Law Society of Alberta and Ainscough Estate v. Canadian Imperial Bank of Commerce and Bank of Nova Scotia, (1989) 101 A.R. 374 (QB)

• Judge: Deyell, J.
• Court: Court of Queen's Bench of Alberta (Canada)
• Case Date: November 09, 1989
• Citations: (1989), 101 A.R. 374 (QB)

Alta. Law Soc. v. CIBC (1989), 101 A.R. 374 (QB)

MLB headnote and full text

The Law Society of Alberta and Phyllis Mary Fairhead, Executrix of the Estate of George Ernest Ainscough, deceased (plaintiffs) v. Canadian Imperial Bank of Commerce and The Bank of Nova Scotia (defendants) and The Royal Bank of Canada (third party)

(Action No. 8301-05078)

Indexed As: Law Society of Alberta and Ainscough Estate v. Canadian Imperial Bank of Commerce and Bank of Nova Scotia

Alberta Court of Queen's Bench

Judicial District of Calgary

Deyell, J.

November 9, 1989.

Summary:

The Bank of Nova Scotia (BNS) held $224,835.37 in estate funds. BNS issued a draft to the estate's lawyer for that amount. Express wording on the draft restricted deposit to the estate only. The lawyer deposited the funds into his trust account at the Canadian Imperial Bank of Commerce (CIBC). CIBC accepted the deposit notwithstanding a lack of endorsement by the payee. BNS, when the draft was returned to it, did not question the lack of proper endorsement. The lawyer attended at another CIBC branch that held $51,207.50 in estate funds. That bank, contrary to bank policy, issued a cashier's cheque for that amount payable to the lawyer. The lawyer deposited the funds in his trust account. BNS issued a further draft to the lawyer for $5,428.92 payable to the estate, but with no restriction on deposit. The lawyer deposited these funds in his trust account at the Royal Bank. The lawyer subsequently became bankrupt. The executrix of the estate entered an agreement with the Law Society of Alberta, whereby the Law Society's Assurance Fund would reimburse the estate for the funds misappropriated by the lawyer. In return, the executrix assigned all causes of action against, inter alia, the banks to the Law Society. The Law Society and the estate brought an action against the banks to recover the funds, claiming the banks breached their duty to the estate. BNS commenced third party proceedings against CIBC and the Royal Bank, seeking indemnity.

The Alberta Court of Queen's Bench allowed the action. The court held that (1) BNS was liable for the $224,835.37, but entitled to be indemnified by CIBC; (2) BNS was liable for the $5,428.92, but entitled to be indemnified by the Royal Bank; and (3) CIBC was liable for the $51,207.50.

Banks and Banking - Topic 1444

Liability of banks to customers - Duties of bank - Duty of inquiry - The Alberta Court of Queen's Bench stated that "the implied duty of care in the banker-customer relationship encompasses within it a duty of inquiry where circumstances are such that the suspicions of a reasonable banker would be raised ... If circumstances are such that a reasonable banker would seek an explanation before proceeding, and the bank seeks no explanation, it is liable" - See paragraphs 49 to 51.

Banks and Banking - Topic 1444

Liability of banks to customers - Duties of bank - Duty of inquiry - The Bank of Nova Scotia held funds payable to an estate - The bank knew the executrix had authority to endorse on behalf of the estate and the name of the lawyer representing the estate - The bank issued a draft to the lawyer, payable to the estate - The draft contained the restriction that it was for deposit only to the estate - The lawyer endorsed it and deposited it to his own trust account at another bank - When the draft was returned to the Bank of Nova Scotia, without the proper endorsement of the executrix, the Bank of Nova Scotia failed to make inquiries or return it to the collecting bank (CIBC) - The Alberta Court of Queen's Bench held that the Bank of Nova Scotia breached its duty to the estate by its failure to inquire.

Banks and Banking - Topic 1502

Liability of banks to customers - Negligence - In clearing of cheques - The Bank of Nova Scotia issued a draft payable to an estate - The draft was given to the estate's lawyer - The express wording on the draft restricted deposit only to the estate - The lawyer endorsed the draft and deposited it to his trust account at the CIBC - The CIBC accepted the deposit notwithstanding the restriction on deposit and the lack of any endorsement by the payee estate - The estate claimed the CIBC was negligent - The Alberta Court of Queen's Bench rejected the CIBC's contention that a collecting bank owed no duty of care to the payee of a cheque or draft - The court held that the CIBC breached its duty to the payee estate.

Banks and Banking - Topic 2806

Bank accounts - Agreements respecting - Account verification agreement - The Alberta Court of Queen's Bench stated that, since the effect of account verification agreements was to relieve a bank of liability that would otherwise be present, the agreements should be strictly construed - See paragraph 56.

Banks and Banking - Topic 2806

Bank accounts - Agreements respecting - Account verification agreement - The executrix of an estate claimed that a bank improperly processed a bank draft (payable to the estate) in terms of the required endorsement - The bank relied on an account verification agreement to exclude liability - The executrix was unaware of any improper processing within the 30 day notification period - The Alberta Court of Queen's Bench noted that "the bank draft ... was not returned with the monthly statement and therefore the [executrix] had no opportunity to examine the endorsement or to detect any other irregularity" - The court held that the executrix, by failing to object to the monthly statement, may have accepted the debiting of the account (which was disclosed), but she did not acknowledge that the bank draft had been properly processed - Accordingly, the bank could not rely on the account verification agreement - See paragraphs 54 to 59.

Banks and Banking - Topic 3483

Cheques and orders drawn on deposits - Cheque defined - Section 165(3) of the Bills of Exchange Act provided that "where a cheque is delivered to a bank for deposit to the credit of a person and the bank credits him with the amount of a cheque, the bank acquires all the rights and powers of a holder in due course of the cheque" - Section 25 provided that "where in a bill drawer and drawee are the same person the holder may treat the instrument, at his option, either as a bill or as a note" - The Alberta Court of Queen's Bench held that a bank draft drawn by a bank on itself was a "cheque" within the meaning of s. 165(3) and, alternatively, the holder may under s. 25 treat the bank draft as a bill or note and raise s. 165(3) as a defence - See paragraphs 74 to 77.

Banks and Banking - Topic 4121

Drafts - Duties of bank respecting drafts - General - A bank held estate funds - The executrix informed the bank of the name of the lawyer representing the estate - The lawyer advised the bank to close out the account - The bank responded by issuing a draft payable to the estate, with the written restriction on the draft that it was for deposit to the estate only - The Alberta Court of Queen's Bench held that the bank properly discharged the debt owed to the estate; the draft was properly drawn - See paragraphs 42 to 47.

Banks and Banking - Topic 4143

Drafts - Payment of - Endorsements - Duty re authenticity of endorsement - The Bank of Nova Scotia held funds owned by an estate - The bank issued a draft to the estate's lawyer, payable to the estate - A restriction on the draft stated that the funds were for deposit to the estate only - The lawyer endorsed the draft and deposited it to his own trust account at the CIBC - The CIBC allowed the deposit notwithstanding a lack of proper endorsement by the executrix of the estate - The clearing house rules by which both banks were bound provided that the delivering bank (CIBC) guaranteed the authenticity of all endorsements and guaranteed to supply any necessary missing endorsement - The Alberta Court of Queen's Bench held that the CIBC was liable to indemnify the Bank of Nova Scotia.

Banks and Banking - Topic 4144

Drafts - Payment of - Endorsement - Lack of endorsement - Duty of bank - [See Banks and Banking - Topic 1502 above].

Banks and Banking - Topic 4144

Drafts - Payment of - Endorsements - Lack of endorsement - Duty of bank - The Bank of Nova Scotia issued a draft to the lawyer of an estate - The draft was made payable to the estate and restricted to deposit to the estate only - The lawyer endorsed the draft and deposited the funds in his own trust account at the CIBC - The CIBC allowed the deposit notwithstanding the draft was not properly endorsed by the executrix of the estate - The estate claimed CIBC wrongly converted estate funds - The Alberta Court of Queen's Bench held that the CIBC improperly converted the funds - See paragraphs 65 to 77.

Barristers and Solicitors - Topic 1130

Authority - Unauthorized actions - Ratification - A lawyer acting on behalf of an estate misappropriated funds payable to the estate by transferring the funds into his general trust account - The executrix had no knowledge that the funds were transferred until after the lawyer went bankrupt - The executrix was also unaware that the lawyer endorsed drafts and cheques on her behalf - The Alberta Court of Queen's Bench held that the executrix had not ratified the lawyer's acts - The court stated that there was no clear adoptive acts accompanied by full knowledge of all the essential acts - See paragraphs 40 to 41.

Barristers and Solicitors - Topic 1165

Authority - Extent of - Respecting client's funds - The Alberta Court of Queen's Bench stated that "in nonlitigious solicitor roles a lawyer has no authority to give a discharge of debts unless the lawyer has been given specific authority to do so" - The court stated that a lawyer acting on behalf of an estate in gathering in estate assets was not, absent express authority, authorized to transfer funds payable to the estate into his general trust account nor to endorse drafts and cheques on behalf of the estate - See paragraph 38.

Barristers and Solicitors - Topic 6716

Compensation fund - Payments to client - Procedure - Subrogated or assigned claims by Law Society - The Alberta Court of Queen's Bench stated that there was nothing in s. 76 or 78 of the Legal Profession Act which precluded the Law Society from having rights over and above a claim against a defaulting member - Where a claimant to the Society's Assurance Fund had a claim against a member and also a claim against certain banks, the Act did not preclude an assignment of the claimant's right to legal action against the banks.

Choses in Action - Topic 273

What may be assigned - Benefits or rights assignable - Claim or cause of action - The executrix of an estate had a claim against two banks respecting the manner in which two bank drafts and a cashier's cheque were issued and cleared - A lawyer had deposited the funds, which were payable to the estate and not endorsed by the payee, into his trust account - The lawyer misappropriated the funds and was now bankrupt - The executrix entered an agreement with the Law Society, whereby the estate was reimbursed out of the Assurance Fund and the executrix assigned to the Law Society all claims, causes of action, judgments and demands - The Alberta Court of Queen's Bench held that the assignment was valid under s. 21(1) of the Judicature Act.

Interest - Topic 5303

As damages (prejudgment interest) - Interest on payment of money or debt withheld - Amount due under contract with bank - Estate funds were held on account at the Bank of Nova Scotia - The Bank of Nova Scotia issued a draft for the funds payable to the estate - The express wording of the draft provided that it was for deposit only to the estate - The estate's lawyer deposited the funds in his trust account at the CIBC - The CIBC improperly accepted the deposit notwithstanding it was not endorsed by the payee estate - The Bank of Nova Scotia, when the draft was returned to it, breached its duty to the estate by failing to inquire into the lack of endorsement - The estate claimed prejudgment interest under s. 15(1) of the Judicature Act - The Alberta Court of Queen's Bench held that it was inappropriate to award interest under s. 15(1) - The court stated that the monies owed by the Bank of Nova Scotia to the estate constituted a just debt improperly withheld, but it was not "fair and equitable" to award interest where there was a genuine and complex dispute.

Practice - Topic 1462

Pleadings - Statement of claim - Requirement of stating basis for claim - A defendant submitted that the plaintiff was not entitled to allege a breach of contractual duty of care that was not specifically pleaded - The plaintiffs submitted that their pleadings and the defendant's defence put the contract in issue - The Alberta Court of Queen's Bench allowed the plaintiffs to advance the claim - The court stated "I am satisfied that the issue of banker- customer contract has been raised and that any deficiency with respect to the plaintiff's pleadings has been cured by the issues raised in defence" - See paragraphs 47 to 48.

Practice - Topic 1617

Pleadings - The defence - Issues to be raised must be pleaded - The Law Society brought an action against the defendants based on an assignment of all claims against the defendants - One of the defendants had not raised a defence based on the assignment in its pleadings, but did so in written submission - The Alberta Court of Queen's Bench held that the defendant was not entitled to raise a new defence in written argument - See paragraph 33.

Cases Noticed:

Australia and New Zealand Bank Limited v. Ateliers de Constructions Electriques de Charleroi, [1967] A.C. 86 (J.C.), dist. [para. 30].

Claiborne Industries Ltd. v. National Bank of Canada (1986), 28 D.L.R. (4th) 695 (Ont. H.C.J.), refd to. [para. 49].

Selanger United Rubber Estates v. Craddock et al. (No. 3), [1968] 2 All E.R. 1073 (Ch. D.), refd to. [para. 50].

Groves-Raffin Construction Ltd. et al. v. Bank of Nova Scotia et al., [1976] 2 W.W.R. 673; 64 D.L.R.(3d) 78, refd to. [para. 51].

Karak Rubber Co. Ltd. v. Burden et al., [1972] 1 W.L.R. 602, refd to. [para. 51].

Agullia v. Estate and Trust Agencies, [1938] 3 W.W.R. 113 (P.C.), refd to. [para. 56].

Arrow Transfer Co. Ltd. v. Royal Bank of Canada (1972), 27 D.L.R.(3d) 81 (S.C.C.), refd to. [para. 56].

Royal Bank of Canada v. Creighton (Larry) Professional Corp., [1989] 3 W.W.R. 561; 95 A.R. 40 (C.A.), refd to. [para. 56].

British Trade Corporation Limited, Re, [1932] 2 Ch. 1 (C.A.), refd to. [para. 76].

Importers Co. v. Westminster Bank, [1927] 2 K.B. 297, refd to. [para. 80].

Bellamy v. Marjoribanks (1852), 7 Ex. Ch. 389, refd to. [para. 80].

Bevan v. Nationale Bank (1906), 23 T.L.R. 65, refd to. [para. 80].

Morrison v. London Country, [1914] 3 K.B. 356, refd to. [para. 80].

House of Property Co. v. London Country (1915), 84 L.J.K.B. 1846, refd to. [para. 80].

Number 10 Management v. Royal Bank (1976), 69 D.L.R.(3d) 99 (Man. C.A.), refd to. [para. 82].

Eyben v. K.R. Ranches (1970) Ltd., [1982] 5 W.W.R. 269; 38 A.R. 336 (C.A.), refd to. [para. 88].

Bagby v. Gustavson International et al. Drilling Co. Ltd. (1980), 24 A.R. 181, refd to. [para. 88].

Granpac Ltd. v. American Home Assurance Co. (1982), 33 A.R. 212; 17 Alta. L.R.(2d) 71, refd to. [para. 88].

Greenshields Inc. v. Johnston and R.H. Johnston and Associates Ltd., [1982] 2 W.W.R. 97; 35 A.R. 487; 17 Alta. L.R.(2d) 318, refd to. [para. 88].

F.M.I. Consultants v. Jeanspierre Holdings (1985), 57 A.R. 305 (Q.B.), refd to. [para. 92].

Amerada Minerals Corp. of Canada Ltd. v. Mesa Petroleum (N.A.) Co. et al. (1986), 73 A.R. 172; 47 Alta. L.R.(2d) 289 (C.A.), refd to. [para. 92].

QCTV Ltd. v. Edmonton (1984), 58 A.R. 182; 35 Alta. L.R.(2d) 160 (C.A.), refd to. [para. 92].

Garrett Estate et al. v. Doty (1988), 87 A.R. 397; 60 Alta. L.R.(2d) 98 (C.A.), refd to. [para. 94].

Statutes Noticed:

Bills of Exchange Act, R.S.C. 1970, c. B-5, sect. 16(1), sect. 25 [para. 75]; sect. 165(3) [para. 74].

Canadian Banker's Association, An Act to Incorporate The, 63 & 64 Vict., c. 93 [para. 60].

Judgment Interest Act, S.A. 1984, c. J-0.5, sect. 2(3) [para. 95].

Judicature Act, R.S.A. 1980, c. J-1, sect. 15(1) [para. 86]; sect. 21(1) [para. 32].

Legal Profession Act, R.S.A. 1980, c. L-9, sect. 76, sect. 78 [para. 34].

Limitation of Actions Act, R.S.A. 1980, c. L-15, sect. 4 [para. 100].

Authors and Works Noticed:

Canadian Encyclopedic Digest (West.)(3rd Ed.), vol. 1, para. 55 [para. 40]; vol. 4, para. 83 [para. 38].

Falconbridge, Banking and Bills of Exchange (7th Ed.), pp. 275 [para. 43]; 276 [para. 44]; 1386 [para. 66].

Fridman, G.H., The Law of Agency (4th Ed.), p. 60 [para. 41].

Geva, B., Irrevocability of Bank Drafts, Certified Cheques and Money Orders (1986), 65 Can. Bar Rev. 107, pp. 118-119 [para. 76].

Paget's Law of Banking (9th Ed.), pp. 330 [para. 80]; 334 [para. 81]; 348 [para. 79].

Counsel:

K.J. Martens (McNiven, Kelly & O'Neil), for the plaintiffs;

J.D.B. McDonald (Bennett Jones), for the defendant, Canadian Imperial Bank of Commerce, and for the Third Party, the Royal Bank of Canada;

G.J. Forrest (Ballem, McDill, MacInnes & Eden), for the defendant, the Bank of Nova Scotia.

This action was heard before Deyell, J., of the Alberta Court of Queen's Bench, Judicial District of Calgary, who delivered the following judgment on November 9, 1989: