Wheatley v. Provincial Bank of Canada, [1970] SCR 894

Supreme Court of Canada

Wheatley v. Provincial Bank of Canada, [1970] S.C.R. 894

Date: 1970-04-28

Woodrow Wheatley (Plaintiff) Appellant;

and

The Provincial Bank of Canada (Defendant) Respondent.

1969: May 9, 12; 1970: April 28.

Present: Cartwright C.J. and Abbott, Judson, Ritchie and Spence JJ.

ON APPEAL FROM THE SUPREME COURT OF PRINCE EDWARD ISLAND IN BANCO

Banks and banking—Approach by customer for proposed financing of contract for sale of logs—Purchaser to arrange letter of credit in favour of vendor for full amount of order—Interim credit made available within limits of personal security—Failure to produce letter of credit—Whether liability incurred by bank to customer in calling loan, realizing on security and refusing further financing—Quantum of damages.

In January 1963, the appellant W opened negotiations with I-C Co. to supply that company with a quantity of logs. W lacked the resources to finance the contract and he and the representative of I-C discussed with the manager of the respondent bank the prospective financing. The contract between W and I-C was executed on March 13, 1963, and the logs were to be ready for delivery on or before June 29, 1963.

Within the limits of security which it held from W personally, the bank made interim credit available to him until June 6, 1963. At that time the bank came to the conclusion that a letter of credit in favour of the vendor in the full amount of the order, which, under the agreement, the purchaser was to arrange, would not be forthcoming and that W could not possibly meet his contractual loading date. It therefore refused further financing, liquidated its security and applied the proceeds on notes that it held.

In an action for damages for the bank’s failure to finance the contract, the appellant was awarded $20,378 at trial. On appeal this was reduced to $1,486.47. On appeal to this Court, the appellant asked that the judgment at trial be restored. The bank asked for the dismissal of the appeal but did not cross-appeal against the award of $1,486.47.

Held (Cartwright C.J. and Spence J. dissenting): The appeal should be dismissed.

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Per Abbott, Judson and Ritchie JJ.: The bank incurred no liability to W in calling its loan and realizing on its security and refusing further financing. The failure to produce the letter of credit was a complete justification of its action. The Court of Appeal, which rejected the trial judge’s finding that the bank had bound itself for a loan for the interim financing to at least $50,000, reduced W’s damages to $1,486.47 because it thought that there had been a breach of contract to provide reasonable interim financing and because on June 6, 1963, the bank, when it called the loan, charged up notes that did not become due until July 12, 1963. The bank, although not contractually bound to do so, did provide reasonable interim financing. The notes that fell due on July 12, 1963, had been taken in reliance on the production of the letter of credit at the proper time. When W failed to produce the letter of credit, the bank was entitled to charge back the notes. Had there been a cross-appeal, it should have been allowed.

Per Cartwright C.J. and Spence J., dissenting: The real issue in this appeal was not the question of whether the respondent was in breach of its contract but rather the quantum of damages which should be allowed to the appellant. The damages which the appellant was entitled to recover were his losses actually resulting or which were reasonably foreseeable as liable to result from such breach. The amount of special damages for loss sustained for disbursements made by the appellant in attempting to carry out the logging contract was $13,734.60. In addition, the appellant was entitled to $7,000 as damages for the loss of profits he would have gained upon the contract. Allowing the appellant damages in the total of the two amounts aforesaid, and crediting the respondent with the amount of a default judgment recovered by it against the appellant, the latter should be given judgment for $13,226.57 plus interest. Hadley v. Baxendale (1854), 9 Ex. 341; Victoria Laundry (Windsor) Ld. v. Newman Industries Ld.; Coulson & Co. Ltd. (Third Parties), [1949] 2. K.B. 528, referred to.

APPEAL from a judgment of the Supreme Court of Prince Edward Island, in banco, allowing an appeal from a judgment of Bell J. Appeal dismissed, Cartwright C.J. and Spence J. dissenting.

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Gordon P. Killeen, for the plaintiff, appellant.

Charles R. McQuaid, for the defendant, respondent.

The judgment of Cartwright C.J. and Spence J. was delivered by

SPENCE J. (dissenting)—This is an appeal from the judgment of the Supreme Court of Prince Edward Island, in banco, pronounced on January 24, 1968, allowing an appeal from a judgment of Bell J. in the Supreme Court of Prince Edward Island pronounced on December 21, 1966. By the judgment at trial, Bell J. had allowed the present appellant damages in the sum of $20,378 and provided that if a certain insurance policy upon the appellant’s life were returned the damages should be reduced to $18,978. By the majority judgment in appeal, the damages allowed to the appellant were reduced to $1,486.47 with certain interest. The judgments permitted an offset of a default judgment given against the appellant and in favour of the respondent which judgment was referred to as being in an amount of $7,000.

The appellant had been a farmer and a lumberman and had engaged in various commercial enterprises from time to time. In late 1962, he learned from an acquaintance that Inter-Can Trading Limited, a company with head office in Toronto, Ontario, was interested in arranging purchases of wood products for shipment from Canada to Europe. He went to New Brunswick to confer with a Mr. Ian Herold, an officer of that company. The appellant was anxious to enter into contracts with the said Inter-Can Trading Company Limited, hereafter referred to as Inter‑Can. He consulted Mr. Edward Black, the then manager of the respondent bank in Charlottetown, Prince Edward Island, and outlined to Mr. Black the type of transaction which it was proposed he, the appellant, should enter into with Inter-Can. Mr. Black agreed that such a course of business was desirable and could well be profitable and undertook to submit the appellant’s request for financing to his regional supervisor in Moncton. This conference with Mr. Black took place on January 24, 1963, and about one week

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later Mr. Black informed the appellant that the Moncton office had approved the financing of such business.

The discussion with Mr. Herold had been for the sale to Inter-Can for transport to his principals in Europe of logs, poles and pulpwood. It was a transaction dealing with these three wood products which the appellant outlined to Mr. Black. Mr. Black’s reply to the appellant at about the end of January 1963 was to the effect that his bank would engage in the financing of transactions entailing the sale of those three wood products to the Inter-Can Company.

On all the evidence, it would appear that what was agreed to was, firstly, interim financing in order to permit the appellant to commence and carry forward the assembly of these wood products for shipment and then a firm contract whereby the appellant would have total financing to the extent of $80,000 with the appellant depositing with the bank $20,000 in either cash or securities, and then obtaining an irrevocable letter of credit from the Inter-Can Company in the amount of $60,000 which the appellant was to deposit with the bank.

The learned trial judge in his reasons gave a lengthy review of the discussions and arrangements between the parties and indicated a clear finding of credibility in favour of the appellant in these words:

I feel that the evidence of the plaintiff, definite and affirmative and backed up by a complete record of all transactions, must receive preference over the defendant’s negative and somewhat indefinite statements.

By the “defendant’s”, the learned trial judge was referring to Mr. Black who gave the only evidence on behalf of the defendant bank. That finding of credibility is referred to on several occasions by Campbell C.J., giving the main judgment on appeal, when he said:

So far as conflict of evidence is concerned, the learned trial judge has found the testimony of the respondent more acceptable than that of Mr. Black, and this Court is bound to respect that preference.

And again:

The learned trial judge, preferring the credibility of Wheatley’s evidence to that of Black’s, finds that

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on June 6th “Mr. Black disappeared leaving the plaintiff high and dry, with numerous cheques outstanding which had been issued on Black’s instructions and with his consent”. This Court is bound by that finding of relative credibility.

With reference to the contract for interim financing, Bell J. at trial made this finding:

I find as a fact from the evidence before me that the defendant accepted the plaintiff’s application for a loan for the interim financing of the Inter-Can Trading contract to at least $50,000 and entered into the agreement by advancing considerable sums of money up to June 6, 1963,…

The appellant, immediately following Mr. Black’s reporting to him the defendant bank’s favourable decision at the end of January 1963, proceeded vigorously in the preparations for carrying out his tentative contract with Inter-Can. Inter alia, he retained a Mr. Roland Roberts as his assistant, and advertised in the local newspaper seeking contracts for the sale of wood by those who had standing timber on their properties and recruited a crew of woodsmen to cut wood on other lands under a large variety of arrangements which need not be considered in detail here. This work went forward until March 13, 1963, when the appellant and Inter-Can entered into a contract in writing. Article 1 of that contract, although somewhat lengthy, should be quoted verbatim:

1. The Vendor hereby covenants to sell to the Purchaser, and the Purchaser hereby covenants to purchase from the Vendor, F.O.B. the Purchaser’s vessel, a minimum of Nineteen Hundred (1900) cords and a maximum of Twenty-one Hundred (2100) cords of spruce logs, hereinafter referred to as the “logs”, under the conditions as hereinafter contained, that is to say:

(a) Species—The logs shall be of eastern Canadian spruce, with a minimum of seventy-five per cent (75%) spruce;

(b) Type—The logs shall be knife and/or sap pealed with all the outer bark and one-half of the inner bark removed;

(c) Quality—The logs shall be sound wood with solid heart and no visible exterior defects. The

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ends shall be cut square and excessive crooks, sweeps and other shape deformities shall not be permitted;

(d) Length—The logs shall have a minimum length of thirteen (13) feet, three (3) inches. For the purpose of computing payment of the logs such shall be computed on a basis of thirteen (13) feet;

(e) Diameter—The logs shall be of a diameter of six (6) inches or more, measured at the small end;

(f) Delivery—The logs shall be ready for delivery at a place or places to be mutually agreed upon by the parties hereto on or before the twenty-ninth (29th) day of June, A.D. 1963; upon loading the logs aboard the vessel such logs shall be loaded by the Vendor at a minimum rate of three hundred and fifty (350) cords per working day, provided that weather conditions are suitable;

(g) Prices—The price of the logs shall be Thirty-three dollars ($33.00) per cord;

(h) Payments—The Purchaser shall arrange with a Canadian commercial bank for an irrevocable Letter of Credit in favor of the Vendor in the full amount of the order. When the logs have been delivered by the Vendor to the Purchaser the Vendor shall deliver to the Purchaser the following:

(i) a certificate indicating that the logs are of Canadian origin;

(ii) an affidavit of scale, in triplicate, as prepared and sworn by a scaler licensed by the Minister of Natural Resources for the Province of Prince Edward Island, showing:

(a) number of logs of total order;

(b) total cordage in the shipment;

(c) statement of compliance with the specifications;

(iii) a certificate stating that the logs are free from any insects and disease;

(iv) commercial invoice, in triplicate;

When the logs have been delivered as aforesaid, the Purchaser shall give to the Vendor a receipt covering all the logs delivered to the Purchaser.

Upon presentation of the documents as aforesaid the Purchaser shall pay to the Vendor the full amount of the contract price.

It will be noted that this contract calls for the delivery by the appellant to Inter-Can of a mini-

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mum of 1900 and a maximum of 2100 cords of logs. The logs were to be of eastern Canadian spruce, all the outer bark and one-half the inner bark removed, and should be of a minimum length of 13 feet 3 inches and a minimum diameter of 6 inches at the small end. The logs were to be ready for delivery at a place to be mutually agreed upon on or before the 29th of June and were to be loaded at a minimum rate of 350 cords per day provided that weather conditions were suitable. The price to be paid was to be $33.00 per cord and by para. (h) the purchaser was to arrange with a Canadian commercial bank for an irrevocable letter of credit in favour of the vendor for the full amount of the order. No mention is made in the contract of any wood product other than logs.

After loading and the delivery of certain documents, the purchaser was to pay the full amount of the contract price. That written contract was taken by the appellant to Mr. Black, the respondent’s manager in Charlottetown, and was forwarded by him to his regional office in Moncton. The original contract was produced at trial from the possession of the respondent. There is no doubt that on and after the 13th of March the respondent’s contract for financing the appellant was a contract to finance his performance of this written contract between him and the Inter-Can Company and not to finance any general business of acquiring for sale to Inter-Can an indefinite quantity of logs, poles and pulpwood. The duty of financing was, after March 13, 1963, limited to financing a contract for the sale of logs. Before March 13, 1963, the appellant had proceeded to arrange to obtain for delivery not only logs but poles and pulpwood and after that date the appellant continued to carry out the acquisition of all three wood products. The dealings in the three different products were all mixed together and it was quite impossible for the appellant at trial to separate his disbursements referable to the acquisition of logs from those referable to the acquisition of poles and pulp. In fact, in most cases in his evidence, the appellant referred to cords of wood not differentiating between cords of logs and cords of poles or pulp. That the appellant’s transactions were completely in excess of those required to fill the Inter-Can contract is

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acknowledged by one statement in his evidence that the total quantity of the wood which he was arranging to buy or produce would be 20,000 cords. Later, in cross-examination, he reduced that amount to 15,000 cords and Mr. Roberts was of the opinion that the total arranged for was much less but, at any rate, it was far in excess of the 2,100 cords which was the maximum to be supplied under the Inter-Can contract. It is quite apparent that the appellant considered that Inter-Can contract to be only the first of a series.

Counsel for the appellant has agreed that no matter what early expectation his client had as to future contracts, from March 13, 1963 on, the appellant had only one contract with Inter‑Can and his only agreement with the respondent was for the financing of that contract.

Events proceeded until June 6, 1963. In the meantime, the appellant had been drawing to a considerable extent on the respondent for interim financing but the appellant had not been able to do so with any degree of ease. It is apparent that as events proceeded the respondent became less and less enamoured with the appellant’s course of proceedings. The appellant, in his evidence, complained that he was much hindered in the carrying out of his contract with Inter-Can by the respondent’s refusal, through Mr. Black, to permit him to expend the moneys necessary to get these wood products into the storage areas from whence they could be loaded onto the ship. The matter came to a head on the 6th of June. Amongst the securities vested by the appellant with the bank was a certificate issued by the Government of Prince Edward Island which entitled the appellant to the sum of $9,000. Mr. Black had been urged by his supervisor to get the appellant’s account into cash and, therefore, finding this certificate was not negotiable handed it to the appellant and requested the appellant to attend the Government office and obtain a cheque in the amount of the security. The appellant did so, returned to Mr. Black with the cheque and, at Mr. Black’s request, endorsed the cheque. Mr. Black immediately credited the cheque to the appellant’s account and then informed him that the bank was

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stopping all credit and in fact was calling as due the promissory notes which had been signed by the appellant from time to time for the interim financing.

As I have said, the appellant was then in the full flight of his activities in carrying out the Inter‑Can contract and, to repeat the words of the learned trial judge, “this development left him high and dry with numerous cheques outstanding and with no financial means to proceed with the work necessary under the contract”.

The events of June 6th had been preceded by a series of occurrences indicating that the respondent was seeking to obtain security of the indebtedness beyond anything which the parties had considered in January when the contract for the interim financing had been arranged.

The plaintiff testified that he had never requested Inter-Can to deposit its irrevocable letter of credit because he knew he was not entitled to do so until he could give a firm loading date. Although the contract called for loading to commence on the 29th of June, the many impediments which Mr. Black, acting for the respondent, had placed on the appellant in the carrying out of this contract had demonstrated to the appellant that he could not make certain that he would be able to deliver on that date and until he could be so certain he had no right to demand that the letter of credit be deposited. It was the appellant’s evidence that Mr. Black realized this and urged the appellant not to demand that the letter of credit be deposited but that he should, on the other hand, seek security of a different type from Inter-Can. The first of such types of securities suggested by Mr. Black was a bank guarantee from the European purchaser. Although the Inter-Can officer, Mr. Herold, has said this could be obtained, it appeared very shortly that the European purchaser had no such intent; having agreed to provide what is known as back to back letters of credit, he was not interested in any further form of financing. Mr. Black then requested that the appellant supply him with a personal guarantee by the officers of Inter-Can. Mr. Herold was willing to provide this security but his co-owner refused to agree. Finally, and as the

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third alternative, Mr. Black had requested a bank guarantee by Inter-Can. Inter-Can agreed to this, forms were obtained from the respondent’s branch in Toronto, and there is no doubt, on the evidence, as the trial judge so found, that Mr. Black before June 6, 1963, had definite assurance that this bank guarantee would be forthcoming. In fact, the appellant has testified, and again his credibility has been accepted, that Mr. Black, upon receiving this information, informed him, the plaintiff, that he could proceed to issue further cheques and that such cheques would be paid. It is true that this bank guarantee was not in Mr. Black’s hands on the 6th of June, the resolution of the Inter-Can Trading Company authorizing the guarantee was only passed on the 7th of June, and the actual document did not reach the respondent’s office in Charlottetown until the 11th of June, but on the 6th of June, when the respondent had suddenly and without notice terminated the interim financing, Mr. Black knew that the bank guarantee which he himself had demanded was being produced and would be filed.

The result of the cutting off of the credit of the appellant, i.e., the breach of the contract to provide interim financing, which thus occurred on June 6, 1963, made it quite impossible for the appellant to perform his contract with Inter-Can, and the appellant has admitted that by July 12, 1963, that contract had been abandoned.

I am of the opinion that the particular relevance of such contract to the present litigation is that it outlines the agreement between the appellant and Inter-Can which was in effect from the 13th of March on, and it is only the damages which arose from the appellant’s inability to perform that contract due to the respondent’s breach of its interim financing which can be recovered in this appeal. That was the finding of both the trial judge and the majority in the Court of Appeal.

The learned trial judge continued the statement which I have quoted above with these words:

…that the defendant was without good reason to cancel the financing and was wrong in charging up promissory notes on June 6, 1963, the same being not legally due and payable until July 12, 1963.

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Campbell C.J., in his judgment on appeal, said:

I agree with the conclusion of the learned trial judge that the appellant bank was guilty of a breach of its contract to provide the respondent with reasonable interim financing, though I am unable to agree with his finding as to the stipulated amount of such advances.

The amount stipulated is unimportant for the purpose of these reasons.

Trainor J.A., in his reasons on the appeal, said:

I can see no reason to disturb his finding of fact that there was an agreement for interim financing “more or less loosely set up” whereby the respondent would have been enabled to carry out his project.

The appellant in this appeal seeks the restoration of the judgment of the learned trial judge and the respondent only asks that the appeal be dismissed. It would seem, therefore, that the real issue in this appeal is not the question of whether the respondent was in breach of its contract but rather the quantum of the damages which should be allowed to the appellant.

The learned trial judge sought to assess those damages by finding the amount of the net worth of the appellant at the beginning of the transaction and the amount of his net worth at the end of the transaction and assessing the difference, which he found to be $20,378, as being the damages due to the appellant. Both of the learned members of the Court of Appeal who affirmed the appeal thereof adopted the learned trial judge’s formula although their application of it differed from that of the learned trial judge. The Chief Justice found that only 50 per cent of the appellant’s damages so calculated were attributable to the breach by the respondent and that in addition that 50 per cent should be cut in half due to the “contributing fault” of the appellant. Trainor J.A. was of the opinion that only one-quarter of the appellant’s damages so sustained were attributable to the respondent’s breach of contract.

The rules for the calculation of the quantum of damages for breach of commercial contracts

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have been settled at least since Hadley v. Baxendale[1], and the formula was considerably revised and clarified in Victoria Laundry (Windsor) Ld. v. Newman Industries Ld.; Coulson & Co. Ld. (Third Parties)[2]. It is sufficient to quote the second and third rules outlined therein by Asquith L.J. at p. 539:

(2) In cases of breach of contract the aggrieved party is only entitled to recover such part of the loss actually resulting as was at the time of the contract reasonably foreseeable as liable to result from the breach.

(3) What was at that time reasonably so foreseeable depends on the knowledge then possessed by the parties or, at all events, by the party who later commits the breach.

In this case, the knowledge of the respondent through Black of the transaction was a complete knowledge and, in fact, Black, to a considerable extent, but, in my view, not to sufficient extent, did supervise the appellant’s rather inept handling of the transactions in reference to the completion of his contract with Inter-Can. Therefore, the damages which the appellant was entitled to recover are his losses actually resulting or which were reasonably foreseeable as liable to result from such breach. Certainly, the losses would, therefore, include the amounts the appellant expended in the vain attempt to carry out the contract. It would seem, therefore, that the most accurate calculation of the appellant’s special damages must be by ascertaining his actual expenditure in attempted performance of his contract with Inter-Can deducting therefrom any receipts which the plaintiff obtained as a result of those expenditures and adding an amount for his loss of profit. It should now be noted that after the 6th of June the appellant attempted to carry out a series of actions which he described somewhat accurately as “mopping up”, that is, attempting to obtain some returns for the money and effort which he had expended and for the moneys which he had obtained from the bank. For such purpose, the appellant obtained from the bank, after rather arduous efforts to do so, a series of further advances of varying amounts at

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varying times and including one amount of $8,500 advanced under the security of s. 88 of the Bank Act.

The appellant, in his statement of claim, has set out in detal his expenditures in what he alleged was an attempt to carry out his contract with Inter-Can. I quote the particulars from para. 8 of the statement of claim:

PARTICULARS

Legal expenses...................................................................................................		$ 73.00
Wages and Unemployment stamps..................................................................		20,545.65
Gas and oil...........................................................................................................		637.10
Mileage................................................................................................................		2,242.52
Insurance..............................................................................................................		28.00
Woods purchased for cutting.............................................................................		2,875.00
Camp, groceries and rent..................................................................................		2,426.98
Bombardier purchase.........................................................................................		5,112.45
Interest lost on Government Bond.....................................................................		30.82
Telephone............................................................................................................		300.00
Beds and equipment..........................................................................................		1,233.85
Transportation of 15 men from Northern New Brunswick...............................		152.50
Cash paid to farmers to produce pulp..............................................................		9,119.28
Truckage..............................................................................................................		1,621.50
Yard rental at Georgetown.................................................................................		35.00
Bank interest and charges, etc..........................................................................		616.45
Miscellaneous......................................................................................................		679.38
		$47,729.48
Less credits
Sale of Bombadier [sic].........................................................	$ 2,600.00
Sale of logs and pulp.............................................................	21,966.50
Sale of beds, etc....................................................................	285.00
Miscellaneous.........................................................................	413.50
		25,265.00
		$22,464.48

The appellant was cross-examined at great length as to these particulars and as to whether the expenditures to which I shall refer hereafter supported the particulars. It must be remembered, again, that the learned trial judge accepted the credibility of the appellant.

Let us first turn to his expenditures. The second item is “Wages and Unemployment

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Stamps—$20,545.65”. The appellant identified at the trial a statement, which was produced as an exhibit, which totalled $14,964.97. In addition to that list, the appellant outlined the following amounts:

Paid Roberts, Jan. to July..............................................................................	$1,610.00
Paid McCormack............................................................................................	302.50
Paid Unemployment Insurance stamps........................................................	428.88
Claimed by the appellant himself (being 52 weeks at $70.00 per week)	3,640.00

It will be seen that those amounts totalled $20,946.35 or $400 more than the amount set out in the particulars. I am of the opinion that the plaintiff cannot claim any wages for the month of January because it was only at the end of that month that he was informed by the respondent through Black that the respondent had agreed to interim financing. I would, therefore, deduct from his amount four weeks at $70 per week—$280. McCormack was paid the $302.50 on a contract which he made to saw some of the wood products left lying in one of the various sites so that that wood could be sold as pulpwood. McCormack never performed his contract but the disbursement was properly made by the appellant and he should be entitled to charge it. I am of the opinion that the plaintiff is entitled to charge for both himself and Roberts for the amount set out above, subject to the deduction which I have mentioned, as both men were busy, the appellant through the whole year, in the mopping up operations, and those operations were proper attempts to cut down the appellant’s damages and, in fact, were carried out with the active co-operation of the respondent through Black. Since the deduction of $280 does not reduce the total below that claimed in the particulars, I shall accept the amount so set out therein. The item for mileage was at 7 cents per mile for both his own automobile and that of Roberts in the necessary travel including the obtaining of wood and consequently “mopping up” operations. It is a proper item and is, in fact, a much more accurate assessment than the whole price of the automobile which was included in the net worth calculations used to assess the damages below. The only other item which requires comment is “Bombardier Purchase—$5,112.45”. The con-

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tract for the purpose of this bombardier had been entered into on July 12, 1963, i.e., just when the appellant admits he had considered the contract with Inter-Can had been abandoned and the exact day on which he made a contract with Henderson for part of the mopping up operations under which he was to sell Henderson 6,000 cords of pulpwood. The appellant swore that he had arranged for this purchase in May and that it was necessary that he should have a tractor so that he might go about the bush lots to gather up the wood products which were lying loose in many places. Had the appellant retained the bombardier, he would have to account for all except a reasonable allowance for its use, but the appellant had purchased the bombardier on instalment payments and in the fall of 1963, when he was unable to continue those payments, he arranged to transfer the machine to another person who assumed the payments. He credited in his amounts recovered the sum of $2,600, being the payments on the bombardier assumed by its purchaser, leaving a balance on this amount of $2,512.45. During the argument of the appeal, we heard no comment as to that amount being an improper claim for the use of the tractor in the mopping up operations.

I am, therefore, ready to accept the amount of $47,729.48 as a reasonable statement of the appellant’s expenditures.

It is to be noted that the appellant, in the same particulars appearing in the statement of claim, allowed as credit the sum of $25,265. In his examination, the appellant testified that from that sum should be deducted a further amount of $810 which he had paid to another sawyer Russell Compton for the purpose of turning logs into pulpwood so that they might be sold. The plaintiff testified that there was no market for such lumber on Prince Edward Island. That would result in the reduction of the appellant’s credits to $24,450.50. Upon that basis, the appellant’s damages would amount to the difference between that sum and $47,729.48, i.e., $23,278.98.

The appellant, however, is not able to recover all of that amount as being damages attributable to the defendant’s breach. As I have pointed out above, the appellant continued after March 13, 1963, to carry out an operation far in excess of

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that required in the fulfilment of his contract with Inter-Can, and from the 13th of March on the appellant was only entitled to look to the respondent for the interim financing of that contract and not of any general trading in wood products.

The learned trial judge assessed all of the damages as attributable to the breach by the respondent of its contract to finance the Inter-Can contract, although he said in his reasons:

…but I am of the opinion that the damages must be confined to the loss on this one contract and matters connected directly therewith.

Both the learned justices constituting the majority in the Court of Appeal agreed with that view. As I have said, the Chief Justice found only 50 per cent of the damages of the loss was attributable to damages arising from this breach. Trainor J.A. found only 25 per cent. Counsel for the appellant made a submission which I am ready to accept. He pointed out that of the $21,966,50 recovered by the sale of logs, poles and pulp in the “mopping up” operations $12,639 was recoverable by the sale of logs and poles. This item was given exactly by the appellant in his evidence and later in cross-examination he substantially covered that amount with considerable accuracy. Therefore, of the wood sales made by the appellant 59 per cent was for the sale of logs. I must admit that this percentage is an estimate. I can, however, see no way to arrive at a proper division of the loss with as great a degree of accuracy.

The acquisition of the logs went ahead with the acquisition of the poles and pulp all in one operation. There never was any separate costing of the one product as compared with the other. In fact, despite the wording of the contract with Inter-Can, I am of the opinion that on all of the evidence both the appellant and Mr. Black, throughout the transaction, from the end of January 1963 until the end of that year, looked on the enterprise as one for the assembly of all three wood products for sale. There are also some factors which would justify acceptance of the 59 per cent ratio. Firstly, from the end of January until

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the 13th of March, the appellant and the respondent were in agreement on the financing of the assembly of all three wood products and the limitation of the contract with Inter-Can to logs only occurred for the first time on the latter date. Secondly, much of the product lying in the various sites which had been in the form of logs, due to the lack of market in Prince Edward Island for logs, had to be cut up in pulpwood in order to be salvaged. Thirdly, there was a very considerable amount of wood products including many logs which were lost and not recovered at all due to deterioration and disappearance, probably through theft. All of those factors could weigh in favour of the acceptance of the ratio of 59 per cent as being a proper ratio for the assessment of the damages due to the respondent’s breach of the contract for interim financing. 59 per cent of $23,278.98 is $13,734.60. Therefore, I would allow the special damages for loss sustained for disbursements made by the appellant in attempting to carry out the Inter-Can contract at that amount. In addition, the appellant is entitled to the loss of profit which he would have made upon the contract. This was allowed by the learned trial judge at $7,000. The Chief Justice, in his reasons on appeal, accepted that amount but Trainor J.A. would have reduced the amount to $3,500. From a perusal of the evidence, I cannot see how such a reduction can be justified. The $7,000 figure was the figure which the appellant testified had been mentioned by Mr. Black as being the appellant’s probable profit in addition to his wages. Counsel for the respondent, in cross-examination of the appellant, attempted to show him that, on his own estimates of the cost, the profit would have been much higher not lower. The appellant refused to agree, being of the opinion that he could not make an accurate estimate of profits until he had had the experience of loading the first ship, an event, of course, which never occurred. I would allow as damages the loss of the profits which the appellant would have gained at the figure of $7,000.

The appellant, in addition, has claimed general damages for loss to his credit. Tweedy J.A., in the Court of Appeal, was ready to allow $5,000 damages “to compensate the respondent for the injuries to his reputation and credit and mental

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anguish”, and counsel for the appellant has urged this Court to make allowance for such item.

I am of the opinion, on all of the evidence, that the appellant has not proved such damages. It is true, as the trial judge noted, that immediately on June 6, 1963, the appellant was left high and dry with N.S.F. cheques all around and the appellant has given very graphic evidence of his financial plight thereafter with details as to his inability to obtain any credit from any source. Despite that evidence, the appellant was forced to admit upon his cross-examination that this respondent had continued after the 6th of June to make advances to him in connection with the “mopping up operations” and had also advanced on other accounts. It should also be remembered that the appellant might well have been the author of his own misfortune by proceeding, from the 13th of March on, to carry out a general trade in the three wood products including the attempted acquisition, at any rate, of a quantity of lumber far in excess of anything called for under the written contract with Inter-Can. I am of the opinion that there was a considerable fault on both sides. I do not think that the appellant was by any means an efficient operator or an efficient bookkeeper and I do not think that the supervision given by the respondent was one which could be expected from a bank advancing such amounts on such a complicated operation. I am, therefore, of the opinion that the appellant is not entitled to any general damages for loss of credit. I point out that the authorities cited by the appellant’s counsel were cases where the appellant’s entitlement to the payments which were not made and where the lack of such payments caused damage to his credit were much clearer than in the present case.

I, therefore, am ready to allow the appellant damages in the total of the two amounts aforesaid, i.e., $20,734.60. The Chief Justice in the Court of Appeal allowed interest from December 31, 1963, which would have been the day when the mopping up operations could have been considered complete. I would be prepared to allow interest at 5 per cent, the percentage used by the Chief Justice, from that date up to September 2, 1964. On that day, the respondent recovered

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against the appellant a default judgment for the balance due to the respondent upon the advance made during the “mopping up operations”; such judgment was in the sum of $7,508.03. That amount should be credited to the respondent so that I would give the appellant judgment for $13,226.57 with interest at 5 per cent from that date as well as the interest on $20,734.60 at the same 5 per cent during the period between December 31, 1963, and September 2, 1964.

The appellant should have his costs throughout.

The judgment of Abbott, Judson and Ritchie JJ. was delivered by

JUDSON J.—Woodrow Wheatley, the appelant in this Court, sued the Provincial Bank of Canada for damages for the bank’s failure to finance a logging contract which he had made with Inter-Can Trading Company Limited of Toronto. The judgment at trial awarded him $20,378. On appeal this was reduced to the sum of $1,486.47. The appellant asks this Court to restore the judgment at trial. The bank asks for the dismissal of the appeal but does not cross-appeal against the award of $1,486.47. In my opinion, the appeal fails and should be dismissed with costs.

In January 1963, Wheatley opened negotiations with Inter-Can Trading Company Limited to supply that company with 2,000 cords of logs which it required to make up, in part, a shipment which it had contracted to supply to a customer in Austria. Wheatley lacked the resources to finance this contract and he and the representative of Inter-Can discussed with the bank manager the prospective financing.

The contract between Wheatley and Inter-Can was not executed until March 13, 1963. It provides:

(1) for the sale and purchase of a minimum of 1900 cords and a maximum of 2100 cords of spruce logs at $33 per cord;

(2) for the logs to be ready for delivery at a place to be mutually agreed upon between the parties on or before June 29, 1963;

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(3) for the purchaser to arrange with a Canadian commercial bank an irrevocable letter of credit in favour of Wheatley in the full amount of the order, to be honoured on the presentation of certain documents;

(4) for Wheatley to provide Inter-Can with a performance bond in the amount of 5 per cent of the contract price, such bond to be delivered “when the letter of credit, as hereinbefore provided, has been established”.

The bank was furnished with a copy of this letter. All talks between Wheatley and the bank with which we are concerned in this litigation were on the basis of the performance and financing of this contract.

Wheatley did not wish to wait until the contract had been settled and there was talk about interim financing. The trial judge found as a fact that the defendant bank accepted the plaintiff’s application for a loan for the interim financing of the Inter-Can Trading contract to at least $50,000. This finding was rejected by the Court of Appeal and I will deal with its rejection more fully later. We do, however, know the extent of the advances made by the bank to Wheatley. They never exceeded by very much the amount of security which the bank held from Wheatley personally, namely, an insurance policy with a cash surrender value of $1,760.48, and a deposit receipt from the Provincial Treasurer of Prince Edward Island for $9,000. Within these limits the bank did make interim credit available to Wheatley until June 6, 1963. This was 23 days before the loading date. At that time the bank came to the conclusion that no letter of credit would be forthcoming and that Wheatley could not possibly meet his contractual loading date. It therefore refused further financing, liquidated its security and applied the proceeds on the notes that it held.

My opinion is that the bank incurred no liability to Wheatley in calling its loan and realizing on its security and refusing further financing. The failure to produce the letter of credit is a complete justification of its action. None of the discussions between Wheatley and the bank before the settlement and execution of his contract with Inter-

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Can could possibly have resulted in a “commitment” of the magnitude mentioned by Wheatley. His statement of claim specifies the sum of $60,000. The whole purchase price under the contract, even if 2,100 cords had been taken, would have amounted to $69,300. All the discussions between the bank and Wheatley until June 6 were concerned only with reasonable interim financing until the letter of credit was produced. The production of the letter of credit constituted a condition precedent to any firm financing of Wheatley by the bank and the failure to produce this letter of credit at any time relieved the bank of any agreement which it might otherwise have had to continue to provide financing to the appellant.

I have already mentioned that the trial judge found as a fact that the bank had bound itself for a loan for the interim financing of the contract to at least $50,000. On appeal, the Chief Justice said that he could find no evidence to support the view that the bank had accepted the application to that extent and he therefore rejected the learned judge’s finding as to the agreed amount of interim financing. He went on to say, “I can only infer that the interim financing was to be for such a period and in such amounts as reasonable sound banking practice would allow.”

Mr. Justice Tweedy, on a reading of the whole of his reasons, in my opinion supports this view. Mr. Justice Trainor said that he could see no reason to disturb the finding of fact at trial that there was an agreement for interim financing more or less loosely set up whereby Wheatley would have been enabled to carry out his project. When he states the problem in this way I think he is in substantial agreement with the Chief Justice.

The only point on which I differ from the judgment of the Court of Appeal is in its conclusion that there had been, on the part of the bank, a breach of its contract to provide reasonable interim financing. In the first place, I do not think that the bank was contractually bound. In the second place, I think that the bank did make loans, in its own discretion, within the limits of reasonable, sound banking practice. It did make

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advances within the limits of the security that it held. What more can be reasonably expected either by a customer or a court?

There is nothing more in this case than this: First, there was an approach by a customer for the proposed financing of a contract which had not yet been settled. Even at that time the foundation of the financing was to be the letter of credit. This was two months before the contract was actually settled. All the financing up to the date when the loan was called was properly described by the Chief Justice as interim financing and, in my opinion, it was within the reasonable limits of sound banking practice.

The next point for consideration is when and under what circumstances the letter of credit should have been produced. The contract called for delivery of the logs on or before June 29. This is the only date that the bank was concerned with. The trial judge thought that this date could be extended. In my opinion, even if the parties, Wheatley and Inter-Can, could have extended the delivery date, this would not have imposed any obligation on the bank to advance money without the production of the letter of credit. The Chief Justice, on appeal, thought that the letter of credit should have been available 30 days to six weeks prior to the date set for the commencement of loading, and that upon its failure to arrive, the bank was entitled to review the whole credit situation, including the arrangement for interim financing. Mr. Justice Trainor said that as far as the bank was concerned, the shipping date was not later than June 29, and that the opening date for the letter of credit should be a reasonable one prior to that date. I have no doubt that June 6 was the last possible day for any reasonable period. The Chief Justice thought the last possible day was May 30. Mr. Justice Tweedy made no specific finding on the reasonableness of the date other than to say that Wheatley had failed to provide the necessary document.

On the terms of this contract there are strong indications that the letter of credit should have been delivered at a much earlier date. Wheatley had agreed to provide the purchaser with a performance bond in the amount of 5 per cent of

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the contract price, “such bond to be delivered when the letter of credit as hereinbefore provided has been established.”

The performance bond was to be delivered to ensure that Wheatley would, to the extent of the bond, perform his contractual obligations. There would have been no purpose in this bond if its delivery was to be postponed until the contract had been almost performed. As between vendor and purchaser, the performance bond should have been delivered at an early stage and the letter of credit opened at the same time. As far as I can see from this record, no performance bond was ever delivered and, of course, no letter of credit was ever produced. The bank manager said that Wheatley himself had told him that the letter of credit would be available between five to six weeks before the shipping date; that he expected the letter of credit some time towards the end of May, and that he pressed Wheatley for it. All this emphasizes the soundness of the conclusion of the Court of Appeal as to the latest date for the production of the letter of credit.

The Court of Appeal reduced Wheatley’s damages from $20,378 to $1,486.47 because it thought that there had been a breach of contract to provide reasonable interim financing and because on June 6, 1963, the bank, when it called the loan, charged up notes that did not become due until July 12, 1963. I agree with the reduction of the amount but not with the reasons. I have already said that, in my opinion, reasonable interim financing was provided. The notes that fell due on July 12, 1963, had been taken in reliance on the production of the letter of credit at the proper time. When Wheatley failed to produce the letter of credit, the bank was entitled to charge back the notes. However, there is no cross-appeal against the award of $1,486.47. Had there been, I would have allowed it.

I would dismiss the appeal with costs.

Appeal dismissed with costs, CARTWRIGHT C.J. and SPENCE J. dissenting.

Solicitors for the plaintiff, appellant: Soloway, Wright, Houston, Galligan & McKimm, Ottawa.

Solicitor for the defendant, respondent: Charles R. McQuaid, Charlottetown.