Canadian Pacific Hotels Ltd. v. Bank of Montreal, (1987) 21 O.A.C. 321 (SCC)

• Judge: Estey, McIntyre, Chouinard, Lamer Wilson, Le Dain and La Forest, JJ.
• Court: Supreme Court (Canada)
• Case Date: June 04, 1987
• Jurisdiction: Canada (Federal)
• Citations: (1987), 21 O.A.C. 321 (SCC)

Cdn. Pacific Hotels v. Bk. of Mtrl. (1987), 21 O.A.C. 321 (SCC)

MLB headnote and full text

[French language version follows English language version]

[La version française vient à la suite de la version anglaise]

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Canadian Pacific Hotels Limited v. Bank of Montreal and Morris Sands (also known as Morris Sigulim) (also known as Morris Van Sigoulim), Dundas Discounts Limited and Sigmor Sales Limited

(17330)

Indexed As: Canadian Pacific Hotels Ltd. v. Bank of Montreal

Supreme Court of Canada

Estey, McIntyre, Chouinard, Lamer Wilson, Le Dain and La Forest, JJ.

June 4, 1987.

Summary:

Canadian Pacific Hotels (CP Hotels) owned an operating unit or division at the Toronto International Airport known as the Chateau Flight Kitchen (the flight kitchen). The flight kitchen's banking operations were part of Canadian Pacific Limited's centralized banking arrangement, under which the flight kitchen maintained separate deposit and disbursement accounts with the Bank of Montreal and a treasury account with Canadian Pacific. The bank submitted a daily bank statement with vouchers to the flight kitchen. CP Hotels required the flight kitchen's accountant to prepare monthly bank reconciliations with a list of outstanding cheques and to forward them to the assistant accountant of CP Hotels' head office. Over a period of several months the flight kitchen's assistant accountant, to whom the bank reconciliation duties had been delegated and whose performance of those duties was not monitored, forged several cheques payable to his own companies. When the forgeries were discovered, CP Hotels brought an action against the bank for the amount of the forged cheques. The bank pleaded in defence that CP Hotels was estopped or otherwise prevented from recovery by breaching its duty to check its bank statements and vouchers within a reasonable time and to notify the bank of any errors. The bank also pleaded that CP Hotels breached its duty to take reasonable precautions to prevent fraud by its employees by the maintenance of adequate supervision and internal accounting controls.

The Ontario High Court in a judgment reported 32 O.R.(2d) 560; 122 D.L.R.(3d) 519, dismissed CP Hotels' action on the ground that CP Hotels was precluded by its negligence from setting up the forgeries against the bank. The court held that CP Hotels owed both duties advocated by the bank. CP Hotels appealed.

The Ontario Court of Appeal in a judgment reported 139 D.L.R.(3d) 575 dismissed the appeal. CP Hotels appealed. The Supreme Court of Canada allowed the appeal and refused to change the long established liability in such circumstances. The court held that in the absence of a verification agreement a bank customer, whether a sophisticated commercial customer or otherwise, owes no duty to examine bank statements and vouchers with reasonable care and to report any discrepancies within a reasonable time. The court held that a fortiorari there is no duty to maintain an adequate system of internal controls for the prevention and minimization of loss through forgery.

Banks and Banking - Topic 3530

Cheques and orders drawn on deposits - Forged drawing of cheques - Duty of customer - The Supreme Court of Canada held that in the absence of a verification agreement a bank customer, whether a sophisticated commercial customer or otherwise, owes no duty to examine bank statements and vouchers with reasonable care and to report any discrepancies within a reasonable time - The court held that a fortiorari there is no duty to maintain an adequate system of internal controls for the prevention and minimization of loss through forgery.

Contracts - Topic 2051

Terms - Implied terms - General - The Supreme Court of Canada discussed three categories of implication of terms in a contract; firstly, implication of terms on the basis of custom or usage; secondly, implication based on presumed intention, which will be applied only on the basis of necessity; thirdly, implication of terms as legal incidents of a particular class or kind of contract, the nature and content of which have to be largely determined by implication (such as the ordinary relationship between a banker and customer respecting account operation), to which the test of necessity also applies - See paragraphs 40 to 53.

Contracts - Topic 4005

Remedies for breach - Negligent breach - Availability of tort action - The Supreme Court of Canada held that the principle of concurrent or alternate liability in contract and in tort cannot extend to the recognition of a duty of care in tort, when that same duty of care has been rejected or excluded by the courts as an implied term of a particular class of contract - See paragraph 55.

Cases Noticed:

Arrow Transfer Co. Ltd. v. Royal Bank of Canada, [1972] S.C.R. 845, consd. [paras. 11, 36].

Leather Manufacturers' Bank v. Morgan (1886), 117 U.S. 96, consd. [paras. 11, 17].

London Joint Stock Bank v. Macmillan, [1918] A.C. 777 (H.L.), consd. [paras. 12, 20].

Greenwood v. Martins Bank Ltd., [1933] A.C. 51 (H.L.), consd. [paras. 12, 32].

Tai Hing Cotton Mill Ltd. v. Liu Chong Hing Bank Ltd., [1986] 1 A.C. 80 (P.C.); [1984] 1 Ll.R 555 (C.A.), consd. [paras. 12, 38].

Columbia Graphophone Co. v. Union Bank of Canada (1916), 38 O.L.R. 326 (H.C.), consd. [para. 12].

Ewing v. Dominion Bank, [1904] A.C. 806, refusing leave to appeal from 35 S.C.R. 133, affing. 7 O.L.R. 90, consd. [paras. 12, 31].

Bank of Montreal v. R. (1907), 38 S.C.R. 258, refd to. [para. 12].

Bank of Montreal v. Attorney General (Que.), [1979] 1 S.C.R. 565; 25 N.R. 330, consd. [paras. 15, 51].

Devaynes v. Noble (Clayton's Case) (1816), 1 Mer. 529; 35 E.R. 767, consd. [para. 15].

Clayton's Case - see Devaynes v. Noble.

Freeman v. Cooke (1848), 2 Ex. 654; 154 E.R. 652, consd. [para. 15].

Glassell Development Co. v. Citizens' National Bank of Los Angeles (1923), 191 Cal. 375, consd. [para. 18].

Basch v. Bank of America (1943), 22 C. 2d 316, consd. [para. 18].

Pacific Coast Cheese Inc. v. Security First National Bank of Los Angeles (1955), 286 P. 2d 353 (Cal. S.C.), consd. [para. 18].

Young v. Grote (1827), 4 Bing 253; 130 E.R. 764, consd. [para. 20].

Bank of Ireland v. Evans' Trustees (1855), 5 H.L.C. 389; 10 E.R. 950, consd. [paras. 21, 59].

Swan v. North British Australasian Co. (1863), 2 H. & C. 175; 159 E.R. 73, consd. [paras. 21, 59].

Arnold v. Cheque Bank (1876), 1 C.P.D. 578, consd. [para. 22].

Agricultural Savings and Loan Association v. Federal Bank (1881), 6 O.A.R. 192, consd. [para. 22].

Bank of England v. Vagliano, [1891] A.C. 107, consd. [para. 23].

Kepitigalla Rubber Estates Ltd. v. National Bank of India, [1909] 2 K.B. 1010, consd. [paras. 24, 60].

M'Kenzie v. British Linen Co. (1881), 6 App. Cas. 82, consd. [para. 29].

Ogilvie v. West Australian Mortgage and Agency Corp., [1896] A.C. 257 (P.C.), consd. [para. 30].

Fung Kai Sung v. Chan Fui Hing, [1951] A.C. 489, consd. [para. 33].

Rutherford v. Royal Bank of Canada, [1932] S.C.R. 131, consd. [para. 35].

Mackenzie v. Imperial Bank of Canada, [1938] O.W.N. 166, consd. [para. 35].

B. and G. Construction Co. Ltd., [1954] 2 D.L.R. 753, consd. [para. 35].

Banque Provinciale du Canada v. Syndicat des Camionneurs Artisans du Quebec Metropolitain, [1970] C.A. 425; 11 D.L.R.(3d) 610, consd. [para. 35].

Bad Boy Appliances and Furniture Ltd. v. Toronto-Dominion Bank (1972), 25 D.L.R.(3d) 257, consd. [para. 35].

Lister v. Romford Ice and Cold Storage Co., [1957] A.C. 555, consd. [para. 42 ff.].

Liverpool City Council v. Irwin, [1977] A.C. 239, consd. [paras. 42, 44 ff.].

The "Moorcock" (1889), 14 P.D. 64, refd to. [para. 42].

Reigate v. Union Manufacturing Co. (Ramsbottom), [1918] 1 K.B. 592, refd to. [para. 42].

Shirlaw v. Southern Foundries (1926) Ltd., [1939] 2 K.B. 206, refd to. [para. 42].

Greaves & Co. (Contractors) Ltd. v. Baynham Meikle and Partners, [1975] 3 All E.R. 99 (C.A.), refd to. [para. 44].

Miller v. Hancock, [1893] 2 Q.B. 177, refd to. [para. 44].

Shell UK Ltd. v. Lostock Garage Ltd., [1977] 1 All E.R. 481 (C.A.), consd. [para. 44].

Mears v. Safecar Security Ltd., [1982] 2 All E.R. 865 (C.A.), consd. [para. 44].

Harvela Investments Ltd. v. Royal Trust Co. of Canada (CI) Ltd., [1985] 1 All E.R. 261 (C.A.), consd. [para. 44].

Selangor United Rubber Estates Ltd. v. Cradock (No. 3), [1968] 1 W.L.R. 1555, consd. [para. 45].

Karak Rubber Co. v. Burden (No. 2), [1972] 1 W.L.R. 602, consd. [para. 45].

Anns v. Merton London Borough Council, [1978] A.C. 728, refd to. [para. 47].

Esso Petroleum Co. v. Marden, [1976] Q.B. 801, refd to. [para. 47].

Midland Bank Trust Co. v. Hett, Stubbs and Kemp, [1979] Ch. 384, refd to. [para. 47].

Hutton v. Warren (1836), 1 M. & W. 446; 150 E.R. 517, consd. [para. 51].

The "Freiya" v. The "R.S.", [1922] 1 W.W.R. 409, refd to. [para. 51].

Joachimson v. Swiss Bank Corp., [1921] 3 K.B. 110, consd. [para. 53].

Tournier v. National Provincial and Union Bank of England, [1924] 1 K.B. 461, consd. [para. 53].

Central Trust Co. v. Rafuse, [1986] 2 S.C.R. 147; 69 N.R. 321; 75 N.S.R.(2d) 109; 186 A.P.R. 109, consd. [para. 55].

Statutes Noticed:

Bills of Exchange Act, R.S.C. 1970, c. B-5, sect. 49(1) [para. 8].

Uniform Commercial Code, sect. 4-406 [paras. 11, 19].

Authors and Works Noticed:

American Jurisprudence, vol. 7, para. 516 (Banks) [para. 18].

Cheshire and Fifoot, The Law of Contract (10th Ed. 1981), p. 125 [para. 44].

Paget, The Law of Banking (4th Ed. 1930) [para. 32].

Treitel, G.H., The Law of Contract (5th Ed. 1979), p. 148 [para. 44].

Counsel:

John P. Bassel, Q.C., and Robert M. Zarnett, for the appellant, Canadian Pacific Hotels;

John W. Adams, Q.C., and Ian V.B. Nordheimer, for the respondent, Bank.

Solicitors of Record:

Bassel, Sullivan & Leake, Toronto, Ontario, for the appellant;

Fraser & Beatty, Toronto, Ontario, for the respondent.

This case was heard on April 24, 1985, at Ottawa, Ontario, before Estey, McIntyre, Chouinard, Lamer, Wilson, Le Dain and La Forest, JJ., of the Supreme Court of Canada.

On June 4, 1987, the judgment of the Supreme Court of Canada was delivered in both official languages and the following opinions were filed:

Le Dain, J. (Estey, McIntyre, Lamer and Wilson, JJ., concurring) - see paragraphs 1 to 56;

La Forest, J. - see paragraphs 57 to 63.

Chouinard, J., took no part in the judgment.