Retail Credit Co. Inc. v. Commercial Finance Corp. Ltd., [1932] SCR 33

Supreme Court of Canada

Retail Credit Co. Inc. v. Commercial Finance Corp. Ltd., [1932] S.C.R. 33

Date: 1931-06-12

Retail Credit Company, Inc. (Defendant and Third Party) Appellant;

and

Commercial Finance Corporation Ltd. (Plaintiff) Respondent;

and

Merchants Casualty Insurance Co. (Defendant) Respondent.

Retail Credit Company, Inc. (Defendant and Third Party) Appellant;

and

Commercial Finance Corporation Ltd. (Plaintiff) Respondent;

and

Western Assurance Co. (Defendant) Respondent.

1931: May 21; 1931: June 12.

Present: Anglin C.J.C. and Newcombe, Lamont and Cannon JJ.

ON APPEAL FROM THE APPELLATE DIVISION OF THE SUPREME COURT OF ONTARIO.

Contract—Agreement to supply service of car-checking and reporting thereon to company financing motor car dealers—Careless reports made by service company’s local inspection agent and passed on to financing company—Liability in damages of service company—Construction of contract.

Respondent (plaintiff) carried on a business of financing motor car dealers. Appellant carried on a business of obtaining and giving information as to credit, character, etc., and including the checking of cars in dealers’ hands and reporting thereon. Appellant made an agreement to supply its service to respondent. Respondent signed an “indemnity agreement,” agreeing to treat in confidence the information furnished, to hold appellant harmless on account of any damages arising from publication or dissemination of information or careless handling of reports, and agreeing, “in consideration of receiving this service, and as a condition of its rendition,” that neither the appellant nor its employees should be responsible “for any loss that may occur to [respondent] through the use of the information furnished.” Through careless car-checking reports (made without personally checking over the cars) in respect of a dealer, made by a local inspection agent of appellant and passed on to respondent, the respond-

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ent was misled, to its loss, and sued appellant for damages. Appellant claimed that it had not bound itself for more than reasonable care in the selection of its inspection agents, and, further, that, in any case, it was relieved from liability by the concluding clause (above quoted) of the indemnity agreement.

Held, affirming judgment of the Appellate Division, Ont. (66 Ont. L.R. 10), that respondent should recover. The concluding clause of the indemnity agreement did not, on proper construction of that agreement, relate to car-checking reports. (Anglin, C.J.C., held that either this was the proper construction or, if the clause relied on by appellant extended to the entire service to be rendered including the checking of cars, etc., the words “In consideration of receiving this service” must likewise so extend, in which case, the service never having been rendered, the consideration failed and there was nothing to support the indemnity clause).

APPEAL from the judgment of the Appellate Division of the Supreme Court of Ontario[1].

The plaintiff (respondent) company, whose business included automobile financing, sued, in one action, the Merchants Casualty Insurance Co., and, in another action, the Western Assurance Co., claiming under certain alleged insurance coverage or indemnification agreements against loss through wrongful conversion of motor vehicles on which the plaintiff held any security for unpaid purchase money or through fraud by the dealer or purchaser in connection therewith. In each action the defendant, besides contesting the plaintiff’s claim, brought in the Retail Credit Co., Inc., by third party notice, claiming relief over against it. The latter company (the appellant in the present appeal) was subsequently, on motion on behalf of the plaintiff, made a party defendant. The plaintiff claimed against the Retail Credit Co., Inc., (and this was the main subject of the present appeal) for damages for alleged failure, in breach of its agreement with the plaintiff, to check motor cars and make proper reports, in respect of a certain dealer, who was thus enabled to convert certain motor cars to his own use, to the plaintiff’s loss.

The actions were tried together before Garrow J. who[2] gave judgment in favour of the plaintiff against all the defendants, subject, in certain respects, to references which he directed. He dismissed the claims of the defendant insurance companies made by way of third party proceedings,

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holding that neither had shewn that there was a contract, express or implied, between it and the defendant the Retail Credit Co., Inc.; but he declared and adjudged that each of the defendant insurance companies, upon payment of the whole or any part of the plaintiff’s recovery, should be entitled to subrogation to the rights of the plaintiff as against the defendant the Retail Credit Co., Inc., to the extent of such payment.

The said judgment of Garrow J. was affirmed by the Appellate Division[3], with a variation allowing to the plaintiff certain claims (made by cross-appeal) for interest as against the defendant insurance companies.

The defendant the Retail Credit Co., Inc., appealed to the Supreme Court of Canada. The defendant insurance companies, while supporting the judgment of the Appellate Division, appealed conditionally against the plaintiff, giving notice that, in the event of the appeal of the Retail Credit Co., Inc., being successful, they would contend that, if the plaintiff did give a special contract or release or indemnity to the Retail Credit Co., Inc., which had the effect of relieving the latter in whole or in part from its liability to the plaintiff, it did so without the knowledge or consent, express or implied, of the insurance companies, and thereby prejudiced their rights and released and discharged them also.

The appeal of the Retail Credit Co., Inc., to this Court was dismissed.

The material facts of the case, for the purposes of the judgment in the present appeal, are sufficiently stated in the judgment of Newcombe J., now reported.

I.F. Hellmuth K.C. and J.R. Cartwright for the appellant.

Gideon Grant K.C., H.R. Frost K.C., and Fraser Grant for the respondent Commercial Finance Corporation, Ltd.

Gordon N. Shaver K.C. for the respondent Merchants Casualty Insurance Co.

D.L. McCarthy K.C. and F.J. Hughes K.C. for the respondent Western Assurance Co.

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ANGLIN C.J.C.—I have had the advantage of reading the carefully prepared opinion of my brother Newcombe, I agree in his conclusions and, generally, in the reasons on which he bases them.

The appellant certainly never rendered the service contracted for to the respondent in regard to the checking of cars, etc. To invoke an indemnity clause as excusing nonperformance, by the appellant, of a distinct obligation undertaken by it, or, rather, as saving it from liability for the consequences of that non-performance, seems to me absurd. Either, as my brother Newcombe thinks, the indemnity provision was restricted in its operation to the obligations specifically referred to in the two earlier paragraphs of the document containing it, and, in that event, it does not advance the appellant’s case, inasmuch as the two earlier paragraphs are restricted to obligations other than that here in question; or, the third paragraph, which is the indemnity clause, extends to the entire service to be rendered including the checking of the cars, etc., and, if that be the case, its introductory words, “In consideration of receiving this service “must likewise so extend. In that event, the service never having been rendered, the consideration failed and there is nothing to support the indemnity clause.

From any point of view, it is surely absurd for the appellant to invoke a provision for indemnity which, construed as it would construe it, would have the effect of rendering nugatory a distinct obligation undertaken by it.

The judgment of Newcombe, Rinfret, Lamont and Cannon JJ. was delivered by

NEWCOMBE J.—This litigation was determined, both at the trial[4] and in the Appellate Division of Ontario⁴, adversely to the appellant company, which now brings up two alleged errors for review. The material facts are not in dispute. The appeal depends upon the meaning of the agreement between The Retail Credit Company Incorporated and The Commercial Finance Corporation, Limited; and these two companies are the principal parties. The understanding of the agreement is to be derived from the conversation which took place in July, 1925, between Mr.

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Hill, the appellant’s vice-president, and Mr. O’Grady, the general manager of the Finance Corporation; and from the written document, without date, described as “Indemnity Agreement,” and known in the case as plaintiff’s exhibit 9, which Mr. Hill passed to Mr. O’Grady at the latter’s office at Toronto, on 27th July, and which Mr. O’Grady then executed on behalf of the Finance Corporation; there is also evidence of the subsequent course of business pursued by the parties in their relations to each other.

The trouble has arisen through the dishonesty of one Raynor, who carried on a large trade in buying and selling automobiles at Belleville and Picton, and the fault of Mr. O’Flynn, the appellant’s agent at Belleville.

The Finance Corporation dealt in lien notes and security agreements, covering motor vehicles, and was accustomed to make advances upon such securities and to finance the dealers when satisfied with the security offered. Raynor became one of its customers. The course of dealing between them and other particulars are briefly described in the first four paragraphs of the appellant’s factum:

“He (Raynor) would purchase cars from the manufacturer and the same would be shipped to Belleville or Picton consigned to the order of the manufacturer to be delivered to Raynor on payment of the invoice price. Upon being notified of the shipment Raynor, under the arrangement with the plaintiff, would go to the bank of the plaintiff at Belleville, execute a promissory note, usually at three months, for the amount of the purchase, less ten per cent., which he paid himself, execute also a bill of sale of the car or cars in question to the plaintiff company and complete at the same time a conditional sale agreement by which the plaintiff company agreed to re-sell to him the vehicles covered by the shipment the title to the cars remaining in the plaintiff company until payment. With these completed documents he was then in a position to draw upon the plaintiff company for the amount of the balance of the purchase price, attaching these documents to his draft. The draft was honoured by the bank and with the proceeds Raynor released the shipment from the railway company and got possession of the cars.

“2. It was part of the arrangement between Raynor and the plaintiff that on or before selling any car covered by

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such documents he should pay for the same to the plaintiff, it being considered that a purchaser from Raynor in the ordinary course of business would acquire a title good against the plaintiff.

“3. It was the practice of the plaintiff to have an investigation made from time to time to ascertain that all cars upon which it held security were still in the possession of Raynor.

“In or about the month of October, 1926, the work of checking these cars was entrusted to the appellant Retail Credit Company, Incorporated.

“4. The appellant Retail Credit Company, Incorporated, carries on the business of obtaining and giving information of various kinds as to credit, character and so forth including the business of checking cars in cases where arrangements have been made similar to those made in this case between the plaintiff company and Raynor.”

Some extracts from the testimony of Mr. O’Grady and of Mr. Hill may be conveniently introduced. Mr. O’Grady, who is the plaintiff’s leading witness, in his cross-examination says:

By Mr. Hellmuth:

Q. Mr. O’Grady, you met Mr. Hill of the Retail Credit first of all in Muskoka?—A. Yes.

Q. I suggest to you that was on Saturday, the 25th day of July, 1925?—A. I think so.

Q. And on the Monday following, which would be the 27th day of July, you and Mr. Hill met together at your office—10 King Street West, is it?—A. Yes.

Q. In Toronto. And Mr. Hill proposed to you that you should take advantage of the services that his company could render?—A. Yes.

Q. That is correct?—A. Yes.

Q. I think you have practically said that. At that time the suggestion was that he should furnish you—or, rather, his company should furnish you—with character reports on purchasers of automobiles, wholesale reports, car checks and reports on dealers?—A. Yes.

Q. That is what you said in chief; I have got the words that you used?—A. Yes.

Q. And an agreement was come to that he or his company should do that as and when you might request these reports?—A. Yes.

Q. And no other agreement at any time was made by you or your company with the Retail Credit?—A. I think not.

Q. You know of none; you said so before?—A. Yes.

Mr. Hill, the appellant’s principal witness, gives the following testimony in chief:

Mr. GRANT: Q. Mr. Hill, would you mind speaking just a little louder?—A. I called on Mr. O’Grady following a suggestion made by him at

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Muskoka that I do so, and offered the services of the Retail Credit Company for the use of the Commercial Finance Company. You would like me to go—

Mr. HELLMUTH: Q. Yes, go on?—A. I presented—I first described our facilities to Mr. O’Grady.

Q. Will you say what you described?—A. I described the fact that we have a forwarding office and representatives, forwarding office in Toronto and representatives in the cities throughout the country. I described to him the services rendered to finance companies, the auto purchase report, the dealer, the automobile dealer report, and the auto car check report, and described the blanks used in reference to each of these services. I quoted him the prices and told him the conditions under which the service was rendered; that is, that it is confidential, and that we would not be held liable for any damages accruing from the dissemination or publication of reports, nor were we responsible for any loss incident to the use of the reports. These conditions were all apparently satisfactory to Mr. O’Grady, and I then presented him with the printed form that we use in that connection. He read it very carefully and signed it.

Q. Now look at Exhibit 9 and tell me if that is the form?—A. Yes.

Q. Whose pencil writing is that—”10 King St. East, Toronto, Ont.”?—A. That is mine.

Q. That is yours?—A. Yes.

Q. Then you say—I don’t want to lead, but it is apparent—it was at this conversation with him, and offer whatever it was, that you made to him, at that time that this was signed, this Exhibit 9?—A. Yes, as a condition of forwarding supplies for the use of the service.

Q. Then is there anything else that you can recollect of that interview?—A. Yes, there are two things. First, I took that indemnity agreement to our local office here and gave it to our manager as his authority to release reports to the Commercial Finance Corporation.

Q. But can you tell me of anything else that took place while you were with Mr. O’Grady.—A. Yes. Mr. O’Grady explained that he could begin using the auto purchase and the automobile dealer reports immediately, but that the car check reports were at that time being done by some other people that might make a point of retaining the work, and he was not in a position to press a change, but he wanted to be equipped so that in event of when that could be arranged that the complete service could be secured from the Retail Credit Company.

Q. Does that cover as far as you can tell me what took place?—A. Yes.

When Mr. Hill returned to Atlanta, Georgia, where the head office of his company is situate, he wrote Mr. O’Grady, on 4th August, 1925, the letter known as exhibit 10, of which these are the first two paragraphs:

At the request of our Toronto City Office, we are opening an account with your company and supplies have been forwarded to you, under separate cover, for requesting Auto Purchase and Dealer Car Check Reports. These carry your stenciled address and the number 3983, which has been assigned to the account.

In filling out the inquiry tickets, we would only stress that you please arrange to give us all the data of identification possible on each one. We should like to have them typewritten and to have both the business and

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residence addresses, as well as occupation, etc. This data aids us materially in giving quick and accurate service.

That the appellant fully realized its obligation with regard to the car-checking reports, and the nature of the service which they embraced, appears from exhibits 34 and 35—instructions which it caused to be printed for the making of those reports. I quote the following clauses:

INSTRUCTIONS FOR MAKING DEALER CAR

CHECK REPORTS

(Return blank if engaged in sale of automobiles)

Purpose of the Report

The dealer has used finance facilities to purchase the cars listed. The finance company holds paper against each car, due when the dealer sells the car. The finance company wants us to check the possession and condition of the car. The dealer understands that these checks may be made at any time.

Call on the dealer or his manager (not a clerk or mechanic) and ask him to show you the cars which are listed by serial number on the enclosed blank.

1. Checking the Serial Number on the Car Itself: This number is usually found on the dash or under the hood. Unless you personally see the number on the cars, this report may misinform and mislead our customers instead of protecting them. (Do not let the dealer call the numbers to you either from the car or a book record altho you may be willing to accept his word or record.) This is not to be a statement but a personal check by you as our representative.

2. Speedometer Reading: Note speedometer reading and enter this. If speedometer is not connected, so state in fourth column.

3. Car Reported “Out or on Demonstration”: If there are cars listed and the dealers reports them out or on demonstration, you should answer “No” in the third column and make a note in the sixth column of where cars are reported to be.

Do not report any car present unless you actually see the listed serial number on the car.

The actual report of Mr. O’Flynn, who was the appellant’s examining agent or inspector at Belleville, made on 4th June, 1927, upon one of the printed forms provided for the purpose by the appellant (exhibit 27), and produced as a sample, bears the legend at the top:

NOTE TO INSPECTOR

Personally examine the serial number and speedometer on each car, entering the information in the third and fourth columns and answer questions below.

Do not make report from book record or any other information except by actually verifying the serial numbers on the machines.

Now, the fact is that Mr. O’Flynn, instead of taking care to execute his explicit instructions, so far neglected

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them as to permit Raynor’s manager to prepare his reports; and while Mr. O’Flynn saw the reports, signed them, and sent them in to his principal, he did not see or identify the cars, or their serial numbers, or their speedometer readings; and so cars were reported as on the dealer’s premises which were not there; and the Finance Corporation was misled to its loss. It is compensation for this loss that the corporation now seeks to recover.

The appellant resists, denying that it had bound itself for more than reasonable care in the selection of its inspection agents; but that was clearly not the intention that animated the parties. There was no express stipulation as to agents or sub-agents; no obligation to employ either, except that, by necessity, the incorporated appellant could act only through its officers or agents; and it was, in my view, as much bound to the exercise of due care in the car‑checking as an individual contractor in the like case would have been. The appellant agreed to furnish information essential for the safety of the respondent’s enterprise; in fact it did worse than to furnish none, for instead, it passed on, as its own, untrue and fraudulent statements prepared by the dealer’s manager, in the similitude of truth, and calculated to defeat the very object for which the Finance Corporation had adopted and contracted to pay for the precaution of an exact and trustworthy check.

But Mr. Hellmuth argued very ingeniously that the appellant company, even if it would have been liable upon the facts, excluding the Indemnity Agreement (exhibit 9), is relieved, in express terms, by the concluding clause of that agreement; and it was upon that contention that the learned counsel placed the greater emphasis. The text of the document follows:

INDEMNITY AGREEMENT

                                                                                      .................................................. 19......

To—RETAIL CREDIT COMPANY,

              Atlanta, Georgia.

It is agreed that the information furnished by you, in accordance with this agreement, shall be treated in confidence; that the undersigned will not disseminate or transmit the same directly or indirectly to the person reported on, or to any other person, unless he be in our employ in such capacity as to make it necessary that he know such information for our protection and benefit.

The undersigned agrees to hold the Retail Credit Company, and its employees, harmless on account of any damages which may arise from

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the publication or dissemination of information contrary to this understanding, or from the careless handling of any such reports.

In consideration of receiving this service, and as a condition of its rendition, the undersigned agrees that neither the Retail Credit Company, nor its employees, shall be responsible for any loss that may occur to the undersigned through the use of the information furnished.

(Signed) COMMERCIAL FINANCE CORPORATION, Limited.

                                                                                       (Per) W.O’GRADY,

                                                                                                      Managing Director.

Now, it must, of course, be remembered that the services which, by the oral agreement, the appellant agreed to render were not confined to reports respecting the locality and condition of cars. There were credit reports and personal or character reports which, naturally, would be of a highly confidential character, and as to which the reporting agency would be apt to stipulate for immunity from damages resulting from needless or unjustified publication or disclosure. Mr. Hill had described to Mr. O’Grady these reports in his negotiations for the contract. I have already transcribed the passage where Mr. Hill said:

I quoted him the prices and told him the conditions under which the service was rendered; that is, that it is confidential, and that we would not be held liable for any damages accruing from the dissemination or publication of reports, nor were we responsible for any loss incident to the use of the reports. These conditions were all apparently satisfactory to Mr. O’Grady, and I then presented him with the printed form (Ex. 9) that we use in that connection. He read it very carefully and signed it.

It was considered by the trial Judge, or in the Appellate Division, that the Indemnity Agreement had reference only to reports of commercial credit, character and personal standing; it is suggested by the appellant’s submissions, and it seems to be undisputed that the first two paragraphs relate only to reports of that nature. But it is contended that the remaining clause comprehends all services which the appellant company was to supply; and, as to the judgment of the Appellate Division which emphasizes the incredibility of the suggestion that the Finance Corporation would incur the trouble and expense of engaging the appellant’s services for checking the dealer’s cars upon terms of immunity to the appellant and its employees for their own fault in the operation; to this the learned counsel pertinently rejoins that it is not what the court would expect to discover in the attitude of the parties, but what, upon the true construction of their language, the parties

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actually contracted for, that must govern the decision; and he insists that the provision which the court thinks so unlikely is precisely embodied in the very agreement to which the parties have, in writing, deliberately committed themselves; and so the enquiry comes back to the meaning and application of the last paragraph.

Upon this I have no doubt, after careful consideration, that the Indemnity Agreement, according to its strict and reasonable meaning, is alio intuitu to any question affecting the relations of the parties with respect to the ascertainment of the locality and condition of the cars which the dealer brought into his premises. What the Credit Company stipulated for in the last paragraph of the Indemnity Agreement was, expressly, in consideration of the service previously mentioned in the agreement; and that does not extend to the car-checking service. The expression, “this service,” in the first line of the last clause, and the concluding words of the agreement—“the information furnished,” refer only to what is the subject-matter of the two preceding paragraphs, and the car-checking is foreign to that. It follows that the Indemnity Agreement does not improve the appellant’s case.

Mr. McCarthy, representing the insurance companies, explains that his clients are content with the judgment as it stands, and they cross-appeal only in the event that it is reversed or varied.

In the result, the appeal should be dismissed; and the respondents should have their costs.

Appeal dismissed with costs.

Solicitors for the appellant: Smith, Rae & Greer.

Solicitors for the respondent, Commercial Finance Corporation Ltd.: Briggs, Frost, Dillon & Birks.

Solicitors for the respondent, Merchants Casualty Insurance Co.: Shaver, Paulin & Branscombe.

Solicitors for the respondent, Western Assurance Co.: Hughes, Agar & Thompson.