Western Surety Co. v. National Bank of Canada, 2001 NBCA 15

• Judge: Rice, Turnbull and Drapeau, JJ.A.
• Court: Court of Appeal (New Brunswick)
• Case Date: February 20, 2001
• Jurisdiction: New Brunswick
• Citations: 2001 NBCA 15;(2001), 237 N.B.R.(2d) 346 (CA)

Western Surety v. Nat. Bk. (2001), 237 N.B.R.(2d) 346 (CA);

    237 R.N.-B.(2e) 346; 612 A.P.R. 346

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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Temp. Cite: [2001] N.B.R.(2d) TBEd. FE.071

Western Surety Company (plaintiff/appellant) v. National Bank of Canada (defendant/respondent)

(127/99/CA; 2001 NBCA 15)

Indexed As: Western Surety Co. v. National Bank of Canada

New Brunswick Court of Appeal

Rice, Turnbull and Drapeau, JJ.A.

February 20, 2001.

Summary:

A construction company was assigned into bankruptcy by its bank. The company then defaulted on its contracts. The construc­tion company's bonding company paid off the bonded creditors and completed the contracts pursuant to the performance bonds. The bonding company sued the construction company's bank to recover some of its losses. The bank counterclaimed against the bonding company.

The New Brunswick Court of Queen's Bench, Trial Division, in a decision reported 213 N.B.R.(2d) 332; 545 A.P.R. 332, al­lowed the bonding company's claim in the amount of $159,482.14 as well as the bank's counterclaim in the amount of $414,881.95. The bank was awarded net judgment for $255,399.81. The bonding company ap­pealed. The bank cross-appealed and coun­terclaimed against the bonding company for the wrongful conversion to its own use of the bank's funds.

The New Brunswick Court of Appeal allowed the appeal and the cross-appeal and set aside the judgment at trial. The court dismissed the bank's counterclaim and di­rected that judgment be entered in favour of the bonding company in the amount of $74,854.70.

Editor's note: for related decisions see [1996] N.B.R.(2d) (Supp.) 20; [1996] N.B.R.(2d) (Supp.) 57, and 186 N.B.R.(2d) 36; 476 A.P.R. 36.

Choses in Action - Topic 1003

Assignment of book debts - General - Effect of assignment - General - A con­struction company overdrew its line of credit - The company gave the bank an assignment of book debts - Subsequently, the bank assigned the construction com­pany into bankruptcy - The company defaulted on its contracts - Money earned by the company but unpaid by the owners was paid to the construction company's bonding company who completed the company's contracts - Citing its registered assignment of book debts, the bank claimed against the bonding company for the monies received from the owners, including the holdbacks, for work done prior to the default - The New Brunswick Court of Appeal held that the bank's claim must fail where it failed to establish legal entitlement to any of the monies pursuant to the terms of the Assignment of Book Debts Act - See paragraphs 72 to 88.

Choses in Action - Topic 1006

Assignment of book debts - General - Scope of statute - The New Brunswick Court of Appeal discussed the restrictions on an assignment of "book debts" in the Assignment of Book Debts Act - See paragraphs 72 to 88.

Guarantee and Indemnity - Topic 1401

Rights of surety - General - A bank as­signed a construction company into bank­ruptcy - The company defaulted on its contracts - The construction company's bonding company paid the bonded cred­itors and completed the projects under the performance bonds - The bonding com­pany sued the bank to recover its loss on the ground that monies appropriated by the bank from the company's account were impressed with a trust under s. 3 of the Mechanics' Lien Act - The trial judge denied the claim determining that s. 3(1) was limited by s. 2 in that it did not "apply in respect of a highway or any work done or caused to be done thereon by a munici­pality, or in respect of material furnished therefor" - The New Brunswick Court of Appeal reviewed the law and affirmed this aspect of the trial judge's decision - See paragraphs 35, 36 and 48 to 66.

Mechanics' Liens - Topic 401

Lienable interest - Roads and streets - General - A bonding company sued a bankrupt contractor's bank under the trust provisions in s. 3 of the Mechanics' Lien Act - The bank claimed that the monies were exempted under s. 2 of Act which stated that a trust did not arise in "respect of a highway or any work done or caused to be done thereon by a municipality, or in respect of material furnished therefor" - The bonding company asserted that the s. 2 exemption did not apply to water and sewer work (i.e., "pipe work" as opposed to "street improvement") - The trial judge rejected the bonding company's assertion - The New Brunswick Court of Appeal reviewed the history and purpose of s. 2 and affirmed the decision - See paragraphs 21 to 33 and 48 to 66.

Mechanics' Liens - Topic 422

Lienable interest - Municipal and provin­cial property - Whether lienable - [See Mechanics' Liens - Topic 401 ].

Mechanics' Liens - Topic 3002

The holdback - Claims against holdback - Entitlement - [See Choses in Action - Topic 1003 ].

Mechanics' Liens - Topic 6387

Priorities - Particular claims - Assignee of book debts - [See Choses in Action - Topic 1003 ].

Mechanics' Liens - Topic 6390

Priorities - Particular claims - Banks - [See Choses in Action - Topic 1003 and Guar­antee and Indemnity - Topic 1401 ].

Mechanics' Liens - Topic 7521

Trust fund - Bank deposits - General - [See Guarantee and Indemnity - Topic 1401 ].

Mechanics' Liens - Topic 7561

Trust fund - Persons entitled to claim - General - [See Guarantee and Indemnity - Topic 1401 ].

Words and Phrases

Book debts - The New Brunswick Court of Appeal discussed the meaning of this phrase as used in s. 1 of the Assignment of Book Debts Act, R.S.N.B. 1973, c. A-15 - See paragraphs 72 to 88.

Cases Noticed:

Western Surety Co. v. National Bank of Canada (1997), 186 N.B.R.(2d) 36; 476 A.P.R. 36 (C.A.), leave to appeal dis­missed (1997), 223 N.R. 79; 190 N.B.R.(2d) 80; 484 A.P.R. 80 (S.C.C.), refd to. [para. 26].

Bailey v. Guaranty Trust Co. of Canada (1987), 77 A.R. 387; 52 Alta. L.R.(2d) 289 (C.A.), refd to. [para. 28].

Hockin et al. v. Bank of British Columbia et al. (1995), 57 B.C.A.C. 255; 94 W.A.C. 255; 123 D.L.R.(4th) 538 (C.A.), supplementary reasons (1996), 73 B.C.A.C. 234; 120 W.A.C. 234; 134 D.L.R.(4th) 96 (C.A.), refd to. [para. 28].

Norris v. Lloyd's of London (1998), 205 N.B.R.(2d) 29; 523 A.P.R. 29 (C.A.), leave to appeal dismissed (1999), 249 N.R. 395; 218 N.B.R.(2d) 400; 558 A.P.R. 400 (S.C.C.), refd to. [para. 28].

Alberta Government Telephones v. Can­adian Great Lakes Casualty and Surety Co. et al., [1985] 5 W.W.R. 186; 61 A.R. 181 (C.A.), refd to. [para. 38].

Bank of Montreal v. Shemac Builders Ltd. - see Alberta Government Telephones v. Canadian Great Lakes Casualty and Surety Co. et al.

Transamerica Insurance Co. v. United States (1993), 989 F.2d 1188 (Fed. Cir.), refd to. [para. 39].

District of Columbia v. Aetna Insurance Co. (1983), 462 A.2d 428 (D.C.), refd to. [para. 39].

Nicholls (P.) Enterprises Ltd. (Bankrupt), Re (1985), 8 O.A.C. 74; 50 O.R.(2d) 470 (C.A.), refd to. [para. 39].

Harding Carpets Ltd. v. Saint John Tile & Terrazzo Co. et al. (1987), 78 N.B.R.(2d) 323; 198 A.P.R. 323 (T.D.), refd to. [para. 49].

Canadian Bank of Commerce v. McAvity (T.) & Sons Ltd., [1959] S.C.R. 478, dist. [para. 51].

Clarkson Co. et al. v. Ace Lumber Ltd. et al., [1963] S.C.R. 110, refd to. [para. 57].

Beloit Canada Ltd. v. Fundy Forest Indus­tries Ltd. (1981), 37 N.B.R.(2d) 17; 97 A.P.R. 17 (C.A.), refd to. [para. 57].

Emco Ltd. v. Sobeys Inc. et al. (1997), 194 N.B.R.(2d) 1; 496 A.P.R. 1 (C.A.), refd to. [para. 57].

Rizzo & Rizzo Shoes Ltd. (Bankrupt), Re, [1998] 1 S.C.R. 27; 221 N.R. 241; 106 O.A.C. 1, refd to. [para. 58].

Canada Mortgage and Housing Corp. v. Campbellton (City) et al. (1999), 214 N.B.R.(2d) 159; 547 A.P.R. 159 (C.A.), refd to. [para. 59].

McAllister v. Cleary (1999), 213 N.B.R.(2d) 156; 545 A.P.R. 156 (C.A.), refd to. [para. 59].

Dugas v. Commission d'aménagement de la péninsule acadienne et autre (1999), 218 N.B.R.(2d) 138; 558 A.P.R. 138 (C.A.), refd to. [para. 59].

Dugas v. Acadian Peninsula (District Plan­ning Commission) - see Dugas v. Com­mission d'aménagement de la pénin­sule acadienne et autre.

Dionne v. Desjardins et autres (1999), 214 N.B.R.(2d) 380; 547 A.P.R. 380 (C.A.), refd to. [para. 59].

R.B. v. G.B. (2000), 227 N.B.R.(2d) 137; 583 A.P.R. 137 (C.A.), refd to. [para. 59].

Barrette v. Succession Crabtree, [1993] 1 S.C.R. 1027; 150 N.R. 272; 53 Q.A.C. 279, refd to. [para. 59].

Bérubé v. Lévesque (1999), 219 N.B.R.(2d) 8; 561 A.P.R. 8 (C.A.), refd to. [para. 63].

Groundwater Development Corp. v. Monc­ton (City) (1970), 2 N.B.R.(2d) 941 (Q.B.), refd to. [para. 64].

Annett Chemicals Ltd. v. Moncton (City) (1971), 3 N.B.R.(2d) 698 (C.A.), refd to. [para. 64].

Shaw (L.E.) Ltd. v. Bérubé-Madawaska Contractors Ltd. and Fredericton (City); Irving Oil Ltd. v. Bérubé-Madawaska Contractors Ltd. and Fredericton (City) (1982), 40 N.B.R.(2d) 374; 105 A.P.R. 374 (C.A.), refd to. [para. 64].

R. v. Paul (T.P.) (1998), 196 N.B.R.(2d) 292; 501 A.P.R. 292 (C.A.), refd to. [para. 70].

Parlee v. McFarlane (1999), 210 N.B.R.(2d) 284; 536 A.P.R. 284 (C.A.), refd to. [para. 70].

ADI Ltd. v. 052987 N.B. Inc. et al. (2000), 232 N.B.R.(2d) 47; 598 A.P.R. 47, refd to. [para. 70].

Confederation Trust Co. v. Duncan et al. (2000), 226 N.B.R.(2d) 277; 579 A.P.R. 277 (C.A.), leave to appeal dismissed (2001), 267 N.R. 196 (S.C.C.), refd to. [para. 73].

Diewold v. Diewold, [1941] S.C.R. 35, refd to. [para. 76].

Plourde v. Collin (1991), 119 N.B.R.(2d) 377; 300 A.P.R. 377 (C.A.), refd to. [para. 76].

Rehm v. DSG Communications Inc., [1995] 4 W.W.R. 750; 129 Sask.R. 297 (Q.B.), refd to. [para. 77].

Marine Building Holdings Ltd. v. Proton Engineering & Construction Ltd. (1993), 5 P.P.S.A.C.(2d) 46 (B.C.S.C.), refd to. [para. 77].

Tri-Lateral Enterprises Ltd., Re (1977), 14 O.R.(2d) 712 (S.C. Bktcy.), refd to. [para. 77].

Burton (Irving A.) Ltd. v. Canadian Im­perial Bank of Commerce (1982), 36 O.R.(2d) 703 (C.A.), refd to. [para. 77].

Modern Construction Ltd. v. Moncton (City) (1972), 4 N.B.R.(2d) 666 (C.A.), refd to. [para. 85].

Tingley v. McKeen, [1954] 4 D.L.R. 392 (N.B.C.A.), refd to. [para. 86].

Statutes Noticed:

Assignment of Book Debts Act, R.S.N.B. 1973, c. A-15, sect. 1, sect. 3(3) [para. 47].

Mechanics' Lien Act, R.S.N.B. 1973, c. M-6, sect. 1, sect. 2, sect. 3(1) [para. 47].

Mechanics' Lien Act, R.S.N.B. 1927, c. 160 [para. 54].

Personal Property Security Act, S.N.B. 1993, c. P-7.1, sect. 12(1), sect. 19, sect. 41(2) [para. 47].

Rules of Court (N.B.), rule 23.01(a) [para. 24].

Authors and Works Noticed:

Fridman, Gerald Henry Louis, The Law of Contract in Canada (4th Ed. 1999), pp. 547, 548 [para. 78].

Goldsmith, Immanuel, and Heintzman, Thomas G., Canadian Building Contracts (4th Ed. 1988) (Looseleaf), pp. 4-6, 4-7, 4-8, 5-16, 7-8, 7-9 [para. 78].

La Forest, Gérard V., Judicial Lawmaking, Creativity and Constraints, in Gérard V. La Forest at the Supreme Court of Can­ada 1985-1997 (2000), p. 4 [para. 63].

La Forest, Gérard V., Some Impressions on Judging (1986), 35 U.N.B.L.J. 145, pp. 148, 149 [para. 63].

Moelmann, L., and Harris, J., The Law of Performance Bonds (1999), pp. 70, 71 [para. 39].

Scott, K.W., and Reynolds, R.B., Surety Bonds (1994), pp. 6-35, 6-36 [para. 63].

Spencer-Bower, G., Turner, A.K., and Handley, K.R., The Doctrine of Res Judicata (3rd Ed. 1996), para. 172 [para. 28].

Waddams, Stephen M., The Law of Con­tracts (4th Ed. 1999), para. 604 [para. 86].

Walsh, Catherine, An Introduction to the New Brunswick Personal Property Se­curity Act (1995), pp. 200, 201, 202, 203 [para. 74].

Counsel:

Eugene J. Mockler, Q.C., for the appellant;

Ronald J. LeBlanc and Rena Levesque, for the respondent.

This appeal and cross-appeal were heard on January 26, 2000, before Rice, Turnbull and Drapeau, JJ.A. of the New Brunswick Court of Appeal.

Drapeau, J.A., delivered the following judgment for the Court of Appeal on Febru­ary 20, 2001.