, the respondent borrowed $90,000 in order to make her parents’ home more “senior-friendly”. The respondent also asked that the debt be increased by $17,000 so that she could pay her father’s funeral expenses. . McKenzie-Barnswell v. Xpert Credit Control Solutions Inc.
In McKenzie-Barnswell v. Xpert Credit Control Solutions Inc. (Ont CA, 2025) the Ontario Court of Appeal considered the trial court's remedial errors in a finding of 'fraudulent misrepresentation':[48] While I would uphold the trial judge’s findings of liability for fraudulent misrepresentation and unconscionability, I find error in the remedy.
(a) Error in the Contractual Remedy
[49] The first error arises in connection with the damages for negligence and breach of the construction contract. The trial judge awarded damages that would cover the cost of completing the construction and bring the property into compliance with the OBC and the Fire Code. As the trial judge put it:Due to the negligence, breach of contract and fraudulent misrepresentation of the [appellants], they are responsible for payment of all damage or loss sustained by the [respondent] as a result of the [appellants’] negligent construction work. All amounts required to complete the work that the [appellants] should have done under the construction contract, as well as all work required to comply with the OBC and Fire Code, are the responsibility of the [appellants], Mr. Joshi, Xpert Credit and Right Choice, jointly and severally. [Emphasis added.] [50] One of the central findings of the trial judge was that the contract was to be set aside due to fraud. The usual remedy for a fraudulently induced contract is recission of the contract. One cannot logically rescind a contract yet, at the same time, order its enforcement. When induced by fraud to enter into a contract, the deceived party is entitled to sue in tort for damages based on the party’s out-of-pocket loss: S.M. Waddams, The Law of Contracts, 8th ed. (Toronto: Thomson Reuters, 2022), at para. 430; 1018429 Ontario Inc. v. FEA Investments Ltd. (1999), 1999 CanLII 1741 (ON CA), 179 D.L.R. (4th) 268 (Ont. C.A.), at paras. 50, 52. However, the deceived party is not entitled to expectation or “loss of bargain” damages: Waddams, at para. 430; FEA Investments, at paras. 50, 52; see also Todd Family Holdings Inc. v. Gardiner, 2017 ONCA 326, 64 B.L.R. (5th) 1, at para. 25.
[51] In other words, the respondent is not entitled to the cost of completing the work of the contract, though she is entitled to be compensated for her out-of-pocket loss, and the repair of damage to her property flowing from the negligent work. She is entitled to be placed in the position she would have been but for the appellants’ wrongdoing, that is, had she not been induced to enter into the construction contract.
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