Ontario Civil


Bankruptcy and Insolvency

BANKRUPTS
Bankrupt not aware of friend’s misrepresentations or mortgage fraud

Bankrupt was employee of bank and was asked by friend if he would be willing to co-sign mortgage application to assist new immigrant who lacked sufficient credit history in Canada to obtain mortgage. Bankrupt and friend signed separate mortgage applications at different times in different places. Bankrupt provided accurate information about his income and employer while friend misrepresented income and employment and submitted inflated property valuation. Bankrupt was not aware of misrepresentations. Bank investigated what it believed to be fraud. Mortgage went into default. Bank sued and obtained default judgment against bankrupt and friend and judgment was assigned to Canada Mortgage and Housing Corporation (CMHC). Bankrupt made assignment in bankruptcy. CMHC applied for declaration that outstanding amount of bankrupt’s debt would not be released under s. 178(1)(e) of Bankruptcy and Insolvency Act (Can.). Judge determined that bankrupt’s debt would not survive his discharge from bankruptcy. CMHC appealed. Appeal dismissed. Section 178(1)(e) required finding that bankrupt obtained property by fraudulent misrepresentation or false pretences. Causal connection was required between bankrupt’s wrongdoing and creation of debt. Mortgage was obtained by friend’s fraudulent misrepresentations and not as result of anything bankrupt said or failed to disclose. Bankrupt was not aware of friend’s misrepresentations or mortgage fraud. Trial judge did not err in failing to find that bankrupt was not wilfully blind. Decision did not condone straw man debtor scenario.

Canada Mortgage and Housing Corp. v. Gray (Mar. 28, 2014, Ont. C.A., John Laskin J.A., K. van Rensburg J.A., and C.W. Hourigan J.A., File No. CA C57109) Decision at 229 A.C.W.S. (3d) 333 was affirmed.  238 A.C.W.S. (3d) 807.

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