Another small claims court case against the bank which issued and
cashed a misendorsed bank draft used as payment to a fraudulent telemarketing
operation. This was filed in June, 2001. As such, the
claims within have not been proven and are presented as allegations
Superior Court (Toronto Small Claims Court)
B E T W E E N:
KATHLEEN SOMERVILLE Plaintiff
- and -
TORONTO DOMINION BANK Defendant
C L A I M
1) The Plaintiff claims against the Defendant:
a) Indemnification in respect of a loss, more particularly described
b) Rescission of any contract between the Somerville and the Defendant
and repayment of her monies remitted in relation thereto;
c) In the alternative, damages against the Defendant for breach of
contract, breach of collateral contract, negligence, breach of fiduciary
duty, breach of statute, and negligent misrepresentation in the amount
d) Further, or in the alternative, exemplary damages against the Defendant
for breach of fiduciary duty, negligence, breach of contract, breach
of collateral contract, and breach of statute in the amount of $4,000;
e) Interest pursuant to the Courts of Justice Act, R.S.O. 1990, c.
c.43 and amendments thereto
f) Costs of this action on a solicitor-client scale plus Federal Goods
and Services Tax;
g) Such further and other relief as to this Honourable Court may deem
2) The plaintiff Kathleen Somerville ("Somerville") resides
at North York, Ontario. Somerville is approximately 80 years of age.
3) Toronto Dominion Bank ("TDB") is a bank registered pursuant
to the Laws of Canada with offices at 55 King Street West, Toronto, M5K
1A2, with telephone number 982-8089, fax number 982-6166. At all material
times, the plaintiff was a customer of TDB.
THE SALE OF BANK DRAFT SERVICES
4) For many years, TDB developed and provided to the public a method
of transferring money from one party to another party through is
commonly referred to as "bank drafts" ("Bank Draft
5) Bank drafts sold by TDB require the purchaser pay a fee for TDB's
service. In addition, TDB profited by lending out to borrowers the
cash paid by the purchaser until such time that the payee of the
bank draft managed to encash the draft.
6) TDB sold its Bank Draft Services to the plaintiff on the basis
that only the payee would be able to receive the monies entrusted
by the plaintiff after the payee provided proper endorsements.
7) TDB developed and marketed its Bank Draft Services with the intention
of increasing sales and improving its profitability.
8) In soliciting the plaintiff to use bank drafts, TDB made representations
(the "Representations") which were designed to solicit
the plaintiff and thus induce the plaintiff to use its Bank Draft Services.
9) At material times, TDB represented that TDB's Bank Draft Services
would provide a trustworthy method of transmitting the plaintiff's
10) The Representations were made to solicit plaintiff with the
intention that such Representations are relied upon. In fact the
Representations were relied upon and did induce the plaintiff to
purchase TDB's bank drafts.
11) TDB knew that bank drafts were a favorite tool of fraudulent
telemarketing operators. The Defendant had a duty and failed in its
duty to properly train its staff with respect to handling suspicious
bank drafts. Only a small minority of the Defendant' staff
actually understood how fraudulent telemarketers were using bank
drafts. Hence, at the time of contracting, and at material times,
TDB's staff was unable to explain and identify the misuse of bank
drafts by fraudulent telemarketers. In addition:
a) The systems in use at TDB lacked sufficient controls to prevent
staff from seizing suspicious bank draft activities.
b) TDB had a duty and failed in its duty to require its staff
to explain to the plaintiff how bank draft endorsements worked
and that the plaintiff's monies could be paid out to a party without
the payee providing an endorsement.
c) Although it was an implied term of the contract that TDB would
check the endorsement for validity, TDB in fact did not do so.
d) TDB's failure to warn the plaintiff of the possibility of the
Bank Draft Services system allowing payments to fraudulent telemarketers
at TDB's Queen Mary branch were a consequence of TDB's ignoring
of concerns known to TDB, to the detriment of the plaintiff.
e) Some of TDB's tellers and sales staff were not fully aware
of the loopholes in the bank draft system and thus could not adequately
warn the plaintiff about the potential loss of the her monies.
12) In May 5, 1998, the plaintiff contracted with TDB to deliver
her funds listed below to payee[s] (the "Payees") in the
a) $2,500 to "FRONTIER ENTERTAINMENT" via a bank draft;
13) However, the said draft was deposited, without an endorsement
by "Frontier Entertainment," to the account of 1239298
Ontario Ltd., COB as "Mr. Bagel" and COB as "Mr. Baker".
The directing mind of this company is Myron Shrybman, a convicted
swindler of US and Canadian residents.
14) The Payees were just a few of the more than 600 business names
used by fraudulent Montreal telemarketers that were customers of
the Royal Bank of Canada, which negotiated and accepted the draft[s],
including Myron Shrybman who was criminally convicted of defrauding
US and Canadian residents.
15) At the time the plaintiff purchased the bank draft[s]/money
order[s], she had an expectation that the Defendant, the encashing
institutions, and the integrity of the cheque-clearing system would
protect her funds from being encashed without an endorsement by the
payee. This expectation is a result of the plaintiff's business dealings
16) Endorsements matching the payee's name were missing from encashed
bank draft(s)/money order(s) that are the subject of this proceeding.
17) At all material times, the plaintiff was not in a position to
detect the invalid endorsement(s) or seek redress from the encashing
parties, who were known only to the Defendant.
18) Due to the fact that bank drafts were not returned to the plaintiff
forthwith, Somerville was in no position to be able to detect the
fraud nor seek immediate redress from TDB from the unauthorized payment(s)
made to the encashing parties.
19) The plaintiff states and the fact is that TDB acted without
authority by making payment of the invalidly-endorsed draft(s)/money
order(s) from the plaintiff's funds held in trust by TDB. In the
alternative, the plaintiff states and the fact is that TDB was negligent
in having withdrawn funds from the plaintiff's trust monies without
making inquiries of the encashing parties' endorsement(s), which
20) In the circumstances, TDB had specific knowledge that the Somerville
was elderly and unsophisticated; and, the bank draft(s)/money order(s)
purchased would unreasonably reduce her bank account.
21) The Defendant, member of the Canadian Payments Association ("CPA")
is required to follow the CPA's rules and by-laws.
22) The plaintiff pleads that CPA rules prevail over common law:
Bank of Nova Scotia v Toronto Dominion Bank  O.J. No. 1829
Court File No. 99-CV-169831SR Ontario Superior Court of Justice the
Honourable Cameron J. released May 26, 2000.
23) The endorsements on the draft(s)/money order(s) that are the
subject of this proceeding do not meet the requirements of the Canadian
Payments Association of which the Defendant is member. In particular,
the CPA's by-laws define "endorsement" as "a signature."
24) The plaintiff pleads that the markings by the encashing party
do not constitute "a signature" under the CPA's by-laws,
and in particular that these markings differ from the stated payee(s)
on the draft(s)/money order(s).
25) The plaintiff issued written Notice(s) to the Defendant.
26) The plaintiff inquired with the Defendant as to the particulars
of the encashing institution and the recipient of her funds.
DUTY OF CARE:
27) The plaintiff pleads that at the time TDB made the representations:
a) The Representations were made by TDB in order to induce the
plaintiff to purchase TDB's Bank Draft Services.
b) TDB knew or ought to have known that the plaintiff, being an
unsophisticated consumer and a person not possessed with technical
knowledge concerning the operation of bank drafts would rely upon
the reputation, integrity, and soundness of the banking system
in her decision to purchase bank drafts.
c) The Representations did in fact induce the plaintiff to purchase
TDB's Bank Draft Services.
28) For the following reasons the plaintiff pleads that TDB owed
to the plaintiff the following duties of care (the "Duties of
a) To ensure that the Representations were accurate.
b) Not to make negligent or false Representations.
c) To disclose to the plaintiff any of the material negative facts
or drawbacks to its Bank Draft Services including the possibility
that the funds may be encashed by a party whose name differed from
that of the payee.
d) To disclose to the plaintiff the problems other telemarketing
victims have had with bank drafts.
e) To disclose to the plaintiff the fact that its bank draft system
has been the primary route for $100M going annually to fraudulent
f) To provide sufficient warning to the plaintiff when circumstances
allow parties to encash payments through the use of missing, improper,
forged, or unauthorized endorsements.
g) To adequately train its tellers and sales staff with respect
to the marketing of its Bank Draft Services and to supervise the
conduct of its sales staff in selling its services.
h) To ensure that in the written and oral presentations, material
facts effecting the risk, advantages and disadvantages of its Bank
Draft Services were not omitted or concealed.
i) To act with reasonable care in the preparation of staff training
manuals and in the formation of the training program used to deal
with elderly customers who purchase bank drafts and money orders.
j) To ensure that the training materials provided to its branches
for distribution to potential new sales staff was not deceptive
and would provide the plaintiff with correct information to make
any informed decision.
29) The plaintiff Further, pleads that TDB was fiduciaries of the
plaintiff and in addition to the Duties of Care as fiduciaries owed
to the plaintiff the following fiduciary duties ("Fiduciary
a) To act in good faith and in the best interest of the plaintiff.
b) To ensure that the Bank Draft Services sold to the plaintiff
were in the best interest of the plaintiff.
c) To ensure that the audit/review of endorsements for validity
were in the best interest of the plaintiff.
REPRESENTATIONS ARE IMPLIED TERMS OF THE CONTRACT AND ARE A COLLATERAL
AGREEMENT WITH THE PLAINTIFF:
30) The plaintiff Further, pleads that the Representations, having
been made by the TDB to induce the plaintiff to purchase bank drafts
and having so induced the plaintiff to purchase bank drafts, constitute
implied terms of the Bank Draft Services entered into between the
plaintiff and TDB and constitute a collateral agreement between TDB
and the plaintiff when the plaintiff purchased the bank drafts that
are the subject of this proceeding.
31) The plaintiff alleges that TDB's Representations with respect
to its Bank Draft Services were false. The TDB's actual audit of
endorsements were inconsistent with or contrary to TDB's Representations
and were inconsistent with its duties under to the Canadian Payments
32) The plaintiff pleads that the Representations by TDB was made
negligently and in breach of the Duties of Care and Fiduciary Duties
and in breach of the implied terms of the contract and the collateral
agreement and the following are the particulars of the misrepresentation
("Misrepresentations") known to the plaintiff:
a) TDB failed to disclose or concealed the fact that Montreal
telemarketers in defrauding seniors frequently used its Bank Draft
b) TDB failed to disclose or concealed the magnitude of the laxity
existent within the banking system, which allowed fraudulent Montreal
telemarketers to use the Bank Draft Services.
c) TDB knew or ought to have known (and concealed such knowledge)
that TDB would not challenge invalid/forged endorsements until
such time that fraudulent telemarketers would be long gone and
the encashing account closed.
d) TDB knew or ought to have known (and concealed such knowledge)
that the safety and security of its Bank Draft Services were inconsistent
or contrary to the plaintiff's expectations.
e) TDB failed to bring to the attention of the plaintiff, or concealed,
the material terms of how bank drafts are negotiated between banks
and the liabilities of TDB with respect to the time limits of challenging
f) TDB failed to disclose that they were warned by police authorities
and its own internal security staff to screen purchases of its
Bank Draft Services to elderly customers, but did not, for fear
of reducing its sales to competitors.
33) The plaintiff pleads that TDB was aware or ought to have been
aware of the Misrepresentations at the time that said representations
were made. In the alternative if TDB and its employees were not so
aware, (which is denied) TDB was in further, breach of its Duties
of Care in failing to adequately train its sales staff and to disclose
to its sales staff and employees the fact that the Representations
being made by them were Misrepresentations.
34) The plaintiff pleads that TDB's Representations were made with
reckless abandon as to be fraudulent. In particular, TDB did not
hold an honest belief in the purported security of audits on endorsements.
35) The Plaintiff further, pleads that the Misrepresentations constitute
a false, misleading and deceptive consumer representation within
the meaning of section 2 of the Business Practices Act R.S.O. 1990
c. D. 18 and plead that as a consequence, the Plaintiff is entitled
to the relief as set out below. The Plaintiff pleads and relies
upon section 2 and 4 of the Business Practices Act.
36) The Plaintiff Further, pleads that the misrepresentations constitute
a false and/or misleading representation within the meaning of Section
52 (1) and (2) of the Competition Act R.S.C. 1985 c. C-34.
37) The Plaintiffs further, plead and rely upon Section 52 (4) of
the Act. In addition, as a result of the aforesaid breach of the
Competition Act, the Plaintiffs seek damages as set out in Section
36(1) of the Competition Act.
38) In addition and in the alternative, the Plaintiff pleads that
the Misrepresentations constitute a false and/or misleading representation
within the meaning of Section 74.01 (1) (a), (b) and (c) of the Competition
DAMAGES AND RESCISSION
39) The Plaintiff pleads that it is entitled to the following relief
from TDB arising out of TDB's breaches of Duty of Care, Fiduciary
Duties, implied terms of the contract, collateral agreements and
requirements as aforesaid:
a) The Plaintiff pleads that had She had known the true nature
of the Bank Draft Services She would not have purchased it. She
does not have the security of the Bank Draft Services that was
promised to him. She is entitled to rescission and the return of
all monies paid to TDB pursuant to it.
b) In addition, or in the alternative, the Plaintiff has suffered
substantial damages. The Plaintiff therefore claims from TDB damages
equivalent to the monies paid under the TDB's Bank Draft Services.
40) The Plaintiff alleges that TDB's Representations used to induce
the Plaintiff to enter into the contract formed an essential term
of contract which the Defendant TDB has breached.
41) The Defendant TDB only gave the Plaintiff partial and
half-truths, imposing a duty of full disclosure on the Defendant
42) The Plaintiff pleads and relies on Negligence Act, R.S.O 1990,
43) The Plaintiff pleads that the aforesaid conduct of the Defendant
TDB, amounts to conduct that is callous, high-handed, intentional,
wrongful, outrageous, and shows a wanton disregard to her rights,
thereby entitling an award of punitive, exemplary and/or aggravated
44) The plaintiff entrusted TDB with her monies at all material
45) The Defendant was a trustee of the plaintiff's funds at all
46) The plaintiff pleads that TDB has a liability under the doctrine
47) Further, the Defendant had the "last clear chance" to
warn the plaintiff, and thus, prevent her loss.
48) In the alternative, the plaintiff pleads that the Defendant
was willfully blind to the activities of the unknown party encashing
the money order(s)/draft(s) and therefore liable for the plaintiff's
49) Further, and in the alternative, the Defendant' failure to assist
the plaintiff with Further, information as to the recipients and
encashing institutions prevented the plaintiff from pursuing other
avenues of recovery.
50) The plaintiff's loss would not have occurred had the Defendant
properly trained their clerical and counter staff.
51) The defendant failed to perform or supervise all the necessary
tasks required for the opening of new bank accounts, thus allowing
notorious Montreal telemarketing boiler rooms to acquire a means
for which to deposit monies from victims.
52) The defendant and/or its contracting parties and agents should
have noticed that the encashing party was a new business and that
there were discrepancies in the encashing party's credit bureau report
that indicated that something was amiss given the numerous other
bank credit checks being conducted, indicating that the encashing
party was jumping from bank to bank.
53) The Defendant has in-house staff and programs designed to prevent
54) The Defendant are aware of the seriousness of telemarketing
fraud in which the Defendant' facilities are used by boiler-room
operators to encash their illegal proceeds.
55) The Defendant' knew, or should have known, that their in-house
staff and programs dealing with telemarketing fraud are inadequate.
56) The Defendant failed in their duty to the plaintiff:
a) To ensure that the Defendant' staff reductions -- which were
calculated by the Defendant to increase their profits -- would
not result in the loss complained of in her claim.
b) To ensure that the Defendant' office procedures, manpower,
and staff training would ensure that the draft payment went to
the proper recipient.
c) To provide the plaintiff with the necessary information to
pursue her claim against the unauthorized recipients of the plaintiff's
57) The plaintiff Further, pleads that the Defendant could have
prevented her loss:
a) Had the Defendant acted quickly to reverse the drafts that
the recipient would have been charged back; and,
b) Had the Defendant disseminated information received from police
authorities such as Phonebusters to their staff; and,
c) Had the Defendant adhered to the CPA's by-laws; and,
d) Had the Defendant abided by their 'know thy customer' obligations;
e) Had the Defendant taken proper steps when dealing with Quebec
companies that encash large quantities of bank drafts from non-Quebec
f) Had the encashing institution taken proper credit checks on
the payee(s); and,
g) Had the Defendant checked the Payee(s) against police databases.
58) Telemarketing fraud against the elderly and vulnerable members
of society is a practice that has been universally condemned.
59) The Defendant' lack of proper training for their staff resulted
and continue to result in about $100 million dollars lost annually
by elderly victims to fraudulent telemarketers.
60) The Defendant is in a unique position to serve public Bank Draft
Services and prevent telemarketing fraud against the elderly.
61) The plaintiff asks for exemplary damages to force the Defendant
to take steps to restore the integrity of the cheque-clearing system,
and in the name of public interest.
62) The plaintiff is entitled to rescind the contract with the TDB
on the grounds that the TDB has violated several unfair practice
provisions of the Business Practices Act, R.S.O. 1990, c.27 (the "BPA.")
The plaintiff further, relies on the parol evidence abrogation provisions
of the BPA.
63) Further, and in the alternative, the plaintiff pleads that there
was no meeting of the minds (consensus ad idem) in respect to the
plaintiff's purchase of said money order(s)/draft(s).
ROYAL BANK's QUEEN MARY BRANCH (the "QMB")
64) The QMB was a well-known depository of the Montreal-based telemarketing
syndicate. The QMB allowed said syndicate with unusual freedom. Police
authorities were aware of the fact that the QMB opened accounts for
said syndicate in a pattern inconsistent with its practices at other
banking institutions, to the point that QMB staff were suspected
(without proof) of collusion with the syndicate.
65) The unusual laxity at the QMB was well-known to at least one
building superintendent in the area where the syndicate operated
66) The Columbia Group was one of the said syndicate's many corporate "fronts".
The QMB lost the account application for Columbia Group,
67) The Columbia Group was only one account of many run by the same
syndicate at the QMB. Other accounts included companies shown on
the attached charts.
68) In or about 1998, after telemarketing victims started threatening
to, and suing banks that issued drafts encashed in Montreal, the
banks started to decline opening accounts to the syndicate, which
resulted in the syndicate depositing its drafts in the Middle East.
69) In or about 1998, after banks were sued by telemarketing victims,
banks started to question draft purchasers more rigorously.
ROYAL BANK'S OWN ANTI-FRAUD DEPARTMENT (the "SUD")
70) To its credit, the Royal Bank has personnel assigned to prevent
telemarketing fraud, based out of one of its Sudbury branches. This
said personnel operate a department (referred to as the "SUD")
that has links with police databases. SUD also received data from
the Paulos Luizos law firm showing the links between 'front' company
names used by the syndicate.
71) SUD was headed by the Royal Bank's Ms. Maryanne Scharf.
72) In or about 1998, Royal Bank sent its SUD staff to C.A.R.P.'s
national forum on fraud on the elderly.
73) However, overall, SUD did not forward the information that it
received about the syndicate's company names to other Royal Bank
branches and departments.
74) The Royal Bank, thru SUD's connections to police databases,
knew or ought to have known that Columbia Group and about 600 other
company names were known as a depositories of the syndicate.
75) Were it not for the ineffective efforts by SUD, the plaintiff
would not have suffered her loss.
76) The defendant and the Royal Bank are members of banking associations
and share security information. As such, the defendant knew or ought
to have known that Myron Shrybman, who operated "Mr. Bagel" was
a con man. Were it not for the lax security systems of the defendant
and the Royal Bank as well as their lack of sufficient communication,
the plaintiff would not have suffered her loss.
Kathleen Somerville of Toronto is seeking to have her case heard
while she is still alive. She is 81 and in deteriorating health.
Having been defrauded out of over $70,000 by a Montreal telemarketing
fraud ring, she previously filed a linked claim ( Rabko and Horvath
) T18807/99, which was apparently stayed indefinitely without her
knowledge or consent. ( see also United States v. Myron and Eric
She has filed an Affidavit in Support of Motion which seeks determination
of a novel point of law; that her case be heard immediately, and
that the points of law be pre-determined, to "short-circuit" the
She feels the banks are playing a waiting game by continually putting
forward motions; two regarding their failure to file a defense in
time and one bank's intention to "third party" the responsible
bank which they have failed to act upon.
She is seeking damages and needs to show that "under "conversion" damages
are presumed and/or need not be proven as defendants are "strictly
liable" for the face amount of drafts." In the Boma Manufacturing
vs. CIBC case the Supreme Court held that an invalid endorsement
rendered the endorsement inoperative. In many U.S. cases a
missing endorsement leaves the bank strictly responsible for the
amount of the draft.
She notes that under the "fictitious payee" defence, it
is up to her to determine whether she paid the drafts to a real person,
or to a "ficticious payee". She also notes that an endorsement
is mandatory if the payee differs from the person's account; or,
is not the intended recipient.
She cites as authority the cases of Bank of Nova Scotia v Toronto
Dominion Bank  O.J. No.1717 (O.C.A.) released 9 May 2001, "Bank
of N.S. v TD Bank O.J. No. 1829 (O.S.C.J.) released May 26,
2000 - Reversed on Appeal, and the Table of Authorities - Banking
Liability - updated list as of August 10, 2001.