The appellant companies were defrauded by their bookkeeper, who issued 155 fraudulent cheques payable to third parties and deposited them into her own accounts at the respondent bank.
The bank accepted many of the cheques without endorsement, and the bookkeeper forged endorsements on the rest.
The appellants sued the bank for conversion.
The Supreme Court of Canada held that the bank was strictly liable for conversion.
The cheques were not payable to fictitious persons under s. 20(5) of the Bills of Exchange Act because the intention of the corporate drawer, not the fraudulent employee, governed.
Furthermore, the bank could not rely on s. 165(3) to claim the rights of a holder in due course, as that section only protects a bank when a cheque is deposited to the credit of the legitimate payee or endorsee.
