Norwich v. Union Fire Insurance Soc. Ltd. v. La Banque Canadienne Nationale, [1934] SCR 596

Supreme Court of Canada

Norwich v. Union Fire Insurance Soc. Ltd. v. La Banque Canadienne Nationale, [1934] S.C.R. 596

Date: 1934-04-24.

Norwich Union Fire Insurance Society Ltd. (Plaintiff) Appellant;

and

La Banque Canadienne Nationale (Defendant) Respondent;

and

The City of Chicoutimi and Others (Mis-en-Cause) (Two Appeals)

1934: February 27, 28; 1934: April 24.

Present Duff C.J. and Rinfret, Lamont, Cannon and Crocket JJ.

ON APPEALS FROM THE COURT OF KINIG’S BENCH, APPEAL SIDE, PROVINCE OF QUEBEC

Appeal—Jurisdiction—Action in revendication of a cheque—No valvs in controversy—Bank and banking—Insurance company—Cheques drawn by insured for premiums to order of the company—Endorsed by company’s agent and credited to latter’s account by the bank—Moneys not refunded by agent to company—Action by company to recover amount of cheques from the bank.

The appellant brought an action in revendication, directed against the respondent bank, of a post-dated cheque for $7,788.02 drawn by the city of Chicoutimi. The cheque had been handed to the appellant company’s agent at Chicoutimi in error as to the amount and the city countermanded payment. The appellant’s purpose in taking its action was merely to get the cheque from the respondent bank in order to remit or tender it back to the city of Chicoutimi.

Held that the appeal should be quashed, as the value in controversy from the point of view of the appellant company is insufficient to bring the appeal within the jurisdiction of this court.

[Page 597]

The other action concerns three cheques amounting to $7,380.14 and interest drawn by the mis-en-cause, the city of Chicoutimi, payable, in payment of insurance premiums, to the company appellant, with whom the city mis-en-cause had fire and workmen’s compensation insurance. Those cheques were delivered by the city mis-en-cause to one, Vézina, who, at the material times, was acting as agent for the appellant company, and was also mayor of the city of Chicoutimi. All these cheques were delivered to the latter by the city before the premiums, for which they were severally intended to be given in payment, were due. This was done on the instructions of the mayor, (Vézina), himself. They were all, either cashed by him at the respondent bank’s branch in Chicoutimi, or discounted by him when post-dated, and the proceeds were all deposited by him in his own account at the respondent bank. The agent Vézina having failed to remit the amount of these cheques to the appellant company the latter, by its second action., claimed the amounts from the respondent bank.

Held that the appellant company, under the circumstances disclosed by the evidence, was not entitled, on the form of action as taken by it, to recover from the respondent bank the amount of the above mentioned cheques. The appellant company might have a claim for damages against the respondent bank, on the ground that, through the latter’s negligence, it deprived the appellant of the advantage resulting from the possession of the cheques, but, at this stage of the case, the appellant company is not entitled to obtain from this Court the right to amend its action and convert it into a claim for damages; per Rinfret J. especially when the appellant still possesses its right against the city of Chicoutimi for the recovery of the premiums.

Per Rinfret J.—The question whether these cheques were properly paid by the respondent bank is a matter between the bank and the city of Chicoutimi. It was not the appellant company’s funds that the respondent bank appropriated towards the payment so made: the cheques were the city’s cheques and the moneys out of which they were paid were the city’s moneys; and the matter resolves itself into one of accounting between the bank and the city.

Cannon J.—Under the circumstances disclosed by the evidence, the authority vested in Vézina to collect premiums due to the appellant company and grant discharges, included the right to endorse cheques for the purpose of making the collection of his commission and of the moneys to be remitted to the appellant sixty days after the issue of the policies or when the amount due for workmen’s compensation premiums would be finally adjusted.

Appeal from the Court of King’s Bench (Q.R. 55 K.B. 538) aff.

APPEALS from the Court of King’s Bench, appeal side, province of Quebec[1], affirming the judgments of the Superior Court Greenshields C.J., and dismissing the two actions brought by the appellant company.

The material facts of the case and the questions at issue are stated in the above head-note and in the judgments now reported.

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John T. Hackett K.C. and F. W, Hackett for the appellant.

Aimé Geoffrion K.C, and A. Gérin-Lajoie K.C. for the respondent.

The judgment of Duff C.J. and Lamont J. was delivered by

Duff C.J.—This appeal relates to the subject matter of two actions in the Superior Court of Quebec; the one, no. 406, and the other, no. 407. These actions concern certain cheques drawn by the mis-en-cause, the city of Chicoutimi, payable, in payment of insurance premiums, to the appellants, with whom the mis-en-cause had fire and workmen’s compensation insurance. Those cheques were delivered by the mis-en-cause to one Vézina, who, at the material times, was acting as agent for the appellants and was also mayor of the municipality. All the cheques with which we are concerned were delivered to him by the municipality before the premiums, for which they were severally intended to be given in payment, were due. This was done, as Mr. Blackburn, city treasurer, says, on the instructions of the mayor (Vézina) himself. They were all, either cashed by Vézina at the respondent’s branch in Chicoutimi, or, as the bank manager describes it, discounted by Vézina when postdated. The proceeds of all were “deposited by” Vézina, to quote the words of the respondents’ factum, “in his own account” at the respondent bank

which account was a personal one in which Vézina deposited all moneys which came into his hands whether or not they belonged, or were supposed to belong, to the insurance company, or anyone else. The proceeds of all these cheques were, therefore, credited to the account of Vézina and on this account he drew cheques for personal and other purposes as he deemed fit.

There is some dispute as to whether these proceeds went in reduction of a claim the bank had against Vézina, but, in the view I take of the appeal, it is not necessary to discuss that point. It is not disputed that the bank gave credit to Vézina for the proceeds of these cheques, and I see no reason to disagree with the view taken by the courts below that he had personal control over such credit.

The cheques, in all of the cases with which we are concerned, were payable to the Norwich Union Fire Insurance Society, Ltd., although there are slight immaterial differences

[Page 599]

in the descriptions of the payee. In one case, for example, the description is “Norwich Union Fire.” They were also endorsed by Vézina with slight, immaterial variations, “Norwich Union Fire Insurance Co., P. Vézina.” There is no serious dispute that it was well understood by the bank that Vézina was acting as agent of the Norwich Union Fire Insurance Society, Ltd., or that the cheque, of which the proceeds were deposited to his credit, were in his hands as such agent.

To deal with the cases in numerical order. The first action, no. 406, concerned a postdated cheque for $7,788.02. It was an action in revendication, accompanied by a writ of seizure issued at the instance of the appellants and directed against the bank. There are two points in regard to this cheque, and the second, at all events, is decisive; as to the other, I do not, for the moment, desire to express any opinion.

This cheque is said, and I think there is no dispute on the point, to have been drawn and handed to Vézina in error as to the amount to which the appellants would be entitled. It was roughly $3,000 in excess of the amount for which the cheque should have been drawn. This fact was discovered some time before the maturity of the cheque and after discount of it by Vézina, and (and this is the second point) the municipality promptly stopped payment of it, and it was, accordingly, not charged against the account of the municipality. In these circumstances, I am unable to perceive any evidence which would enable us to ascribe a value to this document, from the point of view of the appellants, of sufficient magnitude to bring it within the minimum of value required in order to make the appeal competent, viz., $2,000. It is a case in which leave to appeal should have been obtained, and the appeal ought, on that ground, to be quashed with costs.

The action no. 407 concerns three other cheques amounting in the aggregate to $7,380.14 and interest. They are dated respectively, December 18, 1930, March 19, 1931, and May 21, 1931. As already mentioned, all these cheques were issued at a time when no premiums were due by the city of Chicoutimi to the appellants. They were issued on the authority of Vézina (as mayor), and delivered to him as agent of the appellants.

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The first of the cheques, dated 18th December, 1930, was payable on demand and was cashed on the 20th. The second was dated the 19th of March, 1931, was payable the 12th of August, 1931, and was paid on the 15th of April. It was then credited to Vézina’s account but not charged to the municipality until later. The cheque of the 21st May, 1931, was payable on demand and was actually paid on the same day and credited to Vézina’s account.

Now, these documents, as already observed, were in the hands of Vézina as agent of the appellants. They were the appellants’ property. Unless Vézina had authority, I shall have a word to say about this later, to endorse and deliver them to the bank for deposit to the credit of the account mentioned, he was committing a wrongful act in doing so. The bank, as we shall see, was bound to know this. In such a case, unless the agent possessed such authority, a bank, taking a cheque, marking it paid, treating it in such a way as to make it appear on its face as a cancelled cheque and returning it to the drawer, would, primâ jade, be wrongfully and unlawfully dealing and interfering with the property of the agent’s principal; and, therefore, would be committing a “fault” by “positive act” within the meaning of art. 1053 C.C.; and if damage was caused thereby such conduct might constitute an actionable wrong under that article. The elements of this proposition, perhaps, had better be discussed separately.

First, as to the authority of the agent in respect of the endorsement of the cheque and delivery of it to the bank for deposit to the credit of his personal account. In this particular case there was written authority—there was a document in existence defining the authority—and by that authority he had power to collect premiums; and I am going to assume that, if a case arose in which endorsement was a necessary step in the process of collection, the agent had authority to endorse; if, for example, he was in circumstances requiring it, depositing a cheque in an authorized account kept under the name of his principals. The point is, perhaps, open to argument, but I am going to assume that he might, in such circumstances, have done such acts as this under his power of attorney. But, the agent’s actual authority, and it is that which I am now discussing, in so far as it was derived from his power of

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attorney, must be ascertained from the language of the power. Moreover, when something done by an agent who purports to act under such a written authority is challenged as, an act beyond the limits of that authority, it is necessary that the person relying upon the validity of the act should show

that on a fair construction of the whole instrument the authority in question is to be found within the four corners of the instrument, either in express terms, or by necessary implication. Bryant v. La Banque du Peuple[2].

In terms, the instrument before us gives no power to endorse. It gives a power to collect. It may be, as I have said, that oases might arise in which endorsement might be necessarily incidental to collection. Although the decision in this case rests upon other grounds, and what I am about to say forms no part of those grounds, I think it advisable to observe that the power to collect cannot imply, least of all imply with such coercive force as to constitute a “necessary implication,” a general authority to endorse such cheques in the name of the principals; nor can it imply in the sense mentioned, that is to say, necessarily, the authority to endorse for the purpose of depositing the cheque in, or of directing the bank to receive the cheque, or its proceeds, for the credit of an account which the agent uses for depositing and disbursing indifferently his own funds with the funds of his principals.

Actual authority, it is true, might be evidenced by course of dealing, but, where the authority is expressed in writing, parties relying upon a modification of that writing by reason of a course of dealing, as establishing a wider authority than can be found in the writing, have a peculiarly difficult task, especially where the principal is an incorporated company. Actual authority, whether proved by a written document or established by evidence of a course of dealing, means authority derived from the actual assent of the principal; and, when the evidence is of this last mentioned character, it must show, where the principal is an incorporated company, that the company has assented in fact to the possession and exercise of such authority by the agent; and such assent can be operative only if given through the officials or the body which by its constitution are, or is, competent to constitute such assent (Gresham v.

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Bank of Montreal[3]); and, where authority is already defined by a written instrument, is competent to enter into a binding agreement with the agent for altering the terms and effect of that instrument. Moreover, it must be proved that such assent includes the very transaction, or transactions of the very kind as that, concerning the validity of which the controversy arises.

In the hypothetical case already outlined, if the agent’s authority to endorse the cheque and deliver it to the bank for deposit in his personal account were alleged to rest upon evidence supplied by a course of dealing, it would be incumbent on the party alleging the existence of the authority to establish that such course of dealing was inconsistent with the absence of such authority. It would not, for example, be sufficient for this purpose to show that the agent was in the habit of transmitting premiums received by him through cheques drawn in his own name upon a bank account. Assuming that assent to such a procedure were brought home to an official or a body competent to bind the company, as above mentioned, there would still remain a further difficulty. The fact that his principals received payment by cheque drawn on a bank account would not necessarily involve the assumption that the account was an account in which the agent mixed his personal moneys with the moneys of his principal, or an account other than one used exclusively for the purpose of depositing and paying to his principal the moneys of his principal.

Let us, then, consider the position of the bank with reference to the actual authority of the agent. The point is very clearly covered by the Bills of Exchange Act, which is in these words,

51. A signature by procuration operates as a notice that the agent has but a limited authority to sign, and the principal is bound by such signature only if the agent in so signing was acting within the actual limits of his authority.

It is unnecessary, therefore, to resort to more general principles of law. The bank, in the supposititious case, would be bound to know, and would be held to have accepted these documents from the agent with a knowledge of his actual authority; with, a knowledge, that is to say, of the authority which the agent possessed as between him and his own principal by virtue of the principals’ actual assent.

[Page 603]

In such a case, where the person dealing with the agent has knowledge, or is deemed in law to have knowledge of the limits of that assent, we are nat concerned with ostensible authority, or with authority by “holding out,” or by estoppel. It must be distinctly understood that I am expressing no opinion upon the effect of the application of these principles to the concrete facts in this case.

I have felt it necessary to say this, because there are some things in the judgments in the courts below to which, if I clearly understand them, I should, with great respect, have some hesitation in giving my adherence; and because these observations fare directed to topics of commercial and mercantile law, the rules of which affect the great mass of people carrying on business in their every day transactions.

I have, nevertheless, been forced to the conclusion that the appellants are not entitled to succeed on the case advanced by them at the trial, in the Court of King’s Bench, and, indeed, here. I shall not elaborate the reasons; the specific rules of the common law under the heading of “conversion” are not, I am satisfied, specifically in force in the province of Quebec under the civil code. I add that qualification, not because of any particular exception in my mind at present, but because in Quebec as in other parts of Canada, there are very considerable fields of law governed by Dominion statutes, or outside the provincial domain, and I wish to avoid pre-judging any question which might arise in respect of transactions in those fields.

Notwithstanding the wide power of amendment vested in us, this is not, I think, a case in which that power could be advantageously used. We could not permit, on the record as it stands, a claim to be advanced on the basis which I have indicated above; and, rather than direct or give the appellants an opportunity to make an amendment to their claim, and to proceed to a new trial, under the onerous terms in which alone that indulgence could be granted, it is better, I think, that the appeal should be dismissed.

There is one further observation which it is desirable, perhaps, to make. It would be a mistake to treat cheques dealt with by a bank, as in the hypothetical case, as pieces of paper simply. A cheque drawn upon a bank in possession of funds out of which it owes a duty to the drawer to

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pay the cheque on presentation, which, moreover, will be paid on presentation, is not a mere piece of paper. The document in the hands of the payee has a value. In a practical business sense it is worth to him its face value, and, if it is wrongfully destroyed (as, for example, if the pay cheque of a government servant is destroyed by the wrongful act of a third person), he may suffer substantial loss in respect of which he has a remedy under Art. 1053 C.C. If the principles of the common law were applicable, the principal could, in the hypothetical case, recover immediately from the bank the face value of the cheque.

Art. 1053 C.C., however, does not, apparently, embrace within its ambit the specific doctrines of “conversion” as understood by common lawyers; and, assuming the appellants might, on a case aptly framed and presented, be entitled to recover some substantial sum by way of damages against the bank, still, for the purpose of determining damages, other considerations would come into play, such, for example, as the value of the appellants’ rights against the municipality of Chicoutimi.

The appeal should be dismissed with costs.

The judgment of Rinfret and Crocket JJ. was delivered by

Rinfret J.—I agree with my Lord the Chief Justice that the appellant cannot succeed.

In the case bearing appeal no. 406, the appellant revendicates a cheque drawn by the city of Chicoutimi on the bank respondent. The city countermanded payment of that cheque. The bank had no longer any authority to pay it and owed no duty to anybody in respect of the cheque (Bills of Exchange Act, s. 167).

Assuming, but not admitting, the appellant had, under the circumstances, a right of revendication (see Code of Civil Procedure, art. 946, 2nd parag.), it had no title to the amount of the cheque. In fact, its avowed intention was to get the cheque from the bank to remit or tender it back to the city. That makes it clear that the value in controversy is insufficient to bring the appeal within the jurisdiction of this Court. The appeal must be quashed with costs.

In the case bearing appeal no. 407, the cheques were issued by the city of Chicoutimi to the order of the appellant

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and given to one Vézina, who was the mayor of the city. They were for premiums on insurance policies against risks under the Workmen’s Compensation Act, although they were handed over to Vézina before the premiums were due.

Vezina endorsed the cheques in the appellant’s name and deposited them in his own account with the respondent bank. He failed to remit to the appellant the amounts of the several cheques and the appellant now claims these a mounts from the bank.

The trial judge held that,

under the circumstances disclosed by the proof, the authority vested in Vezina * * * included the right to endorse cheques for the purpose of making the collection.

On that ground, amongst others, he dismissed the appellant’s action.

In the Court of King’s Bench, two of the judges were for (confirming this finding purely and simply. The third one (Létourneau J.—forming the majority) arrived in effect at the same conclusion. The finding is based, as I understand it, not particularly on the interpretation of the contract between Vezina and the appellant, but on the weight of all the circumstances established in evidence. While I feel that due consideration would have to be given to the concurrent judgments, I fully appreciate the importance of the observations of the Chief Justice on that point and, like him, I think it is sufficient to say that the appeal fails “on the case advanced by the (insurance company) at the trial.”

It should be emphasized that actions in conversion are unknown to the law of Quebec (Corporation Agencies Limited v. Home Bank of Canada[4]). It follows that most of the English cases relied on by the appellant have no application here.

Primarily, the question whether these cheques were properly paid by the bank, is a matter between the bank and the city. They were the city’s cheques, and the moneys out of which they were paid were the city’s moneys. The main question is whether the bank had the right to charge the city’s account with these cheques.

Vézina was a broker, that is to say he

exercised the trade and calling of negotiating between parties * * * lawful (insurance) transactions.

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He may have been the mandatory of both parties and have bound both the city and the insurance company by his acts in the business tor which he was engaged by them (Art. 1735 C.C.).

But, be that as it may, the cheques delivered to Vézina did not, of themselves, give any right of action to the insurance company against the bank. They did not operate as an assignment of funds in the hands of the bank available for the payment thereof (Bills of Exchange Act, ss. 127, 165). Until the cheques wore accepted, the bank owed exclusively to its customer the duty of paying them.

The consequences would be that, even assuming Vézina received the cheques as agent of the insurance company, the mere giving of the cheques to him did not operate as a payment to the company. The cheques would become payments only in the event of their being ultimately honoured by the bank.

In fact, the cheques never reached the insurance company itself; and, at all events, if it be true, as contended by the company, that Vézina had no power to endorse and cash the cheques, the company has never been paid. The insurance company is bound by the signature of Vézina only if Vézina “in so signing was acting within the actual limits of his authority” (Bills of Exchange Act, s. 51). If he was, that is the end of the appellant’s rights, if any, against the bank. If he was not, Vezina’s signature is inoperative (s. 49), and the cheques, now in the hands of the city, will be no answer to the appellant’s claim or action against the city for the insurance premiums due by the latter. In such case, the bank paid to the wrong party.

But it was not the appellant’s funds that the bank appropriated towards the payment so made. It was the city’s funds. And the matter resolves itself into one of accounting between the bank and the city.

As for the appellant, none of its funds have disappeared. Certain cheques, which gave the appellant no direct right against the bank, are alleged to have been diverted on their way to the appellant. The respondent’s complicity was denied by both courts below. Its good faith, on the facts (as distinguished from any question of constructive notice), was acknowledged in both judgments.

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The appellant might have a claim for certain damages against the respondent, on the ground that, through the latter’s negligence, it deprived the appellant of the advantage resulting from the possession of the cheques. But I am in entire agreement with my Lord the Chief Justice that, clearly, the appellant has not the right, which it has attempted to assert, of securing the payment of the amounts represented by the cheques under the guise of a claim for damages, if it still retains its full recourse for the premiums against the city of Chicoutimi. Such however would be the situation if, as the appellant contends, Vezina’s endorsements were unauthorized and, consequently, null and void. (Bills of Exchange Act, ss. 49, 139, 166.) Under those circumstances, the appellant’s rights against the city of Chicoutimi are still alive and its original cause of action for the premiums is unaffected.

It follows that the appellant’s loss, if any, is not the loss it has claimed in the premises and in respect of which the whole trial has been exclusively conducted.

The respondent has a very clear interest in insisting that it should be called upon to account for the impugned cheques only towards the city of Chicoutimi, out of whose funds the cheques were paid. As between the bank and the city, there may be reasons why the city is precluded from disputing Vézina’s authority to cash the cheques and the bank’s right to charge them to the city’s account. On all those questions, the real debate is between the bank and its customer, not with the appellant.

The action as brought could not be maintained and the appeal must be dismissed with costs.

Cannon J.—In the revendication case (no. 406) I agree with the Chief Justice that the appeal must be quashed with costs for lack of jurisdiction.

In the second case, however, I would dismiss the appeal with costs on different grounds.

Vézina had the right to collect the premiums, grant discharges and remit the net balance. Mr. M. Jack who handled the Workmen’s Compensation business and Mr. Paul, the assistant manager of the appellant, testified that ever since Vézina had been handling their business in Chicoutimi, they never looked to their assured directly for the payment of premiums, but left it entirely to Vezina.

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I, therefore, agree with the learned trial judge and the Chief Justice of Quebec that, under the circumstances disclosed by the proof, the authority vested in Vézina to collect premiums due to the plaintiff and grant discharges included the right to endorse cheques for the purpose of making the collection of his commission and of the moneys to be remitted to the plaintiff sixty days after the issue of the policies or when the amount due for workmen’s compensation premiums would be finally adjusted. When the cheques in question issued, no premiums were actually due by the city of Chicoutimi to the plaintiff, but Vézina secured payments in advance, for his own accommodation and convenience.

We, therefore, have in this case, at least, for the locality with which we are concerned, an agent having possession of commercial paper belonging to his principal with general authority to indorse such instruments in the course of transacting the business of the principal and for his benefit. If the agent misuse such authority by applying the paper so indorsed to his own private purposes his dealing with it is from beginning to end a violation of his principal’s rights; but third parties taking the paper from him with no knowledge or suspicion of his breach of duty and for value acquire nevertheless an indefeasible title even as against the principal. This was expressly decided, if not elsewhere, at least in The Bank of Bengal v. McLeod[5], and Bryant Powis & Bryant v. Quebec Bank[6]. A passage in Lord Brougham’s judgment in the first mentioned case which has often been cited appears to be applicable to the circumstances of this case:

“But it is further said, that even if the expression be read as only amounting to this, the endorsement is to be only made for the benefit of the principal, and not for the purposes of the agent. We do not see how this very materially affects the case, for it only refers to the use to be made of the funds obtained from the endorsement, not to the power; it relates to the purpose of the execution, not to the limits of the power itself; and though the indorsee’s title must depend upon the authority of the indorser, it cannot be made to depend upon the purposes for which the indorser performs his act under the power.”

The above quotation is from the judgment of this Court re Ross v. Chandler.5

The respondent had not insured the fidelity of Vézina towards his employers, nor were they bound to see that he would remit regularly the moneys which he owed them after deducting his commission from the premiums which he was alone authorized and in duty bound to collect from their clients in that locality.

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If the endorsements are irregular and ineffective, as contended by the appellant, why not claim against its debtor, the city of Chicoutimi, unless the appellant is afraid to be met with arguments and objections from the city that would prove and establish the validity of the endorsements?

The good faith of the bank is not questioned; they gave value for these cheques and the appellant is the victim of its own imprudence in trusting perhaps too blindly to the honesty and good financial standing of Vézina. They have no action based on the cheques as payee against the bank. They cannot, under the guise of an action in damages for negligence, succeed under the circumstances disclosed.

I, therefore, agree with the Chief Justice that this appeal fails and must be dismissed with costs.

Appeal (Case No. 406) quashed with costs.

Appeal (Case No. 407) dismissed with costs.

Solicitors for the appellant: Hackett, Mulvena, Foster, Hackett & Hannay.

Solicitors for the respondent: Gérin-Lajoie & Beaupré.