Supreme Court of Canada
Torkin (E.) & Co. Holdings Ltd. v. Greystone Apartments Ltd., [1972] S.C.R. 670
Date: 1972-03-30
E. Torkin & Co. Holdings Ltd. (Plaintiff) Appellant;
and
Greystone Apartments Ltd. (Defendant) Respondent.
1972: February 4; 1972: March 30.
Present: Martland, Ritchie, Hall, Spence and Laskin JJ.
ON APPEAL FROM THE COURT OF APPEAL FOR SASKATCHEWAN
Bills and notes—Cheques—Agreement for sale of lands—Previous agreement under separate and unrelated transaction for plumbing renovations—Funds paid by appellant to plumbing company on account not yet due—Appellant to be reimbursed by cheques drawn by respondent—Cheques to be credited on agreement for sale—Cheques dishonoured—Order nisi obtained for cancellation of agreement for sale—Whether action brought to recover on cheques precluded.
The appellant on December 16, 1968, entered into an agreement for the sale of lands to a motel company. Prior in time on August 30, 1968, in a separate and unrelated transaction, appellant had entered into an agreement with a plumbing company to do certain plumbing renovations. In April 1969, one H, who controlled the respondent and the plumbing and motel companies, requested that appellant pay to the plumbing company the sum of $20,000 on account of the amounts which would be payable under the contract of August 30, 1968. No moneys were yet due and payable at that time. In fact it was arranged that the appellant would pay to the plumbing company the sum of $40,000 which was done by cheque dated April 26th and receive in return therefor a cheque for $20,000 dated April 26, 1969, and another cheque for $20,000 dated June 10, 1969. The understanding was that both of these cheques would be credited on the agreement for sale. Both cheques were drawn by the respondent and were dishonoured when presented for payment. The appellant subsequently obtained an order nisi for cancellation of the agreement for sale. The order nisi provided for a redemption period of three months but no moneys were paid pursuant to the said order nisi.
[Page 671]
In an action brought by the appellant to recover on the cheques of April 26, 1969, and June 10, 1969, the position of the respondent was that the appellant, having obtained the order nisi for cancellation of the agreement, was precluded from any further remedy against respondent under the personal covenant clause contained in the agreement. Effect was given to this contention by the trial judge who was of the opinion that, in the circumstances, the appellant could not recover “either on the original covenant, a guaranty given by a third party, a promise to pay by a third party or by the giving of cheques as in the instant case.” On appeal, the trial judgment was upheld by the Court of Appeal.
Held: The appeal should be allowed.
The appellant had two valid bills of exchange made by the respondent. The cheques were given for valuable consideration and should have been paid when presented for payment. Respondent was a stranger to the agreement for sale under which appellant obtained the order nisi. The obligation of appellant to credit the proceeds of these cheques, if and when received, against the amount owing under the agreement for sale was a matter between it and its purchaser. Receipt of moneys by appellant under these cheques might well affect or suspend the operation of the order nisi between the parties thereto, but again that was a matter outside the scope of the controversy between appellant and respondent.
Davidson v. Sharpe, (1920), 60 S.C.R. 72; Diewold v. Diewold, [1941] S.C.R. 35, distinguished; Edmonton Airport Hotel Co. Ltd. et al. v. Crédit Foncier Franco-Canadien, [1965] S.C.R. 441, applied; Traves v. Manchur, Manchur & Manchur Bros. (1958), 26 W.W.R. 158, referred to.
APPEAL from a judgment of the Court of Appeal for Saskatchewan, dismissing an appeal from a judgment of Bence C.J.Q.B. Appeal allowed.
R.W. Thompson, for the plaintiff, appellant.
E.R. Gritzfeld, Q.C., for the defendant, respondent.
The judgment of the Court was delivered by
HALL J.—This is an appeal from a judgment of the Court of Appeal for Saskatchewan which
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upheld the judgment of Bence C.J.Q.B. dismissing the appellant’s action. The appellant sued respondent on two cheques for $20,000 each dated April 26, 1969, and June 10, 1969, respectively which were dishonoured when presented for payment. The making of the cheques and their non-payment was admitted, so barring some tenable defence the appellant was entitled to judgment for the amount of the cheques.
The defence put forward by respondent had its genesis in two agreements as follows: appellant had on December 16, 1968, entered into an agreement with a company known as Southgate Motor Inn Ltd. for the sale to it of lands in the City of Regina for $175,000 payable $10,000 cash and the balance in semi-annual instalments of $10,000 on March 1st and September 1st in each year. The respondent was not a party to that agreement. The purchaser under that agreement gave to the appellant a cheque for $40,000 dated February 27, 1969, to be applied as a prepayment on the agreement. This cheque was never honoured. Prior in time on August 30, 1968, in a separate and unrelated transaction, appellant had entered into an agreement with another company, Comfort Plumbing & Heating Ltd., to do certain plumbing, renovations in the Leader-Post Building in Regina. This agreement called for payment of 50 per cent of the total charges for this work upon completion of the mechanical installations with the balance payable within one year of completion of contract. This was the situation when, on or about April 25, 1969, the series of transactions upon which respondent sought to avoid liability began.
Both parties accept the facts as set out by the learned trial judge in his reasons as follows:
On or about April 25, 1969, one Halfinger who controls both the defendant company (the respondent here), Comfort Plumbing & Heating Ltd., and the purchaser under the Agreement for Sale, Southgate Motor Inn Ltd., requested Torkin the principal shareholder of the plaintiff company to have the
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plaintiff pay to Comfort the sum of $20,000 on account of the amounts which would be payable under the said contract of August 30, 1968. No monies were yet due and payable at that time.
Halfinger represented to Torkin that he needed this money very badly in order to meet an obligation to the bank on behalf of Comfort.
Halfinger and Torkin met on April 26th, when it was agreed that Torkin would pay the $20,000. The arrangements that were worked out, however, were that in fact the plaintiff company would pay to Comfort the sum of $40,000 which was done by a cheque dated April 26th and receive in return therefor a cheque for $20,000 dated April 26, 1969, and another cheque for $20,000 dated June 10, 1969. According to the uncontradicted evidence, the understanding was that both of these cheques would be credited on the Agreement for Sale. It was represented by Halfinger that the one dated April 26th would be honoured upon presentment.
The whole of the $40,000 cheque from Torkin was to be applied on the plumbing account.
Both of these cheques were drawn by the defendant company. The explanation as to why the cheques were not turned over to Southgate and in turn paid by Southgate to the plaintiff is that an additional banking transaction would be obviated.
There is no doubt in my mind and I so find that the plaintiff company gave the cheque for $40,000 at a time when he was not required to do so in consideration of the two cheques he received to be applied on the Agreement for Sale. It was understood that these would replace the cheque of February 27, 1969, for $40,000.
This is an action to recover on the cheques of April 26, 1969, and June 10, 1969.
There is no doubt in my mind that Halfinger did represent that the cheque for $20,000 of April 26, 1969, would be paid upon presentment. It was in fact deposited in the plaintiff’s bank account on April 28th which was a Monday. It was returned in due course to the plaintiff on the ground that there were no funds to cover the same.
I find that Torkin would not have paid this $40,000 if he had not been given this assurance.
An action for cancellation of the said Agreement for Sale was commenced on October 31, 1969, and an order nisi for cancellation granted on December 12, 1969. The order nisi provided for a redemption period of three months. The following is a portion of that order namely:
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“AND IT IS FURTHER ORDERED that the Defendant do pay into Court to the credit of this cause on or before the 12th day of March, A.D. 1970 the sum of $172,657.81 together with interest on $165,000.00 at the rate of 7% per annum from the first day of September, A.D. 1969, together with the costs of this action to be taxed.
AND IT IS FURTHER ORDERED AND DECREED that in default of payment into Court as aforesaid the agreement for sale sued on herein be cancelled and determined and that all monies paid thereunder by the defendant to the plaintiff be forfeited to and retained by the plaintiff; the said defendant and all persons claiming through or under it in possession to give up possession of the said premises to the plaintiff within twenty (20) days from the service upon them of a copy of the final order; provided, however, that upon payment of $17,657.81, the sum in arrears as aforesaid, together with interest on $165,000.00 at the rate of 7% per annum from the first day of September, A.D. 1969, and costs, the defendant (purchaser) shall thereupon be relieved from immediate payment of so much of the purchase money as may not have become payable by lapse of time.”
No monies have been paid pursuant to the said order nisi.
On these facts, the position of the respondent was that appellant, having obtained the order nisi for cancellation of the agreement, was precluded from any further action or remedy against respondent under the personal covenant clause contained in the agreement. Counsel for respondent relied on Davidson v. Sharpe, Diewold v. Diewold, and other authorities to the same effect.
The learned trial judge gave effect to this contention, saying:
It may well be that an action could have been properly maintained on the cheques after dishonour and before the obtaining of the order nisi. In such event, whatever monies were recovered, would be applied on the agreement and if an order nisi was obtained, it would be taken into consideration in the making of the necessary calculation. This would appear to be a logical proposition but it is not necessary for me to determine the point.
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The proceeds of the two cheques in question, although given by a third party, were to be applied on the purchase price of the agreement. There was consideration therefor.
The situation does not appear to be any different than that which exists when a promise is given by a third party for a consideration to pay something on account of the purchase price.
If, however, the purchase price has been extinguished by an order nisi, subject only to the right of the defendant to redeem, I fail to see how the plaintiff can recover either on the original covenant, a guaranty given by a third party, a promise to pay by a third party or by the giving of cheques as in the instant case.
I do not disagree with the conclusions in the last quoted paragraph, except in respect of the concluding words: “…a guaranty given by a third party, a promise to pay by a third party or by the giving of cheques as in the instant case.” With respect, he extended the principle of the decisions in Davidson and Diewold too far by including a guarantor or a party in the position of the appellant here in his summation of the effect of those cases.
The appellant’s position as stated by the learned trial judge was:
The plaintiff points out that the present action is not against the defendant in the foreclosure action nor is the action based on the covenant. The action is against Greystone Apartments Ltd. and the action is not based in Contract but rather under the Bills of Exchange Act, i.e. a statutory action.
At the time the cheques were given to the plaintiff by Greystone, it is submitted that a proper cause of action lay on them. It is submitted that by taking the Order out against Southgate Motor Inn Ltd., the order in no way precluded the action against Greystone Apartments Ltd. This applies the narrow interpretation of the Saskatchewan Court of Appeal to Davidson vs. Sharp, supra, as set forth in Milos vs. Schmidt, [1923] 1 W.W.R. 1444.
This Court had occasion to deal with a related situation in the case of Edmonton Airport Hotel Co. Ltd. et al v. Crédit Foncier Franco-Canadien, in which a guarantor sought to escape
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liability on the grounds that under The Judicature Act of Alberta; R.S.A. 1955, c. 164, the right of a mortgagee was restricted to the land mortgage and that no right of action on the covenant was allowed. In his reasons, Judson J., giving the judgment of the Court, said:
Sections 34(17)(a) and 34(18) of The Judicature Act read as follows:
34. (17) In an action brought upon a mortgage of land whether legal or equitable, or upon an agreement for the sale of land, the right of the mortgagee or vendor thereunder is restricted to the land to which the mortgage or agreement relates and to foreclosure of the mortgage or cancellation of the agreement for sale, as the case may be, and no action lies
(a) on a covenant for payment contained in any such mortgage or agreement for sale.
34. (18) …and upon the making of any such vesting order or cancellation order, every right of the mortgagee or vendor for the recovery of any money whatsoever under and by virtue of the mortgage or agreement for sale in either case ceases and determines.
The first question that arises under this legislation is the company’s defence that where a mortgage of land is involved, a collateral chattel mortgage for the same indebtedness or part of it is necessarily void because in an action upon a mortgage of land, the right of the mortgagee thereunder (i.e., the mortgage of land) is restricted to the land, and that to enforce the security of the chattel mortgage would be another way of enforcing personal liability on the covenant to pay. In my opinion, which coincides with that of the trial judge and the majority in the Appellate Division, this submission was rejected by this Court in Krook et al v. Yewchuk et al., [1962] S.C.R. 535.
* * *
As to the guarantee, Superstein submitted that he was under no liability as guarantor since there was no debt owing by the principal debtor. He said that the effect of s. 34(17)(a) was to render it impossible that there should be any debt owing by the hotel company. The simple answer is that the hotel borrowed money from Crédit Foncier on the security of land and chattels. This borrowing was
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neither illegal nor ultra vires and gave rise to a debt. Swan v. Bank of Scotland, (1836) 10 Bli. N.S. 627, does not apply. It was a case of illegality. But here, s. 34(17) is a procedural limitation. There was a borrowing and there was an unenforceable debt which will not disappear by the terms of s. 34(18) until a vesting order is made.
The answer here is that the appellant has two valid bills of exchange made by respondent. The cheques were given for valuable consideration and should have been paid when presented for payment: Troves v. Manchur, Manchur and Manchur Bros., at pp. 161-164. Respondent is a stranger to the agreement for sale under which appellant obtained the order nisi. The obligation of appellant to credit the proceeds of these cheques, if and when received, against the amount owing under the agreement for sale is a matter between it and its purchaser, Southgate Motor Inn Ltd. Receipt of moneys by appellant under these cheques may well affect or suspend the operation of the order nisi between the parties thereto, but again that is a matter outside the scope of the controversy between appellant and respondent.
I would, accordingly, allow the appeal with costs throughout. The appellant is entitled to judgment in the sum of $40,000 as prayed for in the statement of claim.
Appeal allowed with costs.
Solicitors for the plaintiff, appellant: Bayda, Halvorson, Scheibel & Thompson, Regina.
Solicitors for the defendant, respondent: Embury, Molisky, Gritzfeld & Embury, Regina.
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