M.A. Hanna Company v. The Provincial Bank of Canada

M.A. Hanna Company v. The Provincial Bank of Canada
Collection
Supreme Court Judgments
Date
1934-12-12
Report
[1935] SCR 144
Judges
Duff, Lyman Poore; Rinfret, Thibaudeau; Cannon, Lawrence Arthur Dumoulin; Crocket, Oswald Smith; Hughes, Frank Joseph
On appeal from
New Brunswick
Subjects
Financial institutions
Decision Content
Supreme Court of Canada
M.A. Hanna Company v. The Provincial Bank of Canada, [1935] S.C.R. 144
Date: 1934-12-12
M. A. Hanna Company (Plaintiff) Appellant;
and
The Provincial Bank of Canada (Defendant) Respondent.
1934: May 10, 11; 1933: December 12.
Present: Duff C.J. and Rinfret, Cannon, Crocket and Hughes, JJ.
ON APPEAL FROM THE SUPREME COURT OF NEW BRUNSWICK, APPEAL DIVISION
Banks and Banking—Trusts and trustees—Agency—Negotiable instruments—Estoppel—Coal shipped to dealer under consignment agreement—Proceeds of dealer’s sales paid into dealer’s bank account—Application of moneys in account towards payment of dealer’s indebtedness to bank—Claim by original consignor against bank—Relationship between dealer and its consignor—Course of dealing—Conduct of the parties—Knowledge, bona fides, and rights, of bank.
E. Co., a coal dealer, was allowed a revolving line of credit by respondent bank, which held security by way of hypothecation under s. 88 of the Bank Act on its coal and a general assignment of book debts. Appellant company shipped coal to E. Co. under a consignment agreement whereby (inter alia) the title to and ownership of the coal should remain in appellant until sale thereof by E. Co., E. Co. was to keep appellant’s coal separate and apart from other coal, E. Co. was to pay certain freight, insurance and other expenses, it guaranteed the payment for all sales made by it remaining unpaid for 120 days, its compensation for its services and expenditures consisted solely of surplus realized on its sales over appellant’s regular circular of prices, and it was to account, with particulars, to appellant at specified times, and make payment in accordance therewith within 7 days thereafter, interest being chargeable on amounts not so paid. By the agreement as finally made, a clause, contained in an earlier document, that appellant’s share should be collected first and the funds should not foe confused, mixed or commingled with other funds of E. Co., but should be held separately and should immediately be deposited to appellant’s account in a bank designated by appellant, was “cancelled and annulled.” In practice E. Co. deposited the proceeds of sales of all coal, including appellant’s coal, in one account in respondent bank, and made its payments to appellant by cheques upon its general checking account in that bank. Certain moneys and negotiable instruments (drawn or taken in E. Co.’s name) received by E. Co. from sales of appellant’s coal and deposited in the bank during a time immediately preceding E. Co.’s going into bankruptcy, were applied by the bank against E. Co.’s indebtedness to it. Appellant claimed that the bank was not entitled to these as against appellant; that the moneys, etc., were in E. Co.’s hands subject to a fiduciary obligation to appellant, that this fiduciary obligation was transmitted to the bank with the moneys, etc., the bank having, it was alleged, received them with notice of the obligation and with knowledge that the application thereof by E. Co. in liquidation of its debt to the bank would be a breach of that obligation. Held: Appellant’s claim failed.
Per Duff C.J. and Crocket J.: Even assuming that the proceeds of sales of appellant’s coal were, as between E. Co. and appellant, held subject to a fiduciary obligation to appellant, that the bank had knowledge that the deposits of such proceeds were earmarked, and that the bank manager knew of the existence of a “consignment agreement,” yet appellant’s conduct precluded it from claiming the moneys as trust moneys; from disputing that, as to the proceeds of sales, the relation between it and E. Co. was that of creditor and debtor and not of cestui que trust and trustee. Appellant, in consenting to the deposit of the proceeds of the sales of its coal in E. Co.’s account, mixed with E. Co.’s moneys, combined with E. Co. in representing to the bank that these proceeds, so deposited, were not subject to any trust, but were moneys which E. Co. was authorized to deal with on the footing of moneys loaned to it by appellant. There was nothing in the evidence to displace the presumption that the bank followed the natural course in such circumstances, and treated the moneys as any reasonable person in appellant’s position must have expected them to be treated, viz., as moneys placed at the disposition of E. Co.
Per Rinfret J.: The agreement between appellant and E. Co. allowed E. Co. to deposit the proceeds of sales in E. Co.’s general account and to use such proceeds (and dispose of them as its own) between the settlement dates, subject only to the obligation of remitting payments to appellant at the specified times; therefore E. Co.’s relation to appellant, as to such proceeds, was not that of agent or trustee, but the relation was that of debtor and creditor. On this ground alone appellant failed. But further, on the evidence in the case, there were no circumstances likely to arouse the bank’s suspicion that E. Co. was depositing appellant’s money or using its funds without right.
Per Cannon J.: Under the agreement E. Co. could, and did, mix with its own moneys the proceeds of sales of the coal supplied by appellant and use such proceeds for the purposes of its own business, provided it made the periodical payments under the agreement. In respect of such proceeds E. Co. was not a trustee but merely a debtor. Therefore, even had the bank been put upon enquiry and become fully acquainted with the arrangement between appellant and E. Co., it could have said that there was no trust which it was bound to recognize. And the evidence did not show any bad faith on the part of the bank.
Per Hughes J.: On the evidence it must be taken (and the findings at trial were not sufficient in their extent to contradict) that the bank took the money and negotiable instruments in good faith and for value, and with no knowledge of unauthorized application thereof by E. Co.; and therefore—regardless of whether E. Co. was a debtor or trustee of appellant in respect of the proceeds of sales of appellant’s coal—in view of the established rules of law with regard to dealings in money and negotiable instruments between parties in such a position as E. Co. and the bank, the appellant’s claim against the bank could not succeed.
Henry v. Hammond, [1913] 2 K.B. 515; London Joint Stock Bank v. Simmons, [1892] A.C. 201; Thompson v. Clydesdale Bank, [1893] A.C. 282; 62 L.J.P.C. 91; and other cases, cited.
Judgment of the Appeal Division of the Supreme Court of New Brunswick, 8 M.P.R. 138, affirmed. APPEAL by the plaintiff from the judgment of the Appeal Division of the Supreme Court of New Brunswick[1] which reversed the judgment of Hazen C.J.[2] who held (as expressed in the formal judgment):
that all moneys received by the defendant from the Eastern Coal Docks, Limited, from March 3rd, 1932, to the date of the bankruptcy of the Eastern Coal Docks, Limited, in the form of money, cheques, promissory notes and bills of exchange by way of deposit, discount and collection, and which were the proceeds of the plaintiff’s coal sold by the Eastern Coal Docks, Limited, were the property of the plaintiff, for which the defendant must account and pay to the plaintiff.
The Appeal Division allowed the defendant’s appeal, with costs, and ordered entry of judgment dismissing the plaintiff’s claim, with costs.
The material facts of the case are sufficiently stated in the judgments now reported. The plaintiff’s appeal to this Court was dismissed with costs.
C. F. Inches K.C. for the appellant.
A. N. Carter for the respondent.
The judgment of Duff C.J. and Crocket J. was delivered by
Duff C.J.—I have come to the conclusion that the appeal should be dismissed. The ground upon which that conclusion is based can be stated briefly.
The Eastern Coal Docks, Limited, were acting as factors for the appellants in the sale of their coal during a period which, I shall assume, lasted from May, 1931, until the Coal Docks went into bankruptcy in the spring of 1932. A draft agreement was drawn which is dated the 1st of May, 1931, the pertinent clauses of which are these:
The Factor agrees to receive as full compensation for all its services and expenditures such surplus amounts as the Factor may obtain and collect in excess of the Principal’s regular circular of prices in effect at the time of shipment f.o.b. shipping point as aforesaid and to look for payment solely to such surplus so realized and collected from such sales made by the Factor. Such compensation shall not be deducted by the Factor until the Principal’s share of such sale has been collected and paid to the Principal.
The Factor agrees to collect, as agent of the Principal, all accounts for coal sold by the Factor hereunder, it being understood that the Factor shall acquire no right to any such moneys so collected or to become due on such accounts, except as to said surplus. The Principal’s share shall be collected first as aforesaid, and such funds shall not be confused, mixed or commingled with other funds of the Factor, but shall be held separately and shall immediately be deposited to the account of the Principal at the or such other bank or banks as the Principal shall designate.
Every four weeks the Factor shall notify the Principal the amount of such collections and deposits and also the amount of any and all accounts remaining unpaid.
The Factor hereby guarantees the payment of all sales of coal made by it hereunder, and agrees that any account for coal sold hereunder which shall remain unpaid for a period of one hundred and twenty (120) days, shall be deemed uncollectible, and the Factor shall thereupon make return and pay to the Principal on such account in the same manner as if collection had actually been made.
* * *
The Factor will keep said anthracite coal separate and apart from all other coal and commodities, * * *
* * *
The title to and ownership of all the coal shipped hereunder shall be and remain in the Principal until sale thereof by the Factor.
This agreement does not appear to have been executed by the Coal Docks. On the 24th of April, 1931, it was sent by Blizard, the President of the Coal Docks, to the appellants. On the 19th of June, 1931, it was returned to Blizard with some changes which are not material signed by the appellants. On the 11th of November, 1931, the formal agreement governing the relations of the parties at the material times was executed. It is convenient to reproduce it textually:
Agreement, made this 11th day of November, 1931, by and between the M. A. Hanna Company, a corporation duly organized and existing under and by virtue of the laws of the state of Ohio, one of the United States of America, and having its head office at the city of Cleveland, in the state of Ohio, party of the first part, hereinafter called the “Principal,” and Eastern Coal Docks Limited, a corporation duly organized and existing under and by virtue of the laws of the province of New Brunswick and having its head office in the city of Saint John in said province, party of the second part, hereinafter called the “Factor.”
Witnesseth:
Whereas, under date of May 1, 1931, the parties hereto entered into a certain factor’s agreement with reference to the sale of coal by the Factor as agent for the Principal,
Whereas, through inadvertence, the said factor’s agreement provided that it was to run from date thereof, to wit, the first day of May, 1931, until the 31st day of March, 1932, although the intention of the parties was that said factor’s agreement should cover all coal shipped by the Principal to the Factor after November 1st, 1930, and certain coal was delivered prior to May 1, 1931, and
Whereas, it is desired to amend said factor’s agreement with respect to the manner of accounting by the Factor to the Principal for the proceeds from coal sold. Now, therefore, it is agreed by and between the parties hereto that said factor’s agreement of May 1, 1931, shall be and the same is hereby amended as follows:
The term of said agreement shall be from November 1, 1930, to the thirty-first day of March, 1932.
In lieu of making payments to the Principal as in said factor’s agreement provided, the Factor shall account to the Principal regularly in periods covering four (4) weeks’ operation, giving kinds, sizes and amounts of all coal sold and delivered and the total sales money value thereof, also the amount in dollars of the collections made, and the amounts by periods of all customers accounts receivable representing sales made less than one hundred and twenty (120) days prior to the end of said period.
Of the amounts so collected the Factor shall remit to the Susquehanna Collieries Limited, Montreal, on behalf of the Principal, a remittance determined in the following manner:
Value of all coal shipped hereunder at Principal’s regular circular of prices in effect, at time of shipment f.o.b. shipping point, as in said factor’s agreement provided or such other value as may from time to time be mutually agreed upon.........................................................................$
Plus freight paid by Principal from shipping point to vessel……………….................................................$
Total........................................................................ $
Less previous remittances...................................... $
Balance................................................................... $
Less value of Principal’s coal on Factor’s doc calculated as follows: (each size and grade to be calculated separately)
Average value of Principal’s coal per ton, in effect at the
time of shipment, as shown on consignment memorandums..........................................................$
Freight rate per ton.................................................$
Marine insurance per ton.......................................$
Steamer rate per ton..............................................$
Customs duty per ton.............................................$
Stevedoring per ton...............................................$
Total per ton value................................................$
Inventory......tons at $...........per ton.................... $
Accounts receivable representing sales made within one
hundred and twenty (120) days..................... $
Total.................................................................. $
Amount of remittance........................................ $
The Factor shall make payments of such accounts and remittances in time for them to arrive in Montreal not more than seven (7) days after the last day of each accounting period. The Principal shall be entitled to interest at the rate of six per centum (6%) per annum on the amount so due from said seventh day until paid.
All bills covering coal sold hereunder by Factor shall be invoiced by Factor, “Eastern Coal Docks, Limited, agent for the M. A. Hanna Company.” That part of said agreement dated May 1st, 1931, which reads: “The Principal’s share shall foe collected first as aforesaid and such funds shall not be confused, mixed or commingled with other funds of the Factor, but shall be held separately and shall immediately be deposited to the account of the Principal at the.............or such other bank or banks as the Principal shall designate.”
shall be and the same is hereby cancelled and annulled.
Except as herein specifically amended said factor’s agreement of May 1, 1931, shall be and remain in full force and effect.
The Coal Docks proceeded to sell coal under this arrangement. They kept one account with the respondent bank in which they deposited their own moneys and the moneys of the appellants received from the sale of their coal. Returns and remittances were made pursuant to the agreement down to the 15th of March, 1932. On that date the final remittance was made, and it appears to have covered everything to which the appellants were entitled up to the 3rd of March, 1932. During the months of March and April, the Coal Docks paid into their account moneys received from the sale of the appellants’ coal and these moneys were applied by the respondent Bank in liquidation of the indebtedness of the Coal Docks.
On behalf of the appellants, it is contended that these moneys were in the hands of the Coal Docks subject to a fiduciary obligation to them, that this fiduciary obligation was transmitted to the Bank with the moneys; the Bank having, it is alleged by the appellants, received the moneys with notice of the obligation and with knowledge that the application of these moneys by the Coal Docks, in liquidation of their debt to the Bank, would be a breach of that obligation.
By the agreement of the 1st of May, it was provided, as we have seen, that the appellants’ share in moneys due upon sales “should be collected first,” and that these funds should “not be confused, mixed or commingled with other funds” of the Coal Docks, but should “be held separately and * * * immediately be deposited to the account of” the appellants at a bank to be designated by them.
By the agreement of November 11th, this last mentioned clause was explicitly “cancelled and annulled.” In lieu thereof, these two clauses appear:
In lieu of making payments to the Principal as in said factor’s agreement provided, the Factor shall account to the Principal regularly in periods covering four (4) weeks’ operation, giving kinds, sizes and amounts of all coal sold and delivered and the total sales money value thereof, also the amount in dollars of the collections made, and the amounts by periods of all customers accounts receivable representing sales made less than one hundred and twenty (120) days prior to the end of said period.
* * * *
The Factor shall make payments of such accounts and remittances in time for them to arrive in Montreal not more than seven (7) days after the last day of each accounting period. The Principal shall be entitled to interest at the rate of six per centum (6%) per annum on the amount so due from said seventh day until paid.
It is not disputed that, in agreeing upon the terms of the contract of the 11th November, the parties contemplated that the Coal Docks should follow the course they did actually pursue, in depositing moneys received from sales of the appellants’ coal with their own moneys in the same account.
I do not think it is necessary to determine whether or not the moneys so deposited, which were the proceeds of the sales of the appellants’ coal, were, as between the Coal Docks and the appellants, held subject to a fiduciary obligation to the appellants. It is not necessary for the purposes of this appeal, in my judgment, to decide whether or not, in an action between the appellants and the Coal Docks, for example, the Coal Docks could have set up the Statute of Limitations in answer to the action. I have come to the conclusion that the conduct of the appellants precludes them from disputing that, as regards the proceeds of the sales, the relation between them and the Coal Docks was that of creditor and debtor, and not the relation of cestui que trust and trustee.
I accept, for the purposes of this judgment, the finding of the learned Chief Justice, in which he imputes knowledge to the Bank that the deposits of the proceeds of the sale of the appellants’ coal were earmarked. I accept his finding also that the manager knew of the existence of a “consignment agreement.” The appellants, in my judgment, in consenting to the deposit of the proceeds of the sales of their coal in the Coal Docks’ account, mixed with the Coal Docks’ moneys, combined with the Coal Docks in representing to the Bank that these proceeds, so deposited, were not subject to any trust, but were moneys which the Coal Docks were authorized to deal with on the footing of moneys loaned to them by the appellants. I have carefully examined the whole of the evidence, and, accepting the finding of the learned Chief Justice, there is, I think, nothing in the evidence to displace the presumption that the Bank followed the natural course in such circumstances, and treated these moneys as any reasonable person in the position of the appellants must, I think, have expected them to be treated, viz., as moneys placed at the disposition of the Coal Docks.
I do not think it is necessary to consider whether or not the reasoning followed by Lord Selborne in Towle v. White[3], by Lord Justice James and by Lord Justice Mellish in the same case (Ex parte White; In re Neville[4]), would, in view of the explicit provisions of the documents, apply to this case, and govern the reciprocal rights of the parties themselves. It is sufficient, for the disposition of this appeal, that the appellants by reason of their conduct are precluded from claiming these moneys as trust moneys.
The appeal should be dismissed with costs.
Rinfret J.—The appellant’s contention that it is entitled to claim as its own certain bills of exchange, promissory notes and money received by the respondent bank from Eastern Coal Docks, Limited, (hereinafter called the Docks Company) is professedly based on two written documents dated May 1st and November 11th, 1931.
The document dated November 11th was really the final outcome of the negotiations between the appellant and the Docks Company initiated by the document dated May 1st. On the evidence, there is abundant justification for the statement of Grimmer, J., speaking for the majority of the Appeal Division, that
As a matter of fact, though the consignment agreement was executed by the Eastern Coal Docks Ltd. at an earlier date, yet the correspondence between these parties and their principals shews that it was not intended to take effect without alterations which were not finally made until 11th November, 1931.
Moreover, the transactions between the Docks Company and the respondent bank, which are put in question by the appellant, all took place on and after March 3rd, 1932. This was several months after the execution of the second document which, to all appearances, would be the governing agreement during the material period of time. It is, however, interesting—and it seems to me very important for the purposes of this case—to compare the May document and the November document. In November, the parties, instead of drafting a new document, proceeded by the more complicated method of inserting in their agreement some of the provisions of the earlier document by mere reference thereto and of setting out in full only the amendments they had definitely agreed upon as a consequence of their negotiations. And the result of the case depends upon the true effect of these amendments on the contract finally arrived at.
Long previous to the 1st of May, the appellant had been supplying coal to the Docks Company on a buy and sell basis.
The proposition contained in the May document was that the appellant would undertake to furnish anthracite coal to the Docks Company f.o.b. vessels at certain coal piers at Philadelphia or New York City. The Docks Company was to pay all freight, transportation and discharging charges on the coal, including cargo insurance and also all the assessments, licences, rent, storage and sale expenses and all charges of whatsoever nature incurred within the Dominion of Canada. It was further to insure the coal in the name of the appellant.
The Docks Company was to use its best efforts to sell the coal; and, until the sale thereof, the title to and ownership of all the coal shipped was to remain in the appellant.
The company was to receive as full compensation for all its services and expnditures such surplus amount as it might obtain and collect in excess of the appellant’s regular circular of prices in effect at the time of shipment, and to look for payment solely to such surplus so realized and collected from the sales made by the company.
The company guaranteed the payment of all sales of coal made by it remaining unpaid for a period of 120 days; the company agreeing thereupon to make return and pay to the appellant on such sales in such manner as if collection had actually been made.
There were numerous other provisions mainly concerned with the relations of the parties at the termination of the agreement and which are not material here. But special attention must be given to the clauses of the agreement dealing with the collection of moneys and the remittance thereof by the Docks Company to the appellant. That question had been the main subject of discussion between them from May to November; and the amendments brought into the agreement definitely executed on November 11th were accepted on both sides as defining these matters about which up to that time the parties were not ad idem.
In the May document, the proposition was, to quote verbatim:
The Factor agrees to collect, as agent of the Principal, all accounts for coal sold by the Factor hereunder, it being understood that the Factor shall acquire no right to any such moneys so collected or to become due on such accounts, except as to said surplus
(that is to say: the amount obtained in excess of the appellant’s regular circular of prices already mentioned above).
The Principalis share shall be collected first as aforesaid, and such funds shall not be confused, mixed or commingled with other funds of the Factor, but shall be held separately and shall immediately be deposited to the account of the Principal at the............or such other bank or banks as the Principal shall designate.
Every four weeks the Factor shall notify the Principal the amount of such collections and deposits and also the amount of any and all accounts remaining unpaid.
* * *
The Factor agrees upon receipt thereof immediately to endorse, assign and deliver to any bank chosen by the Principal and operating in the City of Saint John any and all promissory notes or other evidences of indebtedness representing and based upon such sales of coal to be held by said bank for collection subject to this agreement and as collateral to the sale price of said coal due the principal.
The agreement executed on November 11th departed from this system in a radical measure. In lieu of making payments to the appellant as was provided in the May document, and that is to say: by immediately depositing the funds to the account of the appellant at a bank which it was to designate; and in lieu of simply notifying the appellant every four weeks of the amounts of collection and of the deposits so made, the Docks Company was to account to the appellant in periods covering four weeks’ operations
of all coal sold and delivered and the total sales money value thereof, also the amount in dollars of the collections made, and the amounts by periods of all customers accounts receivable representing sales made less than 120 days prior to the end of said period. Of the amount so collected, the company was to remit to the appellant or on its behalf, only a portion thereof in a certain specified manner, into the details of which it is unnecessary to enter, except to note that it was not to include the accounts receivable representing sales made within 120 days, and that the company’s equity in the coal (i.e. freight, insurance, steamers, customs duty, stevedoring and other charges paid by the company) was to be deducted.
The amount of the remittance was calculated in that way at the end of each period of four weeks’ operations; and it was provided that the company
shall make payments of such accounts and remittances in time for them to arrive in Montreal not more than seven days after the last day of each accounting period.
The appellant was entitled to interest at the rate of 6 per cent per annum
on the amount so due from said seventh day until paid.
Finally, it was specially agreed that that part of the May document which read as follows:
The Principal’s share shall be collected first as aforesaid and such funds shall not be confused, mixed or commingled with other funds of the Factor, but shall be held separately and shall immediately be deposited to the account of the Principal at the............or such other bank or banks as the Principal shall designate.
“shall be and the same is hereby cancelled and annulled.”
In my view, these were modifications going to the very essence of the relations between the appellant and the Docks Company. They were brought about through the negotiations extending from the 1st of May until the agreement was executed on the 11th of November.
In the meantime, the appellant’s auditors had been in Saint John several days in an endeavour to find a working mode of operation; and the officials of both companies had had conferences with a view to obtaining arrangements satisfactory to each side. The method of calculating the remittances and also the method in which the funds collected would be dealt with by the Docks Company during the periods preceding remittance time were the methods recommended by the appellant’s auditors and fully understood and accepted by the officials of the appellant.
The understanding was and the effect of the agreement was, more particularly in the light of the changes agreed to in November, that there was to be no special and separate account at a bank designated by the appellant and into which the funds were to be deposited, or to which the promissory notes and other evidences of indebtedness were to be endorsed, assigned or delivered, to be held by the said bank for collection. This is further confirmed in that, as a matter of fact, no such bank was ever designated by the appellant; and, as a matter of practice, the operations were never carried out in that way.
Under the agreement, both upon its construction and upon the way it was understood and carried out by the parties, the funds were not to be held separately, but they were allowed to be confused, mixed or commingled with the other funds of the Docks Company, and they were to be deposited or delivered, not at a special bank or into a special bank account, but into the general bank account of the Docks Company. The result is that in the meantime, that is, during the interval between periodic remittances, the Docks Company had the use of the funds as if they were its own and the appellant trusted to the company’s ability to reimburse them in due course.
The appellant went into that agreement with complete understanding of its purport. The report of the appellant’s auditors recommending the mode of operations adopted in the November agreement had drawn the attention of the appellant to the fact that this system of settlement would give the Docks Company the use of certain amounts from collections which would otherwise immediately be payable to the appellant. The appellant also knew, through the same report, that, as collections were made, they were deposited in a general bank account of the Docks Company. In point of practice, all remittances to the appellant without exception were made by means of cheques drawn by the Docks Company on this general account. The company never opened a special bank account, nor were they asked by the appellant to do so. No commercial paper was ever taken in the name of the appellant. The bills of exchange were drawn and the promissory notes were made in the name of the Docks Company. Consequently, of course, the appellant never received any. I repeat that each and every remittance the appellant received from the Docks Company was made in the form of a cheque drawn upon that company’s general account. All these circumstances showing how the agreement was carried out are strong indications of how the parties understood the agreement and support the view already expressed as to its intention and its meaning.
I, therefore, come to the conclusion that the agreement of November 11th allowed the Docks Company to deposit the proceeds of the sale of the appellant’s coal in the Docks Company’s general account and to use the proceeds thereof between the settlement dates, subject only to the obligation of remitting to the appellant a sum of money equivalent to the collections at the end of the remittance period agreed upon between the parties.
As a consequence, the relation of the Docks Company towards the appellant in respect of the funds collected was not that of agent or trustee, but the relation between them was that of debtor and creditor (Henry v. Hammond[5]). The Docks Company had the use of the funds and could dispose of them as its own; and, in that aspect of the question, it is, of course, immaterial whether they disposed of it in favour of the bank respondent or in favour of other persons.
On this ground alone, I think the appeal would fail; and it makes it unnecessary to discuss the further question whether the circumstances of the case were such that the bank was put on inquiry; for, in the words of Lord Herschell, in The London Joint Stock Bank v. Simmons[6]:
When it is said that a person is put on inquiry the result in point of law is that he is deemed to know the facts which he would have ascertained if he had made inquiry. He cannot better his position by abstaining from so doing. On the other hand, his position cannot be worse than it would have been had he made inquiry and been in possession of the result of it.
I feel, however, like Lord Macnaghten, in that same case (at p. 224), and I am unwilling to pass by in silence the question whether in the premises the bank was bound to inquire, lest I should seem to intimate a doubt for which, in my opinion, there is no occasion.
It should be remembered that, as far back as December, 1930, the bank and the Docks Company had entered into an agreement whereby the bank agreed to loan and advance to the company the moneys required for the purpose of enabling it to carry on and finance its coal business. In consideration of a revolving line of credit of $50,000 to be opened by the bank, the company agreed to give and did give the bank security by way of hypothecation, under sec. 88 of the Bank Act, and an assignment of all book debts due or thereafter to become due to the company. This was done on the security of all coal, coke and firewood then owned or which might be owned by the Docks Company, from time to time while any advance made under said credit remained unpaid, and which then or might thereafter be in or on the wharves, and warehouses, railway cars, freighters or property of the Docks Company or adjacent thereto in the city of Saint John. The agreement was duly filed in the office of the registrar of deeds, and, pursuant to it, the Docks Company transferred and assigned to the bank all debts, demands or choses in action then due or thereafter to become due.
Ever since December, 1930, as between the bank and the Docks Company, the business of the latter was conducted under the terms of the agreement so entered into and so registered. From the inception, in December, 1930, and, in my view, for the whole period extending up to November 11th, 1931, the Docks Company’s business was placed on the basis that they purchased their coal from the wholesale dealers, and they were strictly the owners thereof. The appellant, no doubt, attempted in the November agreement to make its terms retroactive from November 1st, 1930; but it is needless to say that it was not within the power of the parties to that agreement to make those terms effective against the respondent and thus summarily set aside the rights already vested in the bank.
In July, 1931, the bank was approached by the Docks Company with a view of finding out upon what terms it would be willing to finance a plan of business whereby the appellant would ship its coal to the Docks Company on a consignment basis. As a result of the interviews had and the correspondence exchanged between the company and the local manager of the respondent at Saint John, the company was told that the bank did not approve the plan and that, pursuant to express instructions from the bank’s head-office, if the company entered into the proposed agreement with the appellant, it would have to transfer its account to another bank. I do not think anything can be made out of the fact that, in his last letter of instructions to the local manager in Saint John, the bank’s general manager finally yielded to the idea that a trial of the proposition might be made for a few months, as it is not shewn that this suggestion was ever communicated to the officials of the Docks Company. In point of fact, no understanding of any kind in connection with shipments of coal on a consignment basis is proven to have been arrived at between the manager of the local branch and the Docks Company. As between them, upon the evidence, matters were left where they stood when the company was told that, if they went into the consignment agreement with the appellant, they would have to take their account to another bank.
The bank was never shown either the document of May 1st or the agreement of November 11th; and it was never made aware of its contents. Matters went on as between the bank and the company in the same way as they had been going on before. Moneys were deposited as usual in the same general account. Bills of exchange and promissory notes were drawn or made exclusively in the name of the Docks Company. There was nothing to bring home to the bank that anything had been changed in the company’s business, or that they had entered into a factor’s agreement. And this is true of the whole dealings up to the very end.
The appellant laid much stress on the fact that for a certain time, in 1931 and 1932, the Docks Company was in the habit of making two deposits daily accompanied by two separate deposit slips on which certain notations appeared. There were also certain markings on the bills and promissory notes discounted by the bank. It was strongly urged that this was of a nature to arouse suspicion.
I confess my inability to agree with the suggestion. The two daily deposits were made in the general bank account in existence from the beginning of the operations, and the practice of making the notations on the deposit slips had started long before the date of the consignment agreement with the appellant. These markings or notations were not brought to the attention of the responsible officials of the bank. When heard at the trial, they testified that they had not noticed them; and all witnesses having knowledge of banking practice stated these markings or notations were usual; they were made by customers for office records and they conveyed no meaning to the bank. No attempt was made to shake that testimony by adducing evidence to the contrary. It was rather the other way, the Docks Company’s officials and employees all stating that they did not attach any importance to these markings and they were put there merely for office checking purposes.
Such were therefore the circumstances. Never at any time was the bank told that the Docks Company were in fact operating on consignment for anybody. After the consignment agreement, there was no apparent change in the company’s usual method of banking. The president of the company had told the bank, indeed had written to the bank that, if the proposed arrangement was effected, the receipts would be deposited in another bank, or, at least, in a separate bank account and notes or drafts would be endorsed over to that bank or to that account; also that the drafts and notes would be made by the Docks Company as agents. Nothing of that character was ever done.
The bank had told the Docks Company that, in case the consignment agreement was executed, the company would not be allowed to mix the funds and it would have to carr