M.J. Jones Inc. v. Henry
[Indexed as: M.J. Jones Inc. v. Henry]
58 O.R. (3d) 529
[2002] O.J. No. 967
Docket No. C36987
Court of Appeal for Ontario
Finlayson, Carthy and Cronk JJ.A.
March 14, 2002
Sale of goods -- Sale by mercantile agent -- Sale on consignment -- Mercantile agent selling without authorization to do so -- Purchaser buying in good faith and without actual or constructive notice that mercantile agent selling without authorization -- No due diligence requirement imposed on purchaser -- Purchaser entitled to protection of s. 2 of Factors Act -- Factors Act, R.S.O. 1990, c. F.1, s. 2.
MJJ Inc. owned a boat that it consigned to BM, a retail marine dealership, to sell on consignment. MJJ Inc. alleged that any sale of the boat needed its authorization. In July 1999, DH purchased the boat from BM for $46,000. BM did not remit the proceeds to MJJ Inc., and BM became bankrupt. MJJ Inc. sued DH for recovery of the boat or for payment. In his defence, DH relied on s. 2(1) of the Factors Act, which provides that where a mercantile agent is in possession of goods with the consent of the owner and sells the goods in the ordinary course of its business as a mercantile agent, then the sale is valid as if expressly authorized by the owner of the goods so long as the purchaser buys in good faith and has no notice that the agent did not have authority to sell the goods. With one exception, MJJ Inc. conceded all of the elements of s. 2; it disputed that DH had no notice that BM did not have the authority to sell the boat. The parties each brought motions for summary judgment. MJJ Inc. was granted judgment. DH appealed.
Held, the appeal should be allowed.
DH was entitled to rely on s. 2(1) of the Factors Act, and MJJ Inc.'s argument to the contrary could not stand with the concessions it had made on the motion for summary judgment. The concession that DH acted in good faith precluded, on the facts of this case, any finding that he was under a duty to inquire into the arrangements between BM and MJJ Inc. Further, it was not the case that the sale of the boat was not in the ordinary course of BM's business as a mercantile agent. Assuming that DH knew that BM needed MJJ Inc.'s authorization, there is no suggestion that he had actual notice that BM did not have it. Section 2(1) of the Factors Act does not import a due diligence requirement. The provisions of the Act relieve innocent purchasers from having to inquire into the limits of the agent's authority. The concession that the purchase was made by DH in good faith supports DH's position that he did not have notice of an absence of authorization. The facts did not support a finding of constructive notice. Accordingly, the appeal should be allowed.
APPEAL of a summary judgment.
Cases referred to HOJ Franchise Systems Inc. v. Municipal Savings & Loan Corp. (1994), 1994 7480 (ON SC), 110 D.L.R. (4th) 645, 11 B.L.R. (2d) 282 (Ont. Gen. Div.); Patry v. General Motors Acceptance Corp. of Canada Ltd. (2000), 2000 5723 (ON CA), 48 O.R. (3d) 370, 187 D.L.R. (4th) 99, 8 B.L.R. (3d) 14 (C.A.); St. John v. Horvat (1994), 1994 1005 (BC CA), 89 B.C.L.R. (2d) 61, 113 D.L.R. (4th) 670, [1994] 5 W.W.R. 22, 14 B.L.R. (2d) 183 (C.A.)
Statutes referred to Factors Act, R.S.O. 1990, c. F.1, s. 2(1) Sale of Goods Act, R.S.B.C. 1979, c. 370, s. 58(1)
Rules and regulations referred to Rules of Civil Procedure, R.R.O. 1990, Reg. 194, Rule 20
Authorities referred to Guest, A.G., ed., Benjamin's Sale of Goods, 5th ed. (London: Sweet & Maxwell, 1997)
Frederick Caplan, for respondent. C.F. MacKewn, for appellant.
The judgment of the court was delivered by
[1] FINLAYSON J.A.: -- Douglas Henry (the "appellant") appeals from [a] summary judgment ordering him to deliver to M.J. Jones Inc. (the "respondent") the boat he purchased from Bodden's Marine ("Bodden's") or, in the alternative, to pay the respondent the sum of $46,000, representing its purchase price. At issue is whether the appellant is entitled to protection under s. 2(1) of the Factors Act, R.S.O. 1990, c. F.1.
Background
[2] In July 1999, the appellant purchased a Sea Ray boat from Bodden's for $46,000. Bodden's was a retail marine dealership that sold used boats, some of which it owned outright, and others which it sold on consignment for private owners. The Sea Ray purchased by the appellant was owned by the respondent and was at Bodden's on consignment. The respondent claims the sale required its authorization, that it never gave that authorization, and that Bodden's, which is now bankrupt, never remitted the proceeds from the sale of the Sea Ray.
[3] As a result, the respondent brought a motion under Rule 20 of the Rules of Civil Procedure, R.R.O. 1990, Reg. 194 for recovery of the boat or its value. The appellant brought a cross-motion under Rule 20 for an order dismissing the respondent's action and a declaration that he is the owner of the Sea Ray, free and clear of all claims by the respondent. The motions judge gave summary judgment in favour of the respondent.
[4] For the reasons that follow I would allow the appeal.
Analysis
[5] The respondent's position on this appeal suffers from a plethora of self-inflicted difficulties. The concessions it made on the motions below are fatal to the arguments it advanced in this court. Having conceded that Bodden's was acting as a mercantile agent, that the Sea Ray was at Bodden's with the respondent's consent, and that the appellant was a purchaser who acted in good faith, there is little left to argue about. As discussed below, it runs contrary to case law to accept the respondent's submission that the sale was not in Bodden's ordinary course of business as a mercantile agent because the appellant did not inquire into the arrangements between Bodden's and the respondent to determine whether Bodden's had the authority to close the transaction. Additionally, the arguments advanced in this court by the respondent can, if successful, result only in a trial, a position once again contrary to the earlier agreement between counsel that there were no triable issues on any [party's] version of the merits.
[6] The appellant relies on the concession of the respondent (and accepted by the motions judge) that Bodden's was a mercantile agent within the meaning of the Factors Act and cites s. 2(1) of the Factors Act to validate the transfer of title to him by Bodden's. Section 2(1) states as follows:
2(1) Where a mercantile agent is, with the consent of the owner, in possession of goods or of the documents of title to goods, a sale, pledge or other disposition of the goods made by the agent when acting in the ordinary course of business of a mercantile agent is, subject to this Act, as valid as if the agent were expressly authorized by the owner of the goods to make the disposition, if the person taking under it acts in good faith and has not at the time thereof notice that the person making it has not authority to make it.
(Emphasis added)
[7] The motions judge proceeded on the basis that this court's decision in Patry v. General Motors Acceptance Corp. of Canada Ltd. (2000), 2000 5723 (ON CA), 48 O.R. (3d) 370, 187 D.L.R. (4th) 99 (C.A.) at para. 12 was applicable and sets out the test for reliance on s. 2(1) of the Factors Act. Applying this test, the appellant need only establish that:
(i) the vendor was a mercantile agent;
(ii) the vendor was in possession of the vessel with the owner's consent;
(iii) the vendor sold the vessel to the purchaser in the ordinary course of its business as a mercantile agent;
(iv) the purchaser had no notice that the vendor did not have the authority to sell the vessel; and
(v) the purchaser bought the vessel in good faith.
All these conditions, save (iv), are expressly admitted.
[8] Despite the concessions, the motions judge embarked on an analysis that is largely irrelevant. He found that it was clear from the Bill of Sale that the agreement "was a consignment tract involving the purchase of a private brokerage boat". He noted that dealers are required to collect and remit GST on dealer-owned boats, and that none was charged or collected here. He ruled "[t]he defendant must have known that this was a sale of a privately owned boat and that the transaction was subject to the owner's confirmation and release" and found the defendant "careless in not paying the purchase funds to the plaintiff or both the dealer and the plaintiff".
[9] On the basis of these findings, the judge determined that the appellant could not rely on s. 2(1) of the Factors Act. He found [at paras. 8-10] the appellant did not meet requirement (iv) of the test in Patry, supra.
The test under s. 2(1) of the Factors Act set out in the Patry case fail[s]. The broker dealer needed the plaintiff's permission to conclude the transaction and approve the contract and the defendant should have known that. Further, the defendant should have made inquiries into the responsibilities and obligations of the parties to the consignment or broker listing agreement.
It is not necessary to determine whether the boat was in possession of Bodden's Marine for resale. This would be an issue for trial in any event.
In my view, there is no genuine issue for trial and the plaintiff is entitled to summary judgment against the defendant plus costs.
(Emphasis added)
[10] With respect, the motions judge erred in his application of the test and his finding that the appellant did not satisfy requirement (iv). The concession that the appellant acted in good faith precluded, on the facts of this case, any finding that he was under a duty to inquire into the arrangements between Bodden's and the respondent.
[11] The respondent concedes that Bodden's was a mercantile agent and that the boat was at Bodden's with the consent of the respondent. It is unnecessary on this appeal to determine whether the Sea Ray was in Bodden's possession for resale purposes, although we now know that the respondent was prepared to accept the fair price of $46,000, as paid by the appellant. However, the respondent submits that the sale of the Sea Ray to the appellant was not in the ordinary course of Bodden's business as a mercantile agent. I disagree.
[12] In a similar case, St. John v. Horvat (1994), 1994 1005 (BC CA), 113 D.L.R. (4th) 670, 89 B.C.L.R. (2d) 61 (C.A.), the respondent delivered a van on consignment to a broker with instructions to contact her when a firm offer was made. She never authorized the broker to sell the van. The broker registered a forged ownership and sold the van to the appellant without notifying the respondent. At issue was whether the appellant could rely on s. 58(1) of the Sale of Goods Act, R.S.B.C. 1979, c. 370 (the equivalent of s. 2(1) of the Ontario Factors Act).
[13] The Court of Appeal held that the sale was in the broker's ordinary course of business as a mercantile agent and that the appellant was entitled to protection under s. 58(1). It stated at pp. 678-79 D.L.R.:
[t]he mere fact that the mercantile agent has acted outside his or her actual authority does not take a sale out of the ordinary course of business; s. 58 is designed to cure such a defect . . . If the words "in the ordinary course of business of a mercantile agent" were defined in such a way that lack of authority to sell or fraud on the part of the mercantile agent would take the transaction out of s. 58, the entire purpose of the provision -- to promote efficiency in commercial transactions and protect buyers who, without any indication that the mercantile agent does not have authority to sell, purchase goods from one who does not have such authority -- would be defeated. What takes a sale out of the ordinary course of business is conduct of the seller or other circumstances that would put a reasonable buyer on notice that this was not a sale in the ordinary course of business.
There would be no reason for [the appellant] to ask to see the previous transfer form from the respondent to [the broker], but even if he had, there was nothing on that transfer form to cause him to suspect that it was a forgery. In short, the evidence does not indicate that a reasonable buyer would have suspected that this was other than a sale in the ordinary course of business.
I find that the appellant has established that he acted in good faith and without notice that [the broker] did not have authority to sell the van.
(Emphasis added)
[14] In the present case, Bodden's was a broker of used boats. It sold privately owned boats on consignment. As stated in St. John at p. 675 D.L.R."[t]he important question is whether [the broker] customarily had authority to sell the vehicles delivered into its possession." As in that case, there does not appear to be any evidence that Bodden's did not customarily have such authority. Bodden's sold the privately owned boat on consignment to the appellant at its place of business. From the appellant's perspective, and the perspective of a reasonable person, the sale by Bodden's was in its ordinary course of business as a mercantile agent.
[15] The motions judge erred in determining that the fact the appellant "should have known" that "[t]he broker dealer needed the plaintiff's permission to conclude the transaction" precluded satisfaction of requirement (iv). Notice of the necessity for authorization is not the equivalent of notice that Bodden's lacked the authority to sell the boat. Accepting that the appellant knew "[t]he broker dealer needed the plaintiff's permission to conclude the transaction" there is no suggestion he had actual notice that Bodden's did not have the requisite authorization.
[16] The motions judge also erred by finding that "the defendant should have made inquiries into the responsibilities and obligations of the parties to the consignment or broker listing agreement." As Laskin J.A. stated in Patry, at paras. 14 and 15"[n]ormally, good faith and notice will coincide." He also held that the good faith requirement in s. 2(1) of the Factors Act does not import a due diligence requirement. It would logically follow that the requirement that there be an absence of notice would also not import a due diligence requirement. As stated in HOJ Franchise Systems Inc. v. Municipal Savings & Loan Corp. (1994), 1994 7480 (ON SC), 110 D.L.R. (4th) 645, 11 B.L.R. (2d) 282 (Ont. Gen. Div.), at p. 673 D.L.R."the provisions relieve innocent purchasers from having to inquire into the limits of the agent's authority." This is also consistent with the proposition in Benjamin's Sale of Goods, 5th ed. (London: Sweet & Maxwell, 1997), at pp. 347-48 that "there is no general duty on the buyer of goods in an ordinary commercial transaction to make inquiries as to the right of the seller to dispose of the goods."
[17] In Patry, at para. 14, Laskin J.A. held that "[i]f a party has notice of an agent's lack of authority, it may not claim to be acting in good faith." In the present case, the respondent acknowledges in its factum that the appellant bought the vessel in good faith, but states that it was done negligently. In Patry, Laskin J.A. went on to state in para. 15, that acting in good faith should be interpreted as it is in the Sale of Goods Act as an act "done honestly whether it is done negligently or not". While negligence does not preclude satisfaction of the good faith requirement, the acknowledgement that the purchase was made by the appellant in good faith supports the appellant's position that he did not have notice of an absence of authorization by the respondent.
[18] Proof that the goods were purchased at a price much lower than the ordinary trade price, while not absolute proof of bad faith, is very strong evidence of fraudulent knowledge on the part of the purchaser: see Benjamin, supra, at pp. 346-47. Here the appellant purchased the Sea Ray for a fair price as evidenced by the respondent's willingness to accept that amount as an alternative to delivery of the Sea Ray.
[19] The respondent concedes that Bodden's was a mercantile agent and that the respondent consented to its possession of the Sea Ray. It sold the Sea Ray in its ordinary course of business as a mercantile agent. The appellant purchased the boat in good faith, without actual notice that Bodden's did not have authority to sell the boat. I am not satisfied that the facts support a finding of constructive notice. The appellant had no obligation to investigate whether that authority was actually given and nothing gives rise to a finding of constructive knowledge, or even a suspicion, that there was an absence of authorization by the respondent. On that basis, the appellant is entitled to protection under s. 2(1) of the Factors Act. He purchased the Sea Ray in good faith in exactly the situation s. 2(1) was designed to govern.
[20] I would allow the appeal, set aside the judgment below and enter summary judgment dismissing the respondent's action with costs and allowing the cross-motion for judgment declaring that the appellant is the owner of the Sea Ray in issue free and clear of all claims of any nature and kind whatsoever arising directly or indirectly through the respondent. The appellant is entitled to his costs on the appeal set at $4,000 plus GST and to his costs of the motion and cross-motion below to be assessed on a partial indemnity scale.
Order accordingly.