The appellant bid for a construction contract and provided a certified cheque as a performance guarantee.
The owner deposited the cheque with the respondent bank, and the funds were eventually transferred to the owner's collateral account and used to reduce its debt to the bank.
When the owner went bankrupt, the appellant sued the bank for breach of trust.
The trial judge found the bank liable as a constructive trustee, but the Court of Appeal apportioned fault equally under the Contributory Negligence Act, finding the appellant negligent for not tracing the funds sooner.
The Supreme Court of Canada allowed the appeal, restoring the trial judgment.
The Court held that the bank was put upon inquiry and breached its trust, and that a cestui que trust owes no duty to its trustee to ensure the trust is observed, making contributory negligence inapplicable.
