National Bank of Canada v. Atomic Slipper Co., [1991] 1 S.C.R. 1059

National Bank of Canada Appellant

v.

Atomic Slipper Co. Ltd. and Gabriel Tardi Respondents

and

Registrar of the Montréal Registration Division Mis en cause

and

Canadian Bankers' Association Intervener

and between

Atomic Slipper Co. Ltd. and Gabriel Tardi Appellants

v.

National Bank of CanadaRespondent

and

Registrar of the Montréal Registration Division Mis en cause

Indexed as: National Bank of Canada v. Atomic Slipper Co.

File Nos.: 21177, 21190.

1991: January 28; 1991: May 16.

Present: Lamer C.J. and La Forest, Gonthier, Stevenson and Iacobucci JJ.

on appeal from the court of appeal for quebec

Banks and banking operations -- Powers of banks -- Loans and security -- Taking of possession and sale of goods given as security for loan -- Debtor in default to bank -- Validity of taking of possession -- Value of goods given as security.

Banks and banking operations -- Powers of banks -- Loans and security -- Taking of possession and sale of goods given as security -- Agreements between debtor and bank governing how possession to be taken and goods sold -- Validity and applicability of agreements -- Bank Act, R.S.C. 1970, c. B‑1, ss. 88, 89.

Civil procedure -- Representation in court -- Companies ‑- Company represented in court by its president, who is not a lawyer -- Representation of a company other than by counsel not valid -- Company considered as not having appeared in record in main appeal and as not having appealed in cross‑appeal -- Code of Civil Procedure, R.S.Q., c. C‑25, art. 61 -- Act respecting the Barreau du Québec, R.S.Q., c. B‑1, s. 128.

Appellant Bank took care of Atomic's financing needs by a line of credit which could be used in the form of advances repayable on demand. To cover the credit line, the Bank held security on goods manufactured by Atomic pursuant to s. 88(1)(b) of the Bank Act. Tardi, Atomic's president and principal shareholder, had personally guaranteed the company's obligations to the Bank. Between 1975 and 1979, the Bank began to be concerned by a drop in sales and, in February 1979, asked Atomic and Tardi to reduce the loans and provide additional security. They were not able to meet these new requirements and in June 1979 the Bank demanded payment of the amount owed within ten days. As payment was not made, the Bank instructed a firm of chartered accountants to represent it in realizing on the security. Tardi recognized in writing the Bank's right to take possession of the goods, which he later sent to the Bank's agent. Once the goods had been received, the firm published notices of calls for tenders in the newspapers, invited retailers to make bids and sold the goods for the highest amount bid. The Bank subsequently brought an action against Atomic and Tardi claiming from them the balance due.

The Superior Court allowed the action but this judgment was reversed by the Court of Appeal. That court found that the Bank did not have the power under the Bank Act to take possession of goods given as security and that the agreements between the Bank and Atomic conferring a power of seizure were inapplicable and unlawful. The court further concluded that the Bank had acted improperly in claiming full payment in June 1979, since the document signed by Atomic and the Bank on July 8, 1978 was an application for a line of credit for one year. By accepting this new application the Bank led the borrower to think that it was agreeing that the credit line would be available until July 8, 1979. Finally, the court noted that Atomic would have been able to dispose of the goods in the course of its business for an amount greater than that received by the Bank. Since the latter had acted improperly in claiming payment, the court credited the company with the difference.

Held: The appeal should be allowed and the cross‑appeal dismissed.

The Court of Appeal erred in considering that the Bank could not call in its loan before July 8, 1979 because it had extended credit until that date. It is important not to confuse the promissory notes and the document signed by Atomic which provided that the security would apply to all advances that might be made until July 8, 1979. The period of one year mentioned in this document does not alter the real nature of the promissory note and transform it into a term loan. In this case, the credit line ceased to be in effect on December 31, 1978 and was not renewed in 1979. In view of the refusal by Atomic and Tardi to comply with the Bank's request that the loans be reduced and additional security provided following an increase in inventory and drop in sales, the Bank was justified in demanding payment of the loan. It gave them ample time to comply in view of the nature of the loans and the evidence submitted.

It is not necessary to determine whether the Bank was entitled to seize and take possession of the goods given as security under s. 88(1)(b) of the Bank Act without first obtaining judicial authorization. The evidence showed that though Tardi did not appreciate having to part with Atomic's inventory and subsequently challenged the Bank's action, at the time of the default he did agree to hand over the goods to the firm responsible for realizing on the security. Judicial authorization would therefore not have served any useful purpose, since Atomic and Tardi not only did not object but consented to hand over the inventory to the Bank. The Bank consequently took possession of the inventory legitimately and thus had full power to proceed with the sale of it. A debtor may at any time consent to his creditor's taking possession even though the latter is not empowered to do so legally or by contract.

Further, there is nothing to prevent a bank taking possession of goods if it has acquired such a right by agreement and the debtor does not object. In that case, it does not have to seek leave of the court in order to realize on its security. Such agreements are not contrary to public policy or the Bank Act. Here the Bank had a contractual right to take possession of the inventory. The agreements including a power to take possession signed annually by Atomic until 1975 were continuing agreements applying to all present and future securities of the Bank. Since these agreements covered loans and advances made in the past, present and future, it was not necessary for the Bank to have an agreement signed each year. The 1975 agreement remained in effect and was binding on Atomic in the absence of a waiver by the Bank.

There is no basis for altering the value of the goods accepted by the trial judge. Aside from the fact that realizing on the security was not illegal, the evidence established that the amount obtained by the Bank was similar to that obtained by Atomic in the months preceding this realization. Further, Atomic and Tardi were unable to establish any negligence by the Bank or its agent. The firm of accountants took reasonable steps to obtain the best possible price for the sale. Finally, the value claimed for the inventory by Tardi is unwarranted. Tardi inflated the value of the goods given as security and the evidence does not support his allegations of a higher value.

Cases Cited

Disapproved: St-Louis Automobiles Ltée v. Banque Nationale du Canada (1981), 42 C.B.R. (N.S.) 275; referred to: Thomassin v. General Finance Corp., [1953] Que. Q.B. 375; Houle v. Canadian National Bank, 1990 58 (SCC), [1990] 3 S.C.R. 122; Rosemex Inc. v. Banque de Montréal, 1990 3251 (QC CA), [1990] R.J.Q. 344; Banque Canadienne Nationale v. Lefaivre, [1951] Que. K.B. 83; Canadian Imperial Bank of Commerce v. Heppner (1965), 1965 412 (SK QB), 51 D.L.R. (2d) 254; Canada Motor Car Co. v. Béchard (1924), 37 Que. K.B. 294; Omer Barré Ltd. v. Gravel (1940), 78 C.S. 262; Gabriola Building Supplies Ltd. v. Lloyds Bank of Canada (1989), 1989 2820 (BC SC), 72 C.B.R. (N.S.) 188; Provincial Bank of Canada v. Gagnon, 1981 195 (SCC), [1981] 2 S.C.R. 98; National Bank of Canada v. Corbeil, 1991 117 (SCC), [1991] 1 S.C.R. 117.

Statutes and Regulations Cited

Act respecting the Barreau du Québec, R.S.Q., c. B‑1, s. 128.

Bank Act, R.S.C. 1970, c. B‑1, ss. 88, 89, 148.

Civil Code of Lower Canada, art. 365.

Code of Civil Procedure, R.S.Q., c. C‑25, art. 61.

Consumer Protection Act, R.S.Q., c. P‑40.1, ss. 136 to 146.

Authors Cited

Goldstein, Y. Annotation on Atomic Slipper Co. v. Banque Nat. du Can. (1988), 1988 850 (QC CA), 70 C.B.R. (N.S.) 1.

Macdonald, Roderick A. "Atomic Slipper Co. v. Banque Nat. du Can.: Commercial Practice Meets Constitutional Law" (1989), 73 C.B.R. (N.S.) 1.

APPEAL from a judgment of the Quebec Court of Appeal, 1988 850 (QC CA), [1988] R.J.Q. 2087, 16 Q.A.C. 56*, 53 D.L.R. (4th) 703, 70 C.B.R. (N.S.) 1, reversing a judgment of the Superior Court, J.E. 84‑945. Appeal allowed and cross‑appeal dismissed.

Michel Deschamps and Maurice LeBel, for the National Bank of Canada.

Gabriel Tardi, for himself and for Atomic Slipper Co.

P. Wilbrod Gauthier, Q.C., for the intervener.

//Gonthier J.//

English version of the judgment of the Court delivered by

Gonthier J. -- This is an action for repayment of loans made by a bank and accompanied inter alia by security pursuant to ss. 88 and 89 of the Bank Act, R.S.C. 1970, c. B-1 (now ss. 178 and 179 of the Bank Act, R.S.C., 1985, c. B‑1). The judgment of the Quebec Superior Court allowing the action was reversed by the Court of Appeal. Both parties are appealing the latter judgment. The case turns primarily on the validity of an agreement between a debtor and a bank governing the taking of possession and the sale of goods given as security.

I -- Facts and Proceedings

In 1979 Atomic Slipper Co. Ltd. ("Atomic") was a slipper manufacturing business the president and principal shareholder of which was the co-respondent in the main appeal, Gabriel Tardi ("Tardi"). Since 1950 Atomic's banker had been the Provincial Bank of Canada, the bank to which the appellant, the National Bank of Canada (the "Bank"), was the successor.

For many years the Bank took care of Atomic's financing needs by a line of credit which could be used in the form of advances repayable on demand. To cover the credit line, the Bank held security on Atomic's inventory pursuant to s. 88 of the Bank Act. As well, Tardi had personally guaranteed Atomic's obligations to the Bank for up to $650,000 and had secured this guarantee by a hypothec on two immovable properties.

Between 1975 and 1979 the Bank began to be concerned by a drop in sales and asked Atomic to reduce its inventory. On February 8, 1979 the business's debt was approximately $600,000, and the Bank then asked Atomic and Tardi to provide additional security. As this request was only partly met, Atomic and Tardi received on April 17, 1979 a letter in which the Bank suggested that the borrowers should find a new banker. The debtors refused and on June 8, 1979 the Bank demanded payment of the amount owed within ten days.

As payment was not made, the Bank on June 19, 1979 instructed a firm of chartered accountants, Clarkson, Gordon Co. ("Clarkson"), to represent it in realizing on the security. On June 20 representatives of Clarkson went to Atomic's premises to communicate the Bank's decision to Tardi and take an inventory of the secured goods. Tardi replied that he would prepare a list himself. On the following day and the day after Tardi wrote the Bank two letters in which he admitted that the latter had the right to take possession of the inventory, but added that he did not authorize Clarkson to use Atomic's premises to deal with the inventory and would send it to Clarkson at the Bank's expense.

The first shipment was made on June 29, 1979, on a Friday afternoon, when Clarkson learned that a truck was on the way to deliver a load of slippers at its offices on the twentieth floor of a building located in downtown Montréal, at the corner of University Avenue and René-Lévesque Boulevard. Clarkson then took steps to find premises, where the load was finally stored on July 4, 1979. Similar shipments followed until August 1979; on each occasion, Tardi refused to indicate the dates of the shipments in advance.

Clarkson published notices of calls for tenders in the newspapers. It also individually invited shoe retailers to make bids. The goods were then sold for $210,555, which was the amount of the highest bid. After the expenses incurred had been deducted, the net amount received by the Bank was $182,825.

The Bank subsequently brought an action against Atomic and Tardi claiming from them the balance due, namely $475,194.16 plus interest. The Bank's action also contained hypothecary conclusions with respect to Tardi, whose guarantee had been partially secured by a hypothec on two of his immovable properties. At trial, the defendants' principal argument was that the payment deadlines given by the Bank were not reasonable.

II -- The Judgments Below

Superior Court, J.E. 84‑945

After reviewing the evidence on either side regarding the loans, Hannan J. concluded that after deducting the credit of $182,825, the net amount realized from the seized goods, Atomic owed the Bank the sum of $452,512.32 in capital and interest. He considered that Tardi was liable for these amounts pursuant to the letters of guarantee and that the hypothecs given by Tardi were enforceable by the Bank.

Ruling on the defences put forward by Atomic and Tardi, he concluded on the evidence that the Bank had not acted maliciously and had allowed a reasonable time for payment of the debts. He established that s. 89(4) of the Bank Act gives the Bank the power to sell goods given as security under s. 88, and was of the view that Atomic and Tardi had waived the notice provided for in s. 89(4).

He then dealt with the allegations made regarding the way in which the Bank had realized on the value of the goods sold. He noted that Tardi and Atomic had not cooperated with Clarkson in shipping the goods. He considered that the methods used to sell the goods were adequate in view of the circumstances and Tardi's attitude, and found nothing that could be faulted in the Bank's procedure.

In considering the value of the inventory, Hannan J. noted that one of the causes of the Bank's dissatisfaction with Atomic's operations was the doubts it had about Tardi's representations concerning the value of the inventory. He pointed out that not only was the inventory to which the Bank had certain rights given an inflated value, but it apparently was unsalable by Atomic in the ordinary course of its business. Hannan J. further observed that the burden of proving a value greater than the price obtained rested on Atomic and Tardi, who had not discharged it. He also noted that there was nothing to indicate that the price accepted was so low that it was in itself proof of fraud or improper practice. He accordingly dismissed the cross-demand.

In conclusion, he ordered Tardi and Atomic jointly and severally to pay the Bank the sum of $475,194.16, including capital and interest to October 30, 1979, with interest since that time. He declared that two of Tardi's immovable properties were hypothecated to the Bank in the amount of $172,681.84, with interest from June 19, 1979.

Court of Appeal, [1988 850 (QC CA)](https://www.canlii.org/en/qc/qcca/doc/1988/1988canlii850/1988canlii850.html), [1988] R.J.Q. 2087 (Monet and Malouf JJ.A. and Landry (ad hoc))

In the Court of Appeal Atomic and Tardi argued that the Bank had no power to take possession of the goods given as security under s. 88(1)(b) of the Bank Act. They again argued that they had not been given adequate notice and that the Bank had acted negligently in realizing on the security. The Bank, for its part, while disputing Tardi's allegations noted that he had himself undertaken to deliver the goods to the Bank's representatives.

Malouf J.A. questioned the Bank's powers to take possession of the goods without first obtaining judicial authorization. He noted, to begin with, that the Bank Act is to be interpreted solely in light of its provisions, without reference to provincial law, and that in view of the extraordinary powers it confers it must be given a restrictive interpretation. He argued that in enacting s. 88(3), Parliament made it quite clear that the special powers contained therein are not applicable to security given under s. 88(1)(a) and (b). The Bank therefore could not use the Act as authority for taking possession of the inventory.

As regards the agreements concluded between the Bank and the debtors which conferred a power of seizure, Malouf J.A. noted that the last agreement of 1976 had been signed only by Tardi personally and was not binding on Atomic. He also refused to give continuing effect to the document signed by Atomic and Tardi in 1975. In the opinion of the Court of Appeal, none of the agreements referred to in the record applied. Malouf J.A. also pointed out that the said agreements were of no force or effect since it is contrary to public policy to take the law into one's own hands and the Bank could not give itself the power to do indirectly what the law did not allow it to do directly.

He noted that the document signed on July 8, 1978 was an application for a line of credit in the amount of $700,000, in effect until July 8, 1979. While in his opinion the Bank was not obliged to grant Atomic the credit line requested, he said that by advancing money under this document the Bank accepted the application, or at least led the borrower to think it was accepting it, and that the credit line was available until July 8, 1979. From this he concluded that the Bank acted improperly in claiming full payment on June 9, 1979.

As to the value of the goods realized on by the Bank, Malouf J.A. noted that the Bank had through its agents obtained approximately $3 for each pair of slippers. As the books produced indicated that Atomic would have been able to dispose of the slippers in the course of its business for $4.80 a pair, and the Bank had acted improperly in claiming payment, he credited the company with $4.80 a pair. Atomic and Tardi were accordingly ordered to pay the Bank $76,804 with interest.

On October 21, 1988 Malouf J.A. rendered a correcting judgment. In crediting Atomic for the goods seized he had omitted to take into account the fact that the Bank had already deducted from the company's debt the sum of $182,825, out of the net profits from the sale of the slippers. Other minor points were corrected, with the result that Tardi and Atomic were jointly and severally ordered to pay $256,129.16.

III -- Relevant Statutory Provisions

Bank Act, R.S.C. 1970, c. B-1

88. (1) The bank may lend money and make advances

(b) to any person engaged in business as a manufacturer, upon the security of goods, wares and merchandise manufactured or produced by him or procured for such manufacture or production and of goods, wares and merchandise used in or procured for the packing of goods, wares and merchandise so manufactured or produced;

and the security may be given by signature and delivery to the bank by or on behalf of the person giving the security of a document in the form set out in the appropriate schedule or in a form to the like effect.

(3) Where security upon any property is given to the bank under paragraph (1)(c), (d), (e), (f), (g), (h) or (i), the bank, in addition to and without limitation of any other rights or powers vested in or conferred on it, has full power, right and authority, through its officers, employees or agents, in case of

(a) non-payment of any of the loans or advances for which the security was given,

(b) failure to care for or harvest any crop or to care for any livestock covered by the security,

(c) failure to care for any property on which security is given under paragraph (1)(f), (g), (h) or (i),

(d) any attempt, without the consent of the bank, to dispose of any property covered by the security, or

(e)seizure of any property covered by the security,

to take possession of or seize the property covered by the security, and in the case of a crop to care for it and harvest it or thresh the grain therefrom, and in the case of livestock to care for it, and has the right and authority to enter upon land or premises whenever necessary for any such purpose and to detach and remove such property, exclusive of wiring, conduits or piping incorporated in a building, from any real or immovable property to which it is affixed.

89. . . .

(4) In the event of non-payment of any debt, liability, loan or advance, as security for the payment of which the bank has acquired and holds a warehouse receipt or bill of lading or has taken any security under section 88, the bank may sell all or any part of the property mentioned therein or covered thereby and apply the proceeds against such debt, liability, loan or advance, with interest and expenses, returning the surplus, if any, to the person by whom such security was given; but such power of sale shall, unless that person has agreed to sale thereof otherwise than as herein provided, be exercised subject to the following provisions, namely:

(a) every sale of such property other than livestock shall be by public auction after

(i) notice of the time and place of the sale has been sent by registered mail to the recorded address of the person by whom the security was given, at least ten days prior to the sale in the case of any such property other than products of the forest, and at least thirty days prior to the sale in the case of any such property consisting of products of the forest, and

(ii) publication of an advertisement of the sale, at least two days prior to the sale, in at least two newspapers published in or nearest to the place where the sale is to be made stating the time and place thereof; and if the sale is in the Province of Quebec at least one of such newspapers shall be a newspaper published in the English language and one other newspaper shall be a newspaper published in the French language;

148. Every person who, having possession or control of property mentioned in or covered by any warehouse receipt, bill of lading or any security given to the bank under section 88, and having knowledge of such receipt, bill of lading or security, without the consent of the bank in writing before the loan, advance, debt or liability thereby secured has been fully paid

(a)wilfully alienates or parts with any such property, or

(b) wilfully withholds from the bank possession of any such property if demand for such possession is made by the bank after failure to pay such loan, advance, debt or liability,

is guilty of an indictable offence and liable to imprisonment for a term not exceeding two years.

IV -- Points at Issue

There are two appeals in the case at bar. The main appeal by the Bank raises the question of the validity of the taking of possession and the company's default to the Bank. The cross-appeal by Atomic and Tardi concerns the value given to the inventory and alleges damage as a result of the Bank's acts. Atomic and Tardi, the cross-appellants, added new issues to those which this Court had agreed to hear.

As a preliminary point, I would note that Tardi and Atomic were not represented by counsel. Tardi is fully entitled to appear on his own behalf, but he claimed to represent Atomic. The very nature of a corporation is such that it cannot appear in person (art. 365 C.C.L.C.). It can only appear through an agent. In Quebec, only lawyers are entitled to represent a party before the courts (art. 61 C.C.P. and s. 128 of the Act respecting the Barreau du Québec, R.S.Q., c. B‑1) and it follows that a corporation can only appear in court through counsel (Thomassin v. General Finance Corp., [1953] Que. Q.B. 375). The representation of a corporation other than by a member of the Bar in good standing therefore cannot be considered valid in this Court. As a surety, Tardi has an interest in dealing with the main issue, but the Court must consider that Atomic did not validly appear in the record in the main appeal and has not validly appealed in the cross-appeal.

I will deal with the questions raised by the main and cross-appeals in the following order:

1. Was Atomic in default to the Bank?

2. Was the Bank entitled to take possession of the inventory without first obtaining judicial authorization?

3. What is the amount for which Atomic and Tardi are entitled to be credited by the Bank for the value of the inventory?

4. Are Atomic and Tardi entitled to be compensated for the damage alleged, namely loss of profit, damage to reputation, hardship and inconvenience?

5. What disposition should be made of the entirely new claims by Tardi?

V -- Analysis

1. Was Atomic in default?

The trial judge found that Atomic was clearly in default as the available advances were made pursuant to promissory notes payable on demand. In such a case, the only question to be answered in deciding whether the debtor is in default is whether the creditor gave him a reasonable time in which to make payment (Houle v. Canadian National Bank, 1990 58 (SCC), [1990] 3 S.C.R. 122). Hannan J. dealt with this question at length and found that the time limits were more than reasonable, all the more so as Atomic did not honour a commitment made on February 8, 1979 to reduce its debt and give the Bank additional security.

However, the Court of Appeal considered that the Bank could not call in its loan before July 8, 1979 because it had extended credit until that date. It is important not to confuse the promissory notes and the last security documents signed by Atomic, which provided that the security would apply to all advances that might be made until July 8, 1979. The period of one year mentioned in the security documents does not alter the real nature of the promissory note and transform it into a term loan. In this regard, Y. Goldstein writes:

Of equal concern is the analysis of the standard s. 178 documentation which causes the courts to conclude that the time period (usually one year) which is always mentioned in the documentation means that the loan secured by s. 178 security becomes, effectively, a term loan, losing its demand nature, and making it virtually impossible to use s. 178 as an appropriate security instrument where the loan is reimbursable upon demand. It may be that the court's attention was not drawn to the fact that the essential purpose of this stipulation is to trigger the appropriate renewal of registration rather than to change the character of the loan.

(Annotation on Atomic Slipper Co. v. Banque Nat. du Can. (1988), 1988 850 (QC CA), 70 C.B.R. (N.S.) 1, at p. 3.)

In fact, the credit line ceased to be in effect on December 31, 1978 and was not renewed in 1979. This is clear from Tardi's letters asking to have his credit line restored early in 1979, and from certain testimony of record. There is this comment by Hannan J. in the trial judgment:

On September 13, 1978, the Bank noting the absence of financial statements recommended no renewal of the credit authorized to that date (D-15). This fact was communicated to Atomic and Mr. Tardi by Mr. Bleau, the Bank's branch manager. On January 10, 1979, the Bank refused any further advances to Atomic, a fact known to Atomic and Mr. Tardi. On January 26, 1979, Mr. Tardi offered (D-35) to see to the sale of the properties which were hypothecated in favor of the Bank, and appealed to the President, Mr. Lavoie, for support.

Even assuming that the Bank undertook to maintain the credit line until July 1979, this undertaking would have been conditional on meeting the credit requirements. In this regard, the evidence showed that the inventory did not have the value Tardi had given it. Hannan J. wrote:

The proof indicates that in 1965, Atomic had valued its inventory at year end at $125,032.00, and in that year it made sales totalling $509,883.00. By 1979 its inventory had allegedly grown in value at year end to $701,354.00, and in that year it made sales of $436,195.00 (P-16). The bank had concluded either that the sales did not justify the production or that the inventory was overvalued even if taken on the basis of its cost, rather then [sic], as suggested by Mr. Tardi in his various letters at the higher amount he hoped to realize on its sale. (See Bleau, February 10, 1984, pp. 99 et seq.). An increase in inventory value of 161% while sales fell by 15% over the period from December 31, 1965 to December 31, 1978, indicated that the inventory had clearly become unmanageable, and therefore unreliable as security for advances made by the Bank. The Bank lost confidence in the value ascribed to the inventory by Atomic.

The trial judge established that Tardi exaggerated the value of the Atomic inventory. He explained the method of calculation used by Tardi as follows:

The procedure adopted by Atomic in certifying the value of its inventory was to report the cost price as being a price increased each January by Mr. Tardi (testimony of Jean Lalonde). Mr. Tardi's own explanation was that he arrived at the "cost" reported to the Bank by the use of a "wheel" which when consulted allowed him to calculate and add 20% to cost and 25% to selling price to establish a "new" cost price. It appeared in essence that this method resulted in a simple addition to a proposed selling price of an amount of about 20% of that price to arrive at a new "cost" price. The measure of this increased price can only be estimated, but it appears from a comparison of the statements of inventory P-9, December 31, 1977, with P-10, December 31, 1978, that the category of products known as "Opera and Mule shearline lined slippers" almost identical in quantity in each year, were increased by 30% being added to their "cost". Similar comparisons of other categories shown on these exhibits reveal "cost" increases for what appears to be the same merchandise by between 30 and 34%.

From this review and from the ensemble of the proof, it becomes apparent that the inventory subject to the Bank's rights was inflated in value, and unsaleable by Atomic in the ordinary course of its business.

The increased inventory coupled with a drop in sales seriously concerned the Bank and this is why it asked Tardi and Atomic to reduce the loans and provide additional security. After agreeing, the debtors refused to comply with the request. The Bank was thus justified in demanding payment and, in view of the nature of the loans and the evidence submitted, gave its debtors ample time to comply. The trial judge made a thorough study of the evidence and there is no reason to alter his assessment of it.

2.Was the Bank entitled to take possession of the inventory without obtaining judicial authorization?

The main issue raised in the Court of Appeal concerned the Bank's power to seize and take possession of security given pursuant to s. 88(1)(b) without first obtaining judicial authorization. At trial, Hannan J. did not specifically deal with this question in arriving at his decision.

It will not be necessary to answer the question of whether the security given under the Bank Act gives a bank as of right this power to take possession, without judicial authorization, of inventory given by a manufacturer as security, in the event the latter is in default to the Bank. In the case at bar there was an agreement governing the matter. The debtor's consent to the removal and sale of the goods and the applicability of a valid agreement suffice to decide the issue.

(1)Did the Bank take possession of the inventory with the consent of Atomic and Tardi?

It would appear that the basis for the Court of Appeal's conclusion that the Bank's taking of possession was invalid was the fact that Tardi did not consent to hand over the goods to his creditor. However, nowhere in his reasons does Malouf J.A. mention facts establishing that Tardi opposed the taking of possession: he appears to infer this from the circumstances and take it for granted. The Court of Appeal, per Gendreau J.A., subsequently indicated in Rosemex Inc. v. Banque de Montréal, 1990 3251 (QC CA), [1990] R.J.Q. 344, at p. 349 (a judgment in which Malouf J.A. participated), the reason why the bank's action was viewed otherwise in the latter appeal:

[translation] In my opinion, Atomic Slipper Co. does not prohibit a debtor from agreeing to the taking of possession by his creditor of goods which he has given as security for his debt. The nullity of a taking of possession without leave of the Court is only relative and can only be relied on by the person who is damaged thereby.

In Atomic Slipper Co., the borrower had formally objected to the taking of possession and the lending bank had disregarded that objection.

It thus appears that the Court of Appeal viewed the Bank's possession of the inventory as invalid because it was obtained without the debtor's consent and despite his objections. While I recognize that in the event of a dispute authorization from a court will be necessary to preserve social peace and avoid abuses and conflicts, I cannot share the view taken by the Court of Appeal in the circumstances of this case. As at trial the discussion dealt only with whether the Bank had demanded repayment of the loans and given the debtor a reasonable time, no evidence was presented that the debtor raised any objection to the Bank's act aside from his refusal to allow the creditor to use the company premises to list the inventory. Indeed, there was no formal taking of possession since Tardi himself had the goods delivered to the Bank's agents. Further, he indicated his consent to the Bank's rights in various letters he sent his creditor in the days before the Bank realized on its security. I agree that Tardi consented only grudgingly and attempted to inconvenience the firm acting as agent by sending the goods to the latter's office sporadically and without warning. However, there was consent and that consent emerges clearly from the evidence submitted at trial.

In his letter of May 28, 1979, Atomic recognized the Bank's right to take possession of the goods. Tardi wrote:

We are aware that the Provincial Bank under the Bank Act, under Section 88 has the right to take possession of our inventory, work-in-process, accounts receivable, raw material in the event the Bank feels it is necessary to cover the Bank Loan and thereby pay the market value of the Security under Section 88. [Emphasis added.]

Further, on June 12, 1979, after the Bank had demanded payment, Tardi sent another letter recognizing the Bank's rights:

Therefore, now that you have stated in your letter of June 8th, 1979 that the Bank is demanding re-payment of the bank loan of $622,000.00 within the next ten (10) days, you leave Atomic Slipper Company Limited with no alternative but to grant you permission to take possession within the next ten (10) days, [of] the security given under Section 88 of the Bank Act; . . . [Emphasis added.]

In this letter, Tardi also said that he would hold the Bank responsible for the market value of the inventory of which it was about to take possession. After the Bank had appointed the Clarkson firm, Tardi sent the Bank another letter on June 21, 1979:

. . . we agree to co-operate with him [a representative of Clarkson] by giving him the required information, however, we cannot provide you with our premises or facilities for their use and hereby request that you take outright possession and seek other facilities. [Emphasis added.]

Atomic thereupon delivered its inventory to Clarkson. This case is manifestly not one in which a bank abused its powers to invade premises and take possession of goods despite the debtor's resistance. Though Tardi did not appreciate having to part with Atomic's inventory and subsequently challenged the Bank's action, at the time of the default he did agree to hand over the goods and cooperate with the firm responsible for realizing on the security. Judicial authorization would not have served any useful purpose, since Atomic and Tardi not only did not object but consented to hand over the inventory to the Bank. In fact, as Atomic knew that the Bank would eventually take possession it offered and allowed the Bank to dispose of the goods through Clarkson and gave them to it for this purpose. A debtor may settle his creditor's guarantees by giving him what he is claiming without requiring him to obtain judicial authorization. He may at any time consent to his creditor's taking possession even though the latter is not empowered to do so legally or by contract.

With all due respect, I am of the view that the evidence shows that Tardi and Atomic consented to the taking of possession of the inventory so that its value could be realized; Tardi even delivered the goods to the Bank's agents. The Bank consequently took possession of the inventory legitimately and thus had full power to proceed with the sale of it.

This suffices to establish the Bank's rights in this regard. However, in view of the Court of Appeal's findings regarding the Bank's contractual rights, these will now be considered.

(2)Did the Bank have a contractual right to take possession of the inventory and sell it?

The trial judge did not rule on the validity of the contractual right to take possession held by the Bank. It was at the appellate level that Malouf J.A. concluded that the agreements signed by Atomic and Tardi were inapplicable and then questioned the validity of those agreements, deciding that they were contrary to public policy.

Agreements including a power to take possession were signed every year until 1975. For example, I note a standard provision in these agreements, which read as follows (clause 7 of the agreement of February 6, 1975 regarding advances and loans made by the Bank and security held therefor):

[translation] 7. The Bank may, from time to time, without any demand, forcibly break open, enter upon or into and occupy and use free of charge and to the exclusion of all others including the Customer, the premises and property (real and personal, immovable and movable) of or used by the Customer in connection with the goods (not being the premises of a warehouseman or carrier) until the goods shall be fully realized upon and may from time to time appoint a receiver or agent to act for the Customer, who alone shall be responsible for his acts and such agency the Customer shall not have any power to revoke or determine. Such agent or receiver shall have the powers hereby granted to the Bank and in addition the right from time to time in the name of the Customer to exercise all rights, powers, and privileges of the Customer of every kind and to do all acts and things that the Customer could do if acting, for the purpose of completing, selling, shipping or otherwise dealing with the goods in such manner as the Bank may think proper to enable the goods to be realized upon (exhibit D-33A).

It will be noted that this provision contains a consent to sell other than in accordance with the procedure of s. 89(4) of the Bank Act.

(a) Applicability of the agreement

An agreement was signed in 1976 but the Court of Appeal considered it could not be binding on Atomic since it bore Tardi's signature without mentioning Atomic's name, and the evidence did not show that the parties intended this agreement to apply to Atomic. The court also refused to apply the earlier agreements as it felt that it must be presumed the Bank no longer intended to benefit from the rights set out in those agreements.

With respect, I cannot accept that conclusion. The only evidence in this regard is the agreements themselves. They were entered in evidence at trial by Tardi himself and no objection was raised to them at that stage.

It is clear that the 1976 agreement could only relate to the security given by Atomic under the Bank Act, since Tardi could not offer it personally. Whether or not the 1976 document signed by Tardi applied to Atomic, it appears from the wording of the earlier agreements that they were continuing agreements applying to all present and future securities of the Bank. Clause 15 of the 1975 agreement reads as follows:

[translation] 15. The provisions hereof shall be in addition to all other legal remedies of the Bank, and to all rights under agreements heretofore given. This is to be a continuing consent and agreement and all the provisions hereof shall extend to all advances now presently made or hereafter to be made by the Bank to the Customer and all obligations of the Customer to the Bank from time to time as well as to all securities and property from time to time held by the Bank therefor, and the proceeds thereof; and every advance or loan heretofore, presently or hereafter made shall be deemed to be made upon the consents, promises and agreements herein contained.

As this agreement covered loans and advances made in the past, present and future, it was not necessary for the Bank to have an agreement signed each year. The 1975 agreement remained in effect and was binding on Atomic in the absence of a waiver by the Bank. The practice of an annual signature is attributable to a countrywide banking policy resulting from the fact that in the other Canadian provinces it is possible to register liens and they need only be renewed each year (see Goldstein, op. cit.).

(b)Validity of the agreement

In addition to finding the agreement inapplicable, the Court of Appeal, relying on St‑Louis Automobiles Ltée v. Banque Nationale du Canada (1981), 42 C.B.R. (N.S.) 275, held that it was illegal and contrary to public policy and the Bank Act for a borrower to confer on a bank by contract a power to take possession of its inventory.

The Bank argues that there is nothing in the Bank Act prohibiting the making of such agreements. In fact, apart from St‑Louis Automobiles, no one had ever challenged the validity of an agreement like the one signed by Atomic. Before that isolated decision, the courts had never questioned the validity of such an agreement in Quebec or any of the other provinces (Banque Canadienne Nationale v. Lefaivre, [1951] Que. K.B. 83, at p. 89; Canadian Imperial Bank of Commerce v. Heppner (1965), 1965 412 (SK QB), 51 D.L.R. (2d) 254, at p. 258).

It seems clear from reading the provisions setting out the options a bank has in realizing on its security that Parliament intended to be permissive, not limiting. Section 88(3) gives the bank "in addition to . . . any other rights or powers vested in . . . it" additional powers over certain types of goods. This cannot be interpreted as limiting the rights conferred by agreement. On reading s. 89(4), it can be seen that in the case of a sale the power to override the statutory provisions by agreement is specifically mentioned. The courts have also given effect to many of these agreements and they should not be seen as contrary to the legislative purpose. Further, s. 148(b) makes it a criminal offence for anyone to wilfully withhold from the bank possession of property claimed by the latter. This suggests that a bank may take possession.

As to the rule that "no one may take the law into his own hands", this does not apply to the creation or recognition of rights by one party in favour of another either by agreement or by his action, but to their forced execution at the will of one party without judicial authority. It is not contrary to public policy for a debtor to give his creditor the right to take possession in case of default. Long before the provisions of the Consumer Protection Act, R.S.Q., c. P-40.1, came into force, it was recognized that there is no public policy objection to a conditional contract of sale allowing a seller to repossess goods sold without judicial authorization if the buyer does not pay the price (Canada Motor Car Co. v. Béchard (1924), 37 Que. K.B. 294; Omer Barré Ltd. v. Gravel (1940), 78 C.S. 262). Furthermore, the express prohibition of such an agreement by ss. 136 and 146 of the Consumer Protection Act suggests that these same agreements are valid and applicable in areas to which the statute does not apply.

The British Columbia Supreme Court, dealing with the rights and powers of a bank, held likewise in Gabriola Building Supplies Ltd. v. Lloyds Bank of Canada (1989), 1989 2820 (BC SC), 72 C.B.R. (N.S.) 188, at p. 200. Some time ago the Quebec Court of Appeal (Rosemex Inc. v. Banque de Montréal, supra) limited the scope of the opinion given in the case at bar, noting that a debtor may agree to the taking of possession when he defaults without court authorization (see also R. A. Macdonald, "Atomic Slipper Co. v. Banque Nat. du Can.: Commercial Practice Meets Constitutional Law" (1989), 73 C.B.R. (N.S.) 1; and Goldstein, op. cit.).

Finally, this Court just recently had to consider an agreement of the same type, and in particular the power to take possession (Houle v. Canadian National Bank, supra). My colleague L'Heureux‑Dubé J., after citing the provisions of the agreement giving the bank the power to take possession, said the following (at p. 169):

Thus, according to the agreement between the parties, in conformity with the applicable legislation, the bank had the right to be paid upon demand, a demand that could have been made at any time, and it also had the right to realize its securities without notice.

There is thus nothing to prevent a bank taking possession of goods if it has acquired such a right by agreement and the debtor does not object. In that case, it does not have to seek leave of the court in order to realize on its security.

3.What is the amount for which Atomic and Tardi are entitled to be credited by the Bank as the value of the inventory?

In the Superior Court the amount obtained by the Bank when it sold the assets was not questioned. After deducting the expenses incurred, the latter credited Atomic with the sum of $182,825. However, the Court of Appeal examined the value of the inventory delivered by Atomic to the Bank and credited Atomic with an amount of $398,390. To arrive at this conclusion, the Court of Appeal multiplied the number of slippers delivered by Atomic to the Bank by an average unit price obtained from sales in 1977 and 1978, namely $4.80 a unit.

In this Court Tardi argues that Atomic should be credited for the value it placed on its inventory, namely the sum of $829,511.66, rather than the amount which the Bank credited it with before entering suit. The amount claimed by Atomic is much greater than the valuation made by the Court of Appeal. Tardi bases his claim on the argument that the Bank took possession of Atomic's inventory unlawfully, and relies on the judgment of this Court in Provincial Bank of Canada v. Gagnon, 1981 195 (SCC), [1981] 2 S.C.R. 98.

As we have just seen, this argument is without foundation. That was not the case in Gagnon. Air‑Tech Refrigeration Inc. had given the Provincial Bank of Canada security on its inventory pursuant to s. 88 of the Bank Act. When the company defaulted the bank took possession of the goods in the inventory and sold them for $52,000. Air‑Tech went bankrupt soon afterwards and the trustee challenged the validity of the Provincial Bank's security on the ground that Air‑Tech was a wholesaler of manufactured products and the Bank Act as it read at the time did not allow a wholesaler to give security on manufactured goods under s. 88. This Court accordingly found in the trustee's favour and ordered the bank to repay him the value of Air‑Tech's inventory, which was established by the valuation of the goods made before the company ceased operations. It was accordingly decided that in the absence of evidence to the contrary, the goods would be valued at the book value set by the company. (See also National Bank of Canada v. Corbeil, 1991 117 (SCC), [1991] 1 S.C.R. 117.)

In the case at bar, aside from the fact that realizing on the security was not illegal, the evidence established that the amount obtained by the Bank was similar to that obtained by Atomic in the months preceding this realization. Atomic and Tardi were unable to establish any negligence by the Bank. The firm of accountants took reasonable steps to obtain the best possible price for the sale, and apart from the problem of outdated inventory, the main difficulty encountered by Clarkson was the lack of cooperation by Tardi.

The value of the goods which the Bank took into its possession is much below that claimed by Tardi. In the Superior Court Hannan J. discussed the way in which Tardi inflated the value of his inventory and concluded that the evidence did not support his allegation of a higher value:

From this review and from the ensemble of the proof, it becomes apparent that the inventory subject to the Bank's rights was inflated in value, and unsaleable by Atomic in the ordinary course of its business.

The burden of proving the value of the inventory exceeded what was obtained for it lies on Defendants; the basis on which value ascribed by Defendants to the inventory rests is entirely without foundation.

If they are valued on the basis of the unit price obtained by Atomic during the months before the security was realized, the amount calculated is below the gross amount obtained by the Bank and accepted by the trial judge. In the early months of 1979, Atomic got an average of $2.56 to $2.83 per pair of slippers. This gives an overall value of $212,475 or $234,884 for the inventory delivered to Clarkson. The Bank in fact realized $3.00 a unit, for a total value of $247,500, which is a more favorable result than the amounts obtained by Atomic itself.

I therefore conclude that not only is the value claimed by Tardi unwarranted, but there is no basis for altering the value of the goods accepted by the trial judge. On this point I consider that the trial judge was right to accept the Bank's evidence, since Tardi was not able to show that the Bank had acted improperly.

4.Are Atomic and Tardi entitled to be compensated for the damage alleged, namely loss of profit, damage to reputation, hardship and inconvenience?

Tardi alleges that the Bank destroyed his reputation and credibility in the shoe business. He maintains that as soon as Woolco bought the slippers the Bank had offered for sale, many retailers stopped taking Atomic products while they waited to see what price Woolco would put on them. He sets his claim at $875,618.62. As worded, this is actually a claim by Atomic which is not before the Court as Atomic is not represented by counsel. In any case, in view of the absence of any fault, negligence or bad faith on the part of the Bank or its agent, such a claim could not succeed.

Neither the trial judge nor the Court of Appeal awarded damages for loss of profit. I am of the view that the Court should affirm the dismissal of any claim under this head for the same reasons and that there is no basis for awarding damages.

5.The new claims and the application to cancel the hypothecs

In his factum and at the hearing, Tardi put forward two new claims not made earlier, for which he did not seek leave to appeal. The allegations accompanying these new matters are rather obscure and not supported by any evidence which could justify them.

Tardi claimed reimbursement of a deposit of $385,000 dated January 17, 1979 in the account of Atomic, and of a sum of $75,000 allegedly used by Atomic to repay a loan of the same amount made by the Bank to another company controlled by Tardi, namely Bluebird Footwear Inc. Apart from the fact that they are inadmissible and appear to be claims by Atomic, which is not before the Court as it is not represented by counsel, they were not made out. As to the application to cancel hypothecs, since Atomic is still indebted to the Bank this security must continue to exist. I would therefore dismiss these requests.

VI -- Disposition

I would allow the main appeal, set aside the judgment rendered by the Court of Appeal on July 5, 1988, as corrected by a judgment of October 21, 1988, and restore the judgment of the Superior Court in its entirety with effect as to surrender as of this date. I would dismiss the cross‑appeal. The whole with costs against Tardi.

Appeal allowed and cross‑appeal dismissed.

Solicitors for the National Bank of Canada: McCarthy, Tétrault, Montréal; Leduc, LeBel, Montréal.

Solicitors for the intervener: Ogilvy, Renault, Montréal.

• Judgment in rectification (1988), 21 Q.A.C. 54.