Supreme Court of Canada

Fok Cheong Shing Investments Co. Ltd. v. Bank of Nova Scotia, [1982] 2 S.C.R. 488

Date: 1982-09-28

Fok Cheong Shing Investments Co. Ltd. (Plaintiff) Appellant;

and

The Bank of Nova Scotia (Defendant) Respondent.

File No.: 16646.

1982: June 3; 1982: September 28.

Present: Ritchie, Dickson, Beetz, Chouinard and Wilson JJ.

ON APPEAL FROM THE COURT OF APPEAL FOR ONTARIO.

Bills of Exchange—Fictitious person—Endorsement of payee (a real person) forged by drawer—Drawer intending that payee not cash cheque—Whether payee a fictitious person—Whether bank liable—Bills of Exchange Act, R.S.C. 1970, c. B-5, ss. 21(5), 49(1).

The president of the appellant’s company, an authorized signer, made a cheque payable to one of the company’s creditors. The drawer, however, never intended that the payee should benefit. He fraudulently endorsed the cheque and cashed it. The trial judge considered that the cheque was from the very outset not intended to be paid to the payee and deemed the cheque as made payable to a fictitious person—that is, payable to bearer in accordance with s. 21(5) of the Bills of Exchange Act. This judgment was affirmed by the Court of Appeal.

Held: The appeal should be dismissed.

The finding of fraudulent intent on the drawer’s part in drawing the cheque made the payee of this cheque a fictitious person within the meaning of s. 21(5) of the Act. The payee’s name was inserted by way of pretence only, without any intention that payment should be made in conformity therewith. The bank was therefore entitled to treat the cheque as payable to bearer and to charge it against the appellant’s account. There was no negligence by the bank.

Bank of England v. Vagliano Brothers, [1891] A.C. 107, applied.

APPEAL from a judgment of the Court of Appeal for Ontario (1981), 1981 CanLII 73 (ON CA), 123 D.L.R. (3d) 416, 32 O.R. (2d) 705, affirming a judgment of Hughes J. (1979), 123 D.L.R. (3d) 416, 32 O.R. (2d) 705, dismissing appellant’s action. Appeal dismissed.

[Page 489]

Alvin B. Rosenberg, Q.C., and Mary G. Critelli, for the appellant.

F.J.C. Newbould, Q.C., for the respondent.

The judgment of the Court was delivered by

RITCHIE J.—In my opinion, having regard to the concurrent findings of fact made at trial and on appeal in this case, the present appeal must proceed on the basis that the $20,000 cheque drawn by Chan who was the president of the appellant company upon whose account the cheque was drawn at the respondent bank, was never intended by the drawer to be paid to the payee Looing Weir and that he fraudently endorsed the cheque in her name so that when cashed by the bank the proceeds were paid to him personally.

It is contended on behalf of the appellant that under the provisions of s. 49 (1) of the Bills of Exchange Act, R.S.C. 1970, c. B-5, the admittedly forged endorsement rendered the cheque wholly inoperative so that the bank was not entitled to charge the $20,000 to the account of the appellant. Section 49(1) reads as follows:

49. (1) Subject to this Act, where a signature on a bill is forged, or placed thereon without the authority of the person whose signature it purports to be, the forged or unauthorized signature is wholly inoperative, and no right to retain the bill or to give a discharge therefor or to enforce payment thereof against any party thereto can be acquired through or under that signature, unless the party against whom it is sought to retain or enforce payment of the bill is precluded from setting up the forgery or want of authority.

This section must be read in light of the terms of s. 21(5) of the same statute which provides:

(5) Where the payee is a fictitious or non-existing person, the bill may be treated as payable to bearer.

It was the appellant’s contention that as the payee in the present case was a real person who in fact gave evidence at the trial and to whom the appellant company was indeed indebted, she could not be characterized as “a fictitious or non-

[Page 490]

existing person” within the meaning of s. 21(5) supra.

It was, however, the view of the learned trial judge, which was fully adopted by the Court of Appeal, that the cheque in question was from the very outset intended not to be cashed by the payee but rather that it should through a cleverly designed forgery be so negotiated as to be payable to the drawer himself. It is obvious that the question of whether or not the payee is to be treated as a fictitious person lies at the very heart of this appeal and in my opinion this is to be determined in accordance with the reasoning expressed by Lord Herschell in Bank of England v. Vagliano Brothers, [1891] A.C. 107 at p. 153 where he said:

For the reasons with which I have troubled your Lordships at some length, I have arrived at the conclusion that, whenever the name inserted as that of the payee is so inserted by way of pretence merely, without any intention that payment shall only be made in conformity therewith, the payee is a fictitious person within the meaning of the statute, whether the name be that of an existing person, or of one who has no existence, and that the bill may, in each case, be treated by a lawful holder as payable to bearer.

In my opinion this passage accurately expresses the effect of the accepted authorities and I agree with the Court of Appeal that the finding of fraudulent intent on the part of Chan in drawing the instrument in question makes the payee of this cheque a fictitious person within the meaning of the authorities, (see also the third illustration cited in Falconbridge on Banking and Bills of Exchange, 7th ed., 1969, at p. 486), and the bank was accordingly entitled to treat the cheque as payable to bearer and therefore to treat it as chargeable against the account of the appellant.

A further issue was raised by the appellant on this appeal to the effect that negligence on the part of the bank was responsible for the cheque having been cashed as it was and that this element deprived the respondent of the right to invoke the protection of s. 21(5) of the Bills of Exchange Act.

It is pointed out by the respondent that negligence was not pleaded against it nor was any

[Page 491]

evidence led at the trial to support the allegation and certainly there was no finding of fact of negligence by the trial judge. As to this contention, it appears to me to be sufficient to say that if any negligence could be attributed to the respondent in cashing this cheque in the circumstances of the present case it must be recognized that the bank acted throughout in accordance with a situation which was created exclusively by the deliberate and fraudulent forgery perpetrated by the appellant company through its president and signing officer, Mr. Chan, which forgery was expressly designed to induce the bank to honour a cheque which the plaintiff knew to be worthless. In my opinion there is no evidence to justify a finding of negligence but if I thought otherwise I would be satisfied that the plaintiffs fraud was such a controlling factor in causing the cheque to be created, presented and cashed that no action can lie at the suit of the plaintiff based on any actions of the respondent.

For the reasons so fully stated by the learned trial judge which have been affirmed by the Court of Appeal, I would dismiss this appeal with costs. I can see no overriding error in the judgment of the trial judge which affected his assessment of the facts and I see nothing to justify this Court in substituting its assessment of the balance of probabilities for the findings which he has made and which have been affirmed on appeal.

Appeal dismissed with costs.

Solicitors for the appellant: Rosenberg, Smith, Paton & Hyman, Toronto.

Solicitors for the respondent: Tilley, Carson & Findlay, Toronto.