Breckenridge Speedway Ltd. et al. v. R., [1970] SCR 175

Supreme Court of Canada

Breckenridge Speedway Ltd. et al. v. R., [1970] S.C.R. 175

Date: 1969-10-21

Breckenridge Speedway Ltd., Twin Town Motors Ltd., Oscar Green and Irene Janet Green carrying on business under the firm name and style of Green’s Garage and the said Irene Janet Green and the said Green’s Garage (Plaintiffs) Appellants;

and

Her Majesty The Queen in Right of Alberta (Defendant) Respondent;

and

The Attorney General of Canada Intervenant.

1968: November 8, 12, 14; 1969: October 21.

Present: Cartwright C.J. and Fauteux, Abbott, Martland, Judson, Ritchie, Hall, Spence and Pigeon JJ.

ON APPEAL FROM THE SUPREME COURT OF ALBERTA, APPELLATE DIVISION

Constitutional law—Right to recover funds advanced by Treasury Branch—Validity of agreement to transfer properties either by way of partial payment or as security for payment—Plea of ultra vires—Money had and received—The Treasury Branches Act, R.S.A. 1955, c. 344.

By an agreement made with the Provincial Treasurer of Alberta, with respect to accounts at the Calder Treasury Branch, the plaintiffs, OG, IG and B Ltd., agreed to transfer certain properties to the Provincial Treasurer. The Provincial Treasurer agreed to allow credit on the account of B Ltd., and G’s Garage account with the Calder Treasury Branch for the amount shown on the transfers of certain of the properties. The Provincial Treasurer also agreed to lease back three of the properties for a 5-year term, at a rent equivalent to interest at 6 per cent on the values shown in the transfers, plus annual taxes. The plaintiffs, in respect of these properties, were to have the right to make additional payments, above the stipulated rental, to be applied toward the purchase back of the properties for the amounts set out in the transfers.

The plaintiffs alleged various breaches of this agreement upon the basis of which they sought rescission of the agreement, the return of the various properties, and repayment of moneys received by the defendant pursuant to the agreement.

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The defendant counterclaimed for moneys owing by OG and IG for rentals due under the leases of the properties covered by the agreement, and against G’s Garage and B Ltd., on a promissory note given by the former, and for the amounts due on their current accounts by both of them.

The plaintiffs, in their statement of defence to the counterclaim, alleged that all acts performed and agreements entered into by the defendant, relevant to the action, were invalid because they were entered into pursuant to The Treasury Branches Act, R.S.A. 1955, c. 344, and that the Act was ultra vires of the Legislature of Alberta.

The trial judge’s finding that the complaints made by the plaintiffs did not support a claim for damages, nor for rescission, was supported unanimously by the Appellate Division. With respect to the counterclaim, the majority of the Appellate Division were of the opinion that the plaintiffs, as borrowers, were not entitled, in answer to a claim for payment by the defendant, to set up the constitutional invalidity of The Treasury Branches Act as a defence. Accordingly, they did not consider it necessary to decide that issue. All of the members of the Court, with one exception, were of the view that some of the transfers of property made pursuant to the agreement represented partial payments of indebtedness, but that the transfers of the properties which had been leased back, were given as securities for payment and not as partial payment. In the result, the judgment at trial dismissing the plaintiff’s claim and allowing the defendant’s counterclaim, was varied by striking out that portion of the judgment which had ordered that the defendant recover possession of those three properties. The plaintiffs appealed and the defendant cross appealed to this Court.

Held (Hall and Spence JJ. dissenting in part): The appeal and cross-appeal should be dismissed.

Per Cartwright C.J. and Fauteux, Abbott, Mart-land, Judson, Ritchie and Pigeon JJ.: Even if the contention were valid that The Treasury Branches Act was unconstitutional, as relating to banking, a matter assigned exclusively to the Parliament of Canada, and that the Provincial Treasurer had no legal authority to lend to the plaintiffs the funds which, in fact, were advanced to them, the authorities made it clear that, there being nothing illegal about the transaction, but at most, lack of authority in the Provincial Treasurer to make the advance, the plaintiffs would have no answer to an action for

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money had and received. Irrespective of the constitutional validity of the Act, the plaintiffs were under a legal obligation to pay back the funds of the defendant which they had received. The plaintiffs were not in a position to demand back the properties which they had transferred to repay or to secure repayment of their lawful obligation to the defendant.

The plea of ultra vires would afford no defence to the defendant’s counterclaim, and, that being so, it was unnecessary to determine whether or not the Act was ultra vires of the Alberta Legislature.

It was held, further, that the transfers of the properties that were leased back were given by way of security for payment of the plaintiff’s obligation.

Per Hall and Spence JJ., dissenting in part: It was concluded that: (i) The Treasury Branches Act was ultra vires; (ii) the conduct of the treasury branches was not an exercise of the royal prerogative; (iii) regardless of the finding that the legislation was ultra vires, the defendant was entitled to recover back the moneys loaned to the plaintiffs.

Having found that The Treasury Branches Act was ultra vires, it followed that the agreement entered into by the plaintiffs and the Provincial Treasurer had no existence in law. That did not, of course, nullify what was actually done by the plaintiffs at that time when they transferred certain of the properties to the defendant outright. However, because the agreement was a nullity, the plaintiffs could not maintain an action on it either for rescission or damages as claimed.

The agreement, being a nullity, the defendant could not retain title to the properties transferred by way of security under the agreement.

[Re Coltman; Coltman v. Coltman (1881), 19 Ch. D. 64; In re K.L. Tractors Ltd. (1961), 106 C.L.R. 318, referred to; Ayers v. The South Australian Banking Co. (1871), L.R. 3 P.C. 548, applied.]

APPEAL and CROSS-APPEAL from a judgment of the Supreme Court of Alberta, Appellate Division[1], affirming with variations, a judgment of Primrose J. Appeal and cross‑appeal dismissed, Hall and Spence JJ. dissenting in part.

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A.G. Macdonald, Q.C., and R.D. Gillespie, for the plaintiffs, appellants.

A.S. Pattillo, Q.C., C.W. Clement, Q.C., and J.W. Brown, for the defendant, respondent.

C.R.O. Munro, Q.C., and D.W. Kilgour, for the intervenant.

The judgment of Cartwright C.J. and Fauteux, Abbott, Martland, Judson, Ritchie and Pigeon JJ. was delivered by

MARTLAND J.—The facts of this case have been fully outlined in the reasons of my brother Hall, and it is not necessary to repeat them. A brief review of the pleadings is of some assistance in defining the issues in this appeal. The plaintiffs (appellants), while they alleged that the plaintiff, Green’s Garage, had issued cheques totalling $76,031.97 in favour of Consolidated Finance Corporation and certain other finance companies; that the plaintiff, Breckenridge Speedway Ltd., had issued cheques totalling $36,398.49 in favour of certain finance companies; that the plaintiff, Twin Town Motors Ltd., had issued cheques totalling $20,000 in favour of certain finance companies; and that, prior to presentation of any of the said cheques, the plaintiff Oscar Green, on behalf of all these plaintiffs, had stopped payment of the cheques at the Calder Treasury Branch, made no claim for relief arising out of such allegations. They were referred to by counsel for the plaintiffs, at trial, as “essential basic history to the whole transaction.”

With respect to this aspect of the case I agree with my brother Hall that, whether or not the order to stop payment was given, the plaintiffs ratified the payment of the cheques and the learned trial judge correctly so found.

The substance of the plaintiffs’ claim was for rescission of the agreement made on December 8, 1958, by the plaintiffs Oscar Green, Irene Janet Green and Breckenridge Speedway Ltd., with the Provincial Treasurer, with respect to accounts at the Calder Treasury Branch, whereby those plaintiffs agreed to transfer to the Provincial Treasurer of Alberta properties described as:

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1. The property known as Green’s Garage and fixed chattels situated at Wainwright, Alberta.

2. The property known as Green Garage, Body Shop and fixed chattels in Edmonton.

3. The dwelling of Oscar Green and Irene Janet Green in Edmonton.

4. The Valleyview property at Valleyview, Alberta.

5. Glenlyon Property and Houses, acreage, Edmonton outskirts.

6. Assignment of lease with North Star Oil Company of Green’s Garage in Edmonton, with fixed chattels.

7. Transfer in blank of Green’s Garage property and fixed chattels in Edmonton.

8. Assignment of Agreement for Sale, O.E. Campbell, Viking Motors of Viking, Alberta.

The Provincial Treasurer agreed to allow credit on the account of Breckenridge Speedway Limited, and Green’s Garage account with the Calder Treasury Branch for the amount shown on the transfers of the property at Wainwright, the Green’s Garage Body Shop property in Edmonton, the house of Oscar and Irene Janet Green in Edmonton, and the Valleyview and Glenlyon properties. The Provincial Treasurer also agreed to lease back the first three properties above mentioned, for a five-year term, at a rent equivalent to interest at 6 per cent on the values shown in the transfers, plus annual taxes. The plaintiffs, in respect of these properties, were to have the right to make additional payments, above the stipulated rental, to be applied toward the purchase back of the properties for the amounts set out in the transfers. It was also agreed that operating credits for a period of five years in an amount of $15,000 would be allowed to the plaintiffs.

Transfers of the various properties were executed in November and December 1958, showing values as follows:

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The plaintiffs, in their statement of claim, alleged various breaches of this agreement upon the basis of which they sought rescission of the agreement, the return of the various properties, and repayment of moneys received by the defendant pursuant to the agreement.

The defendant counterclaimed for moneys owing by the plaintiffs Oscar Green and Irene Janet Green for rentals due under the leases of the properties covered by the agreement, and against Green’s Garage and Breckenridge Speedway Limited, on a promissory note given by the former, and for the amounts due on their current accounts by both of them.

It was at this point in the pleadings that the plaintiffs, in their statement of defence to the counterclaim, alleged that all acts performed and agreements entered into by the defendant, relevant to the action, were invalid because they were entered into pursuant to The Treasury Branches Act, R.S.A. 1955, c. 344 (hereinafter referred to as “the Act”) and that the Act was ultra vires of the Legislature of Alberta.

With respect to the plaintiffs’ claim for rescission, the learned trial judge held:

I have examined all the complaints made by the plaintiffs, but, in analyzing them, find they do not support a claim for damages, nor for rescission.

His decision on this point was supported unanimously by the Appellate Division. In my opinion, this finding should not be disturbed.

With respect to the counterclaim, Smith C.J.A., Johnson J.A., and Kane J.A., were of the opinion that the plaintiffs, as borrowers, were not entitled, in answer to a claim for payment by the defendant, to set up the constitutional invalidity of The Treasury Branches Act as a defence. Accordingly, they did not consider it necessary to decide that issue. Porter J.A., and Allen J.A., both held that the Act was ultra vires of the Legislature of Alberta because it related to banking, a matter assigned exclusively to the Parliament of Canada.

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All of the members of the Court, other than Porter J.A., were of the view that some of the transfers of property made pursuant to the agreement of December 8, 1958, represented partial payments of indebtedness, but that the transfers of the Wainwright property, the Green’s Garage Body Shop property and the Green house property, which had been leased back, were given as securities for payment and not as partial payment.

In the result, the judgment at trial dismissing the plaintiffs’ claim and allowing the defendant’s counterclaim, was varied by striking out that portion of the judgment which had ordered that the defendant recover possession of those three properties.

In my opinion, the judgment of the Appellate Division was correct, and in reaching that conclusion I do not find it necessary to determine the constitutional validity of the Act. The issues on this appeal are as to the right of the defendant to recover from the plaintiffs moneys advanced to them by the Treasury Branch, and as to the validity of the agreement of December 8, 1958, under which the defendant received title to certain properties from the plaintiffs, either by way of partial payment, or as security for payment.

The plea of ultra vires, in relation to the circumstances of this case, amounts to this, that the Act being unconstitutional, as relating to the matter of banking, the Provincial Treasurer had no legal authority to lend to the plaintiffs the funds which, in fact, were advanced to them. Even if this contention were valid, the authorities cited by my brother Hall, and in the reasons of Smith C.J.A. and Johnson J.A., make it clear that, there being nothing illegal about the transaction, but at most, lack of authority in the Provincial Treasurer to make the advance, the plaintiffs would have no answer to an action for money had and received. I refer only, among the cases quoted in those judgments, to Re Coltman; Coltman v. Coltman[2], and In re K.L. Tractors Ltd.[3]

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The position was, therefore, that, irrespective of the constitutional validity of the Act, the plaintiffs were under a legal obligation to pay back the funds of the defendant which they had received.

Having reached this conclusion, I turn now to consider the agreement of December 8, 1958, and the transfers of property made pursuant to it. This was a contract by the plaintiffs to transfer titles to certain properties to the defendant, either as a part payment of their indebtedness or as security for repayment. The transfers were effected in accordance with Alberta law and title passed to the defendant, as represented by the Provincial Treasurer. There is nothing in law to prevent the defendant from taking title to Alberta land.

The plaintiffs seek an order to compel the retransfer of the properties from the defendant to them. Their contention is that the agreement was void because it was made in the course of carrying on a banking business, which the Provincial Legislature could not authorize. However, the substance of that agreement, apart from the promise of an additional credit to the plaintiffs, which is not now in issue, was an arrangement for the repayment or the securing of repayment of an outstanding obligation. For the reasons already given, the plaintiffs do not escape that obligation even if the loans were legally unauthorized. That being so, I do not understand how the plaintiffs are in a position to demand back that which they had transferred to repay or to secure repayment of their lawful obligation to the defendant.

A somewhat similar problem was dealt with by the Privy Council in Ayers v. The South Australian Banking Company[4]. In that case, a South Australian statute provided for the creation of a preferential lien upon wool without actual delivery of the wool to the mortgagee. The bank advanced money to a firm on the faith of receiving such a preferential lien. The action was in trover by the bank against the trustee for the creditors of the firm which had borrowed the money to recover the value of the wool. One ground of defence was that the bank’s charter

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contained a provision declaring that it should not be lawful for the bank to advance money on the security of merchandise.

The bank’s action succeeded. In dealing with this defence, Mellish L.J., said, at p. 558:

Another objection was taken by Mr. Manisty on the terms of the Charter—the clause in the Charter which says, it shall not be lawful for the Bank to make advances on merchandise. Now, unquestionably, a great many questions might be raised on the effect of that clause in the Charter which may be of very great importance, but which also being of great difficulty, their Lordships do not think it necessary to give any opinion upon. There may be a question as to what are the transactions which come really within the clause, and whether this particular case does come within it. There may be also question whether, under any circumstances, the effect of violating such a provision is more than this, that the Crown may take advantage of it as a forfeiture of the Charter, but the only point which it appears to their Lordships is necessary to be determined in the present case is this, that whatever effect such a clause may have, it does not prevent property passing, either in goods or in lands, under a Conveyance or instrument which, under the ordinary circumstances of law, would pass it. The only defence which can be set up here (there is no plea of illegality) is under the plea of not possessed, that the right of property and the right of possession never passed to the Plaintiffs. Their Lordships are of opinion, that whatever other effect it has, it cannot have the effect of preventing the property passing.

There are additional circumstances in the present case which are favourable to the defendant. There is no question here as to the rights of other creditors of the plaintiffs. But, more important than that, there is in the present case this added feature. If the Act were unconstitutional, as the plaintiffs allege, the Provincial Treasurer, a minister of the Crown, would be in the position of having exceeded his authority in making advances of money to the plaintiff. The funds advanced were the property of the Crown, and the loan made to the plaintiffs would constitute an unauthorized disposition of Crown property, in which both the Provincial Treasurer and the plaintiffs were participants. The un-

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authorized act of the minister in lending the money could not affect the right of the Crown to demand repayment. The transfers of property made by the plaintiffs were not made to the Provincial Treasurer, but to the Crown. They were made either to repay or to secure repayment of the moneys which the plaintiffs are legally obligated to repay. The Crown has a valid legal title to those properties.

The plaintiffs cannot demand a retransfer of the properties from the Crown unless they can establish that there is no obligation on their part to repay the moneys which the properties were partially to repay, or the repayment of which they were to secure. They cannot establish that fact when, if their contention as to the unconstitutionality of the Act is correct, they are in the position of having received Crown moneys through the unauthorized act of the Crown’s agent, in which they participated.

In the result, I am of the opinion that the plea of ultra vires would afford no defence to the defendant’s counterclaim, and, that being so, it is unnecessary to determine whether or not the Act is ultra vires of the Alberta Legislature.

The only remaining issue is as to whether the transfers to the defendant of the lands described as the Wainwright property, Green’s Garage Body Shop property, and Green’s house property were outright transfers in part payment of the plaintiffs’ obligation or were taken as security for payment. For the reasons given by Allen J.A., which were approved by Smith C.J.A., Johnson J.A., and Kane J.A., I would hold that these three transfers were given by way of security.

It is my opinion that the judgment of the Appellate Division should be sustained and, accordingly, I would dismiss the appeal, with costs, and dismiss the cross-appeal, with costs. There should be no costs payable to the intervenant.

The judgment of Hall and Spence JJ. was delivered by

HALL J. (dissenting in part)—This is an appeal from the Appellate Division of the Supreme Court of Alberta[5] from a judgment by

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Primrose J. The action by the appellants was for rescission of an agreement with the respondent dated December 8, 1958, and the return of certain properties transferred by the appellants to the respondent in May 1959 and for an accounting claiming that the Calder Treasury Branch had wrongfully paid certain cheques after payment thereof had been stopped. The respondent counterclaimed for possession of the properties and for judgment for the amount of certain rentals and loans. Primrose J. dismissed the appellants’ action and gave judgment in favour of the respondent for possession of the properties and other relief. In their action the appellants contended that The Treasury Branches Act of the Province of Alberta was ultra vires. The Appellate Division, while holding that The Treasury Branches Act was ultra vires, nevertheless upheld the judgment of Primrose J., refusing rescission and giving judgment for the amounts claimed in the counterclaim, but held that three of the properties in question in the action had been transferred by way of security and ordered an accounting in respect of those properties. The three properties are known and mentioned throughout the evidence and the judgments as (a) “Green’s Body Shop Property”; (b) “the dwelling house”; (c) “the Wainwright Property”.

The appellants who were plaintiffs in the original action now appeal to this Court, claiming that Primrose J. and the Appellate Division erred in:

1. Failing to hold that the monies paid out by the Calder Treasury Branch in meeting cheques of the Appellants presented for payment after payment had been countermanded were not recoverable.

2. Holding that in these circumstances it was inequitable and unjust for the Appellants to raise the plea of ultra vires on the part of the Respondent in entering into agreements and taking security by way of mortgage to enforce the payment of sums paid out on the said countermanded cheques.

3. Failing to hold that in these circumstances the Appellants could raise the plea of ultra vires.

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4. Failing to find that the said agreements were made and security taken by the Calder Treasury Branch in the course of a banking business carried on by the Provincial Treasury of the Province of Alberta pursuant to, or, alternatively, in excess of the provisions of The Treasury Branches Act, being Chapter 344 of the Revised Statutes of Alberta, 1955 as amended.

5. Failing to find that the said Treasury Branches Act was ultra vires the Province of Alberta by virtue of the provisions of The British North America Act.

6. Failing to find that the said banking business was ultra vires the Province of Alberta by virtue of the provisions of the British North America Act.

7. Failing to find that the said agreements made and security taken were ultra vires the Province of Alberta by virtue of the provisions of The British North America Act.

8. Failing to hold that by reason thereof the Court would not enforce the said agreements made or security taken.

9. Failing to hold that in the circumstances the Appellants were entitled to rescission of the said Agreements made.

The respondent gave notice of intention to cross-appeal from the judgment of the Appellate Division in so far as it related to the Wainwright property by restoring the judgment of Primrose J. on the grounds that the respondent held this property as beneficial owner free from any equity of redemption by the appellant Breckenridge Speedway Ltd., and that none of the appellants had been in possession of the said property since 1960. On the hearing in this Court, leave to amend the cross-appeal was granted to include, in addition to the Wainwright property, the other properties known as “Green’s Body Shop” and “the dwelling house”.

On October 30, 1967, Cartwright C.J. made the following order:

IT IS ORDERED that notice of the constitutional question in the above appeal, together with a copy of the Reasons for Judgment of the Supreme Court of Alberta, Appellate Division and of this Order be served forthwith upon the Attorney General of Canada and upon the Ottawa agents for the Attorneys General of the Provinces, except the Attorney Gen-

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eral of the Province of Alberta, already a party herein, which constitutional question may be stated as follows:

1. “Is the Treasury Branches Act, being chap. 344 of the Revised Statutes of Alberta, as amended, ultra vires the Province of Alberta as being legislation in relation to ‘banking’ contrary to the provisions of the British North America Act?

2. Is the business carried on by the Treasury Branches of the Province of Alberta ultra vires the Province of Alberta by reason of being a business not duty authorized by legislation?”

AND IT IS FURTHER ORDERED that all applications to intervene must be made returnable before the Honourable Chief Justice of Canada in Chambers on Monday the 27th day of November, 1967 at the hour of 10:00 o’clock in the forenoon.

The Attorney General of Canada applied to intervene and was given leave to intervene and to be represented by counsel and to file a factum. No province applied to intervene.

The facts giving rise to this litigation and to the determination of the constitutional question as aforesaid are involved and in the initial stages in dispute. The appellants Oscar Green and Irene Janet Green are husband and wife. At all times material to the litigation, Mrs. Green was proprietor of an automobile garage business in Edmonton, Alberta, known as “Green’s Garage”. The appellant Breckenridge Speedway Ltd. (hereinafter called “Breckenridge”) carried on a garage business at Wainwright in the same province. Both Green’s Garage and Breckenridge were managed by Oscar Green.

In 1956 Green’s Garage was selling new and used cars in Edmonton and at other places in Alberta while Breckenridge was selling new and used cars in Wainwright. New cars were obtained by Green’s Garage from a sales agency known as “Waterloo Motors” while in Wainwright Breckenridge obtained new cars directly from the Ford Motor Company. The transactions with which this litigation is concerned involved cars financed by a company referred to in the evidence as “Consolidated Finance” (hereinafter called “Consolidated”): When Green’s Garage ordered

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a car from Waterloo, it would be delivered subject to a chattel mortgage for the wholesale price given by Consolidated to Waterloo. Consolidated would then pay out Waterloo and deliver the car to Green’s Garage, subject to a chattel mortgage given to secure Consolidated. Such a car was designated as being on “wholesale finance”. When Green’s Garage sold the car on time under a conditional sales agreement to a customer, Green’s Garage would deliver to Consolidated its cheque to clear the wholesale finance, discharging the chattel mortgage. Consolidated would then give Green’s Garage a cheque to cover the proceeds to be received from the customer under the conditional sales agreement in its favour. If purchasers defaulted under their conditional sales agreements, the cars would be repossessed and put back on wholesale finance pursuant to the terms of a master agreement between Green’s Garage and Consolidated, and the balance would be deducted from the amounts payable to Green’s Garage on other conditional sales agreements delivered to Consolidated. This procedure involving many cars resulted in a dispute or controversy between Green’s Garage and Consolidated as to Green’s Garage’s indebtedness to Consolidated.

In September 1956 Green’s Garage concluded that Consolidated was improperly holding back $11,600 in respect of repossessed vehicles. To strengthen its position vis-à-vis Consolidated, Green’s Garage retained conditional sales agreements covering cars sold instead of delivering them immediately to Consolidated as had been the practice. Each such agreement had attached to it a cheque from either Green’s Garage or Breckenridge to Consolidated for the amount of the “wholesale finance” due in respect of that agreement.

The appellant Oscar Green testified that Green’s Garage intended to hold these conditional sales agreements and cheques until the dispute over repossessed vehicles was settled with Consolidated. He further testified that during his absence one weekend about the end of September 1956, a representative from Consolidated came to Green’s Garage and took away

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a boxful of conditional sales agreements and the cheques attached thereto. Green said he learned of this on his return on Sunday evening. The cheques in question were drawn on the Treasury Branch established at Calder (a subdivision of Edmonton) by the Provincial Treasurer of Alberta under the provisions of The Treasury Branches Act, R.S.A. 1942, c. 29. Throughout 1956 Green’s Garage was a depositor at the said Calder branch and had been a depositor from 1950. In 1956, when Breckenridge was incorporated, that company became a depositor at the Calder branch. In 1955 Mr. and Mrs. Green had borrowed money from the Treasury Branch at Calder and had signed promissory notes for $2,600 and $10,500 in April and November of that year respectively; in effect, the appellants and Green’s Garage, as well as Breckenridge, were doing their banking business at the Calder branch of the Treasury Department.

Oscar Green testified that on the morning after he learned that the representative from Consolidated had taken the conditional sales agreements and the cheques, he notified one Skelton who was manager of the Treasury Branch in Calder to stop payment of the cheques which had been taken away by Consolidated. Green further testified that despite the explicit stop payment order, Skelton cashed the cheques, remitting the money to Consolidated. The total amount of these cheques was testified to by Green as being $198,985.86 and this produced a large overdraft in Green’s Garage account. This overdraft as of October 5, 1956, was $123,322.99. On October 3, 1956, cheques totalling $36,398.49 were charged against the Breckenridge account, but as that account had a substantial credit balance no overdraft resulted.

It is clear from the evidence that Skelton did not have authority to extend credit to Green’s Garage in the amount represented by the overdraft of October 5, 1956. Skelton continued to honour cheques for Green’s Garage so that as of October 20, 1956, Green’s Garage was indebted to the Treasury Branch in the sum of $142,546 and Breckenridge owed $6,680.67.

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The matter of Green having stopped payment of the cheques taken away by Consolidated is of vital importance in so far as the appellants are concerned. The stop order as testified to by Green was a verbal one. The learned trial judge found as a fact that the stop payment order was given. He said in this regard:

The matter came to a head when the plaintiffs issued cheques to the finance company and then instructed Skelton to stop payment. I have no doubt he was given these instructions, but a few days later, he went to the plaintiff Green and told him he had put through the cheques for payment.

The appellants rely upon this finding of fact as “the key finding, the cornerstone of appellants’ case”.

The evidence supporting this finding is meagre. Skelton did not give evidence at the trial, and it would appear from the evidence of M.H. Pitcher, liquidation officer in the head office of the Treasury Branches at Edmonton, that Green did not put forward his charge in this respect until December 1960. Green, on the other hand, testified that he told Pitcher and a Mr. Olive who was a superintendent with the Treasury Branch in or about October or November 1956 at a meeting in the office of the supervisor that he had stopped payment of the cheques but that Skelton had cashed them anyway. Nothing more is heard or said about this very important matter until Green referred to it in a letter to Pitcher dated December 17, 1960. However, be that as it may, I am unable to give the finding the effect contended for by the appellants. The evidence clearly establishes that whether or not the “Stop Payment” order was given and disobeyed, the appellants ratified the payment of the cheques and the learned trial judge correctly so found. The appellants continued to do business with the Calder Treasury Branch on the basis that the moneys represented by these cheques had been received by them and were owing to the Treasury Branch. On October 20, 1956, they signed notes to the Treasury Branch for $140,000 representing the overdrafts in the Green’s Garage and Breckenridge accounts as of that date. The

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evidence as of December 8, 1958, and the books of the Treasury Branch showed an indebtedness by appellants of $150,668.10.

At this time an agreement was entered into which will be dealt with later as it has a very important place in determining the rights of the parties, and in particular the rights of the respondent in respect of certain properties which were dealt with at that time. This agreement reads as follows:

MR. OSCAR GREEN, MRS. IRENE JANET GREEN AND BRECKENRIDGE SPEEDWAY LTD.

RE: ACCOUNTS CALDER TREASURY BRANCH

In consideration of the following documents, duly signed by the proper signing officers of the above named parties, to be transferred to the Provincial Treasurer of Alberta by Mr. Oscar Green and Mrs. Irene Janet Green, and Breckenridge Speedway Ltd.

1. The property known as Green’s Garage and fixed chattels situated at Wainwright, Alberta.

2. The property known as Green’s Garage, Body Shop and fixed chattels in Edmonton.

3. The dwelling of Oscar Green and Irene Janet Green in Edmonton.

4. The Valley view property at Valleyview, Alberta.

5. Glenlyon Property and Houses, acreage, Edmonton outskirts.

6. Assignment of lease with North Star Oil Company of Green’s Garage in Edmonton, with fixed chattels.

7. Transfer in blank of Green’s Garage property and fixed chattels in Edmonton.

8. Assignment of Agreement for Sale, O.E. Campbell, Viking Motors of Viking, Alberta.

The Treasury Branches will undertake to arrange a separate lease back to Oscar and Irene Janet Green and Breckenridge Speedway Limited all the above named properties, with the exception of Glenlyon; Viking Motors and Valleyview properties, on a five year lease with payments for such lease to be established in an amount sufficient to cover interest at 6% on the value set out in the Transfer and Assignment of these properties to the Provincial Treasurer, plus an amount equal to the yearly taxes

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on each property. Privilege will be arranged in each lease for Mr. Oscar and Irene Janet Green and Breckenridge Speedway Limited to make a payment over and above the monthly rental payments covering interest and taxes toward purchase back of the said properties for the amount set out in the said Transfer and Lease Assignment.

The Valleyview and Glenlyon properties will not be leased back, but will be put up for sale giving Mr. Oscar Green and Mrs. Irene Janet Green first option to buy these said properties at the same sale price that the Provincial Treasurer is offered for them.

The Provincial Treasurer will further undertake to arrange an operating credit for a period of five years in an amount of $15,000.00 and will receive from Oscar Green and Irene Janet Green and Breckenridge Speedway Limited, Chattel Mortgage covering all stock and movable equipment and book depts as security for the operating credit.

Credit will be allowed by the Treasury Branches on account of Breckenridge Speedway Limited and Green’s Garage Account with Calder Treasury Branch for the amount shown on the Transfers on Breckenridge Speedway Limited property at Wainwright, Green’s Garage Body Shop property in Edmonton, House of Oscar and Irene Janet Green, Valleyview property and Glenlyon property.

Any default in payments of Lease rental amounts to the Provincial Treasurer will cause such Lease in Default to be null and void giving authority to the Provincial Treasurer to cancel said Lease and dispose of said property to apply on account at will. Default is made if payment is not made within 60 days of due date and after a 30 day notice of such non-payment is mailed to the Leasee.

All Lease rental payments to begin on May 1st, 1959.

(sgd.) M.H. Pitcher

                                                                   M.H. Pitcher, for Superintendent.

Pursuant to this agreement, four option leases were executed in May 1959 covering items 1, 2, 3 and 7 referred to in the agreement and were delivered to the appellants. These lease option agreements are to be read as part of the agreement of December 8, 1958. Without referring specifically to the leases, each one called for a fixed rental. For some time the appellants paid rents on the various properties covered by the leases, but ultimately ceased doing so and they

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were not, at the date of the trial, paying rent although still in occupation of the various properties pursuant to the leases. The “Wainwright” property was sold after the trial and by agreement (see formal judgment) of the parties the proceeds were placed in trust and are to be treated as the “Wainwright” property. On receipt of these lease option agreements, the respondent wrote Green’s Garage on May 15, 1959, as follows:

Edmonton, Alberta,
May 15th, 1959.

Greens Garage,
Edmonton

Dear Sirs:

The following will give a breakdown of total amount outstanding on Greens Garage and Breckenridge Speedway Limited accounts at the office of the Treasury Branches. This whole amount has been set up under the following headings with separate amounts making up the total liability as of May 15th, 1959, interest to May 1st, 1959.

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The Treasury Branch in consideration of Agreements now entered into hereby agree to release guarantees now held against:

G.K. Green
K.P. Lindsay
Breckenridge Speedway Ltd.
Twin Town Motors.

We also agree to release guarantee now held by Greens Garage, signed by Irene Janet Green and Oscar A. Green, when a new guarantee is completed on Treasury Branch form to be signed by Irene Janet Green and Oscar A. Green covering the amount due Greens Garage Edmonton Account.

It is necessary to have Mr. Green obtain authority from Breckenridge Speedway Limited to transfer $3,126.62 from Breckenridge Speedway Limited to the credit of Greens Garage Edmonton. This was an oversight in setting up the account to the credit of Greens Garage.

                                                                                                               (Signed) “M.H. PITCHER”

                                                                                                               M.H. Pitcher,

                                                                                                               for Superintendent.

As will be seen, the total indebtedness claimed by respondent at this time was $150,668.10.

The validity of The Treasury Branches Act is directly challenged in this Court by the Attorney General of Canada and the question is also relevant to the contention by the appellants that notwithstanding their liability to repay the moneys borrowed, the fact that The Treasury Branches Act is ultra vires requires a finding that the securities and properties obtained by the respondent under the agreement of December 8, 1958, must be returned to the appellants.

I will deal firstly with the question of the validity of The Treasury Branches Act, secondly with the liability of the appellants to repay the moneys received from the Treasury Branch even if the legislation is ultra vires, thirdly with the contention of the appellants respecting the validity and effect of the agreement of December 8, 1958, and lastly with the claim for rescission and damages.

The question of the validity of The Treasury Branches Act was dealt with in the Appellate

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Division. Smith C.J.A., with whom Johnson and Kane JJ.A. concurred, did not find it necessary to deal with the issue, holding that the appellants could not in any event raise the question of ultra vires in this action. This was, of course, before the Attorney General of Canada intervened to challenge the validity of The Treasury Branches Act. Johnson J.A. agreed with Smith C.J.A. and Allen J.A. that the agreement of December 8, 1958, created equitable mortgages in respect of “Green’s Body Shop Property”, “the dwelling house” and “the Wainwright Property”. Porter and Allen JJ.A., in separate judgments, held The Treasury Branches Act to be ultra vires. Both held that the appellants were not precluded in this action from raising the question of ultra vires. Allen J.A. said in this regard:

It is, of course, obvious from the disposition which I would make of this appeal that I do not consider the plaintiffs are in any way precluded from raising the question of the ultra vires nature of their transactions with the treasury branches in this action.

Porter J.A. said:

But it is urged by the defendant that the plaintiffs are precluded by law from raising as a defence to the counterclaim as it affects the so-called conveyances the invalidity of the statute creating the treasury branches.

If this be so, we arrive at the anomalous position that the defendant may have judgment for the money, keep the conveyed property and enforce its security. What has the subject done that this court should say to him and to his creditors, if any, that the Crown can keep his property as a benefit in a transaction it could not make?

I agree with these views. The respondent can recover the moneys loaned not because the appellants cannot raise the ultra vires issue but because regardless of that issue they must return the moneys they received.

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I do not think that I can usefully add anything to the reasons of Porter J.A.[6] in this regard. He went fully into the history of the legislation and its relationship to banking, and concluded by saying:

In my view The Treasury Branches Act is invalid as trenching upon a legislative field into which it is prohibited from entering by reason of the assignment of the exclusive legislative right therein to Canada.

I am also in agreement with Porter J.A.’s view that the operation of the treasury branches cannot be upheld as being an exercise of the royal prerogative and valid regardless of the statute being ultra vires. Porter J.A. dealt with this argument as follows:

As will be seen from the subsequent discussion of the Treasury Branch legislation, the power of the Crown to conduct the treasury branches sprang from legislation, namely, The Treasury Branches Act. The operation of the treasury branches cannot therefore be an exercise of the prerogative which is created and limited by common law and does not flow from statute. 7 Halsbury’s Laws of England, 3rd ed., p. 221:

463.… The royal prerogative may be defined as being that pre-eminence which the Sovereign enjoys over and above all other persons by virtue of the common law, but out of its ordinary course, in right of her regal dignity, and comprehends all the special dignities, liberties, privileges, powers and royalties allowed by the common law to the Crown of England.

464…. The prerogative is thus created and limited by the common law, and the Sovereign can claim no prerogatives except such as the law allows, nor such as are contrary to Magna Carta, or any other statute, or to the liberties of the subject.

Moreover, the prerogative of the Crown in the right of the Province is co-extensive with the division of the legislative powers made by the British North America Act as between federal and provincial power, and the prerogative of the Crown in the right of the Province could not extend to the operations purporting to be authorized by The Treasury Branches Act unless The Treasury Branches Act is within the legislative authority of the Province.

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In Bonanza Creek Gold Mining Company Limited v. Rex, [1916] 1 A.C. 566, at p. 580, Viscount Haldane said:

“…the distribution under the new grant of executive authority in substance follows the distribution under the new grant of legislative powers.”

With respect, I cannot agree with the learned trial judge that the conduct of the treasury branches is an exercise of the royal prerogative.

The fact that The Treasury Branches Act is ultra vires cannot deprive the respondent of the right to recover the moneys loaned to the appellants as moneys had and received. The law in this regard is aptly stated by Lush J. in Brougham v. Dwyer[7]. This was an action to recover moneys as had and received a loan made by a company by way of overdraft when the company was not permitted to loan in this manner. Lush J. said at p. 505:

When one considers the real meaning of the expression that it was ultra vires on the part of the building society to enter into this transaction, the whole case becomes plain. The directors of the society purporting to act on behalf of the building society, and to make a contract on its behalf, lent the society’s money to the defendant by way of an overdraft. It turned out that in point of law the building society were incompetent to make such a contract, and it followed that the contract which the directors thought they were making was not a contract at all, but was simply a transaction which in point of law did not exist. The consequence was that the defendant had received moneys belonging to the building society under a transaction which had no validity of any sort or kind. If the matter stood there, I should have thought it plain that there being no contract an action for money had and received would lie.

and later:

But when one remembers the meaning of ultra vires the position is different. The contract was only no contract because the building society were unable to enter into it. There was nothing wrong in the contract itself or anything illegal in its nature, but the society being incompetent to make it, it did not exist in point of law. That being so the action

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was maintainable, and the defendant had no answer to it. It was an action brought for money lent under a transaction which was thought to be valid but which was in fact not valid. On principle I can see no possible reason why such an action should not be maintainable, and the Court of Appeal in Re Coltman; Coltman v. Coltman (1881), 19 Ch. D. 64, clearly decided that in a case such as the present assuming the contract not to be illegal, there would be no answer to the action. I am therefore of opinion that there was no defence to the present action, and the appeal must accordingly be allowed.

I am accordingly in agreement with Smith C.J.A. when, in his reasons, he said:

I have no doubt that money lent by the Province of Alberta in the course of carrying on the business of a treasury branch may be recovered with interest even though the carrying on by the Province of the business of operating the treasury branch and the lending of money in that operation was beyond the powers of the Province under the British North America Act.

It should be noted that the appellants do not dispute this proposition. They say in their factum:

It has never been suggested that if the transactions are set aside, the Appellants seek to defeat repayment of monies properly paid out for their use and benefit.

* * *

Obviously a borrower cannot be allowed to cheat his lender by saying the lender had no power to loan. No court is so powerless as to permit itself to be used as a vehicle to defraud a creditor. Although the terminology has not been settled the principle seems clear. It simply could not be done. The doctrine of ultra-vires is raised here to set aside an agreement for the purpose of restoring the parties to their original position each party accounting to the other for money had and received.

The appellants were seeking to avoid payment only of the amount of the cheques which Primrose J. found had been paid after payment thereof had been countermanded. Payment of the amount of these cheques was being resisted, not on the ground of ultra vires but on the ground

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that where a banker pays a cheque, the payment of which has been countermanded, he cannot recover from his customer. That issue has been resolved against the appellants because as Primrose J. correctly found the appellants ratified the payment of the cheques.

Having concluded: (1) that The Treasury Branches Act of Alberta is ultra vires; (2) that the conduct of the treasury branches is not an exercise of the royal prerogative; (3) that regardless of the finding that the legislation is ultra vires, the respondent is entitled to recover back the moneys loaned to the appellants, including the amount of the countermanded cheques, the question remains as to the effect and consequences arising from the agreement of December 8, 1958, and the securities transferred pursuant to that agreement. Two matters require decision in this regard: (1) were any or all of the properties transferred to the respondent pursuant to the agreement of December 8, 1958, so transferred as payment pro tanto on the appellants’ indebtedness to the respondent or as security for the said indebtedness; (2) the rate of interest the moneys advanced should carry from time to time.

Allen J.A., with whom the majority of the Appellate Division concurred, held that three of the properties transferred in May 1959 were transferred as payment pro tanto on the appellants’ indebtedness existing at that time. I agree with this finding. The language of the agreement of December 8, 1958, is quite clear on this point. Being in possession of moneys belonging to the respondent, the appellants were under an obligation to return the moneys loaned to them and it appears to me that repayment could be made in kind as well as in cash. Title to these properties being items 4, 5 and 8 as set out in the agreement of December 8, 1958, will remain in the respondent free of any claim thereto by or on behalf of the appellants or any of them. The appellants are, of course, entitled to be given credit for the value agreed upon at the time for these properties as shown in the letter of May 15, 1959, totalling $12,053.59.

As to the other properties being those which, under the agreement of December 8, 1958, were

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to remain in the possession of the appellants and leased back to them and which were, in fact, so leased back, the formal judgment in the Appellate Division provided in part that the judgment of the learned trial judge should be varied by striking out the orders for possession of the following properties: (a) the property known as “Green’s Body Shop”; (b) the property known as “the dwelling house”; (c) the property known as “the Wainwright property” and also striking out directions for the removal of the caveats against Green’s Body Shop and the dwelling house. The formal judgment also gave effect to an agreement entered into between the parties staying execution pending the appeal to this Court and providing for the sum of $25,000 which had been realized from the sale of the Wainwright property should be paid into an interest-bearing trust account and dealt with as the Wainwright property. The formal judgment also provided that there should be no costs to any party.

Having found The Treasury Branches Act to be ultra vires, that fact and finding cannot then be ignored. I agree with Porter J.A. when he said:

The cases on ultra vires are all founded on the principle that the person who deals with an entity of limited capacity cannot take advantage of its limitations for his own profit. The law does not enforce the contract; it treats it as non-existent, and compels payment or return of property on the basis that it would be unconscionable to enrich a receiver of the benefit. The contract being non-existent, the law precludes the plaintiffs from keeping the money regarding such conduct as unconscionable that would result in unjust enrichment. But it is urged that though the plaintiffs cannot keep the money the Crown should be able to keep the security and thus take the benefit from and be enriched by a transaction which in law it did not make. Surely the transaction is a nullity for all purposes and not just a nullity against the subject.

but I differ from him and agree with Allen J.A. as to the three properties transferred as payment

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pro tanto and not by way of security in May 1959. As previously stated, if the appellants had made a cash payment of $12,053.59 at the time instead of transferring the three properties they could not, by any process, recover back moneys so paid, and I see no difference from the fact that the payment was made by an outright transfer of properties at agreed valuations. Being under obligation to repay, their act in repaying is a valid one notwithstanding that the agreement itself has no legal effect and is in law a nullity.

In the accounting now ordered the appellants should be charged interest at the legal rate of five per cent per annum regardless of the rate stipulated in the promissory notes or other securities taken when the moneys were received by the appellants because the respondent does not recover on the securities but as moneys had and received. The moneys in the hands of the appellants, the borrowers, as a result of the ultra vires loans are in reality moneys belonging to the respondent and are recoverable by the respondent not as in an action in contract or tort but in an action for restitution for moneys had and received: Brooks & Co. v. Blackburn Benefit Society[8].

There should be a full and complete accounting to determine the amount payable by the appellants to the respondent in respect of the moneys loaned to the appellants from time to time which have not been repaid with interest as aforesaid, allowing credit for all payments made by the appellants under the lease option agreements and charging the appellants for all amounts properly expended by the respondent for taxes, upkeep and maintenance of the said properties including interest thereon, and the respondent should have judgment against the appellants severally for the amounts of their respective indebtedness to the respondent arrived at pursuant to the accounting and allowance of interest as above provided. The accounting should begin as of the date in September 1956 when the disputed cheques to Consolidated were cashed and the proceeds remitted to Consolidated.

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The agreement of December 8, 1958, being a nullity, the respondent cannot retain title to the properties transferred by way of security under the agreement. The respondent will reconvey these properties (other than “the Wainwright property” which has been sold) so that title thereto may vest in the appellant from whom title was received in May 1959.

I have lastly to deal with the claim of the appellants for rescission of the agreement of December 8, 1958. In this connection the appellants, having succeeded in their contention that The Treasury Branches Act is ultra vires, it follows that the agreement of December 8, 1958, has no existence in law: Brougham v. Dwyer (supra). That does not, of course, nullify what was actually done by the appellants at that time when, as I have found, they transferred properties to the respondent outright at an agreed valuation of $12,053.59. However, because the agreement is a nullity, the appellants cannot maintain an action on it either for rescission or damages as claimed. The learned trial judge dismissed the claim for rescission and damages on the merits. On the basis that the agreement has no existence in law, I do not find it necessary to go into the merits on these issues.

In the result, there will be a declaration that The Treasury Branches Act is ultra vires. There will be an accounting as aforesaid and fixing the rate of interest in the said accounting at the legal rate of five per cent per annum from the date the various amounts were received by the several appellants. The respondent will have judgment for the amounts and interest thereon which the said accounting will show was received by the individual appellants, Breckenridge Speedway Limited, Oscar Green and Irene Janet Green. Title to the properties known as “Green’s Body Shop” and “the dwelling house” will be transferred back to the transferors thereof and the sum of $25,000 and interest accruing thereon being held in trust as representing “the Wainwright property” will be credited to Breckenridge Speedway Limited in the said accounting.

As to costs, the appellants have failed in their main claim to have deleted from the moneys owing by them the amounts of the disputed

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cheques to Consolidated and they have also failed in respect of the three pieces of property transferred in May 1959 as payment on account. The respondent has failed in her cross‑appeal. In the circumstances, there should be no costs to the appellants or the respondent in this Court.

Appeal and cross-appeal dismissed with costs, Hall and Spence JJ. dissenting in part.

Solicitors for the plaintiffs, appellants: Macdonald, Spitz and Lavallee, Edmonton.

Solicitors for the defendant, respondent: Clement, Irving, Mustard and Rodney, Edmonton.

Solicitor for the intervenant: The Attorney General of Canada.