Supreme Court of Canada
Storthoaks v. Mobil Oil Canada, Ltd., [1976] 2 S.C.R. 147
Date: 1975-04-22
Rural Municipality of Storthoaks (Defendant) Appellant;
and
Mobil Oil Canada, Ltd. (Plaintiff) Respondent.
1974: June 7; 1975: April 22.
Present: Laskin C.J. and Martland, Judson, Ritchie, Spence, Pigeon, Dickson, Beetz and de Grandpré JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN
Restitution—Payments made by corporations accounting department under mistake of fact—Other agent of corporation having full knowledge of facts—Whether corporation entitled to recover money paid—Payee’s position not so altered as result of receipt of payments as to render it inequitable to require repayment.
In April 1964, the respondent company, under two leases which together leased the petroleum and natural gas rights and the right to drill for recovery of the same in a certain quarter section of land, commenced payment of compensatory royalties to the appellant municipality. On July 16, 1964, the company wrote to the Municipality advising that it was surrendering the first lease as to two legal subdivisions and on the following day a further letter was sent relative to the surrender in its entirety of the separate lease covering a fractional acre excluded from the first lease. The obligation to pay further compensatory royalties was thereby terminated. The letters of surrender were signed by an officer of the company but due to an oversight in communicating the fact of such surrender to the company’s accounting department, royalty payments were not discontinued and were paid in error to the Municipality up to and including March 1968. The overpayment amounted to $31,163.95. Although requested to refund the overpayment, the Municipality did not make such payment and an action was then instituted by the company.
The trial judge dismissed the company’s claim, holding that there had not been a mistake of fact by the company itself in the light of its officer’s knowledge of the surrenders. He decided that the payments were voluntary payments and could not be recovered. On appeal, the trial judgment was reversed on the ground that the moneys were paid under mistake of fact and
[Page 148]
that the case was governed by the principle stated in Kelly v. Solari (1841), 9 M. & W. 54.
Held: The appeal should be dismissed.
As stated in Turvey v. Dentons (1923) Ltd., [1953] 1 Q.B. 218, where payments are made under a bona fide mistake of fact by an authorized agent of a company, the fact that some other agent of the company may have had full knowledge of all the facts does not disentitle the company to recover the money so paid, provided that the agent with the full knowledge does not know that the payments are being made on an erroneous basis. In the present case, the mistake which occurred on the part of the company’s accounting department in continuing the payments to the Municipality after the surrenders, not knowing that the lease had ceased to exist in relation to two legal subdivisions, was a mistake of fact by the company within the rule stated in Kelly v. Solari.
The Municipality failed to establish that it had so altered its position as a result of the receipt of the payments that it would be inequitable to require it to repay. The further submission, based on the law of estoppel, also failed. It was not shown that the Municipality acted to its prejudice upon the basis of any representation that might be spelled out of the company’s conduct in continuing to forward the cheques after the surrenders were made.
Anglo-Scottish Beet Sugar Corp., Ltd. v. Spalding Urban District Council, [1937] 2 K.B. 607, applied; R.E. Jones, Ltd. v. Waring and Gillow, Ltd., [1926] A.C. 670; Purity Dairy Ltd. v. Collinson (1966), 58 D.L.R. (2d) 67; Rural Municipality of Garden River v. Montreuil, [1929] 2 D.L.R. 396; Royal Bank of Canada v. Huber (1972), 23 D.L.R. (3d) 209; Bank of Montreal v. The King (1907), 38 S.C.R. 258; Dominion Bank v. Union Bank of Canada (1908), 40 S.C.R. 366; Baylis v. Bishop of London, [1913] 1 Ch. 127; Sinclair v. Brougham, [1914] A.C. 398; Holt v. Markham, [1923] 1 K.B. 504; Morgan v. Ashcroft, [1938] 1 K.B. 49; Moses v. Macferlan, 2 Burr. 1005; Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ltd., [1943] A.C. 32; Boissevain v. Weil, [1950] A.C. 327; Reading v. Attorney-General, [1951] A.C. 507; U.S. v. National Park Bank of New York (1881), 6 F. 852; Deglman v. Guaranty Trust Co. of Canada and Constantineau, [1954] S.C.R. 725; Corporation of the County of Carleton v. Corporation of the City of Ottawa, [1965] S.C.R. 663; Larner v. London County Council, [1949] 2 K.B. 683, referred to.
[Page 149]
APPEAL from a judgment of the Court of Appeal for Saskatchewan, allowing an appeal from a judgment of Tucker J. Appeal dismissed.
M.A. Shumiatcher, Q.C., for the defendant, appellant.
R.L. Barclay and M.J. Sychuk, for the plaintiff, respondent.
The judgment of the Court was delivered by
MARTLAND J.—This is an appeal from the Court of Appeal for Saskatchewan which allowed the appeal of the respondent (hereinafter referred to as “Mobil”) from the judgment at trial which had dismissed Mobil’s claim to recover from the appellant (hereinafter referred to as “the Municipality”) the sum of $31,163.95.
On April 11, 1962, the Municipality granted to the predecessor of Mobil a petroleum and natural gas lease in respect of the N.E. Quarter of Section 17, Township 5, Range 31, West of the Principal Meridian, in Saskatchewan, excepting 0.52 of an acre, for a term of five years and so long thereafter as the leased substances were produced therefrom.
On March 19, 1964, a similar lease was made to Mobil in respect of the fraction of an acre excluded from the first lease.
Each of these leases contained the following provisions:
8. OFFSET WELLS:
In the event of commercial production being obtained from any well drilled on any drilling unit laterally adjoining the said lands and not owned by the Lessor, or, if owned by the Lessor, not under lease to the Lessee, the Lessee shall either:
(a) commence or cause to be commenced within six (6) months from the date of such well being placed on production, the drilling of an offset well on the drilling unit of the said lands laterally adjoining the said drilling unit on which production is being so obtained, and
[Page 150]
thereafter shall drill the same to the horizon in the formation from which production is being obtained from the said adjoining drilling unit;
or
(b) subject to Clause 4 hereof, pay to the Lessor, commencing six (6) months after the date such well being placed on commercial production and from time to time thereafter such royalty as would have been payable if the petroleum and natural gas produced from the well creating the offset were actually being produced from a well on the drilling unit of the said land laterally adjoining the said drilling unit on which production is being so obtained; PROVIDED, HOWEVER, that should any drilling unit of the said lands be so offset by more than one well the royalty payable to the Lessor hereunder shall be based only on the production from the first of such wells;
or
(c) surrender to the Lessor the drilling unit on which the offsetting well is required, such surrender to be in respect of all formations covered by the lease except any zone in respect of which petroleum and natural gas is being obtained by the Lessee;
PROVIDED that if any well drilled on lands adjoining the said lands has been proved to be productive primarily or only of natural gas, the Lessee shall have no obligations under this clause 8 unless an adequate and commercially profitable market for natural gas which might be produced from the offset well can be previously arranged and provided.
15. Surrender:
Notwithstanding anything herein contained, the Lessee may at any time or from time to time determine or surrender this Lease and the term hereby granted as to the whole or any part or parts of the leased substances and/or the said lands, upon giving the Lessor written notice to that effect, WHEREUPON this Lease and the said term shall terminate as to the whole or any part or parts thereof so surrendered and all the Lessee’s obligation with respect thereto shall be at an end and the rental, royalty or otherwise, shall be extinguished or correspondingly reduced as the case may be, but the Lessee shall not be entitled to a refund of any such rent theretofore paid.
By Order in Council enacted pursuant to The Oil and Gas Conservation Act, applicable to the area in which the leased lands were situate, drilling units with an area of 80 acres were established comprising two legal subdivisions in any section,
[Page 151]
grouped as follows: legal subdivisions 1 and 2; 3 and 4; 5 and 6; 7 and 8; 9 and 10; 11 and 12; 13 and 14; and 15 and 16.
Mobil drilled a successful well upon lands not leased from the Municipality on legal subdivision 14 of Section 16, Township 5, Range 31, West of the Principal Meridian. The drilling unit on which this well was located laterally adjoined the drilling unit on the leased lands comprising legal subdivisions 15 and 16.
Mobil then had to elect, under cl. 8, whether to: (a) drill an offset well on the latter drilling unit; (b) pay compensatory royalties based upon the production from the successful well; or (c) surrender the drilling unit affected by cl. 8.
Mobil elected, under cl. 8(b), to pay compensatory royalties, and, pursuant to that election, cheques were forwarded monthly to the Municipality.
Following the drilling of two dry holes on legal subdivisions 9 and 10 of the leased land lying immediately to the south of legal subdivisions 15 and 16, Mobil decided to surrender legal subdivisions 15 and 16. On July 16, 1964, Mobil wrote to the Municipality the following letter:
Relative to that certain Petroleum and Natural Gas Lease and Grant dated April 11, 1962, by and between the Rural Municipality of Storthoaks, as Lessor, and Mobil Oil of Canada, Ltd., as Lessee, which lease was subsequently assigned by the said Mobil Oil of Canada Ltd., to Socony Mobil Oil of Canada, Ltd., The Pure Oil Company and Sinclair Canada Oil Company, covering among other lands, Lsds 15 and 16, Section 17, Township 5, Range 31, WPM, we wish to advise that Socony Mobil Oil of Canada Ltd., The Pure Oil Company and Sinclair Canada Oil Company will surrender and yield up all of their right, title and interest granted in the said lease as to the said Lsds 15 and 16, Section 17, Township 5, Range 31, WPM.
This surrender will take place July 16, 1964, and Socony Mobil Oil of Canada, Ltd., The Pure Oil Company and
[Page 152]
Sinclair Canada Oil Company will be under no further obligation relative thereto.
Yours very truly,
SOCONY MOBIL OIL OF CANADA, LTD.
K.C. Coulter
(Sgd.) James B. Morris
James B. Morris,
District Landman.
JBM:fs
cc: The Pure Oil Company (2), Calgary
The Pure Oil Company, Regina
Sinclair Canada Oil Company, Calgary
H.H. Haraldson, Calgary
The following day a further letter was sent relative to the surrender in its entirety of the lease covering the fractional acre.
Mr. Haraldson, to whom a copy of each of these letters was despatched, was the supervisor of Mobil’s land titles records department at its Calgary office. It was from Mobil’s production accounting section of its Calgary office that the compensatory royalty cheques were sent to the Municipality. It would normally be Mr. Haraldson who would notify everyone affected, including the accounting section which paid the compensatory royalties, as to the surrender of the leases.
For some unexplained reason the production accounting section was not notified about the surrenders of the two leases. The computation of the compensatory royalty, based upon the production obtained from the adjacent producing well, continued to be made, and each month a cheque was sent by Mobil to the Municipality for the amount so computed. These payments continued until August 1967, when they were temporarily discontinued.
On February 20, 1968, Mrs. Gauthier, the secretary treasurer of the Municipality, wrote the following letter:
Mobil Oil Canada Ltd.
Mobil Oil Building
Calgary, Alberta.
Dear Sirs:
Re: Offset Royalties
For the past three or four years we have received
[Page 153]
Offset Royalties for Nottingham Field 14-16-5-31- W 1st. As we have not received any payment since August 1967 we have been wondering why the payments were discontinued.
Would you please advise and oblige,
Yours truly,
(Mrs.) Rita Gauthier
Secretary Treasurer
Mobil replied by letter dated February 29, 1968, the relevant portions of which read as follows:
Dear Mrs. Gauthier:
Due to a change in organization the records pertaining to your offset royalty were mislaid.
The following is a breakdown of revenue owing you from August, 1967 to January, 1968.
There followed a statement showing the amounts stated by Mobil to be owing in respect of each month from August, 1967, to January, 1968, inclusive, for a total of $3,781.82, which amount was paid by Mobil to the Municipality. The letter was signed “for D.M. Hinchee, Manager, Accounting, Computer & Services Centre”.
Thereafter further monthly payments were made for February and March, 1968. Subsequently Mr. Simington, the chief of the accounts payable section, decided to have his assistant go to the titles records section to obtain information, when it was discovered that there had been a surrender as to parts of the leased lands.
On June 24, 1968, Mobil sent the following letter to the Municipality:
Pursuant to the provisions of Subclause (b) of Clause 8 of the subject lease, Socony Mobil, on behalf of the lessees, commenced in April 1964 to pay compensatory royalties to the Rural Municipality of Storthoaks. This obligation arose as a result of the drilling, completion and taking of production from the well SMPS Nottingham 14-16-5-31 WPM. On July 16, 1964, pursuant to
[Page 154]
Subclause (c) of Clause 8 and also in accordance with Clause 15 of the Lease, Socony Mobil, on behalf of the lessees, caused Legal Subdivisions 15 and 16 of Section 17, Township 5, Range 31, WPM, as well as 0.58 acres covered by a separate lease, to be surrendered to the lessor by serving registered notices to that effect on the Rural Municipality of Storthoaks No. 31. Due to an oversight in communicating the fact of such surrender to Mobil’s Production Accounting Department, compensatory royalty payments were not discontinued and were paid in error to the Municipality up to and including March of this year. The overpayment amounts to $31,163.95 as set forth in the attached calculation schedule.
Under the circumstances, we have no alternative but to request a refund of the aforesaid amount. We would appreciate your advising us, as to when we may expect payment.
Yours truly,
(Sgd.) W.F. Brann
ACMcMillan:bml W.F. Brann
Controller
The Municipality did not make the requested payment, and this action was commenced.
The evidence at trial showed that the Municipality considered the payments made to be compensation for oil being removed from the leased land by Mobil’s producing well on the adjacent land. When asked what the Municipality considered to be the meaning of the surrender notices, the secretary treasurer gave the following evidence:
Q. What did it mean to you?
A. Well all it meant was that Mobil Oil would not have the right to come in and drill wells in the future.
Q. On these lands?
A. On these two LSD’s.
She also testified that the moneys received from Mobil had been taken into general account and had been expended for municipal purposes. The Municipality had no funds on hand with which to pay the amount claimed by Mobil. To meet that amount out of taxes would involve a mill rate increase of 15 mills.
[Page 155]
The learned trial judge dismissed Mobil’s claim, holding that there had not been a mistake of fact by Mobil itself, in the light of its officer’s knowledge of the surrenders. He decided that the payments were voluntary payments and could not be recovered.
This judgment was reversed on appeal on the ground that the moneys were paid under mistake of fact and that the case was governed by the principle stated in Kelly v. Solari. Maguire J.A. would have reduced the amount of the claim by the amounts paid by Mobil to the Municipality after the exchange of correspondence in February 1968. He was of the view that Mobil’s letter of February 29, 1968, constituted a representation that those moneys were owing and that it would be against good conscience to require the return of those moneys.
The first contention made on behalf of the Municipality was that Mobil did not have the right to surrender its leasehold rights in legal subdivisions 15 and 16. The argument was that when commercial production of oil was obtained upon the laterally adjoining drilling unit cl. 8 of the lease required Mobil to elect to do one of three things. Having elected to make the payments defined in para. (b) of cl. 8, Mobil could not, thereafter, elect to surrender the drilling unit comprising legal subdivisions 15 and 16, and Mobil was bound to continue the payments provided in para. (b) during the term of the lease.
This submission would have some weight if Mobil’s right to surrender the two legal subdivisions depended exclusively upon para. (c) of cl. 8, but that is not the case. A general right of surrender is given to Mobil by cl. 15 of the lease, which begins with the words “Notwithstanding anything herein contained”. That clause gave to Mobil the right at any time to surrender the lease as to any part or parts of the leased lands, and provided that upon such surrender Mobil’s obligation with respect thereto should be at an end. In my opinion Mobil was entitled to effect the surrenders which it made.
[Page 156]
The second submission was that the payments made by Mobil to the Municipality were voluntarily made with full knowledge of all the facts. It is contended that the knowledge of Mr. Morris, the district landman, who signed the letters of surrender, was the knowledge of Mobil and, therefore, that Mobil knowingly made the payments to the Municipality. This raises the issue as to whether a corporation, whose authorized agent makes payments of money on its behalf, under a mistake of fact, is entitled to recover the money if some other agent of the corporation had full knowledge of the facts.
This question was considered in the case of Anglo-Scottish Beet Sugar Corp., Ltd. v. Spalding Urban District Council. The plaintiff company had its head office in Glasgow, a district office at Nottingham and a branch factory at Spalding. Water was supplied to this factory by the defendant District Council under a contract made in 1925 calling for a minimum quarterly payment of £375. In 1927 a new contract was made which provided for a minimum quarterly payment of £100. This latter contract was negotiated at the plaintiff’s head office in Glasgow by the general manager. By mistake, the factory manager at Spalding and the district manager at Nottingham were not notified of the new agreement. The defendant, by mistake, continued to bill the plaintiff at the old rate. The bills were forwarded by the manager at Spalding to the commercial manager at Nottingham, who paid them. The error was not discovered until 1936, when claim was made for the amounts overpaid.
The plaintiff’s action succeeded. Atkinson J. relied upon the case of Kelly v. Solari, and, at p. 613, cited the well known passage from the judgment of Baron Parke in that case, and also from the reasons of Baron Rolfe:
“I think that where money is paid to another under the influence of a mistake, that is, upon the supposition that a specific fact is true, which would entitle the other to the money, but which fact is untrue, and the money would not have been paid if it had been known to the
[Page 157]
payer that the fact was untrue, an action will lie to recover it back, and it is against conscience to retain it; though a demand may be necessary in those cases in which the party receiving may have been ignorant of the mistake. The position that a person so paying is precluded from recovering by laches, in not availing himself of the means of knowledge in his power, seems, from the cases cited, to have been founded on the dictum of Bayley J. in the case of Milnes v. Duncan, (1827) 6 B. & C. 671; and with all respect to that authority, I do not think it can be sustained in point of law. If, indeed, the money is intentionally paid, without reference to the truth or falsehood of the fact, the plaintiff meaning to waive all inquiry into it, and that the person receiving shall have the money at all events, whether the fact be true or false, the latter is certainly entitled to retain it; but if it is paid under the impression of the truth of a fact which is untrue, it may, generally speaking, be recovered back, however careless the party paying may have been, in omitting to use due diligence to inquire into the fact.” Rolfe B. said: “With respect to the argument, that money cannot be recovered back except where it is unconscientious to retain it, it seems to me, that wherever it is paid under a mistake of fact, and the party would not have paid it if the fact had been known to him, it cannot be otherwise than unconscientious to retain it.”
Atkinson J. pointed out that Kelly v. Solari had been cited with approval in the judgments of Lord Shaw, Lord Sumner and Lord Carson in R.E. Jones, Ltd. v. Waring and Gillow, Ltd.
His conclusion, at p. 627, was:
In my opinion the mere fact that some agent of the company knew of the second agreement is immaterial so long as he had no idea that it was not being acted upon. I think this case is well within the principle of Kelly v. Solari, and certainly the point relied on here was not raised there although obviously some servants of the company knew all about the lapsing of the policy.
The Anglo-Scottish case was followed in Turvey v. Dentons (1923) Ltd. That case involved
[Page 158]
a claim to recover overpayments of rental under a lease. The accountant of the lessee erred in making rental payments because he thought that the lease was for a term of 10 years, whereas it was for 99 years. The difference between these terms affected the deductions which could be made from the rental under the Finance Act, 1940. The secretary of the company knew what the actual term of the lease was.
Pilcher J. in this case said, at p. 224:
It is, however, clear upon authority that where, as in the present case, a limited liability company is concerned and payments are made under a bona fide mistake of fact by an authorized agent of the company, the fact that some other agent of the company may have had full knowledge of all the facts does not disentitle the company to recover the money so paid, provided that the agent with the full knowledge does not know that the payments are being made on an erroneous basis. For this proposition I need only refer to the case of Anglo-Scottish Beet Sugar Corporation Ld. v. Spalding Urban District Council, where the facts were curiously similar to those which I have had to consider in the present case.
The Anglo-Scottish case was cited by Davey J.A. in the British Columbia Court of Appeal in Purity Dairy Ltd. v. Collinson, a case in which, through mistakes made by the company’s billing clerk, overpayments had been made for the purchase of milk.
I would accept the statement of the law made by Pilcher J., quoted above. In my opinion the mistake which occurred on the part of the accounting department of Mobil in continuing the payments to the Municipality after the surrenders, not knowing that the lease had ceased to exist in relation to legal subdivisions 15 and 16, was a mistake of fact by Mobil within the rule stated in Kelly v. Solari.
This conclusion does not determine the matter, because the Municipality contends that, even though the payments were made under a mistake of fact, Mobil is not entitled to recover them if
[Page 159]
considerations exist which would make it inequitable to require their repayment.
The proposition upon which the Municipality relies was stated by McKay J.A. in Rural Municipality of Garden River v. Montreuil, a judgment of the Saskatchewan Court of Appeal, at p. 400:
In order that the Plaintiff should be entitled to return of the money not only must it be shown that it was paid under a mistake of fact but also that the Defendant is not entitled to retain it. Or as Parke, B. said in Kelly v. Solari (1841) 152 E.R. 24 at p. 26 “It is against conscience to retain it.”
This passage was cited in the judgment of the same Court in Royal Bank of Canada v. Huber.
With respect, I do not think that the interpretation placed upon the words quoted from the judgment of Parke B. in Kelly v. Solari is correct. He did not purport to limit the right to recover money paid under a mistake of fact to cases in which it would be against conscience for the recipient of the money to retain it. What he did say was that where money is paid on the supposition that a specific fact is true which would entitle the other to receive it, which fact is untrue and the money would not have been paid if the fact had been known to be untrue, it can be recovered “and it is against conscience to retain it”. In other words, given the circumstances he outlines, it is against conscience for the recipient to keep the money paid.
The submission of the Municipality on this point has some support in the statement of Idington J. in Bank of Montreal v. The King, at p. 280:
Let us bear in mind that the action for money had and received by means of which this right has usually been asserted, rests upon the principle that prima facie it is against equity and good conscience that the party who received it should retain it, and remember further that in many instances this prima facie case is answered by
[Page 160]
virtue of conditions existing at the time of payment, or subsequent events creating, so to speak, a countervailing equity that would make it against equity and good conscience to insist on the return of the money.
However, that case was not a claim for the recovery of money paid under a mistake of fact, but was a claim by the Crown to recover moneys paid out of its bank account on the basis of forged cheques. The real issue was as to whether the Crown, by acknowledging the accuracy of the bank statements, could be estopped from making its claim.
Duff J. (as he then was) expressed a similar view of the law in Dominion Bank v. Union Bank of Canada, at p. 381:
The action for money had and received is an equitable action; “the gist of it” in Lord Mansfield’s phrase, Moses v. Macferlan, 2 Burr. 1005, at page 1012
is that the defendant is obliged by the ties of natural justice and equity to refund the money.
Tregoning v. Attenborough, 7 Bing. 97; Phillips v. School Board for London, [1898] 2 Q.B. 447, at pages 452-3; Jacobs v. Morris, [1901] 1 Ch. 261; In re The Bodega Co., [1904] 1 Ch. 276; Lodge v. National Union Investment Co., [1907] 1 Ch. 300, at pages 311, 312. Accordingly in an action for money paid under mistake of fact, or for a purpose or consideration which has failed, the defendant may meet the plaintiffs claim by shewing that there is something in the conduct of the payer or in the transaction itself, or its legal incidents making it inequitable that the defendant should be compelled to restore what he has received. Bank of Montreal v. The King, 38 Can. S.C.R. 258; Phillips v. School Board for London, [1898] 2 Q.B. 447.
The basis of the action for recovery of money paid under mistake of fact as being founded on “equitable” grounds was later rejected in England. Instead, such a claim was regarded as being based in contract upon an implied contract to pay.
[Page 161]
Thus, Hamilton L.J. in Baylis v. Bishop of London, at p. 140, said:
To ask what course would be ex aequo et bono to both sides never was a very precise guide, and as a working rule it has long since been buried in Standish v. Ross, 3 Ex. 527; and Kelly v. Solari, 9 M. & W. 54. Whatever may have been the case 146 years ago, we are not now free in the twentieth century to administer that vague jurisprudence which is sometimes attractively styled “justice as between man and man.”
In Sinclair v. Brougham, after he had become Lord Sumner, he said, with reference to a claim for money paid under mistake of fact, and other similar claims, at p. 452:
All these causes of action are common species of the genus assumpsit. All now rest, and long have rested, upon a notional or imputed promise to repay.
Scrutton L.J., in Holt v. Markham, at p. 513, discussed Lord Mansfield’s view in somewhat pungent fashion when he said:
This is a troublesome instance of a particularly troublesome class of action. It is an action for money had and received to the plaintiffs’ use, and is based upon the ground that the payment was made under a mistake of fact. Now ever since the time when that great judge, Lord Mansfield, with no doubt a praiseworthy desire to free the Court from the fetters of legal rules and enable them to do what they thought to be right in each case, obscured, in my respectful view, the nature of the action for money had and received, by saying in Sadler v. Evans, (1766) 4 Burr. 1984, 1986: “It is a liberal action, founded upon large principles of equity, where the defendant cannot conscientiously hold the money. The defence is any equity that will rebut the action,” the whole history of this particular form of action has been what I may call a history of well-meaning sloppiness of thought. I do not propose to repeat the very pungent criticisms which Lord Sumner has made upon that now discarded doctrine of Lord Mansfield in Baylis v. Bishop of London or in Sinclair v. Brougham, but I respectfully entirely agree with what he says in the former case.
[Page 162]
Lord Greene, in Morgan v. Ashcroft, at p. 62, said that:
Lord Mansfield’s views upon these matters, attractive though they be, cannot now be accepted as laying the true foundation of the claim.
The significance of the issue discussed in these cases is that if a claim for the return of money paid under mistake of fact is founded on the basis defined by Lord Mansfield in Moses v. Macferlan, then, as he said in that case, at p. 1010, the recipient may “plead every equitable defence upon the general issue” and “may defend himself by everything which shows that the plaintiff ex aequo et bono is not entitled to the whole of his demand, or to any part of it.” If, however, the obligation to repay is contractual, it does not depend upon whether the requirement to repay is just and equitable. To meet a claim falling within the definition in Kelly v. Solari it would be necessary to prove a legal estoppel.
The issue may not yet finally be determined in English law. Lord Wright, in Fibrosa Spolka Akcyjna v. Fairbairn Lawson Combe Barbour, Ltd. at p. 61, said:
It is clear that any civilized system of law is bound to provide remedies for cases of what has been called unjust enrichment or unjust benefit, that is to prevent a man from retaining the money of or some benefit derived from another which it is against conscience that he should keep. Such remedies in English law are generically different from remedies in contract or in tort, and are now recognized to fall within a third category of the common law which has been called quasi-contract or restitution.
He also said, at p. 62, referring to Moses v. Macferlan:
Lord Mansfield does not say that the law implies a promise. The law implies a debt or obligation which is a different thing. In fact, he denies that there is a contract; the obligation is as efficacious as if it were upon a contract. The obligation is a creation of the law, just as
[Page 163]
much as an obligation in tort. The obligation belongs to a third class, distinct form either contract or tort, though it resembles contract rather than tort. This statement of Lord Mansfield has been the basis of the modern law of quasi-contract, notwithstanding the criticisms which have been launched against it. Like all large generalizations, it has needed and received qualifications in practice. There is, for instance, the qualification that an action for money had and received does not lie for money paid under an erroneous judgment or for moneys paid under an illegal or excessive distress. The law has provided other remedies as being more convenient. The standard of what is against conscience in this context has become more or less canalized or defined, but in substance the juristic concept remains as Lord Mansfield left it.
In two more recent dicta there is an indication that the question as to whether the action for money had and received is dependent upon an imputed promise to pay is still not finally determined. (See per Lord Radcliffe. Boissevain v. Weil, at p. 341; and per Lord Porter, Reading v. Attorney-General, at p. 513.)
American authority has recognized that the rule that money paid under a mistake is recoverable “is equitable and may be defeated where to allow the recovery would be inequitable” (U.S. v. National Park Bank of New York, at pp. 853 and 854).
The Restatement of Restitution states:
The right of a person to restitution from another because of a benefit received is terminated or diminished if, after the receipt of the benefit, circumstances have so changed that it would be inequitable to require the other to make full restitution.
The statements of Lord Wright in the Fibrosa case, which I have quoted, were cited, with approval, by Cartwright J. (as he then was), delivering the reasons of the majority of the Court in Deglman v. Guaranty Trust Co. of Canada and
[Page 164]
Constantineau, at p. 734, and by Hall J., who delivered the reasons of the Court in Corporation of the County of Carleton v. Corporation of the City of Ottawa, at p. 669.
In my opinion it should be open to the Municipality to seek to avoid the obligation to repay the moneys it received if it can be established that it had materially changed its circumstances as a result of the receipt of the money. Accordingly I have reviewed the evidence to ascertain whether there was such a change of circumstances. I have concluded that there was not. The evidence of Mrs. Gauthier, the secretary-treasurer of the Municipality, was that the moneys received from Mobil were put in the general account along with tax moneys to pay general everyday expenses. There is no evidence of any special projects being undertaken or special financial commitments made because of the receipt of these payments, nor that the Municipality altered its position in any way because these moneys were received. The mere fact that the moneys were spent does not, by itself, furnish an answer to the claim for repayment. If the Municipality is required to refund the moneys to Mobil it will be in the position of having had the use of the moneys, over a period of time, without any obligation to pay interest.
I have given careful consideration to the suggestion that the Municipality incurred a detriment in having been deprived of the opportunity to seek to obtain another lessee, following the surrenders, because the payments might have caused it to believe that Mobil was still asserting its rights under the lease. There are, however, two difficulties in adopting this contention, which I consider are sufficient to prevent its acceptance.
In the first place, on the evidence, the Municipality did not regard the lease of the two subdivisions as continuing in existence after the surrenders were made. I have already cited the evidence of Mrs. Gauthier as to her understanding of the meaning of the surrender notices; namely, that in the future Mobil would not have the right to come in and drill on those lands. Later in her evidence
[Page 165]
she said that this was the interpretation placed on the letters by the council of the Municipality. The Municipality was therefore aware that Mobil had surrendered its right to drill, and there is no evidence that this view was in any way altered because of the receipt of the subsequent payments.
The other difficulty is that, on the evidence, it is clear that there would have been no possibility of the Municipality leasing the two subdivisions to another lessee after the surrenders were made. The two leases together leased the petroleum and natural gas rights and the right to drill for recovery of the same in a quarter section of land. After Mobil had successfully drilled on the drilling unit laterally adjoining legal subdivisions 15 and 16, in October 1963, it complied with cl. 8(b) of the leases and made compensatory royalty payments. It then continued its drilling program, by drilling a well on the leased lands on legal subdivision 10. This well was completed on April 27, 1964. It was a dry hole. It then obtained a permit to drill a second well on the same drilling unit, this time on legal subdivision 9. This well was completed on June 30, 1964. It was also a dry hole. These two dry holes were located on the two legal subdivisions immediately adjoining legal subdivisions 15 and 16, to the south. Mobil then concluded, in the light of this exploration, that there were not economic prospects for production from legal subdivisions 15 and 16, and it was for that reason that they were surrendered.
In view of this background it is my opinion that even if the Municipality had considered that its receipt of the payments from Mobil precluded it from seeking to obtain a new lessee, though there is no evidence that it did, there would have been no possibility of effecting a new lease because the drilling history on the leased lands had established that such a lease would be worthless.
In my opinion, therefore, the Municipality has failed to establish that it had so altered its position as a result of the receipt of the payments that it would be inequitable to require it to repay.
[Page 166]
The last argument presented on behalf of the Municipality is that of estoppel. In my opinion this submission also fails.
Whatever representation might be spelled out of Mobil’s conduct in continuing to forward the cheques after the surrenders were made, it is incumbent on the Municipality to show that it acted to its prejudice upon the basis of such representation. The Municipality contends that such prejudice arose because it spent the money and would have to levy higher taxes to repay the same. We were not referred to any authority for the proposition that where money is paid under a mistake of fact the payer is estopped from recovering it merely because the recipient has spent it. There is authority to the contrary.
In R.E. Jones, Ltd. v. Waring and Gillow, Ltd., previously cited, the defence of estoppel was sought to be raised in a claim for the recovery of money paid under a mistake of fact. The defence did not succeed, but there were two dissents. Lord Cave, who wrote the dissenting reasons upholding the defence, said, at p. 684:
It is true that, where the payee has done nothing more than to expend the money on his own purposes, that has been held to afford no defence: Standish v. Ross; Baylis v. Bishop of London, but this may be because the payee has suffered no real detriment.
There was no disagreement with this proposition in the majority reasons.
Denning L.J. (as he then was), in Larner v. London County Council, at p. 688, puts the matter in this way:
It is next said, however, that Mr. Larner did change his position for the worse before the council asked for the money. He spent the money on living expenses—or his wife spent it for him—and he spent it in a way which he would not otherwise have done. This defence of estoppel, as it is called—or more accurately, change of circumstances—must, however, not be extended beyond its proper bounds. Speaking generally, the fact that the recipient has spent the money beyond recall is no defence unless there was some fault, as, for instance,
[Page 167]
breach of duty—on the part of the paymaster and none on the part of the recipient. In both Skyring v. Greenwood and Cox, 4 B. & C. 281, and Holt v. Markham, [1923] 1 K.B. 504, there was a breach of duty by the paymaster and none by the recipient. See Jones (R.E.) Ld. v. Waring and Gillow Ld., per Lord Sumner, [1926] A.C. 670, 693.
It may also be noted that in the case of Holt v. Markham the recipient of the money, believing that he was entitled to it, had invested it in a company which, prior to the trial, had gone into liquidation. In the present case, as has previously been noted, the funds received by the Municipality were expended for its ordinary municipal purposes, of which it has had the benefit.
I have already dealt with the suggestion that the Municipality might have been prejudiced by assuming that by receiving the payments it was precluded from seeking to obtain another lessee for legal subdivisions 15 and 16. Those reasons apply equally to the defence of estoppel. I would only add that there is no evidence that the Municipality regarded the continuing payments as affecting the surrender notices. The Municipality misinterpreted the full impact of the surrenders, but it did regard them as having terminated Mobil’s right to drill on the surrendered land.
For these reasons I am of the opinion that the appeal should be dismissed with costs.
Appeal dismissed with costs.
Solicitors for the defendant, appellant: Shumiatcher and Associates, Regina.
Solicitors for the plaintiff, respondent: Mac Pherson, Leslie & Tyerman, Regina.
Email this Content