T-4831-80
Canada Trust Company (Plaintiff)
v.
The Queen in right of the Dominion of Canada
(Defendant)
Trial Division, Cattanach J.—Toronto, November
3; Ottawa, November 19, 1981.
Crown — Negotiable instruments — Old Age Security
cheques — Action for value of negotiable instruments cashed
by plaintiff — Cheques payable to and bearing endorsement
"Winnifred L. Carpenter" who was deceased when cheques
were presented for negotiation — Neither plaintiff nor defend
ant knew that Carpenter was dead until 1979 — Plaintiff
reimbursed defendant for value of instruments upon request
but under protest — Plaintiff relies on s. 21(5) of the Bills of
Exchange Act which provides that instruments are payable to
bearer when payee a fictitious or non-existing person
Whether s. 21(5) is applicable in light of s. 16 of Interpretation
Act which provides that no enactment is binding on Her
Majesty except as therein mentioned — Action dismissed —
Bills of Exchange Act, R.S.C. 1970, c. B-5, ss. 17, 21(5), 26,
49, 50(1), 165(1) — Interpretation Act, R.S.C. 1970, c. I-23, s.
16 — Federal Court Act, R.S.C. 1970 (2nd Supp.), c. 10, s. 35
— Crown Liability Act, R.S.C. 1970, c. C-38, ss. 3, 18 —
Interest Act, R.S.C. 1970, c. I-18, s. 3 — Financial Adminis
tration Act, R.S.C. 1970, c. F-10, s. 28 — Old Age Security
Act, R.S.C. 1970, c. O-6, s. 5(3).
The plaintiff seeks judgment for the value of a number of
negotiable instruments which the plaintiff cashed between
November 1974 and December 1976, and for which the plain
tiff had reimbursed Her Majesty on being requested to do so.
These instruments were Old Age Pension cheques payable to
Winnifred L. Carpenter and were presented to the plaintiff for
negotiation by her husband. The cheques bore the endorsement
of "Winnifred L. Carpenter" and were so endorsed when
presented for negotiation. Winnifred Carpenter had died in
1973, but this fact was not known to either the plaintiff or the
defendant until 1979. The widower continued to cash the
"cheques" until April 1978. The plaintiff complied, under
protest, with the defendant's demand for reimbursement. The
plaintiff contends that it is a holder in due course for valuable
consideration of an instrument payable to the bearer and relies
on subsection 21(5) of the Bills of Exchange Act which pro
vides that where the payee is a fictitious or non-existing person,
the bill may be treated as payable to bearer. The defendant
relied on section 16 of the Interpretation Act which provides
that no enactment is binding on Her Majesty or affects Her
Majesty except only as therein mentioned or referred to. The
issue is whether subsection 21(5) applies in the circumstances
of these transactions.
Held, the action is dismissed. If the drawer does not know
that the payee is dead, then the payee would be "non-existing"
but not fictitious. The payee on the cheques in question was "a
non-existing person" being a person who was deceased when
the instruments were drawn and the drawer did not know that
the payee was dead. That being so, the cheques are to be
treated as payable to bearer. It follows from this that the
authenticity of the payee's endorsement is wholly immaterial.
The principle is generally accepted that when the Crown in the
right of Canada invokes a provincial statute, it must invoke it
as a whole and must take qualified benefits as qualified. The
Federal Crown is under no obligation to submit to compulsory
provincial regulation but if it seeks to take the advantages of
that legislation then it must accept the disadvantages. The
same may be said of federal legislation of general application in
the field to which it is directed such as the Bills of Exchange
Act. In the present circumstances it cannot be said that the
Crown has invoked any particular section of the Bills of
Exchange Act to its advantage while at the same time is
rejecting a section which works to its disadvantage. Section 16
of the Interpretation Act precludes the Crown from being
bound by the provisions of subsection 21(5) of the Bills of
Exchange Act.
R. in the Right of Alberta v. Canadian Transport Com
mission [1978] 1 S.C.R. 61, applied. Vagliano Brothers v.
The Bank of England (1889) 23 Q.B.D. 243, reversed sub
nom. The Governor and Company of the Bank of England
v. Vagliano Brothers [1891] A.C. 107, discussed. Hey-
don's Case (1584) 3 Co. 7, discussed. Clutton v. George
Attenborough & Son [1897] A.C. 90, discussed. Vinden v.
Hughes [1905] 1 K.B. 795, discussed. The Royal Bank of
Canada v. Concrete Column Clamps (1961) Ltd. [1977] 2
S.C.R. 456, referred to. North and South Wales Bank,
Ltd. v. Macbeth [1908] A.C. 137, referred to. Canadian
Pacific Hotels Ltd. v. Bank of Montreal (1981) 32 O.R.
(2d) 560, referred to. The Bank of Montreal v. The
Attorney General of the Province of Quebec [1979] 1
S.C.R. 565, distinguished.
ACTION.
COUNSEL:
R. S. Sleightholm for plaintiff.
Graham Garton for defendant.
SOLICITORS:
Weir & Foulds, Toronto, for plaintiff.
Deputy Attorney General of Canada for
defendant.
The following are the reasons for judgment
rendered in English by
CATTANACH J.: By its statement of claim the
plaintiff seeks judgment in the sum of $5,794.04
against Her Majesty being the total of the face
value of a number of negotiable instruments pay-
able to Winnifred L. Carpenter drawn on the
account of the Receiver General of Canada which
the plaintiff had cashed at its branch in Kingston,
Ontario on divers dates between November 1974
and December 1976 for which the plaintiff had
reimbursed Her Majesty on being requested to do
so.
These instruments were "Old Age Pension
cheques" payable to Winnifred L. Carpenter and
were presented to the plaintiff for negotiation by
her husband, David Carpenter, and so known to be
by the employees of the plaintiff.
The "cheques", without exception, bore the
endorsation "Winnifred L. Carpenter" and were so
endorsed when presented for negotiation to the
plaintiff by David Carpenter. In some instances
the cheques so negotiated were also endorsed by
David Carpenter. Most likely the "cheques" were
endorsed by David Carpenter at the request of the
teller who cashed those instruments, but I have no
evidence of that and only so assume, because
David Carpenter received the cash and would
become liable thereby to recovery by the plaintiff,
if occasion should arise, in his capacity as
endorser.
Winnifred L. Carpenter had died on June 20,
1973. This fact did not become known to either the
plaintiff or the defendant until well into the year
1979.
In the meantime the widower continued to cash
the "cheques" made payable to his deceased wife
from November 1974 to April 1978, a total of 41
"cheques" in a period of approximately four years.
When the defendant demanded reimbursement
the plaintiff complied with that demand but did so
under protest in accordance with its general policy
of returning monies in respect of which the Gov
ernment of Canada disputes liability reserving the
right to seek recovery.
In response to an allegation to that effect in the
statement of claim the defendant, in her statement
of defence, alleged that the plaintiff had paid the
sum of $5,794.04 to the defendant with full knowl
edge of the relevant facts and with a complete
understanding of its position at law.
If that be so the statement of claim would
disclose no reasonable cause of action for recovery
against Her Majesty.
However it transpired that at the time the plain
tiff paid the money to the Government it had been
informed by the banks used by the Government for
clearing purposes that certain bills and cheques
had been returned. Until the plaintiff had drawn
its own cheque to meet the amounts of the bills
and cheques returned the actual instruments were
not available to the plaintiff. Therefore the plain
tiff could not identify the instruments in question
or the reason why the instruments had been
returned.
Accordingly the money was paid by the plaintiff
under a mistake of fact and an action for recovery
of the sum so paid would not be precluded.
Counsel for Her Majesty concurred in this being
so and the defence alleged in the statement of
defence in this respect was withdrawn.
In exculpation of the solicitors for the plaintiff
and Her Majesty both were deprived of the infor
mation on which to base their pleadings by the
practice of the banking institutions to which refer
ence has been made but I cannot understand why
this vital information, which enjoys no privilege
other than by practice peculiar to chartered banks
should not be divulged to parties to potential liti
gation who have a legitimate interest in the
subject-matter if requested.
The plaintiff in its statement of claim also
sought interest on the sum of $5,794.04 at the
prime rate of interest charged from time to time
by Canadian banks from July 18, 1979 (the date
of payment of the $5,794.04 by the plaintiff) to
the date of payment or judgment.
The common law and the provisions of section
35 of the Federal Court Act, R.S.C. 1970 (2nd
Supp.), c. 10, which repeat the common law, were
brought to the attention of counsel for the
plaintiff.
Section 35 reads:
35. In adjudicating upon any claim against the Crown, the
Court shall not allow interest on any sum of money that the
Court considers to be due to the claimant, in the absence of any
contract stipulating for payment of such interest or of a statute
providing in such a case for the payment of interest by the
Crown.
It was pointed out to counsel that there were no
allegations in the statement of claim which justi
fied the claim made for interest.
To this end counsel sought and was granted
leave with the consent of counsel for Her Majesty
to amend the statement of claim by inserting
paragraph 9(a):
The Plaintiff states that the Defendant's retention of the
amount of $5,794.04 has created a liability of the Crown such
as to bring the claim within the Crown Liability Act which
gives use (sic) to a claim for interest pursuant to section 18 of
the said Act.
I entertain great reservations whether any such
liability is created by the incidental references
made to the facts at this stage and in a statement
of facts agreed upon by counsel for the parties
prior to trial and which will be reproduced.
Without deciding these matters there does not
appear to me to be any contract, express or neces
sarily implied, the breach of which could conceiv
ably constitute a tortious act within the ambit of
section 3 of the Crown Liability Act, R.S.C. 1970,
c. C-38, and even if such should be the circum
stance (which I doubt) section 18 of the Act would
not avail the plaintiff because that section merely
enables the Minister of Finance to pay interest on
a judgment for money at the rate prescribed in
section 3 of the Interest Act, R.S.C. 1970, c. I-18,
from the date of judgment. It does not provide for
interest antecedent to judgment.
Counsel for the plaintiff did not press his claim
for interest.
If the plaintiff should be successful in its claim
for judgment in the sum of $5,794.04 its claim for
interest on that amount must be denied.
The statement of facts agreed upon between the
parties reads:
The parties, by their counsel, hereby agree to the following
Statement of Facts:
1. The Plaintiff is a trust company incorporated under the laws
of the Dominion of Canada with its head office in the City of
London, Province of Ontario, Dominion of Canada and which
carries on business through branches at Kingston, Province of
Ontario in the Dominion of Canada among other locations.
2. The Defendant, through the Minister of National Health
and Welfare, administers the Old Age Security Act, R.S.C.
1970, Chap. O-6, and the Canada Pension Plan, R.S.C. 1970,
Chap. C-5.
3. In 1967, Winnifred L. Carpenter, who was born on March 2,
1900, applied for and was granted a pension under the Old Age
Security Act.
4. Between November, 1974, and April, 1978, the Plaintiff,
through its Kingston Branch, negotiated or cashed the Bills
identified in paragraph 3 of the Statement of Claim, which
were drawn on the account of the Receiver General for
Canada. The said Bills identified Winnifred L. Carpenter as
the payee and represented Old Age Pension payments.
6. Unknown to the Plaintiff and the Defendant, Winnifred L.
Carpenter died on or about June 20, 1973. The Plaintiff
became aware of her death on July 18, 1979 when it was
advised by the Defendant of that fact. The Defendant became
aware of her death on or about July 1979.
6. The said Bills of Exchange were complete and regular on
their face. All of the Bills of Exchange which are the subject of
this action will be filed with the Court.
7. The said Bills were accepted and negotiated by the Plaintiff
before they were overdue. At no time prior to July 1979 had
any of the said Bills of Exchange been dishonoured. The
Plaintiff accepted the Bills of Exchange in good faith and for
value without notice of the death of Winnifred L. Carpenter.
8. The said Bills of Exchange had been endorsed with the name
"Winnifred L. Carpenter" apparently by her husband and the
said Bills of Exchange were presented by Mr. Carpenter to the
Plaintiff. A number of the Bills of Exchange had been counter
signed by Mr. Carpenter.
9. It is the practice in Canadian banks and Trust Companys to
accept Bills of Exchange presented for payment without requir
ing that the endorsement of the payee be made in the presence
of the teller, or that the said endorsement be otherwise identi
fied in front of the teller, if the person who actually presents the
Bills of Exchange to the bank or trust company is a customer of
the said bank or trust company. At all material times the
husband of Winnifred L. Carpenter was a customer of the
branch of the Plaintiff in which the Bills of Exchange were
negotiated. Mrs. Carpenter, while alive, had been a customer of
the Plaintiff at the same branch. At the time of opening their
respective accounts, Mr. and Mrs. Carpenter probably provided
the Plaintiff with specimens of their signatures although it has
not been possible for the Plaintiff to verify this.
10. The Plaintiff was notified in July 1979 that certain Bills of
Exchange and cheques had been returned. This information
was provided by the Royal Bank of Canada and the Bank of
Montreal which the Plaintiff used for cheque clearing purposes.
The practice of the clearing banks is to indicate to the Plaintiff
that certain cheques have been returned. The reason for these
returns may be that the cheques were drawn on accounts in
which there were not sufficient funds for payment, or that a
stop payment order was made or that the cheques were
forgeries.
The Plaintiff was required to draw a cheque on its own account
to meet the amount of the cheques and Bills of Exchange
returned. It was only when this amount was paid to the Royal
Bank of Canada and the Bank of Montreal that the returned
Bills of Exchange were capable of being identified. Among the
cheques were the Bills of Exchange which are the subject
matter of this action.
I I. The Chartered Bank's rate of interest on prime business
loans for September 1980 was 12.25 per cent.
(Note there is no paragraph numbered 5 but there are two
paragraphs numbered 6)
While the "Old Age Security cheques" are con
sistently referred to as "cheques" in the statement
of claim and in the agreed statement of facts the
documents are bills drawn by the Deputy Receiver
General of Canada on the account of the Receiver
General.
This is conceded by the plaintiff in its reply to
the statement of defence or joinder of issues, and
there identifies the instruments improperly identi
fied as "cheques" as "bills of exchange".
A "bill of exchange" is defined in section 17 of
the Bills of Exchange Act, R.S.C. 1970, c. B-5,
which reads:
17. (1) A bill of exchange is an unconditional order in
writing, addressed by one person to another, signed by the
person giving it, requiring the person to whom it is addressed to
pay, on demand or at a fixed or determinable future time, a
sum certain in money to or to the order of a specified person, or
to bearer.
(2) An instrument that does not comply with the require
ments of subsection (1), or that orders any act to be done in
addition to the payment of money, is not, except as hereinafter
provided, a bill of exchange.
(3) An order to pay out of a particular fund is not uncondi
tional within the meaning of this section, except that an
unqualified order to pay, coupled with
(a) an indication of a particular fund out of which the
drawee is to reimburse himself, or a particular account to be
debited with the amount; or
(b) a statement of the transaction which gives rise to the bill,
is unconditional.
On the reverse side of these orders are the
following instructions:
Instructions to Banks and other Encashing Agencies
1. This cheque may not be cashed outside Canada.
2. If endorsement is made by mark (X) it must be witnessed by
two persons who know the payee, giving their place of residence
in full.
3. This cheque must be returned at once to the Office of the
Receiver General for Canada, Department of Supply and Ser
vices, in the capital city of the Province in which the payee
resided, if the payee has died or has left Canada.
As I appreciate the contention on behalf of the
plaintiff it is that the plaintiff is a holder in due
course for valuable consideration of an instrument
payable to the bearer and to that end relies on
subsection 21(5) of the Bills of Exchange Act
which reads:
21....
(5) Where the payee is a fictitious or non-existing person,
the bill may be treated as payable to bearer.
In her statement of defence the defendant has
specifically alleged that all endorsements in the
name of Winnifred L. Carpenter made upon the
"cheques" were forged or unauthorized and
accordingly pleads subsection 50(1) of the Act
which reads:
50. (1) Where a bill bearing a forged or unauthorized
endorsement is paid in good faith and in the ordinary course of
business, by or on behalf of the drawee or acceptor, the person
by whom or on whose behalf such payment is made has the
right to recover the amount so paid from the person to whom it
was so paid or from any endorser who has endorsed the bill
subsequently to the forged- or unauthorized endorsement if
notice of the endorsement being a forged or unauthorized
endorsement is given to each such subsequent endorser within
the time and in the manner mentioned in this section.
The plaintiff is a subsequent endorser.
The plaintiff, in its joinder, pleads that the
defendant is estopped from denying the authentici
ty of the endorsement of the payee, Winnifred L.
Carpenter, and is thereby precluded from relying
on subsection 50(1) of the Act.
Estoppel does not lie against the Crown but
accepting that the endorsements were forgeries, as
they must be, subsection 21(5) of the Act, if
applicable, would supersede sections 49 and 50.
That is my appreciation of the crux of the plain
tiff's position.
Her Majesty, like the plaintiff, was not aware of
the reason that the clearing agency "returned" the
cheques. The reasons could be manifold and
because of the practice of the banks the documents
were not released until the deficiency was paid by
the presenter. That being so it was logical that the
solicitor for Her Majesty in drawing the defence
should advance that defence to the allegation by
the plaintiff that it is the holder of an instrument
payable to bearer; the defendant pleads and relies
on section 16 of the Interpretation Act, R.S.C.
1970, c. I-23, which reads:
16. No enactment is binding on Her Majesty or affects Her
Majesty or Her Majesty's rights or prerogatives in any manner,
except only as therein mentioned or referred to.
Counsel for Her Majesty therefore abandoned
his plea based on sections 49 and 50 of the Bills of
Exchange Act and relied to the exclusion thereof
on section 16 of the Interpretation Act.
The issue is thus narrowed to the applicability of
subsection 21(5) in the circumstances of these
transactions.
Subsection 49(1) of the Bills of Exchange Act
lays down the effect of a forged signature. Forgery
is a defence even against a party who would
otherwise be a holder in due course. In the case of
a cheque to a named payee and the endorsement of
the name of that payee is forged the drawer has an
action against his drawee-bank. The signature is
inoperative and the bank cannot debit the account
of its customer.
At common law the acceptor of a bill by accept
ing it was precluded from denying to a holder in
due course the existence of the payee, his capacity
to endorse and the authenticity of his endorsement.
This was based upon the principle of estoppel. The
exception, in which estoppel did not prevail, was
that a bill drawn to the order of a fictitious or
non-existent payee might be treated as payable to
bearer. The estoppel only applied against parties
who at the time they became liable on the bill
knew that the purported payee was fictitious or
non-existent.
The Bills of Exchange Act is a codification of
the law relating to negotiable instruments. In
Vagliano Brothers v. The Bank of England (1889)
23 Q.B.D. 243, the Court of Appeal in interpreting
subsection 7(3) of the original statute (subsection
21(5) of the Canadian statute) imported into the
subsection the qualification which had existed at
common law before the statute was passed. The
Court of Appeal held that "fictitious" means ficti-
tious to the knowledge of the party sought to be
charged upon the bill.
This decision was reversed in the House of
Lords on appeal sub, nom. The Governor and
Company of the Bank of England v. Vagliano
Brothers [1891] A.C. 107. Lord Halsbury L.C.
said at page 120 that where a statute is expressly
said to codify the law it is therefore exhaustive and
you are not at liberty to go outside the code so
created and consider the law as it previously exist
ed as an aid to interpretation of the code.
Lord Herschell spoke to like effect at pages
144-145. He said that:
... the proper course is in the first instance to examine the
language of the statute and to ask what is its natural meaning,
uninfluenced by any considerations derived from the previous
state of the law, and not to start with inquiring how the law
previously stood, and then, assuming that it was probably
intended to leave it unaltered, to see if the words of the
enactment will bear an interpretation in conformity with this
view.
If a statute, intended to embody in a code a particular
branch of the law, is to be treated in this fashion, it appears to
me that its utility will be almost entirely destroyed, and the
very object with which it was enacted will be frustrated. The
purpose of such a statute surely was that on any point specifi
cally dealt with by it, the law should be ascertained by inter
preting the language used instead of, as before, by roaming
over a vast number of authorities in order to discover what the
law was, extracting it by a minute critical examination of the
prior decisions, dependent upon a knowledge of the exact effect
even of an obsolete proceeding such as a demurrer to evidence.
I am of course far from asserting that resort may never be had
to the previous state of the law for the purpose of aiding in the
construction of the provisions of the code. If, for example, a
provision be of doubtful import, such resort would be perfectly
legitimate. Or, again, if in a code of the law of negotiable
instruments words be found which have previously acquired a
technical meaning, or been used in a sense other than their
ordinary one, in relation to such instruments, the same interpre
tation might well be put upon them in the code. I give these as
examples merely; they, of course, do not exhaust the category.
What, however, I am venturing to insist upon is, that the first
step taken should be to interpret the language of the statute,
and that an appeal to earlier decisions can only be justified on
some special ground.
One further remark I have to make before I proceed to
consider the language of the statute. The Bills of Exchange Act
was certainly not intended to be merely a code of the existing
law. It is not open to question that it was intended to alter, and
did alter it in certain respects. And I do not think that it is to be
presumed that any particular provision was intended to be a
statement of the existing law, rather than a substituted
enactment.
He concluded by saying at page 147:
... that in order to establish the right to treat a bill as payable
to bearer it is enough to prove that the payee is in fact a
fictitious person, and that it is not necessary if it be sought to
charge the acceptor to prove in addition that he was cognisant
of the fictitious character of the payee.
The cardinal rule of interpretation in Heydon's
Case (1584) 3 Co. 7 did not apply because the
enactment did not purport to suppress a mischief
and advance a remedy. Subsection 21(5) of the
Bills of Exchange Act was not a statement of
existing law but a substituted enactment.
In Clutton v. George Attenborough & Son
[ 1897] A.C. 90, the appellants drew cheques pay
able to a non-existent person. A clerk in the appel
lants' account department had fraudulently repre
sented to the drawer that work had been done by
that person and the cheques were made payable to
that non-existing person for pretended work. The
clerk endorsed the cheques in the fictitious name
and negotiated them with the respondents, a pur
chaser for value without notice and the respond
ents received payment from the drawee bank. It
was held that the appellants could not recover the
amount from the respondents on the ground that,
although the appellants believed and intended the
cheques to be payable to a real person, they were
payable to a non-existent person. Lord Halsbury
L.C. specifically said at page 93:
... whatever might be said about the difference between the
words "fictitious" and "non-existing," it has in this case never
been suggested that on the face of these instruments the name
of George Brett is anything other than the name of a non-exist
ing person.
Thus this decision is based solely on the ground
that the payee was a "non-existing" person whom
either could or did mean to be the recipient of the
cheque.
Both the Vagliano case and the Glutton v.
Attenborough case were distinguished in Vinden v.
Hughes [1905] 1 K.B. 795.
The plaintiffs' confidential clerk made out
cheques to various of the plaintiffs' customers for
sums not actually owing, obtained the plaintiffs'
signature thereto, misappropriated the cheques,
forged the payees' endorsements, negotiated the
cheques to the defendant who gave full value in
good faith and obtained payment from the plain
tiffs' bankers.
Warrington J. distinguished Clutton v. George
Attenborough & Son because in that case the
payee was a non-existing rather than a fictitious
person and therefore that the drawer believed and
intended the cheques to be payable to the order of
a real person was immaterial.
He distinguished the Vagliano case because in
that case there was no drawer in fact and the use
of a name as payee was a mere fiction.
In Vinden v. Hughes the drawer intended to
issue cheques and intended to issue them to real
persons in the names of particular payees, those
payees being real persons.
That being so it was held that the payees were
not "fictitious" and the plaintiffs were therefore
entitled to judgment.
Warrington J. referred especially [at pages 801-
802] to the judgment of Lord Herschell in the
Vagliano case (supra) at page 152 where he said:
Do the words, "where the payee is a fictitious person," apply
only where the payee named never had a real existence? I take
it to be clear that by the word "payee" must be understood the
payee named on the face of the bill; for of course by the
hypothesis there is no intention that payment should be made to
any such person. Where, then, the payee named is so named by
way of pretence only, without the intention that he shall be the
person to receive payment, is it doing violence to language to
say that the payee is a fictitious person? I think not. I do not
think that the word "fictitious" is exclusively used to qualify
that which has no real existence.
Vinden v. Hughes was approved by the House of
Lords in North and South Wales Bank, Ltd. v.
Macbeth [1908] A.C. 137.
Reverting to the Vinden case (supra) Warring-
ton J. held that the payees were not fictitious
because when Mr. Vinden signed the cheques he
fully intended that the payees should receive pay
ment. It was irrelevant that the transactions them-
selves were fictitious. What was relevant was that
the payee should receive payment.
Warrington J. said at page 802:
Did Mr. Vinden draw this cheque in favour of T. H. Graves
and the others as a mere pretence? It is impossible to come to
that conclusion on the facts of this case. It was not a mere
pretence at the time he drew it. He had every reason to believe,
and, he did believe, that those cheques were being drawn in the
ordinary course of business for the purpose of the money being
paid to the persons whose names appeared on the face of those
cheques. That seems to me really to answer the defendant's
case.
The payee not being "a fictitious or non-existing
person" (the Act says nothing about names) the
bill could not be treated as payable to bearer.
A summary of the results of these cases and the
rules to be derived from them is set forth by
Falconbridge on Banking and Bills of Exchange
(A. W. Rogers, 7th ed.) at pages 485-486. The
author said:
Whether a named payee is non-existing is a simple question
of fact, not depending on anyone's intention. [I insert that here
the test is purely an objective one.] The question whether the
payee is fictitious depends upon the intention of the creator of
the instrument, that is, the drawer of a bill or cheque or the
maker of a note. [In this instance I insert that the test is
subjective.]
There then follows examples:
(1) If Martin Chuzzlewit is not the name of any real person
known to Bede, but is merely that of a creature of the imagina
tion, the payee is non-existing, and is probably also fictitious.
(2) If Bede for some purpose of his own inserts as payee the
name of Martin Chuzzlewit, a real person who was known to
him but whom he knows to be dead, the payee is non-existing,
but is not fictitious.
(3) If Martin Chuzzlewit is the name of a real person known
to Bede, but Bede names him as payee by way of pretence, not
intending that he should receive payment, the payee is ficti
tious, but is not non-existing.
(4) If Martin Chuzzlewit is the name of a real person,
intended by Bede to receive payment, the payee is neither
fictitious nor non-existing, notwithstanding that Bede has been
induced to draw the bill by the fraud of some other person who
has falsely represented to Bede that there is a transaction in
respect of which Chuzzlewit is entitled to the sum mentioned in
the bill.
The principle approved in Vinden v. Hughes was
applied by the Supreme Court of Canada in The
Royal Bank of Canada v. Concrete Column
Clamps (1961) Ltd. [1977] 2 S.C.R. 456. The
majority adopted the fourth enumerated rule from
Falconbridge reproduced above.
The cases deal primarily with the meaning of "a
fictitious person" rather than "a non-existing per
son". References are made to both in many of the
judgments but that was done in most instances
because that was the language of the subsection of
the statute.
I do not think that violence is done to the canon
of interpretation outlined by Lords Halsbury and
Herschell in the Vagliano case to recall that
Bowen L.J. in the decision by the Court of Appeal
(1889) 23 Q.B.D. 243 said at page 260:
The above authorities relate to the case of fictitious persons. In
Ashpitel v. Bryan (5 B. & S. 723) a similar question occurred
where a bill by arrangement between the acceptor and the
drawer was drawn and indorsed in the name of a dead man. A
similar application was there made of the same principle of
estoppel. Probably it was with reference to this case that the
term "non-existing" is introduced into the sub-section which we
have to interpret.
The suggestion is that when the payee is dead
when the instrument is drawn it is nothing but
eminent common sense that the dead payee is
"non-existing" in this world. This is reflected in
the statement by Falconbridge that whether a
named payee is non-existing is a simple question of
fact, not depending on anyone's intention and no
fact is more incontrovertible than that of death.
The fact of death gives rise to the second rule
enumerated by Falconbridge which I repeat:
(2) If Bede for some purpose of his own inserts as payee the
name of Martin Chuzzlewit, a real person who was known to
him but whom he knows to be dead, the payee is non-existing,
but is not fictitious.
I do not accept that rule in its entirety. I think
that if the drawer knows the payee to be dead the
payee is a non-existing person and, in my view, the
payee would also be "fictitious" within the mean
ing of subsection 21(5) of the Bills of Exchange
Act. On the other hand if the drawer does not
know that the payee is dead, then the payee would
be "non-existing" but not "fictitious".
The facts are abundantly clear and accepted by
all parties in this action that Winnifred L. Carpen
ter, the payee of the "Old Age Security cheques"
had died on June 20, 1973 and that fact was not
known to the drawer of those cheques. It is equally
accepted that the plaintiff cashed the instrument
presented to it by the payee's husband in good
faith and in complete ignorance of the death of
Mrs. Carpenter.
These circumstances prevailed until the death of
Mrs. Carpenter became known to the drawer
sometime in the first two weeks of July 1979 and
the plaintiff was forthwith advised on July 18,
1979.
Both the plaintiff and the defendant were the
victims of fraud protracted over a period of three
years and three months consisting of 41 cheques
being cashed on which the named payee was dead
and whose endorsement was forged.
For the reasons expressed I have concluded that
the payee on the cheques in question was "a
non-existing person" being a person who was
deceased when the instrument was drawn and the
drawer did not know that the payee was dead.
That being so the cheques are to be treated as
payable to bearer.
It follows from this that the authenticity of the
payee's endorsement is wholly immaterial.
In usual circumstances the plaintiff would be
under no liability to the defendant.
Counsel for Her Majesty abandoned the alter
native defence based upon sections 49 and 50 of
the Bills of Exchange Act and placed reliance on
the alternative defence, also pleaded, namely sec
tion 16 of the Interpretation Act which reads:
16. No enactment is binding on Her Majesty or affects Her
Majesty or Her Majesty's rights or prerogatives in any manner,
except only as therein mentioned or referred to.
The general principle at common law is that no
statute binds the Crown unless the Crown is
expressly named therein, with the exception that
the Crown is bound by necessary implication in
cases where the purpose of the statute would be
wholly frustrated unless the Crown were bound.
As to this inclusion at common law Laskin
C.J.C., with whom Martland, Judson, Ritchie,
Pigeon, Dickson and Beetz JJ. concurred, said in
The Queen in the Right of Alberta v. Canadian
Transport Commission [1978] 1 S.C.R. 61,
(1977) 75 D.L.R. (3d) 257, at pages 69-70:
The common law position as to such inclusion is stated in
Bombay Province v. Bombay Municipal Corporation [ [1947]
A.C. 58],'where Lord du Parcq said this (at p. 61):
... The general principle to be applied in considering
whether or not the Crown is bound by general words in a
statute is not in doubt. The maxim of the law in early times
was that no statute bound the Crown unless the Crown was
expressly named therein ... But the rule so laid down is
subject to at least one exception. The Crown may be bound,
as has often been said, "by necessary implication." If, that is
to say, it is manifest from the very terms of the statute, that
it was the intention of the Legislature that the Crown should
be bound, then the result is the same as if the Crown had
been expressly named ....
Pertinent to the point last mentioned in this passage is his
further observation (at p. 63):
... If it can be affirmed that, at the time when the statute
was passed and received the royal sanction, it was apparent
from its terms that its beneficent purpose must be wholly
frustrated unless the Crown were bound, then it may be
inferred that the Crown has agreed to be bound. Their
Lordships will add that when the court is asked to draw this
inference, it must always be remembered that, if it be the
intention of the legislature that the Crown shall be bound,
nothing is easier than to say so in plain words.
If the matter rested entirely on the common law as stated in
the Bombay case, I do not see how it could be said that there
would be total frustration of the purpose of the Aeronautics Act
unless the Crown were bound. Can it be said, however, that the
matter rests on the common law alone in the face of s. 16 of the
federal Interpretation Act?
He then quoted section 16 as enacted by S.C.
1967-68, c. 7, which is reproduced above.
Having so posed the question the Chief Justice
provides the answer at page 75 when he said with
respect to the decision of the Federal Court,
Appeal Division:
The Federal Court of Appeal stated that it found significance
in the change in s. 16 as it now reads as compared with the text
of that provision in the superseded s. 16 of the Interpretation
Act that was considered in In re Silver Bros. Ltd., supra. Heald
J.A. did not, however, elaborate how the change restored the
doctrine of necessary implication. In my opinion, the present s.
16, if it is to be considered as referring to the Crown in right of
a Province as well as to the Crown in right of Canada, goes
farther than the superseded provision to protect the Crown
from subjection to legislation in which it is not clearly men
tioned. Whereas the section considered in In re Silver Bros.
Ltd., supra, and in Dominion Building Corporation v. The
King, supra, spoke only of affecting the rights of the Crown (a
point that was taken in respect of the similar Ontario section in
the Dominion Building Corporation case and which appeared
to control the decision there arrived at), the present s. 16 goes
beyond "rights" alone and is express that, in addition, "no
enactment is binding on Her Majesty or affects Her Majesty
... except only as therein mentioned or referred to". I am
unable to agree with the conclusion of the Federal Court of
Appeal that the substitution of the words "except only as
therein mentioned or referred to" for the words "unless it is
expressly stated therein that Her Majesty shall be bound"
restores "necessary implication". It seems to me, on the con
trary, that "necessary implication" is excluded if it is necessary
that the Crown be mentioned or referred to in legislation before
it becomes binding on the Crown.
Laskin C.J.C. at page 72 made specific refer
ence to the circumstance that "a Provincial Legis
lature cannot in the valid exercise of its legislative
power, embrace the Crown in right of Canada in
any compulsory regulation."
But he added:
This does not mean that the federal Crown may not find itself
subject to provincial legislation where it seeks to take the
benefit thereof ....
The principle is generally accepted that when
the Crown in the right of Canada invokes a provin
cial statute, it must invoke it as a whole and must
take qualified benefits as qualified.
The Federal Crown is under no obligation to
submit to compulsory provincial regulation but if
it seeks to take the advantages of that legislation
then it must accept and not reject the disadvan
tages. It cannot blow hot and cold in the same
breath.
I think the same may be said of federal legisla
tion of general application in the field to which it
is directed such as the Bills of Exchange Act.
In the present circumstances it cannot be said
that the Crown has invoked any particular section
of the Bills of Exchange Act to its advantage while
at the same time is rejecting a section which works
to its disadvantage.
While it is true that Her Majesty as defendant
pleaded sections 49 and 50, the forgery provisions,
as a defence that pleading was done at a time
when the solicitor for Her Majesty was not in
possession of all the facts (and the solicitor for the
plaintiff was in a like position) as to why the
instruments would be returned to the plaintiff by
the clearing agency when compensated therefor.
The defence provided by sections 49 and 50 was
advanced as an alternative defence which was
abandoned when the true circumstances were
known.
In The Bank of Montreal v. The Attorney Gen
eral of the Province of Quebec [1979] 1 S.C.R.
565, (1978) 96 D.L.R. (3d) 586, the question
arose as to whether the Crown in the right of
Quebec having opened an account with the plain
tiff bank was precluded from recovery of a sum
paid on a cheque drawn by the Crown on that
account on a forged endorsement when the Crown
failed to notify the bank of the forgery within one
year when the Crown became aware of the forgery
in accordance with subsection 49(3) of the Bills of
Exchange Act.
The Trial Judge allowed the Government's
action for recovery ([ 1974] Que. S.C. 374) on the
ground that subsection 49(3) of the Bills of
Exchange Act did not apply to the Crown.
The Court of Appeal unanimously confirmed
that decision concluding that subsection 49(3) of
the Bills of Exchange Act could not be invoked
against the Crown because to do so would consti
tute an infringement of the prerogatives of the
Crown ([1976] Que. C.A. 378).
Before the Supreme Court of Canada the princi
ple that the Bills of Exchange Act does not bind
the Crown there being no express provision so
made remained inviolate.
However it was held that the Courts below were
mistaken as to the source from which the rights
and obligations of the parties were derived.
Pratte J. said at page 574:
The rules respecting the liability of the Crown therefore
differ depending on whether the source of the obligation is
contractual or legislative. The Crown is bound by a contractual
obligation in the same manner as an individual, whereas as a
general rule it is not bound by an obligation resulting from the
law alone unless it is mentioned in it.
It was held that the Crown's claim against the
bank was based upon contract and to be entitled to
its claim the Crown had to comply with the terms
of the contract. A party who opens a bank account
enters into a contract with his banker and implied
therein is that the parties rely on commercial
custom and the law. The agreed content of the
banking contract necessarily included section 49 of
the Bills of Exchange Act. This contractual provi
sion was not complied with by the Crown and
accordingly the Crown's action against the bank
was dismissed.
There was no such contract in the case at bar
and accordingly the source of the rights and obli
gations of the parties hereto are not based upon a
contractual source but rather a legislative source
and this, in my view, is ultimately conclusive of
this action.
In this instance the instrument drawn by the
Crown is not a "cheque" which, by definition in
subsection 165(1) of the Bills of Exchange Act, is
a bill of exchange drawn on a bank payable on
demand.
A bill of exchange is defined in subsection 17(1)
of the Act as an unconditional order in writing
addressed by one person (the drawer) to another
(the drawee) requiring the person to whom it is
addressed to pay, on demand or at a fixed or
determinable future time, a sum certain in money
to or to the order of a specified person (the payee)
or to bearer.
The instruments here in question are drawn
upon "The Receiver General for Canada" by the
"Deputy Receiver General".
The Receiver General for Canada is the Minis
ter of Supply and Services. The Deputy Receiver
General is the Deputy Minister of Services.
By virtue of section 28 of the Financial
Administration Act, R.S.C. 1970, c. F-10, every
payment pursuant to an appropriation shall be
made under the direction and control of the
Receiver General by instrument in such form as
the Treasury Board directs. Thus the Treasury
Board is the author of the form of the instruments
forming the basis of this action.
Where such an instrument is presented by a
bank for payment the Receiver General shall pay
it out of the Consolidated Revenue Fund.
There is no impediment to a bill of exchange
being paid out of a particular fund (see subsection
17(3) of the Bills of Exchange Act) nor for one
person being both the drawer and drawee of a bill
of exchange. The holder may treat the instrument
either as a bill of exchange or as a promissory note
(see section 26 of the Bills of Exchange Act).
Therefore it is immaterial that the Deputy Receiv
er General who may perform all the functions of
the Receiver General (except those specifically
precluded) may possibly be construed as both the
drawer and drawee although the appointees are
different persons.
It was contended that the instruments here in
question are not bills of exchange or promissory
notes within the ambit of the Bills of Exchange
Act primarily not being "unconditional orders"
because on the reverse side there are included
instructions to banks and other encashing agencies
directing that the cheques may not be cashed
outside Canada, as to witnessing endorsement by
mark and that the cheque must be returned to the
drawer or the drawee if the payee has died or left
Canada.
A bill or note must be payable absolutely, that is
it must not be subject to conditions except those to
which negotiable instruments are subject as such,
e.g., presentment, protest, notice of dishonour and
the like.
It may well be that these particular instruments
are not bills of exchange being subjected to a
condition but because of the conclusion I have
reached I am not obligated to nor do I decide this
point.
Under subsection 5(3) of the Old Age Security
Act, R.S.C. 1970, c. O-6, the pension payable
under the statute shall continue to be paid during
the lifetime of the pensioner and shall cease with
the payment for the month in which the pensioner
dies. I express great reservations whether an
instrument issued during the month following the
death of the pensioner can be considered a nullity
when it enters into commercial channels but again
I do not decide this question.
For the reasons expressed I am of the opinion
that section 16 of the Interpretation Act precludes
the Crown from being bound by the provisions of
subsection 21(5) of the Bills of Exchange Act.
In my opinion, there being no contract between
the parties of this action and this action being
based as it is upon the premise that a liability is
imposed upon the Crown as a consequence of the
operation of subsection 21(5) of the Bills of
Exchange Act which, for the reasons expressed, I
have concluded is not binding upon the Crown, I
am not obliged nor entitled to consider where two
innocent parties suffer for the fraud of a third
party the one of the two innocent parties who most
enabled that third party to create the fraud should
bear the loss as was done by Montgomery J. in
Canadian Pacific Hotels Ltd. v. Bank of Montreal
(1981) 32 O.R. (2d) 560.
It must be borne in mind that Mr. Justice
Montgomery considered the parties to the action
before him, both of whom were citizens, to be
within the commercial "custom" concept accepted
by the Supreme Court of Canada in The Bank of
Montreal v. The Attorney General of the Province
of Quebec (supra) in assessing blame as he did.
If that course were open to me, but I do not
consider that it is, the circumstances would dictate
that the plaintiff being in the better position to
prevent the fraud, should bear the loss.
Having concluded that Her Majesty is not
bound by subsection 21(5) of the Bills of
Exchange Act, it follows that the plaintiff's action
is dismissed with costs to Her Majesty.
You are being directed to the most recent version of the statute which may not be the version considered at the time of the judgment.