Supreme Court of Canada
Rennie v. Block, (1896) 26 S.C.R. 356
Date: 1896-05-18
John Rennie (Plaintiff) Appellant;
and
Hugo Block and William Alexander (Defendants) Respondents.
1896: March 7, 9; 1896: May 18.
Present: Sir Henry Strong C.J. and Taschereau, Sedgewick, King and Girouard JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.
Chattel mortgage—Mortgagee in possession—Negligence—Wilful default—Sale under powers—“Slaughter sale”—Practice—Assignment for the benefit of creditors—Revocation of.
A mortgagee in possession who sells the mortgaged goods in a reckless and improvident manner is liable to account not only for what he actually receives but for what he might have obtained for the goods had he acted with a proper regard for the interests of the mortgagor.
An assignment for the benefit of creditors is revocable until the creditors either execute or otherwise assent to it.
Under the provisions of R.S.O. c. 122, in order to enable the assignee of a chose in action to sue in his own name, the assignment must be in writing, but a written instrument is not required to restore the assignor to his original right of action.
Where creditors refused to accept the benefit of an assignment under R.S.O. c. 124 and the assignor was notified of such refusal and that the assignment had not been registered, an action for damages was properly brought in the name of the assignor against a mortgagee of his stock in trade who sold the goods in an improper manner.
APPEAL from the decision of the Court of Appeal for Ontario affirming the judgment of the Chancery Division of the High Court of Justice for Ontario which refused to grant a new trial, or to direct a judgment to be entered for the plaintiff against the defendants, and confirmed the judgment of the trial court in favour of the defendants with costs.
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Plaintiff brought action for an account and damages against the defendant Hugo Block, as mortgagee in possession of his stock in trade, and the other defendant as the bailiff or agent who held such possession for the mortgagee, for damages caused by wrongful conduct and want of proper care and diligence in the sale of the goods under power of sale contained in a chattel mortgage, and for trespass by them in taking and retaining possession of his shop and premises in which the stock was contained.
The mortgagee had entered and taken possession under a clause to the effect that he should have such powers in case he might at any time “feel unsafe or insecure, &c.,” and after advertising a “slaughter sale” sold a large portion of the goods at whatever price was offered by purchasers and the remainder by public auction at a rate on the dollar.
The special circumstances of the case are stated in the judgment of the court pronounced by his Lordship Mr. Justice Sedgewick as follows:
The plaintiff, in the year 1893, was a dry goods merchant at Saint Catharines, Ontario. In March and May of that year he gave to the defendant Block (a money lender in Toronto) three chattel mortgages upon his stock in trade as security for two loans amounting in the whole to $19,357.71, or thereabouts. These mortgages were payable on demand, and gave the mortgagee the right of seizure and sale in the event of default at any time. The plaintiff continued to carry on his business in the usual way until the 5th of July following, having in the meantime repaid the mortgagee about $11,000 on account. On that day he, the mortgagee, made demand of payment, which was not made, and he thereupon took possession of the plaintiff’s premises and stock in trade, with the intention of selling it then. It was claimed by the
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plaintiff that in continuing in the store for the time he did (a period of about a fortnight) after the seizure he was a trespasser, no such authority having been given under the mortgages, but I think it was made abundantly clear at the trial that the plaintiff assented to this. In fact he in writing requested the respondent Block to allow Mr. Alexander, the agent acting for Block, to continue to carry on the business in the St. Catharines store for two weeks in order that he might in the meantime raise money to pay off the debt.
At the time of the seizure there were goods in the store valued at say $40,000, more or less.
Immediately upon taking possession the defendants advertised the goods for sale and on the following day, particularly on the 11th and 12th of July, the sale took place.
If the plaintiff has any right of action or claim against the defendants he has it in consequence solely of the reckless and improvident way in which the sale was carried on, a point to which I will refer later on. In his statement of claim the plaintiff set up that the chattel mortgages were not intended to be payable upon demand and that on that account the original seizure was illegal, and he also claimed for the trespasses above referred to. Neither of these claims proved tenable, but the statement of claim proceeded as follows:
“5. The defendants, after wrongfully taking possession as aforesaid of said store and stock, then did, in absence of the plaintiff, give public notice through the newspapers and posters that the plaintiff’s said stock of goods would be sold at half price or at any price that could be obtained for them, and in pursuance of said notice did proceed for the period of two days, namely, on the 11th and 12th days of July last,
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to sell in a reckless, careless and improvident manner, the said stock as advertised, to the great injury of the plaintiff’s interests.”
“6. On the said 11th and 12th days of July, 1893, in pursuance of the said advertisements and posters, the defendants conducted a slaughter sale of the plaintiff’s said stock and goods, and the public crowded into the store and premises of the plaintiff in large numbers, and the throng of people became so large and excited that the employees of the plaintiff lost control of them and were unable to conduct the sale and the business in a proper, orderly and systematic manner.”
“7. During the said 11th and 12th days of July, owing to the immense crush of people who were led and induced by the defendants to enter the store and premises, the regular employees of the establishment were unable to maintain any order or protect the goods which were by the crowd strewn all over the premises in the utmost confusion. The said crowds invaded the whole premises, going behind the counters, taking, selecting and measuring goods for themselves. Goods were thus in large quantities pulled from the shelves and counters and thrown in confused heaps on the floors and counters, and thus greatly damaged.”
“8. By the wrongful conduct of the defendants as aforesaid the plaintiff was greatly damaged in his credit and reputation as a merchant, and caused the other creditors of plaintiff to stop his credit, whereby the plaintiff was forced to close his said store and discontinue his said business.”
In their statements of defence the defendants denied these allegations, and further contended that the sale as conducted on the 11th and 12th of July was in accordance with an agreement come to between the plaintiff and the defendant Alexander. And it was further set up as follows:
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“16. The defendant alleges the fact to be that after the commencement of this action and on or about the 9th day of September, 1893, the plaintiff herein assigned all his property which might be seized and sold under executions and all his real estate and his credits and effects to one John McClung, of the city of Toronto, assignee, in pursuance of the provisions of chapter 124 of the Revised Statutes of Ontario, being an Act respecting assignments and preferences by insolvent persons, such assignment being made by him in accordance fully with the provisions of the said Act, and such assignment is still in full force and effect, and all said property, estate, credits and effects became and still are vested in the said John McClung.”
“17. The defendant alleges the fact to be that by said assignment and transfer, not only by reason of the provisions of the statute in that behalf, but also by reason of the general provisions of the law as applicable to all such assignments and transfers, the alleged claim of the plaintiff herein (if any) thereby passed to the said John McClung, who would be the only person entitled to maintain such action if the right thereto existed at all, which the defendant herein again denies, and by reason of such assignment the plaintiff alleges and submits that the plaintiff herein is not now by himself entitled to maintain this action, and that the same cannot be maintained at all except by or with the concurrence of the said John McClung as party thereto.”
In reply to these last two paragraphs, the following answer was made:
“2. The plaintiff denies that he made an assignment of his estate, rights, credits and effects for the benefit of his creditors to John McClung, as alleged in paragraphs 13 and 14, and that if he did make such an assignment (which he does not admit, but denies) says
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that said McClung, acting on the advice, at the request and with the consent of the creditors, renounced and refused to act under the said alleged assignment, and that said alleged assignment is null and void and of no effect.”
The case came on for trial before Mr. Justice Rose, he having dismissed the jury, and upon the conclusion of the plaintiff’s case he dismissed the action, no witnesses having been called for the defence.
This judgment was affirmed by the Divisional Court before the Chancellor and Mr. Justice Ferguson. Upon appeal it was also affirmed, although Mr. Justice Osler gave his opinion with hesitation and Mr. Justice Street (sitting temporarily as an appeal judge) was of opinion that the plaintiff should have succeeded and be paid his damages at $500.
From that judgment an appeal is asserted here.
O’Donohoe Q.C. and Meek for the appellant. A mortgagee who takes possession must account to the mortgagor. White v. City of London Brewery Co.; Fisher on Mortgages.
He must account for what he should have received. Parkinson v. Hanbury; Kensington v. Bouverie; Hinde v. Blake; Robertson v. Norris; Jones on Mortgages.
As to duties and responsibilities of the mortgagee of chattels who takes possession and sells see Bird v. Davis; Stromberg v. Lindberg; Leach v. Kimball; Botsford v. Murphy.
If the conduct of mortgagee has been negligent, wasteful or oppressive the mortgagor is entitled to
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damages as well as to an account. Bearss v. Preston; Burr v. Dana.
Where a mortgagee takes possession through unreasonable fear, &c., he is trespassing and is liable to exemplary damages. Davenport v. Ledger; Boyd v. Beaudin; Furlong v. Cox.
The mortgagee in possession is a trustee of the surplus proceeds of sale and may be charged with interest thereon. See Lewin on Trusts.
As to the assignment, the creditors refused to act and the assignee did not accept it. See Burrill on Assignments; Mackinnon v. Stewart. The cestuis que trustent never took any interest under the assignment, and it never became operative.
Watson Q.C. for the respondents. There is no trespass for the mortgages authorized, and the plaintiff consented to, the mortgagee taking possession. The plaintiff’s line of business was selling off bankrupt stocks by “slaughter sales,” and he cannot complain of a similar sale being made of the mortgaged goods in his own place of business by the mortgagee.
There is no evidence upon which damages can be assessed. The goods sold during the days the special sales lasted brought an average of 50 cents on the dollar whilst the remainder of the stock brought only 42½ cents on the dollar when sold en bloc at auction, and there were no depletions in any line of the stock so far as the evidence shows.
The finding upon the facts in the courts below ought to stand and no reason has been shown to justify a new trial.
By reason of the assignment which the plaintiff made after the suit was commenced all his interests passed
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to and still remain vested in the assignee and the plaintiff has no right now to maintain the action or this appeal. Harper v. Culbert; Hodgson v. Sidney: Lewin on Trusts; Doyle v. Blake; Read v. Truelove; Webster v. Vandeventer. On the merits see also Drane v. Gunter; Warner v. Jacob; Beatty v. O’Connor; Merriam v. Cronk.
The judgment of the court was delivered by:
SEDGEWICK J.—(His Lordship read the facts as above set out and proceeded as follows):—Two questions only are involved. First: Did the facts disclosed at the trial entitle the plaintiff to damages or to an inquiry as to his loss by reason of the alleged reckless or improvident sale? Secondly: Assuming the first question affirmatively answered, is the plaintiff precluded from recovering by reason of the assignment to McClung set up in the defence?
As to the first question it must be borne in mind, as I understand from the evidence, that the defendant Block has been paid in full from the proceeds of the sale at different times, and he has allowed nothing to the plaintiff on account of any of the losses set up in the claim. Further, there was no evidence to show that the plaintiff assented to the manner of the sale as actually conducted. He was away at the time, and could not therefore have complained. If, therefore, there was any illegality in the proceedings the defendants alone are responsible for it.
I am of opinion that the sale was reckless and improvident in several particulars, and that in conse-
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quence of such recklessness and improvidence such a loss resulted as entitled the plaintiff to have an account taken as to what the true amount of it really was. In other words, the defendant Block, being in possession and bound to act in a prudent, reasonable manner in selling the goods, failed in that regard and being wilfully in default is liable to account not only for what he has, but also what he might have, received had he acted with a proper regard for the interest of the plaintiff, whose trustee (so far as the equity of redemption was concerned) the defendant Block was.
The plaintiff, I think, may justly complain, first, because the goods were sold in many instances far below the cost price, and far below their real worth. They were admittedly “slaughtered”; retail dealers purchased so low that they could resell at a large profit. It is no answer that the plaintiff in his day had carried on “slaughter” sales. A man may do what he likes with his own. Financial necessities may compel him to sacrifice his wares. That, however, is not the test of conduct on the part of a mortgagee in possession, selling mortgaged goods. He must not be influenced by his own necessities or needs. He must act as a merchant would act in ordinary business affairs.
Secondly, complaint may well be made that proper means were not taken by the employment of sufficient salesmen to protect the store from loss.
Thirdly, because of the damage that must have resulted from the reckless way in which the goods were dealt with while in course of sale.
Finally, because no account was taken or kept of the goods actually sold, the proceeds being ascertained by counting the cash on hand at night.
The evidence of one witness, John McCarthy, which is substantially the same as that of many others, may be given.
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John McCarthy sworn, examined by Mr. Fullerton.
Q. Where do you live?—A. 29 St. Paul Street.
Q. What is your business?—A. Hotel manager.
Q. Do you remember the sale at the house known as Rennie’s store on the 11th and 12th of July last?—A. Yes.
Q. Were you there on either or both of those days?—A. I was there on the 11th and 12th.
Q. What were you doing there?—A. I was purchasing.
Q. How did you find the crowd for numbers?—A. In the neighbourhood of 200 and 300 people.
Q. Where?—A. In the store.
Q. How was the crowd outside?—A. In the front and rear there would be 100 to 150.
Q. 100 to 150 outside?—A. Yes.
Q. What were they doing?—A. Trying to get in.
Q. Do you know whether any people got in otherwise than through the doors?—A. Yes, they got in through the windows.
Q. Did you see them?—A. Yes.
Q. Any other way?—A. Some of them went up the back steps and in through the upstairs door and came down through the store.
Q. Then you say there were between 200 and 300 inside?—A. Yes.
Q. About how many people were there to wait on that number?—A. I would judge about 11 or 12.
Q. Were they capable of waiting on the crowd that was there from what you saw?
Mr. Watson: I don’t think that is a proper way of putting it; it is a question of what occurred.
Mr. Fullerton: Q. Tell us what you saw there and we will judge from that?—A. There were not quarter enough clerks to wait on the people there.
Q. What were the people doing?—A. They were handling the goods in front and behind the counters, pulling them down, examining them, and some people buying some, and some people carrying them to the clerks and purchasing them and walking out with them when they could get out.
Q. Do you remember Mr. Lahey being there?—A. Yes.
Q. See anything happen to him that day?—A. Yes, while Mr. Alexander went to dinner he opened the back door to let some people out. Mr. Alexander was not there at the time; he opened the back door to let some people out, and there was a crush so that he could not get the door shut, and they got him in between the door and the wall, and he could not move from there until the crowd got out; Alexander and somebody else came to the door and got it shut again.
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Q. Got him released?—A. Yes.
Q. Do you know whether he was laid up from the jam?—A. I heard so.
Q. Did you buy some things yourself that day?—A. Yes.
Q. What?—A. I bought about $40 worth of stuff.
Q. That was the first day?—A. In all.
Q. What was the nature of the stuff you bought there?—A. 16 yards of silk, towels and towelling.
Q. What price did you pay for the silk?—A. $1 a yard.
Q. Do you know the selling price of the silk?—A. $2.25 was the mark.
Q. What else did you buy?—A. Some towelling.
Q. Do you remember what it was marked?—A. Some was 15 cents and some was 20 cents; I bought some for 7 cents and some for 9 cents.
Q. Anything else you bought there?—A. Some white spreads.
Q. What did you pay for those?—A. 80 cents for one and $1.25 for the other.
Q. What were they marked?—A. One was $2.25 and the other was marked $1.75.
Q. Anything else?—A. I bought the makings of a suit of clothes, and I paid $4 and something for it.
Q. Do you remember what it was marked?—A. No, I forget just what it was marked.
Q. How did the prices range so far as you saw them?—A. They Tan about half.
Q. You said that you saw people behind the counters?—A. Yes.
Q. To what extent?—A. About 3 or 4 at a time; outsiders I am talking about.
Q. What were they doing there?—A. Pulling the goods off the shelf.
Q. What were they doing with them?—A. Placing them on the counter for people to look at; somebody would say, let us see them.
Q. Were you behind the counter yourself?—A. Yes.
Q. What were you doing there?—A. Looking at the goods.
Q. Was there any restraint as to where people were to go?—A. No, none at all.
Q. Was there a jewelry department there?—A. Yes.
Q. Did you see anything about that?—A. Yes. I saw some gentlemen pulling the jewelry out and looking at it and putting it back again.
Q. Any clerk in attendance?—A. One time there was and then they were alone for quite a while.
Q. Any goods on the floor?—A. Yes.
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Q. How did they come there?
Mr. Watson: This is leading.
Witness: The goods were taken off the shelves and piled on the counter until they got like hay, and then rolled on the floor.
Mr. Watson: Q. Like hay?—A. A ton of hay. Then they rolled on the floor, and then they were trampled on, and nobody seemed to care whether they were picked up or not.
Mr. Fullerton: Q. Were they picked up?—A. Some were and some were not.
Q. What class of goods did you see on the floor in that way?—A. Generally up where they had the stockings, and silk handkerchiefs and neckties and gloves on the gents’ side, and fine underwear.
Q. Did you see that on the floor?—A. Yes.
Q. Did you see anything in the shirts department?—A. White shirts. They were thrown around in the same way and fell on the floor some of them, and some of them were picked up and scattered in all directions there.
Q. Could you give us any idea of the quantity of goods you saw on the floor?—A. There would be at times quite a lot there, and people kind of gathered them up and put them in the pile again and they would tumble down again.
Q. Did you say you saw people climbing in at the windows?—A. Yes.
Q. How many?—A. I saw 15 or 16.
Q. Then as to measuring and wrapping up the goods and all that sort of thing?—A. Very little wrapping up. Out of all I bought there was none of it wrapped up; I carried it out in my hand.
Q. Did you see others coming out with their goods?—A. Yes.
Q. In what way?—A. Carrying them in their hands, over their shoulders, or over their arms rather.
Q. To what extent did that prevail?—A. Generally through the sale; did not have time to make out checks or parcel it up at all.
Q. Did you see the money being paid?—A. Yes, on several occasions.
Q. To whom?—A. To all the different clerks.
Q. What check was there kept on that?—A. None in some cases that I saw.
Q. Did you see anything unusual about the money that was paid to the clerks?—A. I saw some of the clerks putting it in their pockets.
Q. To any large extent?—A. I would not say. I saw on a couple of occasions them put it in their pockets.
Q. Was there any check that you saw to prevent that sort of thing?—A. None whatever.
Q. Was there any check to prevent goods being carried out that were not paid for?—A. No. If you bought any goods at the front store
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you had to go out at the rear door, and if you carried them in your hand or over your arm and went to the rear door, the man there did not know whether you had paid for them or not. I was not questioned any time, and I went out with $40 worth of goods at different times.
Q. Did you see others going out with amounts as large?—A. In the same way.
Q. Did you see any corsets carried off?—A. Yes. I saw a man that clerks for Mr. Stanley in the big 22 carry out an armful of corsets; he went out the back door with them, and his name is Mr. Hiltz.
Q. Do you remember seeing James Fraser there that day?—A. Yes; he bought a lot of underwear, put it on his arm and walked out with it when he paid for it.
Q. What means did they take of preventing the crowd from getting in and out by times?—A. They locked the front door, and then the crowd got so thick at the back some people wanted to get out, and they could not get out; they would not open the back door, and it kept the crowd in there. After a while they would let three or four slide out as soon as they got a little crowd ready; then they took the key out and put it on a shelf; and then they would unlock the door again and let four or five out, and then lock the door again.
Q. Were you upstairs at any time?—A. Yes.
Q. How was the business being conducted up there?—A. There was no clerk up there on three or four occasions I was up there.
Q. Were there people there?—A. Yes.
Q. To what extent?—A. There would be five or six or seven or eight.
Q. Goods up there?—A. Yes.
Q. What were the people doing about the goods?—A. Looking around, handling them over. The goods were lying on tables and the goods were hanging up, cloaks and mantles; people were examining them.
Q. What guarantee was there that the goods carried out were paid for?—A. There was no guarantee at all.
Q. Nothing to prevent it being done?—A. No.
The goods were not all sold in this way. Those remaining after these sales were sold at 40 cents on the dollar. I think it may fairly be assumed that except for the “slaughter sale” so called a larger price might have been realized. The best of the goods must have been taken during the two days’ sale. The crowd of purchasers would seize upon the best bargains and the depletion of the stock of the finer class of goods would necessarily tend to diminish the value of what remained.
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The trial judge in his oral judgment at the close of the trial seems to admit a possible loss. He says:
As to the goods upon the floor, some of them may have been trampled upon, some of them may have been more or less injured, but to what extent they were upon the floor and to what extent they were injured nobody has ventured an opinion, and I suppose it would be impossible to make an estimate.
The learned Chancellor in his judgment says as follows:
The judgment should be affirmed, but I would be disposed to say without costs, as the defendant did act in rather a careless and possibly destructive manner as to some things during the two days slaughter sale.
And Mr. Justice Ferguson agreed with him.
On the whole, I am of opinion that the plaintiff made out at least a primâ facie case of loss, and that there should be a reference to ascertain as far as possible its extent.
There is no conflict as to the duties of a mortgagee in possession; reference may, however, be had to Coote on Mortgages; Fisher on Mortgages; and to National Bank of Australasia v. United Hand in Hand & Band of Hope Co., where the judicial committee of the Privy Council held that a mortgagee was chargeable with the full value of the mortgaged property where it had been sold at an undervalue from want of due care and diligence.
Then as to the second point, the facts presented here are as follows:
After this action was commenced the plaintiff made a general assignment of his estate, including, as I will assume, the cause of action here, to one McClung, which assignment McClung executed. He thereupon called the intended beneficiaries, Rennie’s creditors, together and they one and all refused to execute or accept the benefits of the assignment. McClung thereupon in writing notified Rennie through his wife of this fact, and proceeded to say “We have therefore refused to act under the assignment and have not registered the same.”
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No formal transfer back to Rennie was made. Under these circumstances, was the plaintiff precluded from proceeding with his action? I am of opinion he was not. It is established law that an assignment of property by a debtor to a trustee for the payment of debts without the knowledge or concurrence of the creditors is a revocable direction by the assignor as to the mode in which he wishes his own property to be applied for his own benefit, and that the creditors named are not constituted cestuis que trustent and cannot claim to have the trusts of the assignment executed either against the debtor himself or his trustee. The principle underlying this statement of the law is stated by Lord Cranworth in Synnot v. Simpson; and see Garrard v. Lord Lauderdale, and Johns v. James.
But where the assignment has been executed by the creditors or where it has been communicated to them and they have or may be supposed to have acted upon it, then it becomes irrevocable. The creditors become cestuis que trustent, having a right to enforce the trusts of the deed and the trustee becoming in the first place the trustee for them, not for the assignor. Apply these principles to the present case. Upon the execution of the assignment and before communication to the creditors the assignee was the trustee or agent simply of the assignor. So far as lands and goods were concerned the legal property passed to the assignee, and so far as credits or choses in action were concerned the right of enforcing them (under a special statute) passed likewise to the assignee. But, so far, he held this property and these rights as trustee for the assignor only. Had the creditors executed the deed as contemplated, or otherwise assented to it, they would have become equitably entitled to the benefit
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of such property and rights. Their refusal, however, to accept it and the refusal of the assignee to register or act upon it, amounted to the same thing as if it had never been communicated at all. Its revocable character was never lost, and the assignee’s letter and the assignor’s acting upon it by proceeding with this case constituted, in my opinion, an actual revocation of the assignment and of any rights which the assignee had under it. It is true the legal title of lands would still remain with him, but he would be a bare trustee for the assignor obliged to convey to him upon demand; goods transferred by the assignment would pass back by delivery where necessary, and the assignor’s right to enforce choses in action would be determined absolutely by the fact of the revocation itself.
Under the Mercantile Amendment Act, R.S.O., ch. 122, in order that an assignee of a chose in action may sue in his own name, a written assignment is necessary; it is nowhere enacted that a written instrument is necessary to restore to the assignor his original right.
There is another view which may be taken, leading to the same conclusion. The transaction in question was never completed by the acceptance of the assignee and the concurrence of the creditors. It remained inchoate and conditional, it never became executed, and the assignment may have ceased to have any legal effect at all upon the assignor receiving the intimation that the creditors and assignee as well refused to recognize it or in any way act upon it.
The result, in my judgment, is that the appeal should be allowed with costs, both here and in the courts below; that there should be judgment for the plaintiff and a declaration that he is entitled to recover as against the defendant Block, for the losses specified in the 5th, 6th and 7th paragraphs of his amended
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statement of claim, with a reference to the proper officer to ascertain its amount. Under the circumstances the action against Alexander should be dismissed, but without costs.
Appeal allowed with costs.
Solicitor for the appellant: John O’Donohoe.
Solicitors for the respondents: Watson, Smoke & Masten.
4 ed. secs. 741, 1438, 1470 and 1474.
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