Canadian Laboratory Supplies v. Engelhard Industries, [1979] 2 SCR 787

Supreme Court of Canada

Canadian Laboratory Supplies v. Engelhard Industries, [1979] 2 S.C.R. 787

Date: 1979-05-08

Canadian Laboratory Supplies Ltd. (Plaintiff) Appellant;

and

Engelhard Industries of Canada Ltd. (Defendant) Respondent.

1978: November 1, 2, 7 and 8; 1979: May 8.

Present: Laskin C.J. and Martland, Ritchie, Spence, Pigeon, Dickson, Beetz, Estey and Pratte JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Torts—Damages—Conversion—Sale of goods—Title to goods—Estoppel—Appellant’s employee ordering platinum from respondent—Employee fraudulently reselling platinum as scrap—Whether appellant estopped from denying respondent’s title—Point at which appellant put on its inquiry.

Agency—Ostensible authority—Ratification—Estoppel—Appellant’s employee ordering platinum from respondent—Employee fraudulently reselling platinum as scrap—Whether appellant estopped from denying respondent’s title—Point at which appellant put on its inquiry.

The issues on appeal arise out of an action of conversion brought by the appellant “Canlab”. Both Canlab and the respondent Engelhard were victimised by Cook, an employee of Canlab, in respect of platinum and platinum scrap transactions between the two companies. Cook procured purchases of platinum by Canlab from Engelhard for sale to a fictitious customer, “Giles”. These purchases were made through regular purchase orders properly authorized by Canlab. Cook had persuaded Engelhard’s employee in charge of scrap platinum to accept return of the platinum as scrap from “Giles”. To carry out the scheme Cook had to manipulate Canlab’s records to ensure that the transactions in the platinum intended for redelivery to Engelhard were not shown. Cook obtained possession of this platinum after its delivery to Canlab and a few days later returned it to Engelhard, usually by taxi, with a written request for payment to be made to a stated address. The fraud was of considerable magnitude and went on for some seven years. Canlab took action against Engelhard founded on Canlab’s claim of title to the platinum ordered through Cook for “Giles” and in the unlawfulness of any claim of title by Engelhard to the platinum scrap which it received directly from “Giles”. The trial

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judge held that Canlab had acquired title to the platinum for which it paid, that Cook had stolen the platinum and that its resale by him to Engelhard was a conversion by the latter. Judgment was entered for Canlab for $943,420.49. The Court of Appeal however reversed and dismissed Canlab’s action on the basis that Cook had apparent authority on which Engelhard relied and that estoppel arose against Canlab.

Held: The appeal should be allowed, Laskin C.J. and Spence and Dickson JJ. dissenting in part.

Per Martland, Ritchie, Pigeon, Beetz, Estey and Pratte JJ. The appeal can be disposed of as suggested by the Chief Justice save in one respect. The computation of damages in the Chief Justice’s approach commenced in 1964 and continued until late 1968 when it was found that the respondent had alerted the appellant to the nature of the transaction so as to preclude recovery by the appellant beyond that date. There was however evidence of approaches made in 1966 by Engelhard to Canlab, and of correspondence thereon, to the effect that in October 1966 (first) Canlab was apprised in sufficient detail of the “Giles” transaction and of some of Cook’s involvement to be put on its own inquiry and (second) Cook was held out by Snook, Canlab’s purchasing agent as an authorized agent with whom Engelhard could deal regarding the request by Engelhard concerning the “Giles” matter. The recovery by Canlab should in the circumstances of the case be limited to the period prior to the date on which Canlab was put on its inquiry.

Per Laskin C.J. and Spence and Dickson JJ. (dissenting in part): Although the platinum ordered by Canlab through Cook was, after delivery by Engelhard to Cook, stolen by Cook in furtherance of his scheme this did not affect the vesting of title in Canlab upon delivery being effected. This did not have to depend on any authority given or ascribed to Cook by Canlab or Engelhard but only on the fact that proper purchase orders from a proper source were given to Engelhard which was entitled to fill them and to receive payment for so doing. The question then became the extent to which Engelhard should answer for the loss suffered by Canlab. Lacourcière J.A. would have cut the loss at October 1966, by reason of a telephone conversation between McCullough of Engelhard and Snook, an employee of Canlab, who directed his inquirer, McCullough, to get in touch with Cook. What militated against this however was that Snook, like Cook, had no managerial authority and there was no evidence of any back-up authority by

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which he could hold Cook out as having power to compose the difficulty, raised by Engelhard, in settling accounts. There was, however, a contact in 1968 between Canlab and Engelhard when, and this the trial judge found as a fact, Fabian, Canlab’s vice-president of operations, had received a call from Scott, Engelhard’s president, who was curious about the use made of the platinum by Giles. Fabian was put on his inquiry as a result of that call and any losses suffered by Canlab thereafter must be borne by Canlab.

[Farquharson Brothers & Co. v. C. King & Co., [1902] A.C. 325; Union Bank of Australia Ltd. v. McClintock, [1922] 1 A.C. 240; Commercial Banking Co. of Sydney Ltd. v. Mann, [1961] A.C. 1; Freeman & Lockyer v. Backhurst Park Properties (Mangal) Ltd., [1964] 2 Q.B. 480, [1964] 1 All E.R. 630; Hely-Hutchinson v. Brayhead Ltd., [1968] 1 Q.B. 549, referred to.]

APPEAL from a judgment of the Court of Appeal for Ontario[1] allowing an appeal from a judgment of O’Driscoll J.[2] at trial. Appeal allowed with costs, judgment of the Court of Appeal set aside and judgment of O’Driscoll J. as to the liability of the respondent restored but not as to the question of damages; the appellant is entitled to recover damages for the years 1964 and 1965 and up to October 11, 1966, with a reference to the Master of the Supreme Court of Ontario to fix the amount if the parties are unable to agree on it and with interest from the date of the trial judgment; Laskin C.J. and Spence and Dickson JJ. dissenting in part would have awarded damages for the years 1964 to late September or early October 1968.

J.J. Fitzpatrick, Q.C., and H. Poss, for the appellant.

P.B.C. Pepper, Q.C., and John Adams, for the respondent.

The judgment of Laskin C.J. and Spence and Dickson JJ. was delivered by

THE CHIEF JUSTICE (dissenting in part)—The issues in this appeal arise out of an action of

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conversion brought by the plaintiff Canadian Laboratory Supplies Limited, hereinafter referred to as Canlab, against Engelhard Industries of Canada Ltd., hereinafter referred to as Engelhard. Both Canlab and Engelhard were victimised by one Cook, an employee in Canlab’s sales department (and later supervisor of inside sales), in respect of transactions in platinum and platinum scrap between the two companies. They had been doing business with one another since 1941. Engelhard, a refiner of precious metals, including platinum, sold to Canlab which supplied equipment and materials to hospitals, universities and various laboratories.

Through a fraudulent scheme which became operative on May 23, 1962 and continued undetected for almost seven years, Cook procured purchases of platinum by Canlab from Engelhard for sale to a fictitious customer, one J. Giles who was Cook in another guise. The purchases so procured by Cook were made through regular purchase orders, properly authorized by Canlab. By a telephone arrangement with Engelhard, Cook persuaded that company to accept directly from Giles a return of the platinum as scrap and to pay Giles for it at the going price. Noges, the Engelhard employee in charge of scrap platinum, who agreed to the arrangement proposed by Cook, was told by the latter that Giles was a scientist working on a secret process and that it was not advantageous or convenient for Canlab to handle the return of scrap platinum from Giles. Platinum was in short supply during the period of the fraud and Engelhard made it a term of its sales orders that any platinum it sold would be returned to it as scrap unless, of course, it had been manufactured into articles, as for example, jewellery.

To carry out this scheme, Cook had to manipulate Canlab’s records so as to ensure that the transactions in respect of the platinum intended for redelivery by him to Engelhard in the guise of Giles were not shown on those records. Cook obtained possession of this platinum after its delivery to Canlab and a few days later returned it to Engelhard, usually by taxi, with a written request for payment to be made to a stated address.

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The magnitude of the fraud perpetrated by Cook upon his employer and upon Engelhard, which was not discovered until the early days of January, 1969, is shown by the following table of fraudulent and legitimate purchases of platinum by Canlab for the years 1962 to 1968 inclusive and of the scrap returns from Giles for which Engelhard paid:

($ nearest 000)
Year	Fraudulent Purchases Paid by Canlab	Number	Legitimate Purchases Paid by Canlab	Number	Scrap Returns from “Giles” Paid by Engelhard
1962	$    9,000	15	$ 14,000		$    6,000
1963	18,000	12	15,000		14,000
1964	21,000	9	19,000		18,000
1965	45,000	15	40,000		39,000
1966	88,000	25	30,000	126	77,000
1967	211,000	33	35,000	99	185,000
1968	578,000	70	33,000	126	502,000

The action against Engelhard was begun on October 8, 1969. It was founded, of course, on Canlab’s claim of title to the platinum ordered through Cook for Giles and in the unlawfulness of any claim of title by Engelhard to the platinum scrap which it received directly from Giles and for which it paid by cheques issued to Giles. It is common ground that the claim in respect of purchases made (through Cook for Giles) in 1962 and 1963 (the last one in that year being on July 8) is statute-barred. O’Driscoll J., before whom the action came on for trial, held that Canlab had acquired title to the platinum for which it paid under authorized purchase orders and that Cook stole the platinum, and its resale by him to Engelhard who retained it resulted in a conversion by the latter. He rejected contentions by the defendant that the plaintiff was estopped by its conduct or by negligence from asserting title to the platinum and, applying a statement by Lord Lindley in Farquharson Brothers & Co. v. C. King & Co.[3], at pp. 342-3, he gave judgment for Canlab for $943,420.49 as being the total sum paid out by Canlab for the years 1964 and 1968 inclusive, that being

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the value of the platinum at the various dates of conversion. He also awarded interest at the rate of 5 per cent from January 6, 1969 (when the defendant knew of the conversion by it of Canlab’s goods) to the date of judgment, being November 26, 1975, in the amount of $324,894,62. The case went to trial on April 8, 1974 and took nine days to hear.

Engelhard appealed, and a five-member Court of Appeal, Lacourcière J.A. dissenting in part, set aside the judgment of O’Driscoll J. and dismissed Canlab’s action. In his majority reasons, Blair J.A. concluded that Cook had apparent authority upon which Engelhard relied. He put the matter in the following words:

…There were, in fact, three representations of authority from which three transactions developed: first, the representation that Cook had Canlab’s authority to purchase platinum from Engelhard; second, the representation that Cook had Canlab’s authority to sell platinum to Giles; and third, the representation that Cook had Canlab’s authority to arrange the direct resale of platinum by Giles to Engelhard.

He rejected the application of the principle of the Farquharson case relied on by O’Driscoll J. and declared that an estoppel arose as follows:

In summary, it seems to me that Canlab had permitted Cook to assume a position where he had apparent authority to conduct and arrange the three combined transactions with Engelhard. He represented to Engelhard that he had authority to purchase platinum, to sell it and to arrange for its repurchase by Engelhard directly from Canlab’s customer. Engelhard relied on these representations and, in my view, Canlab is estopped from denying them with the result that Canlab is bound by them and cannot dispute the validity of any part of Cook’s transactions with Engelhard

Finally, the learned Justice of Appeal held that in so far as Canlab sought to rely on ratification by Canlab of the purchases for Giles made through Cook (ratification being evidenced by the bringing of the action), such ratification could not be partial but must extend to what was one entire or interrelated transaction or series of transactions. For this conclusion Blair J.A. relied on two judg-

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ments of the Privy Council, Union Bank of Australia Ltd. v. McClintock[4] and Commercial Banking Co. of Sydney Ltd. v. Mann[5].

Lacourcière J.A. was of the opinion that Canlab was entitled to recover in conversion for the value of platinum for the years 1964, 1965 and to October, 1966. Up to this latter date there was, in his view, no holding out or representation made by Canlab that Cook had authority to arrange the transactions of purchase for Giles and for the return of the platinum scrap directly to Engelhard. Any representation by Cook himself (he not being in a senior managerial position) could not become, per se, a representation of his principal.

Lacourcière J.A. fixed the cut-off as of October, 1966 for the following reason. Engelhard had become concerned about the gap in time between its receipt of payments from Canlab (it was selling on a “net 30 days” basis and Canlab was taking sixty days to pay) and its immediate payments to Giles for returned platinum scrap. The vice-president and treasurer of Engelhard spoke of this to McCullough, the head of the inside sales at Engelhard and he telephoned one Snook at Canlab, a person he knew. Snook told McCullough to talk to Cook about the problem, and when McCullough telephoned Cook the latter suggested that McCullough write to Ferguson, the controller at Canlab. This McCullough did on October 11, 1966 and on October 26, 1966 he received a reply signed by Cook who wrote that the letter to Ferguson had been handed to him for reply. The trial judge found that Cook had intercepted McCullough’s letter to which he replied without anyone else at Canlab knowing of it. Lacourcière J.A. held that there was a holding out of Cook from October 11, 1966 as being authorized by Canlab to deal with the resale of platinum scrap by Giles directly to Engelhard and, consequently, Canlab was estopped from denying Cook’s authority in respect of subsequent transactions. In so holding, he differed from O’Driscoll J. who said flatly that no

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defence was open to Engelhard by reason of what occurred in October 1966.

As to the earlier dealings, Lacourcière J.A. was of the view that no issue of ratification arose in respect of Canlab’s claim of title to the platinum purchased through Cook for Giles. The purchases were handled in the regular way by the purchasing department of Canlab and, indeed, there were some legitimate purchases procured by Cook as well as the fraudulent ones. Canlab obtained title accordingly, and those transactions were separate from the resale transactions of scrap platinum. It was Justice Lacourcière’s further view that if ratification was necessary to establish title it did not necessarily extend to Cook’s subsequent fraudulent dealings with Engelhard as Giles. He would confine the two Privy Council judgments relied on by Blair J.A. to transactions involving negotiable instruments, which was their subject matter. In the result, he would have awarded Canlab recovery for the value of platinum for 1964, 1965 and until October 1966 but would not have awarded interest because, in the special circumstances, he could not find any wrongful withholding of payment.

The finding of O’Driscoll J. that Canlab’s control system was adequate and that there was no negligence in its operation was concurred in by all members of the Court of Appeal. This, in my view, precludes any contention that Canlab should have known of or discovered the fraud of Cook within a reasonable time after it was put into effect. It remains to consider then whether agency principles as to apparent authority and their effect on the facts of this case foreclose Canlab in whole or in part from recovering its loss from Engelhard. Allied to this is, of course, the question whether Canlab, if it obtained title to the platinum which is the subject of these proceedings, can dissociate its title from Cook’s subsequent thefts and resales to Engelhard while masquerading as Giles.

The first question I wish to consider is whether title to the platinum ordered through Cook’s instigation passed to Canlab. Blair J.A. noted that

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O’Driscoll J. held that Canlab had acquired title but did not say precisely how this was done. Blair J.A. added this:

…The manner by which property in the platinum may have passed to Canlab raises problems, to which I will refer later, but this is not the main issue in the appeal. The vital question is simply whether Canlab is bound by the acts of its employee, Cook.

I take the last sentence of this quotation to refer to the Giles-Engelhard transactions. This is evident from later portions of Blair J.A.’s reasons. Nonetheless, if title is not the main issue, it certainly lies at the forefront of Canlab’s cause of action.

In coming to a discussion of whether Canlab acquired title, Blair J.A. stated that:

…Mr. Fitzpatrick [counsel for Canlab] conceded before us that property did not pass under The Sale of Goods Act, R.S.O. 1960, c. 358, s. 19, R. 5, simply by delivery of the platinum to Canlab because it could not be said that the platinum had been appropriated to the contract by Engelhard with the consent of Canlab.

In this Court, the same counsel for Canlab asserted that Blair J.A. did not state his position correctly on the effect of The Sale of Goods Act. His position was that title passed when in the ordinary course of their duties authorized employees of Canlab issued proper purchase orders which were filled by Engelhard by delivery of the platinum covered thereby even though in most cases Cook took the delivery. Whether Cook had actual or apparent authority to accept delivery does not appear to have been explored in the Courts below. Clearly, Canlab expected the ordered platinum to come into its inventory and then to be resold. Canlab did not know of Giles until the fraudulent scheme of Cook was discovered. When Engelhard made the deliveries it had completed its end of the bargains and became entitled to payment and was in fact paid. On this view, no question of ratification arises, and title did pass to Canlab on delivery, albeit the delivery was to Cook.

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Considerable argument was mounted by counsel on each side of what Canlab put forward as its alternative submissions on title. These submissions were that (1) Canlab obtained title by reason of the apparent authority of Cook to buy the platinum, without any need for ratification and (2) Canlab could obtain title by ratifying the purchases and this did not bind it in respect of the thefts by Cook and resales by Cook in the guise of Giles to Engelhard. The respondent contended that ratification was necessary because apparent authority alone to procure the platinum would not vest title. Further, ratification would have to cover the entire gamut of Cook’s transactions including the resales to Engelhard.

It does not appear that Engelhard knew Cook other than as an employee of Canlab who phoned in purchase orders for platinum, orders which were confirmed by Canlab, and who picked up platinum pursuant to such orders. So far as the record shows, the first purchases in Cook’s scheme were made pursuant to purchase orders sent out by Canlab in the regular way, but soon thereafter the orders were first put in by telephone by Cook and were later confirmed by written purchase orders which were acknowledged by Engelhard. The orders usually contained a notation as to delivery as follows: “Pick up noon”. This was not unusual since platinum purchasers preferred to pick up the precious metal themselves rather than risk any damage to it from delivery by others.

In my view, although the platinum ordered by Canlab through Cook was, after delivery by Engelhard to Cook, stolen by the latter in furtherance of his fraudulent scheme, this did not affect the vesting of title in Canlab upon delivery being effected. It could hardly be argued by either Canlab or Engelhard that the one was not obligated to pay for the platinum or that the latter was entitled to reclaim it or to sue in conversion if Canlab had refused to pay, having discovered Cook’s misappropriation before payment was made. The reason is simple enough and has been

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already indicated. It has nothing to do with any power exercised by Cook through authority actually or ostensibly conferred upon him, but rather with the fact that proper purchase orders, emanating from a proper source, however deceived that branch of Canlab’s operations may have been by an employee of Canlab, were given to Engelhard which was entitled to fill them and to receive payment upon doing so. The main question in this case for me is whether Canlab must suffer all or part of the loss occasioned by Cook’s thefts and resale of the platinum scrap to Engelhard. In short, is this a case where the risk of loss of the value of the platinum bought by Engelhard from the thief should be shifted from Engelhard to Canlab from whom the platinum was stolen by one of its employees?

Blair J.A., in proceeding from the base of an ostensible authority exercised by Cook to purchase platinum from Engelhard, founded it on what he said was “[Canlab’s] conduct in permitting [Cook] to act as he did in the conduct of [its] business with Engelhard”. This was his assessment based upon the application of principles taken from Freeman & Lockyer v. Backhurst Park Properties (Mangal) Ltd.[6], quoting Diplock L.J., as he then was, at p. 502 and from Hely-Hutchinson v. Brayhead Ltd.[7], per Lord Pearson, at p. 593. There is, of course, no doubt in my mind that if an agent, in the exercise of an admitted authority in him in respect of his ordinary duties acts for his own benefit, his principal cannot deny liability for contracts he purports to make on behalf of the principal. It is only in such circumstances or where there is a representation from the principal that puts the agent in a position to act beyond the authority reposed in him that the principal can be bound. There is no “permitting” in the sense of binding the principal where the agent is not in the course of his ordinary duties or where there is no representation at all from the principal or from someone in a directory capacity to act for a corporate principal.

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The Freeman & Lockyer case involved a claim for architects’ fees against the defendant company whose de facto managing director, one K, had engaged the architects to do work for the company. There was no question of fraud involved, but only whether K, who had not been formally appointed managing director but had acted as such to the knowledge of the board of directors, could bind the company on whose behalf he purported to contract. On these facts, I do not see how there could be any doubt of the defendant company’s liability, whether the matter turn on ostensible authority (which is what the English Court of Appeal decided) or on actual authority in a managing director.

In quoting portions of the reasons of Diplock L.J., Blair J.A. did not reach those in which Diplock L.J. applied his exposition to a corporate principal. The relevant passage for the present case is at pp. 504‑505 and is as follows:

The second characteristic of a corporation, namely, that unlike a natural person it can only make a representation through an agent, has the consequence that in order to create an estoppel between the corporation and the contractor, the representation as to the authority of the agent which creates his “apparent” authority must be made by some person or persons who have “actual” authority from the corporation to make the representation. Such “actual” authority may be conferred by the constitution of the corporation itself, as, for example, in the case of a company, upon the board of directors, or it may be conferred by those who under its constitution have the powers of management upon some other person to whom the constitution permits them to delegate authority to make representations of this kind. It follows that where the agent upon whose “apparent” authority the contractor relies has no “actual” authority from the corporation to enter into a particular kind of contract with the contractor on behalf of the corporation, the contractor cannot rely upon the agent’s own representation as to his actual authority. He can rely only upon a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates.

Hely-Hutchinson v. Brayhead Ltd. was also a case where R, the de facto managing director of a

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company, being also its chairman, purported to commit the company to a liability. The events upon which the liability depended occurred and the company was called upon to make good. The board of directors had acquiesced in the exercise by R of authority to enter into contracts which he later reported to them. Again, there was no fraud involved, but simply an issue of authority to act on behalf of a company. On the facts as above recited there could be no doubt of the company’s liability for the commitment made in its name by R who had, by virtue of his position and the support of the board of directors, actual authority to do so.

Blair J.A. quoted a passage from the reasons of Lord Pearson, at p. 593, which I wish to reproduce with a preceding sentence in that passage. It is as follows:

…It is, therefore, necessary in order to make a case of ostensible authority to show in some way that such communication which is made directly by the agent is made ultimately by the responsible parties, the board of directors. That may be shown by inference from the conduct of the board of directors in the particular case by, for instance, placing the agent in a position where he can hold himself out as their agent and acquiescing in his activities, so that it can be said they have in effect caused the representation to be made. They are responsible for it and, in the contemplation of law, they are to be taken to have made the representation to the outside contractor.

It seems to me, with respect, that if ostensible authority is sought to be established through the representation of an agent of a corporate principal, it is impossible to equate the position of a mere clerk with that of the managing director of the company sought to be bound by the agent’s representation. The latter, unlike the former, has some back-up in the position in which he has been put by the board of directors; the former, the clerk, can draw nothing from the nature of his position unless he has been expressly authorized to act in the kind of transactions into which he has entered for the company and in respect of which he may have exceeded the limits of the express authority.

I agree with Lacourcière J.A. that there is nothing in the record to show that Canlab as principal

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had placed Cook in a position to hold himself out as having authority to arrange any of the tripartite transactions (so characterized by the majority of the Ontario Court of Appeal), at least until October, 1966. I shall deal with this phase of Lacourcière J.A.’s reasons later on and confine myself at this stage simply to the original purchases by Canlab from Engelhard. Cook was a sales agent not a purchasing agent, and the “permitting” relied on by Blair J.A. appears to me to be a rationalization of Cook’s success not in the purchase of the platinum (backed up as that was by proper purchase orders) but in the subsequent theft and resale to Engelhard.

In saying this I do not subscribe to the proposition, in so far as it purports to be a general statement of the law, that a representation by an agent himself as to the extent of his authority cannot amount to a holding out by the principal. It will depend on what it is an agent has been assigned to do by his principal, and an overreaching may very well inculpate the principal. This, however, does not help Engelhard in the present case.

In view of the conclusion to which I have come on the issue of Canlab’s acquisition of title, namely, that it was in the ordinary course of the filling of proper purchase orders sent by Canlab to Engelhard, I need not be concerned, as was Blair J.A., with that phase of argument of counsel which related to the opposing views of Powell on Agency (2nd ed. 1961), pp. 70 and 150, and Bowstead on Agency (14th ed. 1976), p. 240. The question considered in those texts (the position of Powell being supported by the American Law Institute’s Restatement of Agency Second, vol. 1, section 8, comment 2) was whether in the case of a contract entered into under ostensible authority the principal can sue on it without more or must ratify it. The two Privy Council decisions, referred to by Blair J.A. were said to stand for the proposition that the principal must ratify if it would sue on the contract and, moreover, ratification had to extend not only to a fraudulent agent’s use of the principal’s money to purchase bank drafts, if it could claim title to the drafts, but also to the deposit of

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the drafts in the same bank for collection.

I have already noted that Lacourcière J.A. would confine these two cases to negotiable instruments. There is the added fact that in both cases the fraudulent agent had management power to act for the principal, albeit for proper purposes. In neither case was the agent a mere clerical employee. I do not wish, however, to suggest that this fact alone, although significant as a contrasting feature with the present case, should govern what I say is the inapplicability of the two Privy Council decisions here. Even if ratification was relevant—and my primary conclusion is that it is not—it would not assist the respondent Engelhard in the present case. Moreover, I share the view of Lacourcière J.A. that if ratification was necessary for Canlab to obtain title to the platinum as against Engelhard, there was no necessary connection with the subsequent thefts and resale to Engelhard by Cook in the guise of Giles.

I deal first with Union Bank of Australia Ltd. v. McClintock, supra. The agent in that case was the general manager of a business who could draw cheques on the bank account of the business with a second signature thereto and with a counter-signature of the auditors of the business. He procured these signatures to a series of cheques drawn in the name of the business on its bank, the A Bank, and made payable to the bank itself. He persuaded the A bank to issue bank cheques or bank drafts for the cheques of the business, such bank cheques, drawn by the A bank on itself, being payable to one Robert Haynes. The agent had opened a personal account in the fictitious name of Robert Haynes in the appellant bank. He then paid the bank cheques into his Haynes account with the appellant bank and obtained the money accordingly.

On these facts, it is not difficult to hold that, despite the deception of the agent, he had turned in cheques of the business, properly signed, to the A bank in exchange for that bank’s own cheques made payable to Haynes, and if, as the Privy Council held, there was no actual authority in the

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agent to obtain the bank cheques, I should think that ostensible authority was made out. The case was originally tried by a judge and special jury, which found for the appellant bank. In the view of the Privy Council, their finding negatived the contention that the bank cheques belonged to the business when obtained by the agent but were thereafter converted by him. The jury’s verdict meant that the principal had failed to establish conversion. This was enough to dispose of the case adversely to the principal, but an alternative argument was made that the agent had acted without authority in obtaining the bank cheques but the principal could make the cheques its own by ratifying what the agent had done, but stopping short of ratifying the payment of them into the Hayne’s account with the appellant.

On this issue, the Privy Council had this to say (at p. 247 of the Report):

…It was, of course, not contested that the plaintiffs could not both approbate and reprobate—that is to say, that they could not ratify one part and refuse to adopt another part of anything that was really an integral whole—but the difficulty (which is one of fact) is to say what the whole is and what is only a part…

It was clear, of course, that the fraudulent agent had conceived a plan that carried through to the deposit of the bank cheques into his own account with the appellant bank. As to this, the Privy Council noted that although “this feature gives unity to the whole series of events… it is not necessary to consider whether it also binds them together into one transaction, which must be wholly repudiated or adopted wholly, for the actual form of the transactions carries the matter considerably further”. What the Privy Council was referring to here was the fact that the bank cheques had been issued as payable to bearer and crossed “not negotiable”. The result was explained as follows (at p. 248):

…Unless the bank cheques, when obtained, were to be wholly fruitless and idle, it was necessary to pay them into some bank for collection, and although in truth they were passed into McClintock’s own account for a fraudulent object, the proceeds so obtained might have been applied by him to the trustees’ use had he been an honest man. It follows that the selection of his own bank

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account as the means of collecting the cheques instead of the bank account of the trustees was rather an incidental irregularity than a fresh departure, and when his action in obtaining each cheque has been covered by the respondents’ subsequent authority since mandato priori aequiparatur, the authority covers both his action in obtaining the cheque and his action in collecting the proceeds, and both were done, however improperly, within the limits of the authority conferred by ratification, and were not beyond its limits altogether. It follows on the facts that the plaintiffs fail to prove a conversion by the defendants of cheques which they seek to make their own by ratification, for, if they ratify at all they ratify the bank’s collection of the proceeds for account of McClintock, and if they do not ratify, nothing has been converted that ever belonged to them.

Accepting the conclusion of the Privy Council that there was one transaction throughout in the Union Bank case (although that conclusion was doubted in a note in (1961) 24 Mod. L. Rev. 271, which was referred to in the Court of Appeal and in this Court), the facts here present quite a different picture, and there is the added important factor that the fraudulent agent in the Union Bank case was the general manager. Nor do I find the second Privy Council case relied on by the majority of the Ontario Court of Appeal, the Mann case, pertinent here.

In that case, a business was being carried on in partnership by M, the respondent, and R under which all assets belonged to M but R was authorized to draw cheques on the partnership bank account. R drew a series of cheques on a partnership trust account in the A.N.Z. Bank in favour of W, and then in the firm’s name “per R”, obtained bank cheques payable to W or bearer for the respective amounts of the original cheques. The trust account was debited accordingly. W took the cheques to the appellant bank where he had an account and cashed them and, in due course, each cheque was paid by the A.N.Z. Bank to the appellant. R acted in fraud of the partnership throughout and concealed the fraud by fictitious entries in its books. M sued the appellant bank in conversion and for money had and received. The Privy Council was of the opinion, following the earlier case, that the principal did not get title to the bank

[Page 804]

cheques when they were obtained in fraud of the principal and without his authority. It appeared to separate the original misappropriation of money by cheques drawn on the A.N.Z. Bank from the sequential act of turning them into bank cheques payable to a third person. In short, the A.N.Z. Bank, having honoured the cheques issued under the signature of an agent authorized to do so, was put in a position to issue the bank cheques payable to W or bearer.

This was enough, it seems to me (although a cogent argument could also be made that R’s agency covered the entire run of transactions with the A.N.Z. Bank) to dispose of the case against the respondent. There was, however, an alternative argument of ratification but the Privy Council said it failed on the authority of the Union Bank case. Again, I do not see how the Mann case can be relevant to the proper decision in the present case when the fraud there originated with an authorized agent. Negotiable instruments law was perhaps more pertinent to the decisions in the two Privy Council cases than agency law, as was pointed out in a Note by Schmitthoff in the Journal of Business Law, 1961, at p. 35. This was the opinion of Lacourcière J.A. which I share in this respect.

I come hence to the crucial question whether Engelhard must answer for the whole of the loss suffered by Canlab. Lacourcière J.A., would have cut the loss at October 1966, by reason of the telephone conversation between McCullough of Engelhard and one Snook, an employee of Canlab, who directed his inquirer to get in touch with Cook. What militates against this, however appealing it may be as an equitable solution in a situation where Cook duped both his employer and a third party which did business with the employer, is that Snook like Cook had no managerial authority. He was merely a purchasing agent in the purchasing department and there was no evidence of any back-up authority by which he could hold Cook out was as having power to compose the difficulty, as raised by Engelhard, in settling accounts.

[Page 805]

This, indeed, points to the insuperable difficulty in Engelhard’s position in respect of the second and third representations said by Blair J.A. to be “representations of authority”. They were representations made by Cook to Engelhard without any support from Canlab management. The casualness with which Engelhard acted in respect of its transactions with the unknown Giles—indeed, the evidence does not disclose that Engelhard ever saw Cook—deserves the castigation which Lacourcière heaped upon it, as follows:

…Canlab was swindled by the crafty manipulations of a trusted but dishonest employee. However, Engelhard should have been placed on guard by the bizarre request of Cook to deal with Giles, an eccentric secretive research scientist who returned, within a day or two, scrap platinum in a form which did not disclose any known use of the platinum sheets. In suspicious circumstances, Engelhard paid some $835,453.49 to an unknown scientist without any effort until 1966 to contact anyone in authority at Canlab. I do not regard Engelhard’s conduct as that of a prudent company.

Where a transaction is of such an unusual nature that any reasonable person would be put on inquiry, a person cannot shelter under the doctrine of apparent authority. Houghton & Company v. Nothard, Lowe and Wills, Limited, [1927] 1 K.B. 246. Here Engelhard was put on inquiry by reason of the unusual nature of the transaction to ascertain from a person in authority at Canlab whether Cook had any authority to arrange for the direct resale of scrap…

I wish to refer to a contact in 1968 between Canlab and Engelhard to see if it could have a bearing by way of limiting Engelhard’s liability. Engelhard’s president, one Scott, curious about the use made of the platinum by the unknown Giles, telephoned Canlab’s vice‑president of operations, one Fabian. The trial judge found that Fabian, who said he did not remember receiving a call from Scott, had indeed received the call during which there was a discussion of the large number of transactions in platinum involving Canlab and Giles. Fabian, according to Scott, said he was unaware of the transactions and asked which employee of Canlab dealt with Engelhard. Informed it was Cook, Fabian undertook to investigate and call back. It was Cook who called back later that day, telling Scott he was asked to speak

[Page 806]

on Fabian’s behalf. Cook undertook to make enquiries to answer Scott’s question and to call back but never did.

I am of opinion that Fabian was put on inquiry as a result of the call from Scott, and that any losses suffered by Canlab by the continued deception of Cook, that is from late September or early October 1968, must be borne by it. The trial judge, O’Driscoll J., took, in my opinion, too narrow a view of the matter in saying that “Mr. Scott’s concern had nothing to do with the repurchase by Engelhard from Giles”.

In the result, I would allow the appeal, set aside the judgment of the Ontario Court of Appeal and restore the judgment of O’Driscoll J. but would vary it to limit the recovery of Canlab up to the time that Scott and Fabian had their conversation. If the parties cannot agree on the transactions with Giles that took place after that time, I would direct a reference before O’Driscoll J. or, failing him, another judge of the High Court of Justice of Ontario, to settle the issue. I should add that the fact that Engelhard thought it was buying from Giles and not from Cook should not affect the limitation of Engelhard’s liability as above indicated.

Before parting with this case, I wish to refer briefly to the Farquharson case, supra, which O’Driscoll J. said did not differ from the present case and from which he quoted the following passage from the reasons of Lord Lindley:

In the present case, in my view of it, Capon simply stole the plaintiff’s goods and sold them to the defendants, and the defendants’ title is not improved by the circumstance that the theft was the result of an ingenious fraud on the plaintiffs and on the defendants alike. The defendants were not in any way misled by any act of the plaintiffs on which they placed reliance; and the plaintiffs are not, therefore, precluded from denying Capon’s authority to sell.

Farquharson was a case where the goods sold to an innocent purchaser by a fraudulent employee clearly were owned by the principal. The goods were timber stored with a dock company which was instructed by the principal to accept all trans-

[Page 807]

fer or delivery orders signed by the agent. The latter had, however, only a limited authority to sell to certain recognized customers. He gave a delivery order signed in his own name for the delivery of timber to the order of a non-existent vendor, Brown, which was an alias that the agent assumed, and, as Brown, he sold the timber to the respondent who did not know the appellant principal nor the fraudulent agent, save as Brown. On these facts, the House of Lords held for the principal. The Ontario Court of Appeal distinguished Farquharson on the ground of the thief s utilization of a non-existent vendor and because there was no holding out of the agent by the principal nor any reliance by the respondent on the agent’s position. This was said to be in contrast with the present case where Engelhard was said to have dealt with Cook within the scope of an apparent authority and Canlab was said to be bound even in respect of Cook’s representation in respect of the resales by Giles, also a non‑existent vendor. I need not repeat here my reasons for denying the alleged apparent authority of Cook. On this basis, Farquharson is simply another instance of a fraudulent agent’s inability to give a good title to goods stolen from his principal.

O’Driscoll J. granted interest to Canlab from the date of discovery of the fraud to the date of judgment. Interest, of course, would run from the latter date to the date of payment. On this phase of the matter, which was not considered by the majority of the Court of Appeal in view of its disposition of dismissal, I would adopt the views of Lacourcière J.A. and deny interest to Canlab for any period up to the date of judgment at trial. O’Driscoll J. relied on s. 36(3) of The Judicature Act, R.S.O. 1960, c. 197 (now s. 39(3) of R.S.O. 1970, c. 228) in granting interest to the date of judgment. Accepting as he did that, although s. 36(3) speaks of a jury giving interest, a judge sitting alone may exercise the same power, it is clear that s. 36(3) envisages damages being fixed as of the date of conversion and not as of the date of judgment. I think that the present case is one in

[Page 808]

which damages should be fixed as of the date of judgment and hence is not a case for interest to run from any earlier date.

Since, in the view I would take, the appellant has achieved substantial success, it should have its costs in this Court as well as in the Courts below.

The judgment of Martland, Ritchie, Pigeon, Beetz, Estey and Pratte JJ. was delivered by

ESTEY J.—I have had the benefit of reading the reasons of the Chief Justice and with respect agree with his disposition of this appeal save in one respect. The computation of damages in the Chief Justice’s approach to the claims by the appellant commences in 1964 and continues until late 1968 when it was found that the respondent had alerted the appellant to the nature of the transaction so as to prevent any recovery beyond that date by the appellant. Lacourcière J.A. in the Court of Appeal would have terminated the time of recovery in October 1966. The learned Justice stated:

The situation is different after McCullough’s telephone conversation with Snook in Canlab’s purchase department. McCullough was then referred to Cook with respect to direct payments to Giles for such platinum, and the request for net cash payments by Canlab for all future platinum purchases. I agree that from that date forward, October 11, 1966, Canlab can be said to have held out Cook as an authorized agent to deal with the resale of scrap platinum directly from Giles, and is thereby estopped from denying the validity of Cook’s scheme which on that date became one transaction. I would dismiss Canlab’s claim arising after that date.

The evidence upon which the foregoing is founded is presumably the testimony of McCullough, manager of inside sales of the respondent Engelhard, who describes his 1966 conversation with Mr. Snook as follows:

A. I was approached by Mr. Max Rhodius, the treasurer of Engelhard, who naturally is interested in the accounts receivable situation, and he was per-

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turbed although on one hand we were selling Canadian Laboratory Supplies platinum sheet on the terms of our normal 30 net days, which they were not paying in 30 days, but taking as long as 60 days, and we were accepting from their purported customer scrap platinum for credit and as our usual custom we were issuing the cheques against the value of that scrap within a very short period of time, a matter of a few days, a week. I am not particularly involved in that myself, but I know that to be a fact, and we dislike this situation in that our money was being tied up unfairly, and we wanted steps taken to close this gap, so having been alerted to this, I spoke, first of all, to Mr. Sadgrove about it who was in direct connection with Canlab all these years and subsequently I spoke to the salesman in our organization, a chap by the name of Michael Bartlett, who had the responsibility of calling on Canlab, and we discussed it and he felt as did I our best contact was Ray Snook, S-n-o-o-k.

Q. Who was Mr. Snook?

A. Mr. Snook was an employee of Canlab I dealt with by telephone over a number of years, and he was the one name I personally knew on a man-to-man basis, never met him personally, but spoke to him on the telephone.

Q. Will you tell us his job in Canlab?

A. He was in purchasing, his actual title or function I don’t know. Mr. Bartlett decided perhaps be better if he contacted Mr. Snook and he did. He was unable, I am told, to reach him, and he left a message Snook should phone him back, and failing Bartlett being available Snook could speak to me.

Snook, I recall, did phone me back. He explained, for reasons I don’t know, he was physically apart from the main office of Canlab at that point in time, for some reason his job was away from where normally be with the general office group, and since I am not knowledgeable on this you are much better to talk to Glenn Cook, the man dealing with this customer and knows something about it.

On cross-examination Mr. McCullough stated:

Q. Did you phone Mr. Snook to inquire about to whom you should write?

A. This conversation, as I said, Mr. Snook phoned me.

Q. Was that when you asked him to whom you should write?

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A. No, Mr. Cook was the one who told me to whom I should write. I wanted to talk to Ray Snook because I dealt with Ray Snook many many times over the years, but as Ray Snook was not intimately connected with the purchase offers we were talking about he suggested that my conversation should really be with Glenn Cook who seems to be the only interested party at Canadian Laboratory Supplies, so subsequently I phoned Ray Cook or at least Glenn Cook, and it was Glenn Cook who I say was agreeable, sympathetic to our problem etc. and told me I should direct a letter to Mr. Ferguson, the comptroller of the company.

Q. But the call, which as a result of which you were in touch with Cook, was a call from Snook to you?

A. That is correct.

Q. You are as clear as anything?

A. I am.

Q. Were you quite clear about that in January, 1969?

A. I wasn’t.

Q. You were not clear about it then?

A. No, because the statement taken from me at that time was my best recollection at that time, and naturally this was a topic of some importance in conversation, and in thinking back on the thing and re-establishing events in their proper sequence in my mind I now know as I stated that it was Mr. Bartlett who tried to get Mr. Snook and Mr. Snook phoned me back.

Following this telephone conversation McCullough, as directed by Cook, wrote to Messrs. Ferguson and Birk at Canlab about the Engelhard concern regarding delayed payments by Canlab, as follows:

“LETTERHEAD OF ENGELHARD INDUSTRIES OF CANADA LTD.”

October 11th, 1966

Canadian Laboratory Supplies Ltd.,

80 Jutland Road,

Toronto 18, Ontario

Attention: Mr. R. Ferguson,

                  Comptroller

Gentlemen:

We are writing to confirm our telephone discussion with your Mr. Glenn Cook covering your orders for pieces of platinum sheet .015˝ thick in various sizes, the

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most recent example being your order T13442 for 12 pieces 6˝ x 4˝ weighing approximately 47.5 ozs. tr., and having a value of about $5,367.00.

We find that although we extend our normal terms of net 30 days to you on these purchases, your customer, a Mr. Giles, is returning a like amount of platinum scrap directly to us and is obtaining payment for the scrap within a few days of receipt. In effect Mr. Giles is enjoying what amounts to an interest free loan of over $19,000.00 from Engelhard.

To eliminate this undesirable situation, Mr. Cook indicated that you agree that we will handle all current and future orders of this type on a basis of NET CASH. We will submit our invoice with the goods and will expect to receive your payment within two to three days referencing the invoice number in question.

At the present time our following invoices for orders of platinum sheet are outstanding:

As we have already made payment to Mr. Giles for the value of the scrap platinum returned against these purchases, we would appreciate receiving your cheque in payment of these invoices by return.

We thank you for the cooperation you have shown in this matter and remain,

Yours very truly,

ENGELHARD INDUSTRIES OF CANADA LTD.

(Signed)

                                                                       D.K. McCullough

DKM:k

cc: Mr. E. Birk

This letter drew a reply from Cook dated 26 October 1966, so there is no doubt that the McCullough letter reached Canlab. Furthermore, it can reasonably be concluded from the evidence cited above and from the contents of the above letter that McCullough and Snook discussed Can-

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lab’s customer, Giles, and that after such discussion McCullough was directed to call Cook. It is of considerable importance in my view that Snook was described by a witness (a former Canlab employee) called by the respondent, as being “the purchasing agent” of Canlab. As Snook was the purchasing agent and as Engelhard was a supplier to Canlab, it was natural to expect that Engelhard’s enquiries regarding payment by Canlab for purchases from Engelhard would be directed in the first instance to Snook, the purchasing agent, with whom, furthermore, McCullough had had many telephone contacts over the years.

It therefore seems to me that in the month of October 1966:

(a) Canlab was apprised in sufficient detail of the Giles transaction through the discussion by an Engelhard representative with an appropriate employee of Canlab engaged in the general area of the operation in question, to put Canlab on notice of the general nature of the platinum transactions and, of Giles, and of some of Cook’s involvement therein. Canlab was thereby alerted and put on its own enquiry; and,

(b) Cook was held out by a responsible authority in Canlab as an authorized agent of Canlab with whom Engelhard could deal regarding the request by Engelhard concerning the Giles matter.

It is not without significance that immediately after this discussion with Cook the payments by Canlab to Engelhard for the platinum ordered by Cook were made “on a net cash basis”. McCullough gave this evidence:

Q. Namely be put on a net cash basis?

A. That is correct.

Q. Did that occur?

A. To the best of my knowledge, it did. I don’t become connected in any way with accounts receivable transactions, but since I heard no further complaints from the accounts receivable end of our company I am quite sure that was followed.

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This testimony is corroborated by the evidence given by Scott, the President of Engelhard, who stated:

A. Mr. McCullough came into my office, described the condition that existed, showed me a draft copy of a letter he proposed to send to Canlab, I approved the draft copy, and he sent that letter to Canlab.

Q. Did you see the letter that came back?

A. I did.

Q. And was the promise in the letter that came back fulfilled, namely, that you were put on a net cash basis?

A. It was fulfilled promptly.

Q. What effect, if any, did that have on you, that exchange of correspondence and the fact its terms were fulfilled to pay in cash?

A. Well, it fortified my opinions concerning Mr. Cook as a bona fide agent of Canlab because he had signed the letter and had obtained the results that we had asked for in our letter.

There is a conflict in the testimony of witnesses called by the appellant Canlab as to what authority Cook had, if any, to expedite payments to Engelhard so as to purchase the platinum on a net cash basis as delivered. Mr. Hall, the President of Canlab, stated in evidence:

Q. My instructions from Engelhard are that immediately after the receipt of this letter by them that any sales made by Engelhard to Canlab following were in fact paid on a cash basis rather than on the 30 day basis. Now how do you explain that?

A. Well, it is my understanding that Mr. Cook persuaded the accounts payable department that they should pay those invoices promptly.

Q. How would he persuade, Mr. Hall?

A. I don’t know. I just don’t know how he did that.

Q. Ordinarily the ability of a debtor to be able to not to pay a bill in 30 days is of importance to him, and I suggest to you that the 30 day period traditionally granted to you by your suppliers was of importance to your business?

A. That is correct.

Q. And therefore at what level would Mr. Cook have to have made his intervention?

A. I am not sure at what level he made his intervention.

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Q. Surely he would have to come either to Mr. Fabian or to Mr. Ferguson, would he not?

A. If he were bringing legitimate persuasion to bear that would have been the—would have been the appropriate action, yes.

Q. What do you mean by “legitimate persuasion”?

A. If he were taking action as a result of legitimate negotiations with Engelhard, that correspondence had been legitimate correspondence, then it would have been appropriate for him to take it up with either Mr. Ferguson or Mr. Fabian.

Q. Do you know whether or not Mr. Cook went to either of those gentlemen, Ferguson or Fabian, and handed them the exchange of correspondence?

A. To the best of my knowledge, he did not.

Mr. Birk, mentioned above, testified that Cook had the authority to make these arrangements. His evidence is as follows:

Q. Who would he have to go to to make the arrangement?

A. Cook was a senior clerk, and I believe he was in a position he could make the arrangements and we would accept them.

Q. In other words, he had the authority to make the arrangements, and having made the arrangements your department would accept them?

A. Yes. That wasn’t unusual. There are many suppliers that operate on a net cash basis.

Q. I suppose everybody would like to if you are a shipper of goods. From your point of view, you would rather have it on a 30 day basis?

A. That is true, but if you need the product you have to pay it on that basis.

Q. You think Mr. Cook was able to make those arrangements to have these cheques or the bills paid on a net cash basis and didn’t have to go to you or go to Mr. Ferguson or Mr. Fabian or anybody?

A. I think that is true.

Thus, as a result of McCullough’s call to Snook, and McCullough’s consequential call to Cook, which was in turn followed by a letter written by McCullough on the direction of Cook to Ferguson and Birk of the Canlab staff, the complaint by Engelhard of late payment by Canlab was answered by the immediate payment by Canlab to Engelhard for platinum picked up by Cook. The

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situation whereby Engelhard was financing Canlab on the purchase of the platinum for a thirty- to sixty-day period was, from Engelhard’s point of view, corrected.

It therefore comes down to this. Did Snook occupy such a position in the organization of Canlab so that notice by Elngelhard through McCullough was notice to Canlab through Snook as to the fact of the Giles transaction and so as to effectively hold out Cook as having the authority to deal with Engelhard in the matter of expediting payment to Engelhard for the platinum purchases so as to relieve Engelhard of the burden of financing Canlab’s customer, Giles, as well as Canlab itself in the Engelhard to Canlab to Giles to Engelhard platinum circuit. As was said by Pearson L.J. in Freeman and Lockyer (a firm) v. Buckhurst Park Properties (Mangal), Ltd. and Another[8], at p. 641:

The identification of the persons whose knowledge and acquiescence constitute knowledge and acquiescence by the company depends on the facts of the particular case.

Here we have a supplier of raw material, Engelhard, seeking to rectify a lag in payment by its customer Canlab. The supplier sought out the purchasing agent of its customer. The purchasing agent, on hearing the situation described, heard at least enough to know that purchases by Canlab were being made by Cook, a Canlab employee in the internal sales department. The purchasing agent told its supplier, Engelhard, to discuss the payment problem with Cook. Engelhard did so. The situation about which Engelhard had complained was rectified immediately. This is in 1966, three years before Canlab detected the fraud of Cook.

The manner in which a company can extend actual and apparent authority to an employee so as to be bound by the representations and actions of that employee is discussed by Diplock L.J. in the Freeman case, supra, at pp. 644-6:

The representation which creates “apparent” authority may take a variety of forms of which the commonest is representation by conduct, i.e., by permitting the agent to act in some way in the conduct of the principal’s

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business with other persons. By so doing the principal represents to anyone who becomes aware that the agent is so acting that the agent has authority to enter on behalf of the principal into contracts with other persons of the kind which an agent so acting in the conduct of his principal’s business has normally “actual” authority to enter into.

. . .

The second characteristic of a corporation, viz., that unlike a natural person it can only make a representation through an agent, has the consequence that, in order to create an estoppel between the corporation and the contractor, the representation as to the authority of the agent which creates his “apparent” authority must be made by some person or persons who have “actual” authority from the corporation to make the representation. Such “actual” authority may be conferred by the constitution of the corporation itself, as, for example, in the case of a company, on the board of directors, or it may be conferred by those who under its constitution have the powers of management on some other person to whom the constitution permits them to delegate authority to make representations of this kind. It follows that, where the agent on whose “apparent” authority the contractor relies has no “actual” authority from the corporation to enter into a particular kind of contract with the contractor on behalf of the corporation, the contractor cannot rely on the agent’s own representation as to his actual authority. He can rely only on a representation by a person or persons who have actual authority to manage or conduct that part of the business of the corporation to which the contract relates. The commonest form of representation by a principal creating an “apparent” authority of an agent is by conduct, viz., by permitting the agent to act in the management or conduct of the principal’s business.

. . .

If the foregoing analysis of the relevant law is correct, it can be summarised by stating four conditions which must be fulfilled to entitle a contractor to enforce against a company a contract entered into on behalf of the company by an agent who had no actual authority to do so. It must be shown: (a) that a representation that the agent had authority to enter on behalf of the company into a contract of the kind sought to be enforced was made to the contractor, (b) that such representation was made by a person or persons who had “actual” authority to manage the business of the company either generally or in respect of those matters to which the contract relates; (c) that he (the contractor) was induced by such representation to enter into the con-

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tract, i.e., that he in fact relied on it; and (d)…(not relevant in these proceedings) (emphasis added)

Modern commerce at practically all levels and sectors operates through the corporate vehicle. That vehicle itself, by conglomerate grouping and divisionalization, has become increasingly complex. Persons, including corporate persons, dealing with a corporation must for practical reasons be able to deal in the ordinary course of trade with the personnel of that corporation secure in the knowledge that the law will match these practicalities with binding consequences. The law has long so provided. Both corporate sides to a contractual transaction must be able to make secure arrangements at the lowest level at which adequate business controls can operate. It is in the interest of both corporate and natural persons engaged in business that this be so. One alternative would be to retain corporate trading authority in the inner core of management; another would be to conduct the daily business of the undertaking on a committee basis. Neither law nor commerce has apparently found a practical alternative to the delegation of the corporate authority to agents, its employees. In undertakings of all but the smallest proportions, division of authority according to function is as necessary as it is commonplace. The day of the proprietor and the one man operation has, for better or for worse, long departed from the main stage of business, and the corporate vehicle with attendant business structures has taken over much of the commerce of the country. The law has altered old rules and developed new ones to facilitate the conduct of trade on this larger scale. Obviously some employee must be placed in charge of buying, another of selling, another of financing, and another in charge of accounting, and so on, and each must have the authority necessary to deal responsibly with his counterpart in other trading and governmental organizations.

In this transaction, a senior employee in the sales sector of Engelhard seeks out the purchasing agent of his customer Canlab. The purchasing agent says he is not familiar with the particular

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purchases made by Canlab from Engelhard and so he refers him to an employee who is dealing with these matters, namely Cook. The President of Cook’s employer, Canlab, is not sure of Cook’s actual and real authority to revise the timetable for payment for these purchases but another employee in the accounting division of Canlab testified that Cook had such authority. So far as Engelhard, the customer, is concerned Cook was in the position or had the authority necessary to bring about the desired results by apparently making the necessary arrangements through appropriate Canlab officials, and then reporting his success by letter to Engelhard. Thereafter, as I have said, payments were on the expedited basis as requested. In these intercorporate dealings in 1966 Engelhard apprised the purchasing agent of at least part of the Giles affair. Engelhard responded to the request of Cook, the employee to whom Canlab’s purchasing agent referred Engelhard, by setting out the entire story in a letter to the comptroller of Canlab. That this letter was somehow intercepted and stolen by Cook cannot be held against the position of Engelhard. The law does not put such a high standard of duty on a customer dealing with a corporation and the practices of modern commerce make it most unwise to do so now. It is convenient to note the summary of this principle in Palmer’s Company Law, 22nd ed., 1976, vol. I, at p.-291:

According to this rule, while persons dealing with a company are assumed to have read the public documents of the company and to have ascertained that the proposed transaction is not inconsistent therewith, they are not required to do more; they need not inquire into the regularity of the internal proceedings—what Lord Hatherley called “the indoor management”—and may assume that all is being done regularly (omnia praesumuntur rite ac solemniter esse acta).

This rule, which is based on a general presumption of law, is eminently practical, for business could not be carried on if a person dealing with the apparent agents of a company was compelled to call for evidence that all internal regulations had been duly observed.

Thus, despite the fact that Cook, in the course of dealing with McCullough following Snook’s

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suggestion, disavowed personal authority to actually revise the payment timetable, but rather gave directions to McCullough as to how to present their request for such revision, nothing in the ensuing evidence, including Cook’s written report to Engelhard which completed the negotiations commenced with Snook, can be interpreted as undoing any representation as to Cook’s status in these matters resulting from the conversation between McCullough and Snook. Cook was said to be the person to see regarding the Engelhard complaint, Cook was approached, and by McCullough’s doing as directed by Cook, the complaint was remedied. How Cook actually brought about the desired result was not to be investigated by Engelhard. This, in my view, operates as an affirmative holding out by Canlab through a responsible and appropriate representative, of Cook’s status in connection with the platinum dealings, both the direct purchase by Canlab from Engelhard as well as the system for repurchase by Engelhard from Giles; and this holding out took effect in law from the aforementioned conversation which occurred on the 11th of October 1966.

As I stated at the outset, I only diverge in my disposition of this appeal from that proposed by the Chief Justice with respect to the period during which the responsibility for Engelhard sounds in damages. I therefore would limit the recovery of Canlab up to the time of the conversation with Snook in October 1966 so that the plaintiff-appellant shall recover damages in respect of the years 1964 and 1965 and until the 11th of October 1966, with a reference to the Master, Supreme Court of Ontario, should the parties be unable to agree upon the amount of such damages. I would award interest in the circumstances of this case, only from the date of judgment at trial, in the amount calculated in the above manner.

In the result, judgment at trial and in the Court of Appeal should be set aside and judgment entered in lieu thereof on the above terms with costs to the appellant in this Court and in the Courts below.

[Page 820]

Appeal allowed with costs, LASKIN C.J. and SPENCE and DICKSON J.J. dissenting.

Solicitors for the appellant: Fitzpatrick, O’Donnell & Poss, Toronto.

Solicitors for the respondent: Fraser & Beatty, Toronto.