R. v. Légaré, [1978] 1 SCR 275

Supreme Court of Canada

R. v. Légaré, [1978] 1 S.C.R. 275

Date: 1977-06-24

Her Majesty The Queen Appellant;

and

Jacques Légaré Respondent.

1976: April 29; 1977: June 24.

Present: Laskin C.J. and Martland, Judson, Ritchie, Spence, Pigeon and Beetz JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR QUEBEC

Criminal law—Theft—Embezzlement—Funds held pursuant to a direction—Securities business—Criminal Code, R.S.C. 1970, c. C-34, s. 292.

Respondent, a securities broker and president and general manager of, inter alia, the L… firm, was convicted at trial and subsequently acquitted in the Court of Appeal on a charge of theft by embezzlement of funds held pursuant to a direction.

The facts that led to this charge are as follows: the accused concluded a contract to purchase an issue of bonds from the A… Seminary and a contract of sale of some of these bonds to the B… Sisters. A written agreement between the Sisters and the L. firm was reached, according to which the firm undertook to deliver the said securities on the day on which they were issued. The accused immediately cashed the cheques received from the Sisters for this purpose, and used the funds in a manner that made it impossible for the L. firm to fulfill its obligations and deliver the securities, pledged to the bank. The civil debt was extinguished by means of a settlement between the Sisters and the L… firm, resulting in cancellation of the contract.

The trial judge held that the accused was the Sisters’ mandatary and that, as such, the money received from them could only be applied to the purchase of bonds from the Seminary. The accused was therefore convicted.

The Court of Appeal unanimously acquitted the accused. It held that the contract between the L… firm and the Sisters was a simple sale, not a mandate. Once the money had been received for the purchase of securities to be delivered at a later date, and not for the purchase of securities to be acquired as mandatary of the Sisters, the L… firm became merely a debtor and s. 292 of the Criminal Code did not apply.

Held (Laskin C.J. and Martland and Spence JJ. dissenting): The appeal should be allowed.

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Per Judson, Ritchie, Pigeon and Beetz JJ.: There is no need to analyse the operation from the point of view of civil law in order to decide the criminal law in question. The extinguishing of the civil debt and the nature of the contract are not important. Section 292 of the Criminal Code is aimed at the substance of the operation rather than at the legal form that it may have been given. The expression “direction” is used—an expression that is not specifically related to any particular kind of contract. All that may serve to specify the nature of the legal relations contemplated by the provision is in subs. 2, which excludes cases involving only a current account, if there was no direction in writing. This is irreconcilable with the nature of the operation in question and with the written agreement stipulating that these were funds advanced, not to be applied to the credit of the Sisters’ account, but to be used for a particular purpose.

It cannot nowadays be maintained that the obligation to keep a sum of money received for a particular purpose means that the actual specie received must be kept. Not only is money a fungible thing (except in numismatics), but the ordinary way of keeping it is to deposit it in a bank or similar institution, such deposit really being a loan. There is no need to consider whether by thus keeping the funds received in order to be able to apply them to the payment of the bonds on the day of issue the L… firm would be able to earn an amount of interest equivalent to that it was allowing to the Sisters, any more than there is any need to consider whether the difference between the price paid to the Seminary and the one agreed upon with the Sisters represented a reasonable commission. Profit or loss on the market has nothing to do with the nature of the L… firm’s obligations.

The Court of Appeal erred in failing to see that the payment to the L… firm was not a payment of an advance or a sum to be credited to the account of the Sisters, but rather an amount that was to be used for a particular purpose, namely to pay for the bonds of the Seminary on the day they were issued, if they were in fact issued, which implied that if they were not issued the sum was to be returned immediately. Although the trial judge was in error in saying that the relationship was one of mandate, he did not err in considering that the receipt of the funds in the circumstances in which it took place implied, by the very terms of the written confirmation, a direction to apply the sum to a particular purpose. There is no need to determine how the receipt of the purchase price of a thing to be delivered at a later date should be viewed in the case of dealings

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other than in securities. Since our criminal law is codified, it is the letter of the Code that must be applied.

Per Laskin C.J. and Martland and Spence JJ., dissenting: The Court of Appeal was correct in holding that the case involved the sale of securities rather than a mandate. The circumstances of the transaction and the subsequent settlement leave at least a reasonable doubt on the issue of fraudulent intent. Essentially factual questions are involved in this appeal.

[R. v. Manley, [1940] 4 D.L.R. 490, followed; R. v. Tepoorten (1961), 131 C.C.C. 356, 37 C.R. 299; R. v. Brown (1956), 116 C.C.C. 112; R. v. Hughes, [1956] Crim. L.R. 835; The Queen v. Hemingway, [1955] S.C.R. 712; The Queen v. Maroney, [1975] 2 S.C.R. 306, referred to; R. v. Wolfe (1961), 132 C.C.C. 130, disapproved]

APPEAL from a decision of the Court of Appeal of Quebec[1] setting aside a conviction of embezzlement of funds held pursuant to a direction. Appeal allowed and conviction restored, Laskin C.J. and Martland and Spence JJ. dissenting.

François Tremblay and Roger Thibaudeau, Q.C., for the appellant.

Jacques Bouchard and André Cartier, for the respondent.

The judgment of Laskin C.J. and Martland and Spence JJ. was delivered by

THE CHIEF JUSTICE (dissenting)—This is a Crown appeal from an acquittal of the accused, by a unanimous judgment of the Quebec Court of Appeal, of an offence under s. 292 of the Criminal Code, of which he had been convicted by Sessions Court Judge Potvin. Leave to appeal, limited of course to questions of law, was given by this Court in general terms. Two issues lie at the base of this case. First, in the words of s. 292, did the accused receive money from La Communauté des Sœurs de Notre-Dame-du-Bon-Conseil de Chicoutimi to be applied to a particular purpose and, second, if so, was it fraudulently applied to another purpose?

[Page 278]

I am satisfied that the Quebec Court of Appeal correctly assessed the transaction between the Company, of which the accused was president, and La Communauté as one of sale of securities by the Company on its own account to La Communauté, and that neither the Company nor the accused was an agent of La Communauté, receiving money in that character. There was an outright sale and purchase and nothing more. Again, the circumstances of the purchase and the subsequent agreement of the Company, through the accused, to cancel the sale as requested by La Communauté raise at least a reasonable doubt on the issue of fraudulent intent. It cannot be that, upon the rescission of a contract of sale by mutual consent, the failure of the vendor to return immediately the purchase money received from the purchaser (it was in this case repaid by a promissory note which was honoured by the company of which the accused was president) results in an attribution of prior fraudulent intent in the consummation of the contract of sale. Indeed, essentially factual questions are involved in this appeal and I am not persuaded that any question of law is raised by the Crown in respect of the crucial issue of fraudulent intent.

For the reasons given by the three judges of the Quebec Court of Appeal I would dismiss the Crown’s appeal.

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

PIGEON J.—This is an appeal by the Crown, brought by leave of this Court, from a judgment of the Court of Appeal of Quebec setting aside the conviction of appellant by Cyrille Potvin J. sitting without a jury, the accused having elected to be so tried.

The essential facts of the case are as follows. The accused is a broker and is president and general manager of Jacques Légaré & Cie Limitée, the Société de Prêts et Placements de Québec and over twenty other financial concerns.

On July 1, 1966, in his capacity as manager of a syndicate of securities dealers, or brokers, he concluded a contract to purchase an issue of bonds

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from the St-Augustin Seminary in the amount of $2,600,000. These bonds were to bear interest at six per cent from July 1 and were purchased for 93.50 per cent of their face value plus accrued interest to the date of delivery.

Some of these bonds were immediately offered by the accused to the Sœurs de Notre‑Dame‑du-Bon-Conseil de Chicoutimi, whom he had previously contacted in this connection. On July 25 a written confirmation of the sale to the Sisters of $250,000 St‑Augustin Seminary bonds at $97 plus accrued interest, was sent to the Sisters. On July 28 the latter delivered to a representative of the firm three cheques payable to the order of Jacques Légaré & Cie Limitée, and the following day, July 29, 1966, a second confirmation was sent in the following terms:

[TRANSLATION] We have the honour to confirm our SALE to you of the following securities:

$250,000 ST-AUGUSTIN SEMINARY

6% Bonds Maturity: July 1, 1976
Price: 97.00	$242,500.00
Interest from July 1 to July 28 (28 days)	1,150.00
250 x 1,000.-
Total	$243,650.00

Delivery—Subject to the usual conditions for a new issue, on or about August 8 next.

The cheques were cashed immediately; the issue of the bonds, which was to take place on or about August 8, was effected on August 15, but on that day the bonds in the amount of $250,000 destined for the Sisters remained at the bank because Jacques Légaré & Cie Limitée did not have the necessary funds to redeem them. On or about August 24, the accused offered to deliver bonds in the amount of $100,000 immediately, and the balance on or about September 3. The Sisters refused this offer, cancelled the purchase of the bonds and received from Jacques Légaré & Cie Limitée a promissory note in the amount of $243,650 dated July 28, 1966 payable in a year with interest at seven per cent. As to this point, Mayrand J.A. observed:

[Page 280]

[TRANSLATION] The fact that the contract between the Sisters and the company was thus cancelled by consent of the parties, that a settlement was reached following the charge laid against Jacques Légaré, and that the debt contracted by promissory note to the Sisters has been extinguished, as was pointed out at the hearing, in no way alters the problem submitted to this Court. The issue is whether Jacques Légaré had previously committed the theft of which he is accused.

It should be added that the charge laid by the Crown is based on what was then s. 278 of the Criminal Code, now s. 292. It is as follows:

[TRANSLATION] JACQUES LÉGARÉ is charged with having, during the period between May 1, 1966 and December 1, 1966, at Quebec City, district of Quebec, and elsewhere in the province of Quebec, while he was president of Jacques Légaré & Cie Limitée, after receiving from the Congrégation des Sœurs de Notre-Dame-du-Bon-Conseil de Chicoutimi a sum of $243,650.00, with instructions to apply this sum to the purchase of bonds from the St-Augustin Seminary in the amount of $250,000.00, unlawfully, fraudulently and in contravention of the instructions received, applied this money to other purposes, thereby committing the theft of a sum of $243,650.00, the property of the Congrégation des Sœurs de Notre-Dame-du-Bon-Conseil de Chicoutimi, the whole contrary to ss. 278, 269, 280 and 21 of the Criminal Code.

The former s. 278, now s. 292, reads as follows:

292. (1) Every one commits theft who having received, either solely or jointly with another person, money or valuable security or a power of attorney for the sale of real or personal property, with a direction that the money or a part of it, or the proceeds or a part of the proceeds of the security or the property shall be applied to a purpose or paid to a person specified in the direction, fraudulently and contrary to the direction applies to any other purpose or pays to any other person the money or proceeds or any part of it.

(2) This section does not apply where a person who receives anything mentioned in subsection (1) and the person from whom he receives it deal with each other on such terms that all money paid to the former would, in the absence of any such direction, be properly treated as an item in a debtor and creditor account between them, unless the direction is in writing.

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After a very lengthy trial at which the movement of the funds in the numerous companies controlled by the accused was analysed, the trial judge said:

[TRANSLATION]… Jacques Légaré & Cie Limitée received from the Sisters a sum of $243,650.00, which was to be applied specifically to the purchase of bonds from the St‑Augustin Seminary through the accused, who was first and foremost the Sisters’ mandatary.

This sum of $243,650.00 was converted from its intended purpose, since it was used, with the accused’s approval, to pay other liabilities of the company, including a sum of $98,000.00 applied to another bank account. Furthermore, the bonds that were to be delivered on August 15, 1966 at the latest were not in fact delivered until the day of the cancellation of the sale, at the end of August, and of the agreement to treat the $243,650.00 as a loan to Jacques Légaré & Cie Limitée,…

The Court of Appeal correctly pointed out that the Sisters had not dealt with Jacques Légaré & Cie Limitée as a mandatary, but as a vendor. There is no doubt that it was on its own account that the syndicate had bought the issue, and that it was on its own account that the Légaré firm had sold a portion to the Sisters. This does not dispose of the matter, however, since neither the indictment nor the section of the Criminal Code on which it is based presupposes the existence of a mandate.

In my opinion there is no need in the case at bar to analyse the operation from the point of view of civil law in order to decide the criminal law question. Moreover, the situation at civil law is not in doubt. It is clear that Jacques Légaré & Cie Limitée failed to fulfil its obligation. Having received the full price with accrued interest for $250,000 in bonds of the St-Augustin Seminary subject to the usual conditions for a new issue, the company’s obligation was to deliver these securities on the day on which they were actually issued, namely August 15. Since this was a commercial transaction, the company was put in default by the very fact of not having delivered on that day (art. 1069 C.C.). Having received payment in advance, it seriously contravened its obligation toward the Sisters by pledging the securities to the bank, so

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that it could pay the St-Augustin Seminary for them, whereas its obligation was to deliver them completely unencumbered.

This situation was entirely due to the fault of the accused who had used the funds received from the Sisters for the purposes of his commerical companies, instead of keeping those funds available for the purpose for which he had received them. It was not as a result of unforeseen events occurring without its fault that the accused’s firm found itself unable to meet its obligations toward the Sisters on the day the bonds were issued. It has been clearly established that this failure was due to the fact that, under the direction of the accused, the funds received from the Sisters were used in a manner that made it impossible for the firm to fulfil its obligations.

From the civil point of view there was thus a conscious failure to meet an obligation. As we have seen, this was subsequently settled, but this settlement leaves unsolved the question whether or not there was a criminal act. The contention of the accused, which was accepted by the Court of Appeal, is essentially that once the money had been received for the purchase of securities to be delivered at a later date, and not for the purchase of securities to be acquired as mandatory of the Sisters, the Légaré firm became merely a debtor and s. 292 of the Criminal Code did not apply.

It is important to note that s. 292 does not tie the definition of the offence to the kind of contract concluded between the accused and the person from whom he has received money or valuable securities. It is further on, under the heading “Offences Resembling Theft”, that one finds in s. 296 (formerly 282) a provision concerning a person who, “being a trustee of anything… converts, with intent to defraud and in violation of his trust, that thing or any part of it to a use that is not authorized by the trust”. “Trustee” is defined in s. 2, by reference inter alia to the law of the province. In section 292, as in s. 290, however, there is nothing specifying the nature of the agreement under which the money may have been received. The section speaks of a “direction”, an expression that is not specifically related to any particular kind of contract. The only words that

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may serve to specify the nature of the legal relations contemplated are in subs. 2, which excludes cases involving only a current account, if there was no direction in writing. Here the direction was shown by the confirmation, which was issued at the very moment the cheques were received.

The accused is maintaining in essence that although the funds had been given to pay the price of the bonds in question on the day of their eventual issue, the Légaré firm was merely indebted for them and could use them in its discretion. He points out in this connection that interest had ceased to accrue on July 28, whereas the Légaré firm was obliged to pay interest to the Seminary until the day of delivery, which was scheduled for August 8, but in fact took place on August 15. This implies, it is said, that the firm could use the funds in the interval.

In my opinion this objection is no more valid than the one based on the fact that the Légaré firm was obliged to deliver the bonds at a fixed price, and not on a commission basis. The days are long time past when it was held that a person to whom money was entrusted for a particular purpose was guilty of conversion only if he was required to return or use the actual specie he had received. This ancient rule was set aside by s. 355 of the old Criminal Code (corresponding to s. 290 of the present Code), the first paragraph of which read as follows:

355. Every one commits theft who, having received money or valuable security or other thing whatsoever, on terms requiring him to account for or pay the same, or the proceeds thereof, or any part of such proceeds, to any other person, though not requiring him to deliver over in specie the identical money, valuable security or other thing received, fraudulently omits to account for or pay the same or any part thereof, or to account for or pay such proceeds or any part thereof, which he was required to account for or pay as aforesaid.

(Emphasis added.)

In my opinion it cannot nowadays be maintained that the obligation to keep a sum of money

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received for a particular purpose until the time it is to be used for that purpose means that the actual specie received must be kept. Not only is money a fungible thing (except in numismatics), but the ordinary way of keeping it is to deposit it in a bank or similar institution, such deposit really being a loan. There is no need to consider whether by thus keeping the funds received in order to be able to apply them to the payment of the bonds on the day of issue the Légaré firm would be able to earn an amount of interest equivalent to that it was allowing to the Sisters, any more than there is any need to consider whether the difference between the price paid to St-Augustin Seminary and the one agreed upon with the Sisters represented a reasonable commission. Profit or loss on the market has nothing to do with the nature of the Légaré firm’s obligations.

One of the most interesting of the few cases on this point is the decision of the British Columbia Court of Appeal in R. v. Manley[2]. A broker had been charged with theft without the indictment specifying how the theft was committed. In effect he was charged with having, without authority, pledged the securities of a client. Sloan J.A. stated the question as follows (at pp. 491-492):

The appellant admitted at the trial that he had, without authority, hypothecated Dawson’s shares. He set up, as a defence, that Dawson’s account with him was a cash account in which from time to time there would be debit and credit balance and that when he received the Dawson shares from the vendor broker on the Stock Exchange these shares were credited in his books as items in the debtor and creditor account between himself and Dawson; that Dawson relied upon his personal liability in respect thereto and in consequence, because of the provisions of s-ss. (2) and (3) of s. 355 of the Criminal Code, there had been no fraudulent conversion of the shares. The learned trial Judge refused to charge the jury on s. 355 holding that it had no application. It is not for us to say whether or not such a defence has any merit. That is a question of fact for the jury. The question for determination by us, as I see it, is whether or not s. 355 can have application to the facts of this case.

[Page 285]

After a review of the authorities, he concluded (at p. 495):

In my opinion it is clear from the foregoing authorities that the absence of any direction to the appellant from the person from whom he received the shares of Dawson is immaterial. His obligation to account to Dawson arose from his relationship to him, i.e., as brokers to customer. I would say therefore that he falls within s. 355.

In my opinion there are only inconsequential differences between the former s. 355 (now s. 290) and s. 292, on which the charge in the case at bar is based. In effect the offence charged is essentially the same. The Légaré firm obtained from the St-Augustin Seminary the bonds it had undertaken to deliver to the Sisters. If it did not deliver them to the latter, this was because instead of paying for them with the funds received from the Sisters for this purpose, it paid with money obtained from the bank to which the securities were pledged.

Mayrand J.A. cited the decision of the British Columbia Court of Appeal in R. v. Tepoorten[3]. The principle of the earlier decision in Manley was not questioned. All that was decided is stated in the following sentence (at p. 303):

Here, there is no evidence of any terms on which Tepoorten received Meester’s cheque, and no evidence of any relationship between Tepoorten and Meester that would impose any duty on Tepoorten to account to Meester for the money.

After citing this decision, Mayrand J.A. said:

[TRANSLATION] The Sisters did not give the company “a direction that the money or a part of it… shall be applied to a purpose or paid to a person specified in the direction”, in accordance with the terms of s. 278 (now 292) of the Criminal Code. The sum of $243,650 was given and received in payment for the bonds purchased from the company. The purchaser did not restrict the freedom the vendor had to dispose of the sum collected as it wished.

In my opinion the error in this reasoning consists in failing to see that the payment to the Légaré firm was not a payment of an advance or a

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sum to be credited to the account to the Sisters generally, but rather an amount that was to be used for a particular purpose, namely to pay for $250,000 in bonds of the St-Augustin Seminary on the day they were issued, if they were in fact issued, which implied that if they were not issued the sum was to be returned immediately. Although the trial judge was in error in saying that the relationship was one of mandate, he did not err in considering that the receipt of the funds in the circumstances in which it took place implied, by the very terms of the confirmation, a direction to apply the sum to a particular purpose. It appears quite clear to me that the Sisters did not intend to allow the Légaré firm to invest the funds in other enterprises so as to be unable to use them to pay for the bonds from the St-Augustin Seminary when they were issued.

There is no need to determine how the receipt of the purchase price of a thing to be delivered at a later date should be viewed in the case of dealings other than in securities. This is why I shall make no comment on R. v. Brown[4], cited by Mayrand J.A., a case involving a travel agent who was said not to be a mandatary.

Subsection 2 of s. 292, like subs. 2 of s. 290, provides a helpful indication and serves to interpret the main provision, of which it is the corollary. Can the money received be looked upon merely as a current account item? In this case, this appears to me to be completely irreconcilable with the nature of the operation and with the agreement stipulating that these were funds advanced not to be applied to the credit of the Sisters’ account, but to be used for a particular purpose.

If this section of the Criminal Code had been intended to apply only to the case of funds entrusted to a mandatary, it would have said so. The use of words that do not refer to any particular civil contract shows that the substance of the operation, not its particular legal form, was aimed at. This is made even more evident by comparison with related sections where expressions specifying

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a particular kind of contract are used. I have already mentioned the word “trustee” in s. 296. It seems proper to note that mandataries are contemplated in s. 286, where the words “factor or agent” are used as follows:

286. A factor or agent does not commit theft by pledging or giving a lien on goods or documents of title to goods that are entrusted to him for the purpose of sale or for any other purpose, if the pledge or lien is for an amount that does not exceed the sum of

(a) the amount due to him from his principal at the time the goods or documents are pledged or the lien is given, and

(b) the amount of any bill of exchange that he has accepted for or on account of his principal.

As for R. v. Wolfe[5]. I fail to see how it can be relied on in defence of this accused. It was a case where the accused obviously was under an obligation to render an account. He had been instructed to sell a car and had collected the purchase money, but he had not given it to his client because he had deposited it in an overdrawn bank account. He was acquitted on the ground that this was negligence, not dishonesty. It seems to me that scant consideration was given to the duty of the person who receives money for the account of a third party: s. 285 exonerates the bailee only if his failure to produce and deliver the thing “is not the result of a wilful act or omission by him”; why should it be otherwise when it is a question of returning the purchase money rather than the thing itself? Anyway, there is nothing of the kind in the case at bar. The accused is an experienced businessman, and it was with full knowledge of the situation that he disposed of the funds as he did.

At the end of his reasons, Gagnon J.A. cited three decisions of the Court of Criminal Appeal. The most recent of these appears to me to be the only one requiring consideration: It is R. v. Hughes[6] fully summarized as follows:

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The facts proved at the trial were that H. was a builder who was asked by one C. to put in a shop front and to do some repairs to a small property. H. asked C. to advance him £50 to buy materials, and C. did advance that sum together with a further £100 for the same purpose. H. did not use the money for the purpose of buying materials but he paid off his own debts and spent some of the money on repairs to his motor-car. H. appealed to the Court of Criminal Appeal against his conviction on the ground that the jury were misdirected, and against his sentence.

Held, dismissing the appeal, that this court could find no fault in the summing-up. It was clearly laid down in R. v. Bryce (1956) Crim. L.R. 122 that the three necessary ingredients in the offence of fraudulent conversion were (i) that the money was entrusted to the accused for a particular purpose; (ii) that the accused used the money for some other purpose; and (iii) that the accused was acting fraudulently. In the present case the money was paid over for a particular purpose and not generally on account, and the summing-up put the three ingredients of the offence with great clarity.

Applying these principles to the case at bar, I cannot see how the conclusion can be anything but that the accused is guilty. I wish to point out, however, that although I do not see any major difference in this respect between the Larceny Act and our present Criminal Code, it should not be forgotten that our criminal law is codified. The provisions of the Code must be applied as they are, irrespective of former niceties that have been set aside for good: The Queen v. Hemingway[7], The Queen v. Maroney[8].

I would allow the appeal, set aside the judgment of the Court of Appeal, restore the conviction and remit the case to the Quebec Court of Appeal for fixing the sentence.

Appeal allowed, LASKIN C.J. and MARTLAND and SPENCE JJ. dissenting.

Solicitor for the appellant: François Tremblay, Quebec.

Solicitor for the repondent: Jacques Bouchard, Quebec.