Bank of Canada v. Bank of Montreal, [1978] 1 SCR 1148

Supreme Court of Canada

Bank of Canada v. Bank of Montreal, [1978] 1 S.C.R. 1148

Date: 1977-06-14

The Bank of Canada (Plaintiff) Appellant;

and

The Bank of Montreal (Defendant) Respondent;

and

Bay Bus Terminal (North Bay) Limited and Bay Bus Terminal (North Bay) Limited name changed to John Palangio Enterprises Limited operating as Deluxe Coach Lines and John Devost Respondents.

1977: January 27; 1977: June 14.

Present: Laskin C.J. and Martland, Judson, Ritchie, Pigeon, Dickson, Beetz and de Grandpré JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Bills and notes—Currency and legal tender—Bank of Canada bank-notes (pre-1967 form)—Whether promissory notes—Obligation of Bank of Canada to replace destroyed bank-note—Bills of Exchange Act, R.S.C. 1970, c. B-5, ss. 10, 156, 157, 176.

In 1959 the Bank of Montreal arranged with the Post Office to have delivered from the Bank’s chief office in Montreal to its branch office in Temiskaming a package containing Bank of Canada bank-notes. While in transit in a bus owned by Bay Bus Terminal (North Bay) Limited most of the mail including the bank-notes was destroyed by a fire in the bus. The Bank of Montreal sued Bay Bus for $23,307.50, the value of the destroyed bank-notes less an amount of $2,692.50 received from the Bank of Canada in exchange for partially burned notes. The trial judge took the view that any action which Bay Bus contended the Bank of Montreal should have taken against the Bank of Canada for replacement of the destroyed notes was unlikely to succeed and found in favour of the Bank of Montreal. On appeal by Bay Bus the Court of Appeal ordered that the Bank of Canada be added and joined as a party defendant to the action and that the writ of summons be amended accordingly; and further ordered that there be added to the endorsement of the writ the Bank of Montreal’s claims against the Bank of Canada. The Bank of Canada entered an appearance and the Court of Appeal directed a new trial on all issues. While the Statement of Claim as amended alleged that the bank-notes were destroyed or lost the parties chose to submit a statement

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of facts for the determination of a point of law pursuant to Rule 124 of the Ontario Rules of Practice. This statement of facts recited that “at least one bank-note…bearing a face value of $5.00 was destroyed by the fire” and that that bank-note was one issued by the Bank of Canada. The bank-note in question was issued pursuant to the Bank of Canada Act, R.S.C. 1952., c. 13 as amended by 1953-54 (Can.), c. 33, the text of the note was under the signature of the then Governor and Deputy Governor of the Bank of Canada and contained the statement “Bank of Canada will pay to the bearer on demand”. On the motion under Rule 124 the judge found that the Bank of Montreal was entitled to the relief sought against the Bank of Canada and this judgment was affirmed in the Court of Appeal.

Held on equal division (Laskin C.J. and Martland, Judson and Dickson JJ. dissenting): The appeal should be dismissed.

Per Ritchie, Pigeon, Beetz and de Grandpré JJ.: The $5 bank-note in question was a promissory note within the meaning of s. 176(1) of the Bills of Exchange Act. That, as a bank‑note, it had characteristics which made it something more than an ordinary promissory note could not affect its status as a promissory note. Its quality of being itself legal tender was not incompatible with it being a promissory note. The bank-note in question having been destroyed the Bank of Montreal was entitled to the remedy at law sought by it, that is judgment against the Bank of Canada to the amount of the destroyed note under s. 10 of the Bills of Exchange Act.

A destroyed note should not be treated as a lost one. The resolution of the quite different problems which might arise in relation to lost bank-notes must remain for consideration in a future case.

Per Laskin C.J. and Martland, Judson and Dickson JJ. dissenting: The issue depended on whether the Bank of Canada note involved in the litigation was a promissory note, within s. 176(1) of the Bills of Exchange Act. As a result of an amendment to the Bank of Canada Act, R.S.C. 1952, c. 13, and to the Currency, Mint and Exchange Fund Act, R.S.C. 1952, c. 315, by 1966-67 (Can.), c. 88, ss. 12 and 20, the words “will pay to bearer on demand” no longer appear on Bank of Canada notes and the issue arising in this case could presumably not arise under bank notes issued since the amendment. The entire support of the judgments in appeal rested on the fact that these words appeared on the destroyed five dollar note which is the subject of the present proceed-

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ings. Having regard to the position of the Bank of Canada as sole issuer of notes with the character of legal tender a bank-note should not be regarded as a promissory note under s. 176(1). The central Bank was not a mere debtor giving security to a creditor and the words “will pay to the bearer on demand” could not turn what was itself money into a different document calling for the payment of money.

[Banco de Portugal v. Waterlow and Sons, Limited, [1932] A.C. 452, followed; Suffell v. The Bank of England (1881-82), 9 Q.B.D. 555; Gillet v. The Bank of England (1889-90), 6 T.L.R. 9; R. v. Brown (1854-57), 8 N.B.R. 13; Raphael v. The Governor and Company of the Bank of England (1855-56), 17 Commons Bench Reports 161; McDonnell v. Murray (1858‑59), 9 Irish L. Rep. 495; The Australian Joint Stock Bank v. The Oriental Bank (1866), 5 New South Wales Sup. Crt. Rep. 129; Jefferson v. The Ulster Bank (1900), 34 Irish Law Time Rep. 58; Hong Kong and Shanghai Banking Corporation v. Lo Lee Shi, [1928] A.C. 181; Re Toronto Beaches Election; Ferguson v. Murphy, [1943] O.R. 787; Pillow v. L’Espérance (1902), 22 Que. S.C. 213; Hansard v. Robinson (1827), 108 E.R. 659; Pierson v. Hutchinson (1809), 170 E.R. 1132; Woodford v. Whitely (1830), 173 E.R. 1243; Clarke v. Quince (1834), 3 Dowl, 26; Blackie v. Pinding (1848), 136 E.R. 1225; Crowe v. Clay (1854), 9 Ex. Rep. 604; Wright v. Lord Maidstone, (1854-55) 1 K. & J.R. 701; Banque d’Algérie c. Casteras 1867, Dalloz 1.289, referred to.]

APPEAL from a judgment of the Court of Appeal for Ontario[1] dismissing an appeal from a judgment of Addy J.[2] on a motion under Rule 124 of the Ontario Rules of Practice. Appeal dismissed on equal division, Laskin C.J. and Martland, Judson and Dickson JJ. dissenting.

J.J. Robinette, Q.C., for the appellant.

Brendon O’Brien, Q.C., for the respondent Bank of Montreal.

George Wallace, Q.C., for the respondents Bay Bus Terminal (North Bay) Limited et al.

The judgment of Laskin C.J. and Martland, Judson and Dickson JJ. was delivered by

THE CHIEF JUSTICE (dissenting)—I have had the advantage of seeing the reasons prepared by

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my brother Beetz, under which he would dismiss the Bank of Canada’s appeal. Although Beetz J. left open the question of the Bank’s liability to replace a lost bank note, I cannot see how any different conclusion could be reached in that respect if the obligation to replace or to suffer judgment for the face amount exists in respect of a bank note that has been destroyed. True, the success will be pyrrhic in the case of a lost bank note since the claimant against the Bank must give security to it under s. 156(1) of the Bills of Exchange Act, R.S.C. 1970, c. B-5. Although an action in such a situation is unlikely, the principle must be the same, depending in both cases on finding that the Bank of Canada note involved in the present litigation is a promissory note, within s. 176(1) of the Act.

As a result of an amendment to the Bank of Canada Act, R.S.C. 1952, c. 13, and to the Currency, Mint and Exchange Fund Act, R.S.C. 1952, c. 315 by 1966-67 (Can.), c. 88, ss. 12 and 20, the words “will pay to bearer on demand” no longer appear on Bank of Canada notes, and I take it that the issue that arises in this case under a note that contains those words could not arise under bank notes issued since the 1967 amendment. In short, the entire support for the judgments in appeal lies in the fact that the words “will pay to bearer on demand” appeared on the destroyed five dollar note which is the subject of the present proceedings.

The liability of the carrier to answer for the value of the destroyed notes does not arise in the issue raised between the appellant Bank and the respondent Bank of Montreal. Moreover, there could be no subrogation of the appellant to any claim of the respondent Bank against the carrier if the respondent Bank is entitled to succeed against the appellant under the Bills of Exchange Act; that would be independent of any liability of the carrier to the Bank of Montreal. Nonetheless, it seems to me that the issue now before us could have been raised by the carrier claiming as bailee of the notes, destroyed during carriage, to have them replaced by the appellant Bank. I see no difference between a claim by the bailee (although it would have to account to the Bank of Montreal)

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and a claim by the respondent Bank, so far as the liability of the Bank of Canada is concerned.

I go further. If the position taken by the respondent Bank of Montreal and in the Courts below is correct, then any person accidentally or carelessly destroying a Bank of Canada note of the type involved in this case (for example, destruction by fire when sitting in front of one’s fireplace) would be entitled to have the appellant Bank replace the note. Such a person would not be regarded as having destroyed his own property—and thus have no claim against anyone else for its value—but as having destroyed a promissory note under which he had a claim against the maker and, hence, would be entitled to have it replaced as a matter of the law merchant, preserved in that respect by s. 10 of the Bills of Exchange Act.

It would have been a simple matter, of course, for the Bank of Canada legislation or for the Bills of Exchange Act to have said that the latter Act does not apply to notes issued by the Bank, as being legal tender recognized in our law, in short our paper money. This was not done, and we are faced with a contention of literal interpretation and application of s. 176(1) of the Bills of Exchange Act, despite the fact that a separate code governing the establishment and operation of the Bank of Canada in relation to the Canadian monetary system has been promulgated from the point of view of the public character of the system as contrasted with the essentially private relationships which engage the Bills of Exchange Act.

Under its constituent Act, as it stood at the time the present litigation was instituted (see R.S.C. 1952, c. 13, am. 1953-54, c. 33), the Bank of Canada is the fiscal agent of the Government. Its dealings are with governments and with chartered banks, as by the purchase of securities, making of loans and acceptance of deposits from them against which, of course, they will draw as the occasion requires. The preamble to the Bank of Canada Act is an indicator of the nature and range of functions to be discharged by the appellant. It reads as follows:

WHEREAS it is desirable to establish a central bank in Canada to regulate credit and currency in the best

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interests of the economic life of the nation, to control and protect the external value of the national monetary unit and to mitigate by its influence fluctuations in the general level of production, trade, prices and employment, so far as may be possible within the scope of monetary action, and generally to promote the economic and financial welfare of the Dominion:…

In addition to the foregoing features of the position of the Bank of Canada, it is the sole issuer of notes that have the character of legal tender. The notes are non-convertible into gold, and that has been the case from the very beginning of the Bank of Canada’s operations. If a person were to offer a pre-1967 note to a chartered bank to enforce the Bank of Canada’s promise to pay to the bearer on demand the face value of the note, he would get another, perhaps a less worn one, of the same face value. Nothing is accomplished in any legal sense by such an exchange. It is to engage in a charade to contend or suggest that the words “will pay to the bearer on demand”, fastening on them alone, give a pre-1967 note the character of a promissory note under the Bills of Exchange Act. I do not accept the submission that the pre-1967 notes of the Bank of Canada fall within the definition of a promissory note under s. 176(1) of the Bills of Exchange Act. I reject it for two reasons.

First, the submission gives no force to the position of the Bank of Canada under its constituent Act, pays no regard to the relationship between the Bank of Canada and the chartered banks through whom the Bank of Canada’s notes reach the public, and treats the Bank of Canada as if it were a private debtor giving security in the form of a promissory note to a creditor. The Bank of Canada does not have that character in respect of its note issuing authority, a matter that goes to the money supply and the monetary policy. Second, it is wrong to characterize the Bank of Canada note involved in this case as a promissory note under the definition in s. 176(1) of the Bills of Exchange Act. The definition is in these words:

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176. (1) A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person, or to bearer.

What is said to be an unconditional promise to pay a sum certain in money is itself money. The words on the face of the paper money, “will pay to the bearer on demand”, cannot alter its character as money and turn it into a different document which calls for the payment of money.

Moreover, I find it impossible to isolate the Bank of Canada’s note issuing authority from its host of operations as a public institution and then, by such segregation, to adapt the Bills of Exchange Act to the characterization of its notes. Indeed, reliance on cases dealing with commercial banks can only be misleading if used to establish a parallel with a central bank like the Bank of Canada. I refer in this connection to a standard Canadian book on central banking, Plumptre, Central Banking in the British Dominions (1940), where the author says this (at p. 29):

…A central bank looks rather like a commercial bank. Each usually has a capital, a reserve fund accumulated from profits, cash reserves, liquid investments, and deposits of various sorts. A casual observer could no doubt detect certain differences in their balance sheets, for instance almost all the liabilities of a central bank are usually payable on demand, while the commercial banks are entitled to require so many days’ or months’ notice before meeting many of their liabilities. On the other side of the balance, the assets of a central bank appear more liquid, more easily convertible into cash; for the assets of a commercial bank, in addition to marketable securities, include loans to farmers pending the sale of their crops, loans to businesses pending the disposal of stocks, goods and so forth. The observer is easily led to believe that the chief differences between commercial and central banking lie in such matters.

But the truth is otherwise. The divergence runs deeper. It is so deep that one can scarcely avoid miscon-

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ception in using the language, the terminology, of commercial banking to describe central banking; and yet it is the only language that has been devised for the purpose. The only protection against misapprehension arising from incongruous language is to grasp the point of view of a central bank; and this involves shedding, for the time, the point of view of a commercial bank, and, indeed, of ordinary business. If one asks why, despite its incongruities, the same language is used for both, the answer must be sought in the past. It is because the leading central banks emerged only recently as a species distinct from commercial banks.

In dealing with a central bank’s note-issuing authority and its relation to required reserves, Plumptre, op. cit., at p. 33, explains the situation as follows:

… The regulation of reserves is usually connected with the regulation of the note issue from which it should nowadays be largely or entirely separate. This connection is the result of the historical evolution of central banking in England and elsewhere. As matters stand today in the Dominion and most other countries there is no clear reason why the volume of note issue should be ultimately limited by the foreign assets held by the central bank; for the volume of note Issue changes chiefly in response to the public’s need for hand-to-hand currency. This volume may be related to the state of the country’s international payments and thus to requirements for reserves of foreign assets; but the relationship is exceedingly distant and complex.

In a sense the note issue is fundamentally important to a central bank; and in another sense it is quite unimportant. It is important because, since central bank notes are legal tender and often, in these days, practically the only important form of legal tender money available, control of the note issue gives the bank control over what, in the last resort, is legally the basis of the whole financial system. The note issue is unimportant because in fact, either by law or by custom, the commercial banks keep their reserves chiefly in the form of deposits in the central bank rather than its notes. In practice it is the banks’ reserves that lie at the basis of a country’s credit structure and financial system. Thus, ultimately under the law, control of the note issue is fundamental; in fact, under prevailing customs, control of the banks’ reserves is fundamental. No doubt the banks would be unwilling to keep reserves in the central bank if they were not assured that, if requested, legal tender notes

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would be forthcoming. A central bank’s active efforts to control credit, however, and through credit control to influence the economic condition of the country, are nowadays directed towards varying the banks’ reserves; and the note issue, serving the same lowly role as subsidiary coin, changes passively up and down in response to the country’s requirements for that particular form of monetary medium.

Even looking at the notes in isolation, I hold the view that the statutory declaration that the notes are legal tender, added to the fact that they have no convertibility into gold or anything else, is a more persuasive indication of their character than the inscription on them that they are payable to bearer on demand. As I have already noted, a promissory note, by definition, involves an unconditional promise to pay a sum certain in money, but it is not itself money. True, the obligation of a promissory note may be carried forward by a renewal note, but no matter how many renewals there be, or how many replacements under different terms, there is no liquidation of the debt until it is discharged, and this may be by money or money’s worth or the debt may be forgiven. To say that a bank note of the kind involved here imports similar legal consequences, that a non-convertible bank note is paid off by the giving of a bank note of similar face value is to go around in a circle: legal tender is exchanged for legal tender; a different piece of paper, true, but indistinguishable in legal effect from the one surrendered for it.

Prior to the establishment of the Bank of Canada with sole note-issuing authority, notes could be issued by the chartered banks as provided by s. 61 of the Bank Act, R.S.C. 1927, c. 12, and these notes contained payment promises, that is, they were payable to the bearer on demand. At the same time the Dominion Notes Act, R.S.C. 1927, c. 41 provided for the issue by the Government of Dominion notes which were legal tender and were redeemable in gold. The Currency Act, R.S.C. 1927, c. 40 made gold coins legal tender for any amount, silver coins legal tender for amounts not

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exceeding ten dollars and nickel coins legal tender for amounts not exceeding five dollars. The notes of the chartered banks were not legal tender but, of course, they were redeemable in legal tender, whether in Dominion notes or in gold, silver or nickel coins. The payment promise in the notes issued by the chartered banks thus had substance. The same can be said of the Dominion notes, which also carried a payment promise. Since they were redeemable in gold, the payment promise on them also had substance.

The situation changed completely when the chartered banks were shorn of their note-issuing authority and the Bank of Canada became the only such issuer. Although the Bank of Canada Act, until the 1967 amendment, carried into its terms the payment promise which had been characteristic of the notes of the chartered banks (I refer again to what Plumptre, op. cit., supra said about the continued use of the terminology of commercial banking), the framework in which Bank of Canada notes were issued and circulated—notes which were legal tender and non-convertible—made the payment promise sterile from the very beginning.

Great reliance is placed by the respondent bank on the Bank of Portugal case, Banco de Portugal v. Waterlow and Sons Ltd.[3] I find it completely unpersuasive on the point in issue here, a point which did not arise in that case. It was concerned only with the measure of damages payable by the respondent printers for breach of contract upon the unauthorized printing of bank notes of the appellant bank. The printing was done from the original plates used by the printers to produce notes for the bank, but they were victims of a fraudulent scheme and delivered the notes to the criminals who carried out the scheme. The bank called in the entire issue of the notes produced from the plates and paid off holders of the unauthorized notes by a new issue of notes. The sole question before the House of Lords was whether the printers should be liable only for the cost of

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printing the unauthorized notes or for their face value as well. A majority held that they must pay their face value as well. I need not dwell on the correctness of this decision for present purposes. It has not stood without criticism: see Nussbaum, Money in the Law (1939), at pp. 93 ff. There is nothing in the case that, in my view, turned on the character of lawfully issued notes of the Bank of Portugal as promissory notes. However, some of the Law Lords proceeded to consider their character and regarded them as promissory notes even though they did not contain any promise to pay on their face.

I confess my inability to appreciate how there can be any substance in the assertion that an inconvertible note issued by a bank and being legal tender involves the same liability of a bank as is incurred by a merchant who makes and gives a promissory note. Yet so Lord Atkin said, and he is quoted extensively in the reasons for judgment of my brother Beetz. We are told that the Bank of Portugal may be sued on its bank note if it does not pay its face value on demand, but it will satisfy the demand if it offers another of its notes of the same face value. I find this unreal; any holder who would sue in such a situation must surely have his claim rejected by the Court and be required to pay costs, if not also to be told that he is engaged in a vexatious proceeding.

It may be said that litigation on this basis would never happen, and that only where notes were destroyed or lost would there be any likelihood of suit, the present case being illustrative. This seems to me to be an argument from the base of a desired result rather than from principle. The position must surely be viewed in the same way as it would be with respect to an ordinary promissory note made by a private person in favour of another. There is a further oddity, to me at least, in the Bank of Portugal case when the notes of that bank are characterized as promissory notes although there is no promise to pay on their face. As I understood the submissions here, it was accepted

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that post-1967 amendment Bank of Canada notes could not be regarded as promissory notes under the Bills of Exchange Act. What all of this conveys to me is that if there is to be some remedy against the Bank of Canada in respect of a claim to have destroyed notes replaced, it should be given under appropriate legislation and not by forcing that result through the Bills of Exchange Act.

One redeems or pays off a true promissory note, and the note is surrendered when the debt for which it was given is paid. Again, the ordinary promissory note carries interest or is for a principal sum which includes the cost of borrowing. There is no parallel with paper money which is legal tender and which, as here, is inconvertible and bears no interest. Nussbaum in his text Money in the Law, at pp. 83-84, asserts that the payment promise is meaningless in such a situation and although Mann, The Legal Aspect of Money (3rd ed. 1971), takes issue with this view and asserts at p. 12 that the payment promise makes a bank note a promissory note within the meaning of the Bills of Exchange Act, he qualifies this position considerably and even contradicts it by noting that a bill of exchange is not money but on the contrary the drawee is required to pay a sum certain in money.

Reliance is also placed by the respondent Bank on s. 21(1) of the Bank of Canada’s constituent Act which provides that its notes “shall be a first charge upon the assets of the Bank”. I do not see how this assists the contention of the respondent Bank. Rather, in my opinion, it contradicts it because a promissory note is not in any sense a charge upon the assets of the maker. Indeed, s. 21(1) fortifies my view that the Bank of Canada note in this case is sui generis, as was argued by counsel for the appellant.

There is, moreover, another consideration which lends emphasis to the unreality of regarding the Bank of Canada note as falling within s. 176(1) of the Bills of Exchange Act. It is pointed out by Nussbaum, op. cit., at p. 84, as follows:

Despite the fact that paper money has become practically inconvertible and no longer evidences a debt, such notes must, for reasons of accounting, appear on the

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liability side of the balance sheet of the bank or other institution of issue. There should be no misapprehension, however, of the legal nature of the notes. The “debtor” has disappeared.

The reason for this assertion is plain enough. There is no redemption of an inconvertible note, and it is only if the Bank of Canada was to be wound up that the question of meeting the claims of holders of the notes would arise; and, as the author points out, this would probably be done through another issue of notes. He adds in this connection that “realization of the assets of the [central] bank would be impossible, such assets, in the situation supposed, usually consisting mostly of government debts”. This view is consistent with s. 36 of the Bank of Canada Act which reads as follows:

36. No statute relating to the insolvency or winding-up of any corporation applies to the Bank and in no case shall the affairs of the Bank be wound up unless Parliament so provides, but if provision is made for winding-up the Bank the notes of the Bank outstanding shall be the first charge upon the assets.

I am aware of an answering argument that the accounting requirement that puts notes on the liability side of the ledger is indicative of a dichotomy between book money or money of account and physical money, the actual notes. Involved in this monetary theory, which proceeds from a historical base, is the assertion that bank notes are merely representative of monetary value and are not themselves money; that they are issued against assets shown on the Bank of Canada’s books, assets such as government securities in the main, but also consisting of other securities and private financial paper. Hence, so the argument would run, there is significance in the payment promise because there is the asset backing on the books of the Bank of Canada, and the “real” money is the book money.

The assessment, in my opinion, bears out the view expressed by Plumptre, supra, on the misleading assimilation of central banking to private commercial banking; it isolates the central bank’s accounting obligations from their relation to government purposes and the bank’s own duties in the field of monetary policy and treats them as if they

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merely represented private debtor-creditor transactions. Moreover, it is an economic argument which ignores the legal attribution of money character to bank notes, and it does not advance the case for classifying a bank note as a promissory note, I repeat what I said earlier, namely, that if there is a case for obligating the Bank of Canada to replace destroyed notes (as contrasted with replacing worn out or mutilated or torn notes by way of substitution and not redemption), it cannot be made by transforming a Bank of Canada note, even one with a payment promise, into a promissory note.

Apart from the main grounds upon which I would reject the claim of the Bank of Montreal against the Bank of Canada, there is another aspect of this case which is worth mentioning, having regard to the Bank of Montreal’s reliance on s. 156 of the Bills of Exchange Act as applicable to destroyed notes no less than to lost notes. That provision is complemented by s. 157, and they read as follows:

156. (1) Where a bill has been lost before it is overdue, the person who was the holder of it may apply to the drawer to give him another bill of the same tenor, giving security to the drawer, if required, to indemnify him against all persons whatever, in case the bill alleged to have been lost is found again.

(2) Where the drawer, on request as aforesaid, refuses to give such duplicate bill, he may be compelled to do so.

157. In any action or proceeding upon a bill, the court or a judge may order that the loss of the instrument shall not be set up, if an indemnity is given to the satisfaction of the court or judge against the claims of any other person upon the instrument in question.

Two questions arise in connection with the Bank of Montreal’s invocation of s. 156. The first is whether that provision applies to promissory notes. It is said that s. 186 of the Bills of Exchange Act makes it applicable but, as was strongly contended by counsel for the Bank of Canada, there is difficulty in making the application because s. 186 provides that the maker of a promissory note shall be deemed to correspond with the acceptor of a bill, and the first endorser is deemed to correspond

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with the drawer of an accepted bill. Since s. 156 relates only to the obligation of the drawer of a bill to duplicate it, there can be no adaptation of the section to impose the obligation upon the maker of a promissory note when he does not correspond to the drawer of a bill.

The second hurdle to any reliance on s. 156 lies in that part of s. 156 which describes the obligation thereunder as one “to give another bill of the same tenor”. Even assuming that it is proper in this case to substitute the word “note” for “bill”, the sequence of events resulting in the claim against the Bank of Canada reveal its disablement to satisfy s. 156. It is the fact that the Bank of Canada was made a party to the Bank of Montreal’s action against the carrier and others when an appeal was taken to the Ontario Court of Appeal from a judgment adverse to the carrier. The Court of Appeal, in the circumstances, by a judgment of June 18, 1964 ordered a new trial on fresh pleadings to take account of the claim against the Bank of Canada. The fresh amended statement of claim of the Bank of Montreal was not delivered until December 21, 1967. Prior to that date, an amendment to the Bank of Canada Act by 1966-67 (Can.), c. 88 s. 12, effective March 23, 1967, substituted a new s. 21(1), the note‑issuing authority of the Bank of Canada. It replaced the provision for the issue of notes payable to bearer on demand and provided for notes without that prescription. In short, the effect of the amendment was to make it impossible for the Bank of Canada to issue a new five dollar note of the same tenor as the one destroyed.

Again, if s. 156(1) be inapplicable to destroyed notes, the Bank of Montreal is in no more favourable position under the law. What it would have to seek at common law would be redemption upon offering secondary evidence of the contents of the destroyed note; and I have already made clear my opinion that since the destroyed note was itself money and was non-convertible it is illusory to speak of redemption. If then there is nothing to

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redeem there is no basis for giving judgment against the Bank of Canada for the face amount of the destroyed note.

I would allow the appeal, set aside the judgments below and declare that the point of law set down for determination, upon the consent of all parties, as between the Bank of Montreal and the Bank of Canada should be determined in favour of the latter and that the claim of the Bank of Montreal against the Bank of Canada should, accordingly, be dismissed with costs to the Bank of Canada against the Bank of Montreal throughout. I think this is a case where a form of Bullock order should be made so as to entitle the Bank of Montreal to recover the costs aforesaid from the other respondents if it should succeed on the claim made against them which has been held in abeyance pending the determination of the point of law in the present proceedings.

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

BEETZ J.—Is a $5 note issued by the Bank of Canada and intended for circulation a promissory note within the meaning of s. 176(1) of the Bills of Exchange Act, R.S.C. 1952, c. 15? If so, and in the event of that note being accidentally destroyed, is the holder entitled to claim a duplicate note under s. 156 of this Act, or to obtain judgment in the amount of $5 against the Bank of Canada? Those are the questions in this case.

I

They arose out of circumstances which date back to 1959. In August of that year, the Bank of Montreal arranged with the Post Office to have delivered from the Bank’s chief office in Montreal to its branch office in Temiskaming a package containing bank-notes issued by the Bank of Canada. While in transit in a bus owned by Bay Bus Terminal (North Bay) Limited (“Bay Bus”), most of the mail including the contents of the package was destroyed by reason of a fire which occurred within the bus.

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The Bank of Montreal sued Bay Bus for recovery of the sum of $23,307.50 representing the value of the destroyed bank-notes less an amount of $2,692.50 received from the Bank of Canada in exchange for partially burned notes. The case was tried by Spence J. then a member of the Supreme Court of Ontario, who decided in favour of the Bank of Montreal. Spence J. took the view that any action which Bay Bus contended should have been brought by the Bank of Montreal against the Bank of Canada for replacement of the destroyed notes “would be dubious in its success”. Bank of Montreal v. Bay Bus Terminal (North Bay) Limited[4], at p. 570.

Bay Bus appealed to the Court of Appeal. On February 10, 1964, the Court of Appeal ordered that the Bank of Canada be added and joined as a party defendant to the action and that the writ of summons be amended accordingly; the Court of Appeal further ordered that the endorsement of the writ be amended by adding, in terms specified in the order, the Bank of Montreal’s claims against the Bank of Canada. The Bank of Canada entered an appearance as defendant on February 20, 1964. On June 18, 1964, the Court of Appeal set aside the judgment of Spence J. and directed a new trial on all issues: Bank of Montreal v. Bay Bus Terminal (North Bay) Ltd. et al.[5]

The Fresh as Amended Statement of Claim, dated December 21, 1967, alleges that the banknotes were destroyed or lost. However, the parties chose to submit a statement of facts for the determination of a point of law pursuant to Rule 124 of the Ontario Rules of Practice. The relevant paragraphs of the agreed statement of facts read as follows:

7. Between North Bay and Temiskaming a fire occurred within the vehicle while it was travelling; and, as a result, most of the mail was destroyed, including the contents of the said letter or package. At least one bank note within this letter or package bearing a face value of $5.00 was destroyed by the fire. The Bank note was one issued by the Defendant, the Bank of Canada, in the form hereto annexed.

[Page 1165]

8. The point for determination by the court is whether in the circumstances the Plaintiff is entitled to the relief asked for in the Fresh as Amended Statement of Claim as against the Defendant Bank of Canada with respect to the $5.00 bank note leaving the other issues in the action for determination afterwards by trial or otherwise as the parties may agree.

The relief asked for as against the Bank of Canada in the Fresh as Amended Statement of Claims conforms to the order made by the Court of Appeal on February 10, 1964. It reads:

(a) The Plaintiff claims against the Bank of Canada, pursuant to Sections 156 and 157 of the Bills of Exchange Act., R.S.C. 1952, Chapter 15 for the issue and delivery to the Plaintiff of duplicate bills of The Bank of Canada in the aforesaid amount of $23,307.50 and of the same tenor as those bills lost or destroyed, subject to the security being given to the Bank of Canada, if required by the Bank of Canada, and to the satisfaction of this Court, to indemnify The Bank of Canada against all persons whatsoever, in case any bill or bills of the Canadian currency so lost or destroyed shall be found again.

(b) And in the alternative, the Plaintiff claims Judgment against The Bank of Canada to the amount of the said bills so lost or destroyed.

The photocopy annexed to the agreed statement of facts represents a $5 note issued by the Bank of Canada pursuant to the Bank of Canada Act, R.S.C. 1952, c. 13, as amended by 1953-54 (Can.), c. 33, (“the Act”). The text of the note is under the signature of the then Governor and the then Deputy Governor of the Bank of Canada. It reads in part as follows:

Bank of Canada will pay to the bearer on demand.

The sum of five dollars is printed many times in letters and figures on the face as well as on the back of the note.

The motion under Rule 124 was heard by Addy J. who found for the Bank of Montreal. Addy J. dismissed a preliminary argument to the effect that, in issuing notes, the Bank of Canada is acting on behalf of Her Majesty and that, by reason of s. 16 of the Interpretation Act, R.S.C. 1952, c. 158, the Bills of Exchange Act is not applicable; he held: (1) that the $5 bank-note is a promissory note within the meaning of s. 176(1) of the Bills of

[Page 1166]

Exchange Act, (2) that the word “lost” in s. 156 must be taken to include a bill that has been accidentally destroyed and (3) that s. 186 does not operate so as to prevent the application of s. 156 to the maker of a note. The formal judgment of the Supreme Court of Ontario reads as follows:

1. THIS COURT DOTH ORDER that the Plaintiff is, as against the Defendant The Bank of Canada, entitled to the relief asked for in the Fresh as Amended Statement of Claim as regards the $5.00 bank note destroyed in the fire and in the form of the bank note annexed to the said Statement of Facts.

2. AND THE COURT DOTH FURTHER ORDER that the costs of this issue are reserved to the judge who will finally determine all of the issues between the parties.

The Court of Appeal agreed with the reasons and conclusions of Addy J. and dismissed the appeal. To the reasons of Addy J., Brooke J.A. speaking for himself and for MacKay and Aylesworth JJ.A. added reasons of his own; he reached the further and alternative conclusion that, apart from s. 156 of the Bills of Exchange Act, the Bank of Montreal had a common law right of action on the destroyed note against the Bank of Canada and could proceed against it under s. 10 without giving security.

In this Court, counsel for the Bank of Canada abandoned the argument to the effect that, when issuing notes, the Bank is acting on behalf of Her Majesty.

Much of the main submission advanced by counsel for the Bank of Canada relates to convertibility of bank-notes into gold and to legal tender. While in my opinion nothing in this case turns upon those two subjects, I should, in view of that submission, briefly review recent legislative history in this respect.

II

Prior to the establishment of a central banking system in Canada, in 1934, chartered banks were authorized to issue notes of $4 and upwards intended for circulation, (1871 (Can.), 34 Vict. c. 5, s. 8). These bank-notes were not legal tender.

[Page 1167]

The issuance of smaller notes, called Dominion notes, was the monopoly of the Government of Canada. Dominion notes were declared to be legal tender, (1880 (Can.), 43 Vict. c. 13, s. 5). Until the abandonment of the gold standard, which took place before the Bank of Canada commenced its operations, Dominion notes and the notes of chartered banks had intermittently been convertible into gold but the notes of chartered banks were always redeemable in Dominion notes.

The Bank of Canada was created by the Bank of Canada Act, 1934 (Can.), c. 43. This Act provided for the take-over by the Bank of Canada of the note-issuing function of the Government of Canada and further restricted the note-Issuing privilege of chartered banks until this privilege, which continued to be gradually eroded, disappeared entirely with the passing of 1944-45 (Can.), c. 30, s. 60.

Section 25 of the Act provided as follows:

(1) The Bank shall sell gold to any person who makes demand therefor at the head office of the Bank and tenders the purchase price in legal tender, but only in the form of bars containing approximately four hundred ounces of fine gold.

(2) The Governor in Council, from time to time and for such period as he may deem desirable, may suspend the operation of subsection (1) and remove such suspension.

(4) On and after the day on which the Bank is authorized to commence business the Bank is responsible for the redemption of all Dominion notes then issued and outstanding and such notes shall be and continue to be legal tender.

As of the date the Bank of Canada was authorized to commence business until 1966, when the right of redemption in gold contemplated by s. 25(1) of the Act was abolished (1966-67 (Can.), c. 88, s. 13), the Governor in Council passed every year an order-in-council pursuant to s. 22(2) suspending convertibility for that year.

On the other hand, under s. 7 of the Currency, Mint and Exchange Fund Act, R.S.C. 1952, c. 315, the notes of the Bank of Canada were declared to be legal tender in Canada for the payment of any amount, in addition to ordinary

[Page 1168]

coins for the payment of modest amounts. No provision however compelled the Bank of Canada to redeem any note in ordinary coins. Section 7 of the last mentioned Act also refers to gold coins as being legal tender for any amount if issued under the authority of s. 4; this section empowers the Governor in Council, on certain conditions, to authorize the issue of gold coins by proclamation; but it does not appear that any such authorization was ever proclaimed.

Thus, Bank of Canada notes have never been redeemable in gold or in anything else but have been the only legal tender for the payment of any amount in Canada.

III

In form, the $5 bank-note under consideration is unquestionably a promissory note: it has all the extrinsic qualities of a promissory note as prescribed by s. 176(1) of the Bills of Exchange Act:

A promissory note is an unconditional promise in writing made by one person to another, signed by the maker, engaging to pay, on demand or at a fixed or determinable future time, a sum certain in money, to, or to the order of, a specified person, or to bearer.

But we have been invited to look at the substance of the matter, not the form. According to the main submission made by counsel for the Bank of Canada, the $5 bank-note is a sui generis statutory instrument the true nature of which is determined by the Act and by the Currency, Mint and Exchange Fund Act. It is legal tender. It is intended for circulation. It is part of the currency of the country. It is in fact money and the sole official medium of exchange. The definition of a promissory note in s. 176(1) of the Bills of Exchange Act makes an internal distinction between a promissory note and money. This definition contemplates something which is distinguishable from the note which it discharges. Something which is money cannot be a promise to pay in money within the meaning of s. 176(1) of the Bills of Exchange Act. Bank-notes issued in the past by chartered banks could be redeemed in gold, when permissible, or in Dominion notes, which were

[Page 1169]

legal tender. It is not so with notes of the Bank of Canada; assuming that gold is money, notes of the Bank of Canada cannot and could never have been paid in gold and, since such notes are and were the only legal tender, they could not be discharged by the payment of anything which is different from themselves. If the holder of a $5 note of the Bank of Canada were to present it to the Bank for payment he could be dismissed or he could be told: “You already have $5”. The holder of a Bank of Canada note has no right on presentment of his note to obtain anything from the Bank. (See, to the same general effect, the author A. Nussbaum, who, in his book, Money in the Law, Chicago, 1939, pp. 83, 84, contents that paper money of the type we are concerned with no longer evidences a debt and suggests that central banks do away with the payment-promise clause in their notes.)

I do not agree with that submission. It ignores the fact that, with respect to negotiable instruments, form prevails over substance and that Parliament has decreed by statute that the notes of the Bank of Canada be in the form of promissory notes as defined by s. 176(1) of the Bills of Exchange Act.

Section 2(j) of the Act provided that:

“notes” means the notes of the Bank of Canada payable to bearer on demand and intended for circulation;

Section 21 provided in part as follows:

(1) The Bank has the sole right to issue notes payable to bearer on demand and intended for circulation in Canada and such notes shall be a first charge upon the assets of the Bank.

(2) It shall be the duty of the Bank to make adequate arrangements for the issue of its notes at its head office and at its branch offices and agencies in Canada, and to supply such notes as required for circulation in Canada.

(5) Notwithstanding anything contained in this section, each note printed before the 15th day of August, 1938, and issued thereafter and each such note theretofore issued is a valid and binding obligation of the Bank.

Section 7 of the Currency, Mint and Exchange Fund Act provided in part as follows:

[Page 1170]

…a tender of payment of money is a legal tender if it is made

(c) in notes issued by the Bank of Canada pursuant to the Bank of Canada Act that are payable to bearer on demand and are intended for circulation in Canada.

(In 1967, the Bank of Canada Act and the Currency, Mint and Exchange Fund Act were amended by 1966-67 (Can.), c. 88 ss. 1(2), 13 and 20 and the words indicating that the notes are payable to bearer on demand were removed from the Bank of Canada notes; these amendments however do not affect the issue which arose before they took effect on March 23, 1967.)

The use on bank-notes of the words “will pay to the bearer on demand” was not a matter of choice for the Bank of Canada. It was an obligation imposed upon the Bank during more than thirty years by several statutes. Had Parliament wished a bank-note not to be a promissory note, it would not have required that it be in the form of a promissory note. It seems to me that if Parliament insisted that bank-notes be in that form, it also wished such legal consequences as flow from the use of that form to attach to bank-notes. The Bank of Canada cannot have it both ways: to have enjoyed on the one hand, in terms of public confidence in its notes, whatever advantage may at one time have been derived from the form of words traditionally used for bank-notes; but on the other hand, to recant the words of its promise by arguing that they do not mean what they say and that its notes are not what they represent to be.

In the course of argument, my brother Ritchie asked Mr. Robinette, counsel for the Bank of Canada, the meaning of the words “Bank of Canada will pay to the bearer on demand”. The answer was that they are meaningless.

I cannot agree. Nor can I agree that the holder of a Bank of Canada note has no right to obtain anything from the Bank.

The nature of an inconvertible note issued by a

[Page 1171]

central bank and declared to be legal tender, together with the rights of the holder of such note, have been canvassed by the House of Lords in the case of Banco de Portugal v. Waterlow and Sons, Limited[6]. A firm of printers employed by the Bank of Portugal were made the victims of a fraud and delivered to one Marang, the head of a band of criminals, bank‑notes printed from original plates in the belief that Marang had the authority of the Bank. The spurious notes were put into circulation and the Bank had to redeem them with good ones. The Bank sued the printers for breach of contract, the main issue being the extent of damages suffered by the Bank. The House of Lords held by a majority that the extent of damages was to be measured by the face value of the notes and not by the mere cost of printing them. Only three of the five Law Lords—Lord Atkin, Lord Warrington of Clyffe and Lord Russell of Killowen—expressed views on the question of the nature of bank-notes and of the rights of the holder, and these views may not have been necessary to decide the case. Lord Warrington of Clyffe and Lord Russell of Killowen were in dissent. But they agreed with Lord Atkin, who was in the majority, on the question of the nature of bank-notes and of the rights of the holder. The opinions of the three learned Lords are quite detailed on that question and carry great weight. It should be noted that the bank-notes in that case did not carry the promise to pay on their face but they were regarded by those members of the House of Lords as if they were promissory notes. I rely on the opinions of the three learned Lords as upon an a fortiori argument and I refrain from expressing any view as to what the situation would be should a note not be in the form of a promissory note. Here is how Lord Atkin expressed himself at pp. 487 and 488:

A bank note is a promissory note issued by a bank payable on demand. The English note contains the promise on the face. The Portuguese note does not, but there is competent evidence in this case that the note has the same effect.

So far the banker issuing his note incurs precisely the same liability as a merchant issuing his note. If either fails to pay he is liable for the face value of the note.

[Page 1172]

One Bank becomes alone entitled to issue notes; and let us assume that they have become currency so that they can be tendered in discharge of a debt: the position of the Bank remains the same. It is liable on its note. If its note is payable in gold, then to a claim on a note the Bank must pay in gold; otherwise, on debts in general, the Bank as well as private traders will pay in currency; and, as I have said, on default will be liable to judgment for the face value. Now let us assume that the State alters the law by decreeing that the bank notes need no longer be paid in gold. While that decree lasts the notes are inconvertible, the currency is in the ordinary sense a paper currency. This happened in Portugal in 1891 by a moratorium directed to payment in gold which has been continued in Portugal ever since. The position has not altered. The merchant is in precisely the same position as before; he must pay in currency which will as before be notes, but now inconvertible notes. If he fails to pay he can be sued for the face value of his promissory note. The Bank is for the first time put in the same position as the merchant; it is bound to pay on its note; but it need only pay its note in currency, i.e., in its own notes; and if it will not or cannot so pay, it can be sued for the face value of the note.

Lord Russell of Killowen had this to say at pp. 497 and 499:

A period of inconvertibility had been established in 1891 and was still continuing, with no likelihood of its ever being determined. The only liability of the Bank, so far as concerns paying or redeeming a note when presented at the Bank, was to give in exchange for it another note or notes of equivalent face value. Each note when issued by the Bank became in the hands of the holder legal tender, and any such note if paid to the Bank by a debtor to the Bank must be accepted by the Bank in discharge pro tanto of the debt…

What then was the obligation which the Bank incurred?

Mr. Gavin Simonds, in the course of an admirable argument which leaves me much in his debt, defined this obligation with I think complete accuracy. It is threefold—namely: (1.) To give in exchange a note or notes of equivalent face value each carrying a similar obligation. (2.) If and when it is hereafter decreed that the

[Page 1173]

notes are to be redeemed in gold, then on demand such quantity of gold as may be decreed. (3.) If and when it is hereafter decreed that some new form of currency shall be legal tender, and that the Bank’s notes are to be paid in such currency, then on demand to pay the proper amount of such currency.

Lord Warrington of Clyffe spoke to the same effect at pp. 483 and 484, also holding that the notes were in effect promissory notes payable to bearer on demand.

Where members of the House of Lords disagreed among themselves was on the quantification of the bank’s damages. But none of them took the view that the holder of a bank-note which is not redeemable in gold and which is declared to be legal tender would have had no right to obtain anything from the bank.

Section 22(3) of the Act, quoted above, demonstrates that the threefold obligation mentioned by Lord Russell of Killowen is not pure theory; it provided that the Bank of Canada is responsible for the redemption of all Dominion notes issued and outstanding on and after the day the Bank is authorized to commence business.

Moreover, several other provisions of the Act gave legal and economic substance to the rights which the holder of a Bank of Canada note could enforce should the Bank fail to honour the promise which appeared on the face of its notes. Thus, s. 21(5) quoted above referred to certain specific issues of notes but implied that each and every note “is a valid and binding obligation of the Bank”; s. 21(1) provided that the notes “shall be a first charge upon the assets of the Bank”; s. 36 was as follows:

No statute relating to the insolvency or winding up of any corporation applies to the Bank and in no case shall the affairs of the Bank be wound up unless Parliament so provides, but if provision is made for winding-up the Bank the notes of the Bank outstanding shall be the first charge upon the assets.

It would appear that the Bank of Canada does have assets, apart from its use of the printing press. Under s. 30 of the Act, it must report these assets weekly to the Minister of Finance, together with its liabilities, in the form of Schedule B. Not

[Page 1174]

only did Schedule B mention “notes in circulation” among the liabilities of the Bank but it also gave some idea of the assets upon which the notes of the Bank were a first charge, such for instance as bullion, foreign exchange and bank premises; many other assets, it is true, are themselves debts of governments in the form of treasury bills, advances to the Government of Canada, etc. But one would like to think that the latter are not devoid of substance, backed as they are by the resources of the country and the industry of its people.

Bank-notes have characteristics of their own which make them something more than ordinary promissory notes and which may entail legal consequences peculiar to them. Thus was it held in Suffell v. The Bank of England[7] that the alteration of serial numbers upon notes of the Bank of England was a material alteration vitiating the notes although the alteration did not affect the contract. Jessel M.R., stated at pp. 563 and 564:

Now, a Bank of England note is not an ordinary commercial contract to pay money. It is in one sense a promissory note in terms, but no one can describe it as simply a promissory note. It is part of the currency of the country. It has long been made so by Act of Parliament, it is a legal tender for any sum above £5, and it must be issued to anyone who brings a certain quantity of bullion to the bank, and demands it, as he has a right to do, for the purpose of using it as currency. It is protected in a way no other instrument is protected, against alteration or mutilation, and its preservation in a pure state, to use a term as applied to deeds by some learned judges, is certainly a matter of the utmost importance. It is admitted that the usage of putting the number on the note, dates from a long period and is a custom universally known. One must consider the operation of the Act of Parliament which says that any man who produces at the Bank of England a certain quantity of gold bullion shall be entitled to receive bank notes. Could it be contended that the bank wanting to buy bullion and not wanting to increase the circulation of notes, could give to the person who brought the bullion notes without numbers? The man who received the notes in such an unusual form could not make use of them as currency, because no one would take them; and I take it,

[Page 1175]

the Act means a note in the ordinary form in which the bank issues Bank of England notes.

But, as was rightly noted in the Courts below, the additional properties of a bank-note do not prevent it from remaining a promissory note. Thus, the provisions of the Bills of Exchange Act, 1882, (U.K.) were applied to a lost Bank of England note in Gillet v. The Bank of England[8] (Queen’s Bench Division). The fact that the $5 in the case at bar never was redeemable in gold is not a reason to hold that it is not a promissory note: like any other promissory note, it can be redeemed in legal tender; and its quality of being itself legal tender is not incompatible with its being a promissory note. Parliament wanted it to have both qualities and said so.

In many cases bank-notes have been held to be promissory notes or have been considered as if they were promissory notes or negotiable instruments. In addition to the Suffell and Gillet cases, supra, I refer to the following: R. v. Brown[9]; Raphael v. The Governor and Company of the Bank of England[10]; McDonnell v. Murray[11]; The Australian Joint Stock Bank v. The Oriental Bank[12]; Jefferson v. The Ulster Bank[13]; Hong Kong and Shanghai Banking Corporation v. Lo Lee Shi[14]; Re Toronto Beaches Election; Ferguson v. Murphy[15].

Counsel for the Bank of Canada tried to distinguish those cases on the ground that the banknotes they dealt with were the notes of chartered banks, or were redeemable in gold or were not legal tender. Again, I do not think it matters. Besides, the notes in the Banco de Portugal case were unredeemable notes issued by a central bank and were legal tender.

[Page 1176]

Most leading text-books and treatise also consider the notes of central banks as promissory notes and many of them have been published or re-edited after the abandonment of convertibility and while such notes were legal tender: Milnes Holden, the Law and Practice of Banking, 1970, vol. 1, p. 299; Chorley, Law of Banking, 6th ed. 1974, p. 3; Jowitt, F., The Dictionary of English Law, 1959, vol. 1, p. 201; Falconbridge, Banking and Bills of Exchange, 7th ed. 1969, p. 127; Halsbury’s Laws of England, 3rd ed. 1953, vol. 3, p. 240; Byles on Bills of Exchange, 23rd ed. 1972, p. 294; Chalmers on Bills of Exchange, 13th ed. 1964, p. 274 and p. 346.

I have no hesitation in agreeing with the Courts below that the $5 bank-note under consideration is a promissory note within the meaning of 176(1) of the Bills of Exchange Act.

IV

There remains the question whether the Bank of Montreal is entitled to the relief asked for in the Fresh as Amended Statement of Claim with respect to the $5 bank-note.

The principle which governs the rights of a payer on payment of a bill of exchange is contained in s. 93(3) of the Bills of Exchange Act:

When a bill is paid the holder shall forthwith deliver it up to the party paying it.

This principle, derived from the Custom of Merchant, is qualified by ss. 10, 156 and 157 of the Act:

10. The rules of the common law of England, including the law merchant, save in so far as they are inconsistent with the express provisions of this Act, apply to bills of exchange, promissory notes and cheques.

Lost Instruments

156. (1) Where a bill has been lost before it is overdue, the person who was the holder of it may apply to the drawer to give him another bill of the same tenor, giving security to the drawer, if required, to indemnify him against all persons whatever, in case the bill alleged to have been lost shall be found again.

(2) Where the drawer, on request as aforesaid, refuses to give such duplicate bill, he may be compelled to do so.

[Page 1177]

157. In any action or proceeding upon a bill, the court or a judge may order that the loss of the instrument shall not be set up, if an indemnity is given to the satisfaction of the court or judge against the claims of any other person upon the instrument in question.

The provisions of the Act relating to bills of exchange, such as ss. 156 and 157 are made applicable to promissory notes by s. 186:

(1) Subject to the provisions of this Part, and except as by this section provided, the provisions of this Act relating to bills of exchange apply, with the necessary modifications, to promissory notes.

(2) In the application of such provisions the maker of a note shall be deemed to correspond with the acceptor of a bill, the first endorser of a note shall be deemed to correspond with the drawer of an accepted bill payable to drawer’s order.

(3) The provisions of this Act as to bills relating to,

(a) presentment for acceptance;

(b) acceptance;

(c) acceptance supra protest;

(d) bills in a set;

do not apply to notes.

Having held that ss. 156 and 157 apply to a destroyed instrument as well as to a lost one, (in Pillow v. L’Espérance[16], the Quebec Court of Review appears to have taken the same view) the Court of Appeal had this to say in relation to ss. 156, 157 and 186:

...“drawer” properly interpreted in these sections means the one who creates an instrument of any kind referred to by the statute. As to these two sections, s. 156 makes provision for relief by way of action in the event of loss of an instrument… On the other hand,…the principal purpose of s. 186(2) is to make clear for the purpose of liability under other sections of the statute (particularly 127 to 133) the position of the maker of a promissory note.

In the result then, for the above reasons,… s. 186(2) does not prevent the application of s. 156 to the maker of a promissory note and…the remedy of the holder of the note is the same as that of a holder of a bill and, in both cases, is to look to the one who created the instrument.

[Page 1178]

I might be inclined to agree with the Court of Appeal on this point but I do not reach it since in my view, under the Bills of Exchange Act, a destroyed instrument should not be treated as a lost one.

The Court of Appeal said that:

…the word “lost” should be given a fair and liberal interpretation and…accordingly it does not permit of a distinction between an instrument lost to the holder through disappearance and one lost to the holder through destruction.

The problem is that an instrument lost to the holder through disappearance may be found again and presented for payment, whereas a destroyed instrument may not. It is questionable also whether the interpretation proposed by the Court of Appeal is more liberal and fair than the literal interpretation which must be preferred when the text is clear.

The Bills of Exchange Act makes explicit reference to lost and destroyed instruments when it is required, as in s. 120:

Where a bill is lost or destroyed, or is wrongly or accidently detained from the person entitled to hold it, or is accidentally retained in a place other than where payable, protest may be made on a copy or written particulars thereof.

Besides, if one goes back to the origins of the rules expressed in ss. 93(3), 156 and 157, one finds that, while the distinction between a lost instrument and a destroyed one may have been blurred in some early cases (e.g. Hansard v. Robinson[17]), it seems to have been accepted without question in later cases and at the time of codification. (Pierson v. Hutchinson[18]; Woodford v. Whitely[19]; Clarke v. Quince[20]; Blackie v. Pinding[21]; Crowe v. Clay[22]; Wright v. Lord Maidstone[23]; The Australian Joint Stock Bank v. The Oriental Bank (supra).) As I understand the matter, no action could be main-

[Page 1179]

tained at law on a lost instrument, the courts of law having no jurisdiction to insist upon security being given in case the lost instrument be found. But the holder of a lost instrument could obtain relief from equity provided he offered sufficient security. As for destroyed instruments, there is authority for the proposition that an action would lie at law upon secondary evidence being produced of their contents: Blackie v. Pinding, supra: Clarke v. Quince, supra. In Pierson v. Hutchinson, supra, a case where a bill of exchange had been lost, Lord Ellenborough said, at pp. 1132 and 1133:

If the bill were proved to be destroyed, I should have no difficulty in receiving evidence of its contents, and directing the jury to find for the plaintiff. Since the Plaintiff can neither produce the bill, nor prove that it is destroyed, he must resort to a Court of Equity for relief.

In the Australian Joint Stock Bank case, supra, Faucett J., said, at p. 146:

An action may be maintained on a destroyed note—probably even though the destruction took place before maturity or presentation—and, the destruction being proved, secondary evidence of the contents will be allowed. In such a case the defendant can run no risk of being called upon to pay a second time. But on a lost note, as we have seen, no action can be maintained; and this arises, not from the inadmissibility of the evidence, or the technical rule of pleading—a rule shortly afterwards done away with—but from mercantile usage and the law founded upon it, which prevents the action from being sustained because the instrument cannot be given up on payment. And further, indebitatus assumpsit for money had and received would not now lie, while the security, although lost, was outstanding.

Section 87 of the Common Law Procedure Act 1854 (U.K.), 17-18 Vict. c. 125 gave to the common law courts jurisdiction to grant equitable relief where a negotiable instrument was lost:

In case of any action founded upon a bill of exchange or other negotiable instrument, it shall be lawful for the Court or a judge to order that the loss of such instrument shall not be set up, provided an indemnity is given to the satisfaction of the Court, or a judge, or a master,

[Page 1180]

against the claims of any other person upon such negotiable instrument.

This proviso was extended in the Bills of Exchange Act 1882 (U.K.), 45-46 Vict. c. 61, and appears as ss. 156 and 157 of our own Act.

I do not think that those who drafted the Common Law Procedure Act and the Bills of Exchange Act could have been ignorant of the distinction made by law and equity between lost and destroyed instruments. Section 87 of the Common Law Procedure Act and s. 157 of the Bills of Exchange Act are both couched in the very language of equity: they provide that the loss of instruments “shall not be set up” if an indemnity is given. All that was meant was to extend the jurisdiction of the common law courts so as to enable them to grant equitable relief with respect to lost instruments. But by so doing, it could not have been intended to restrict the more advantageous remedy already available at law with respect to destroyed instruments. This is why the words “lost” and “loss” were deliberately retained in ss. 156 and 157, in preference to the expressions “lost or destroyed” in s. 120.

If the evidence be doubtful as to whether a negotiable instrument has been lost or destroyed, one should probably proceed as if it had been lost. There is no such doubt in the case at bar where the $5 bank-note was admittedly destroyed.

In my opinion, and, with deference, I agree in this with the Court of Appeal, the remedy at law remains available to the Bank of Montreal under s. 10 of the Bills of Exchange Act. One of the reliefs prayed for by the Bank of Montreal is less advantageous than the remedy at law: it is a claim for the issue and delivery of a duplicate note subject to security being given to the Bank of Canada which, in any event, does not request such security. Since I have reached the conclusion that the Bank of Montreal is entitled to the alternative and more advantageous relief asked for, namely judgment against the Bank of Canada to the amount of the destroyed $5 note, I do not find it necessary to express any view with respect to the other relief

[Page 1181]

asked for in the Fresh as Amended Statement of Claim.

V

Counsel for the Bank of Canada argued that security would be useless to the Bank, whether a bank-note be destroyed or lost. The Bank replaces soiled notes with new ones and destroys old notes. It does not however record the serial numbers of the notes which it destroys. Even if it did, the volume of notes in circulation is so large that it would be impossible to guard against the presentation of a lost or supposedly destroyed note which had been replaced.

I understood this argument to be directed at reinforcing the main submission, namely, that the provisions of the Bills of Exchange Act were not meant to apply to bank-notes. In France, a similar argument was accepted by the Cour de cassation in Banque d’Algérie c. Casteras[24]; notes of a chartered bank had been put aboard a ship which was lost at sea; the bank was freed from its obligations given the peculiar nature of bank-notes. I refer to this case as a matter of curiosity since of course, it is not an authority in this matter. Common Law Courts have taken a different view. In the case of McDonnell v. Murray, supra, Pigot C.B., spoke as follows at pp. 505 and 506:

…If a private person, who makes a promissory note payable to bearer for £10,000, is within the Act, why should not a banker be? He is in no respect different from a private individual, except that a private individual issues a smaller number of such engagements. Suppose inconvenience would result from our order, can the Court by any such consideration construe an Act of Parliament clear in its words? If there be mischief in so holding, that mischief must be referred to the Legislature. But is there? or, if there be, which is the greater, that a Bank should be obliged to keep an account of its transactions, or that parties should be left without any remedy whatever for the loss of a bank-note? With respect to a number of such instruments, the great probability is, that a large proportion of lost £1 bank notes never will be demanded. The majority of those who lose a single note never will think of bringing an action for £l, and giving a mortgage for £1. If the Banks

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set their gains upon the loss of such notes against the trouble of accepting the security, and giving notice to their various branches, the gain upon the part of the Banks will be very considerable. In this case, it is plain the most grievous injury would result to the plaintiff, and we should treat the Legislature as shortening its own arm, if this motion were refused. Here are seven promissory notes, which, according to the doctrine contended for, must be lost for ever. It being impossible to prove their destruction, there cannot be a remedy at Law, for the proof of loss is a complete answer to the action; and, if the defendant’s argument be well founded, a Court of Equity never did give relief in such a case, and ought not now. If it did, that would be the strongest reason for holding that this section applied; if it did not, the plaintiff is utterly remediless at Law and in Equity. So far from straining against the plaintiff the words of this section, if they were ambiguous, I should be disposed to construe them with reference to the mischief intended to be remedied, and so give them the largest operation.

In the case of The Australian Joint Stock Bank v. The Oriental Bank, Stephen C.J., who was dissenting but on some other point, spoke to the same effect at pp. 132 and 133:

I entertain no doubt, that bank notes payable to the bearer are negotiable instruments, within the meaning of the statute; that the notes declared upon have been stolen from the plaintiffs, and that few if any of them will ever be recovered; or, that, should it turn out otherwise, ample security can be given to indemnify the defendants against the consequences. Nor do I feel embarrassed, because of the great number of the missing instruments; for the remedy, if it exist at all, must equally be applicable, whether the notes lost be few or many.

In some jurisdictions, bank-notes are expressly exempt from the operation of laws relating to lost or destroyed instruments. (A. Nussbaum, op. cit. pp. 89 and 90.) The submission made on behalf of the Bank of Canada would, if accepted, achieve the same result. In my view, such a result cannot be arrived at by judicial interpretation in a case where it is admitted that a bank-note has been destroyed. Different problems might arise with respect to lost bank-notes. Their solution will have to await another case.

I would dismiss the appeal with costs.

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Appeal dismissed with costs, on equal division, LASKIN C.J. and MARTLAND, JUDSON and DICKSON JJ. dissenting.

Solicitors for the appellant: Gowling & Henderson, Ottawa.

Solicitors for the (plaintiff) respondent: Phelan, O’Brien, Rutherford, Lawer & Shannon, Toronto.

Solicitors for the (defendants) respondents: Wallace & Carr, North Bay.