National Bank of Canada v. Corbeil, [1991] 1 S.C.R. 117

Les Équipements Lorac Ltée and Pierre Corbeil Appellants

v.

National Bank of Canada Respondent

indexed as: national bank of canada v. corbeil

File No.: 21741.

1990: October 4; 1991: February 7.

Present: La Forest, L'Heureux‑Dubé, Sopinka, Gonthier and McLachlin JJ.

on appeal from the court of appeal for quebec

Banks and banking operations ‑‑ Powers of banks ‑‑ Loans and security ‑‑ Bank's obligations towards defaulting debtor in exercising rights over property under ss. 178 and 179 of Bank Act ‑‑ Bank renouncing its rights and abandoning property to third party ‑‑ Whether bank liable to debtor for value of property as damages.

In 1982, the respondent bank extended credit to Lorac secured by rights and powers, determined pursuant to s. 178 of the Bank Act, over merchandise owned by Lorac. Corbeil, Lorac's director and principal shareholder, gave a personal guarantee for this loan and hypothecated one of his properties as collateral. In 1983, the bank took possession of Lorac's merchandise following its default to repay its loan. The bank advertised the merchandise for sale in a newspaper and, unable to find a new buyer, renounced its rights and abandoned the merchandise to a third party. The evidence at trial indicated that, in the bank's opinion, the merchandise was worth less than the cost of moving it and storing it. The bank instituted an action against Lorac and Corbeil for recovery of the balance of the loan. Lorac filed a cross‑demand for the value of the goods which the bank had seized and abandoned to a third party. The Superior Court allowed the bank's action in part and ordered Lorac to pay the bank $33,254.94. It also allowed the cross‑demand in part, ordering the bank to pay $ 57, 701.88 in damages to Lorac which was the value of the merchandise. The court then ordered compensation between the parties. The Court of Appeal allowed the bank's appeal and dismissed Lorac's cross‑demand.

Held: The appeal should be allowed.

In abandoning the goods to a third party, the bank acted in complete disregard of its duties towards Lorac and of Lorac's rights. A bank's rights under ss. 178 and 179 of the Bank Act are limited both in their purpose and exercise and do not further displace or extinguish the rights of the original owner who has provided them as a security for indebtedness. When a bank renounces its rights in the goods, it also renounces the power to dispose of the goods in the manner described in the Act.

Even if the bank's actions could be viewed as a sale, it would nonetheless have been governed by s. 179(10) of the Act. While this subsection refers expressly to a sale, it encompasses a fortiori a transfer without valuable consideration or a gift. This subsection provides that in conducting any sale the bank must act honestly and in good faith. Accordingly, it was incumbent upon the bank to respect Lorac's interests and to inform Lorac of its intention to abandon its rights in the goods, and to make clear that the goods were Lorac's to deal with, effectively restoring the situation prior to the bank's taking possession of the goods. Instead, no offer was ever made to abandon to Lorac nor was Lorac informed of the subsequent abandonment to the third party. The bank acted without authority and did not comply with its obligations under s. 179(10) of the Act and under the general law.

Under these circumstances, the bank cannot claim that it was up to Lorac to seek out the property and attempt to recover it. The obligation to inform the debtor and to restore the situation to the status quo ante remained with the bank. The loss incurred is that of the goods which, in their absence, are represented by their value. The trial judge accepted their value at cost. There was no manifest error in his determination given that the goods were new and absent other direct evidence.

Cases Cited

Referred to: Canadian Imperial Bank of Commerce v. Zidle, C.A. Montréal, No. 500‑09‑000925‑768, August 26, 1980; National Bank of Canada v. Soucisse, 1981 31 (SCC), [1981] 2 S.C.R. 339; Air Canada v. McDonnell Douglas Corp., 1989 54 (SCC), [1989] 1 S.C.R. 1554; Provincial Bank of Canada v. Gagnon, 1981 195 (SCC), [1981] 2 S.C.R. 98.

Statutes and Regulations Cited

Bank Act, R.S.C., 1985, c. B‑1 [previously S.C. 1980‑81‑82‑83, c. 40], ss. 178, 179.

Civil Code of Lower Canada, ss. 1053, 1078.1 [en. 1982, c. 32, s. 59; am. idem, c. 58, s. 1].

Code of Civil Procedure, R.S.Q., c. C‑25, art. 520.

Authors Cited

Falconbridge, John Delatre. Crawford and Falconbridge Banking and Bills of Exchange, vol. 1, 8th ed. By Bradley Crawford. Toronto: Canada Law Book Inc., 1986.

Falconbridge on Banking and Bills of Exchange, 7th ed. By Arthur W. Rogers. Toronto: Canada Law Book Ltd., 1969.

APPEAL from a judgment of the Quebec Court of Appeal, [1989] R.R.A. 749, 28 Q.A.C. 152, allowing respondent's appeal from a judgment of the Superior Court, J.E. 86‑825, allowing appellants' cross‑demand. Appeal allowed.

Alfred Zimmerman, Q.C., for the appellants.

Jean‑Pierre Morin, for the respondent.

//Gonthier J.//

The judgment of the Court was delivered by

GONTHIER J. -- At issue in the present appeal are the obligations of a bank towards its defaulting debtor in exercising its rights over property held by it under ss. 178 et seq. of the Bank Act, R.S.C., 1985, c. B-1 (previously S.C. 1980-81-82-83, c. 40). In particular, the Court must consider whether a bank is liable for the value of the property as damages in the event that it renounces its rights and abandons the property to a third party lessor of the debtor's business premises.

I -- Statement of Facts

At all relevant times, the appellant, Pierre Corbeil ("Corbeil") was the principal shareholder and director of the other appellant, Les Équipements Lorac Ltée ("Lorac"). Corbeil also had an interest in two other companies: Service Hydraulique Graco Ltée ("Graco") and Chotech Hydraulique Ltée ("Chotech"). The three companies occupied premises at 2825 Halpern Street in Ville St-Laurent, Quebec, and carried on their different businesses in these premises. The lease of the premises was however only between Graco and the owner of the building, Timex Realty Corporation ("Timex").

The three companies had always done their banking with the respondent, National Bank of Canada ("NBC"), and NBC was at all times aware that the lessor of the above-mentioned premises was Timex. In May 1981, NBC extended credit to Chotech, obtained its inventory and merchandise as security under s. 178 of the Bank Act and properly notified the lessor, Timex, of these facts.

In June 1982, NBC extended credit to Lorac ($36,058.29 plus interest) and received, by way of security, rights and powers over merchandise belonging to Lorac, all as determined pursuant to s. 178 of the Bank Act. On this occasion, by an error which the respondent admits, NBC omitted to send the proper notice of this security arrangement to the lessor, Timex, but instead sent the notice to Graco.

NBC also obtained, relative to the Lorac loan, a personal guarantee from the appellant, Corbeil, as well as collateral by way of a hypothec against an immoveable property owned by Corbeil.

In May 1983, Timex began proceedings against Graco for non‑payment of rent for the premises at 2825 Halpern Street. At the same time, Timex effected a seizure before judgment and in July 1983 completed this procedure upon obtaining court permission to move the seized goods to a warehouse on Miniac Street, Ville St-Laurent. Despite the fact that these proceedings involved only Timex and Graco, the seizure took in all the goods which were to be found at the Halpern Street address, and these included all the goods vital to the operations of Lorac.

On August 2, 1983, NBC demanded payment of the entire loan from Lorac and on the same date gave notice that it would avail itself of its rights under the Bank Act, specifically by taking possession of all merchandise, taking inventory and proceeding to the sale of such merchandise.

On August 12, 1983, Graco made an assignment in bankruptcy, and the trustee in bankruptcy took possession of all the merchandise that had been seized before judgment by Timex. The latter's action for non‑payment of rent against Graco was suspended.

After a series of discussions and disagreements between NBC and the trustee in bankruptcy regarding the validity of their respective claims to the merchandise in storage, especially that part belonging to Lorac, the matter was resolved by the Assistant Registrar of the Superior Court, Bankruptcy Division, who ruled, on October 17, 1983, that the claim of the bank prevailed. The trial judge noted that in support of its case before the Assistant Registrar, NBC presented a complete list of merchandise belonging to Lorac and evidence establishing its value at $57,701.88. By the consent of NBC and the trustee in bankruptcy, the latter continued to have possession of all the merchandise and continued to keep it at the warehouse on Miniac Street. The cost of renting this warehouse was shared by NBC and the trustee in bankruptcy in proportion with the value of the items stored.

On October 29, 1983, the trustee in bankruptcy, together with the NBC representative, Mr. Saad, took out an advertisement in the Montréal newspaper La Presse, in which they announced the sale of the moveable effects of Graco and Lorac. On November 22, 1983, the attorney for NBC wrote to Corbeil to inform him that there had been virtually no response to the advertisement. An auctioneer had expressed some interest but had balked upon being asked by the bank's representative to provide a $5,000 deposit. The bank's attorney repeated to Corbeil an offer, apparently made to him for the first time one week earlier, by which Corbeil himself could buy the Lorac merchandise for $5,000. The letter also made clear the bank's intention to complete this business by November 30, 1983 and, failing any interest by a new buyer or Corbeil, to [TRANSLATION] "abandon the merchandise in the hands of the trustee in bankruptcy".

On December 14, 1983, attorneys for NBC wrote to the lessor, Timex, as follows:

[TRANSLATION] Please be advised that our client, the National Bank of Canada, waives any right it had or may have had in the goods owned by Équipements Lorac Ltée, located at 2825 Halpern St., St-Laurent, Quebec.

You may therefore henceforth dispose of these goods as you may be entitled to do without intervention by the National Bank of Canada.

Please act accordingly.

This "abandonment" occurred despite the fact that there was no contractual link between Lorac (or even NBC) and Timex. The evidence at trial appeared to indicate that in the eyes of the bank and its representative, Mr. Saad, the merchandise was of less value than the cost of moving it and storing it.

In January 1984, NBC instituted an action against Lorac for recovery of the balance of the loan. This was based on various promissory notes in favour of the bank, Corbeil's personal guarantee, and the collateral agreement by way of hypothec regarding the immoveable property owned by Corbeil. Lorac filed a cross-demand for the value of the goods which NBC had seized and then abandoned to Timex. The Superior Court allowed NBC's action in part and ordered Lorac to pay NBC the sum of $33,254.94 with interest and costs. It also allowed the cross-demand in part and ordered NBC to pay Lorac the sum of $57,701.88 with interest and costs. In conclusion, the trial judge ordered compensation between these two amounts with interest from the date of judgment, June 30, 1986, declared void Corbeil's letter of suretyship and released Corbeil of all obligations in that regard. He did not order that the hypothec be radiated as it also secured indebtedness of Chotech.

NBC appealed this judgment. The Court of Appeal allowed the appeal and dismissed Lorac's cross-demand.

At the hearing of the present appeal, an acknowledgement by NBC of satisfaction of the indebtedness of Chotech was filed in order that radiation of the hypothec might be ordered should it be found that Lorac is no longer indebted to NBC.

II -- Judgments

Superior Court, J.E. 86-825

Croteau J.

After a fairly detailed review of the facts, the trial judge stated what in his view was the law relevant to the cross-demand by Lorac. He relied on the case Canadian Imperial Bank of Commerce v. Zidle, C.A. Montréal, No. 500-09-000925-768, August 26, 1980, as support for the proposition that the bank is responsible for the actions of those persons upon whom it confers the execution of its own contractual powers, on the case of National Bank of Canada v. Soucisse, 1981 31 (SCC), [1981] 2 S.C.R. 339, as authority for the principle that contracts must be executed in good faith, despite the fact that this obligation is not specifically mentioned in the Civil Code, and on Falconbridge on Banking and Bills of Exchange (7th ed. 1969) regarding specific good faith requirements in the realization of the debtor's security.

Turning to the question of the value of the merchandise, Croteau J. stated first that the evidence revealed that it was all new. The evaluation for the purposes of the hearing before the Assistant Registrar in Bankruptcy used a figure of $57,701.88, and the advertisement in La Presse newspaper mentioned a price of $67,822.78 for all the goods presented for sale by the trustee in bankruptcy and Mr. Saad, the bank's representative. The trial judge noted that NBC did not object to paying its share of expenses for the storage, etc. of the merchandise in accordance with the proportion of the previously estimated value of its part of the whole. He made special mention of the poor comportment of Mr. Saad at trial, and he gave little stock to that witness's reference to the merchandise as [TRANSLATION] "scrap".

With respect to the advertisement in La Presse, Croteau J. was of the clear view that it was deficient. More detail ought to have been provided and another advertisement in an English daily would have been appropriate. The trial judge noted that the contract between NBC and Lorac did not require any of this, but that the general principles discussed earlier indicated that a just and fair approach was required of the bank. Accordingly, the bank's deficient advertisement in this case amounted to a delict or quasi-delict giving rise to liability for the damage suffered by Lorac. The trial judge added that the Bank Act clearly accorded enormous powers to the bank, but that s. 179 of the same legislation required that the bank act honestly and in good faith.

The judge then dealt with [TRANSLATION] "the gift (donation) to Timex Realty", referred to elsewhere as the "abandonment" of the goods to Timex. He notes first that there was no lease between Timex and Lorac, and that consequently:

[TRANSLATION] . . . there was no reason for the plaintiff to abandon the defendant Lorac's goods to Timex Realty. It was simply a gift of merchandise with a cost value of $57,701.88, and the reason given by Émile Saad, "Timex decided to seize it, Timex must deal with this property", is not justified because after Graco's bankruptcy the trustee was put in possession of it and a judgment of the Bankruptcy Court awarded ownership to the plaintiff. [Emphasis added.]

Croteau J. concluded that the respondent had not provided a satisfactory explanation for the gift to Timex:

[TRANSLATION] In light of the principles set out in the cases and the authorities referred to earlier, the bank's representative did not treat the matter seriously. The Court understands that he might have had too much work at the time, but that is no reason for the negligent way in which he handled this matter. He was unable to justify his conduct. The good faith that must be present in performing a contract of warranty was absent from the actions taken on the matter. The plaintiff did not act honestly and fairly: even if, as it maintains, the defendants did not ask for restitution, the plaintiff had a duty to take the initiative and offer it. The Court takes the view, contrary to Émile Saad's position, that the plaintiff did not have to spend any money on shipping. Falconbridge states, "unless indeed the price is so low as in itself to be evidence of fraud". The plaintiff acted in a more cavalier fashion. It gave the merchandise to the owner Timex.

The trial judge accordingly ordered NBC to pay damages to Lorac totalling $57,701.88 being the value of the goods seized. As stated earlier, Croteau J. also granted the claim of NBC for $33,254.94, ordered compensation between the parties and declared void the personal guarantee signed by Corbeil.

Court of Appeal, [1989] R.R.A. 749

Monet J.A. for the Court (Jacques and Vallerand JJ.A. concurring)

By way of preliminary observations, Monet J.A. noted that the creditor bank has rights flowing from statute and contract but that it also has a duty to act in good faith. He observed, however, that there was no evidence here of fraud on the part of the bank, and that it was not the duty of the bank [TRANSLATION] "to safeguard its debtor's rights and remedies" (p. 750).

Monet J.A. stated that, whatever the nature of the alleged fault of the bank, it was still necessary, in order to establish liability on the part of NBC, to prove a causal link between the bank's actions and the damage allegedly suffered by its client, Lorac. He held that Lorac had not adduced any evidence from which it could be concluded that any omissions on the bank's part had been the cause of a loss of some $50,000.

Monet J.A. focussed his analysis on the advertisement and the alleged failure of the bank to obtain as much as it might have by way of sale. He admitted that the advertisement could have been more detailed and that it could have been published in other newspapers, but he found that Lorac and Corbeil had offered no evidence that these failings caused the damage claimed. He did not discuss the abandonment of the merchandise to Timex in any part of the judgment.

Monet J.A. referred to the three essential ingredients of an action based on art. 1053 C.C.L.C. (fault, causation and damage: Air Canada v. McDonnell Douglas Corp., 1989 54 (SCC), [1989] 1 S.C.R. 1554) and concluded that one of these elements, the causal link, had not been established, the onus of proof having been on Lorac. Consequently, the bank's appeal was allowed and the cross-demand dismissed.

Both sides then brought motions under art. 520 C.C.P. to correct the previous judgment. Lorac argued that the judgment of the Court of Appeal had been decided on "wrong facts and a fictitious issue". It also asked that the amount payable to the bank bear interest from March 1, 1984 as earlier agreed. NBC sought similar changes to the date on which the calculation of interest on the amounts awarded should begin. It also asked that Lorac and Corbeil be declared jointly and severally liable for the amount of the claim, and that its hypothec on Corbeil's property be fully recognized. Lorac's motion was denied and NBC's motion granted.

III -- Relevant Statutory Provisions

Bank Act

178. (1) A bank may lend money and make advances,

(a) to any wholesale or retail purchaser or shipper of, or dealer in, products of agriculture, products of the forest, products of the quarry and mine, products of the sea, lakes and rivers or goods, wares and merchandise, manufactured or otherwise, on the security of such products or goods, wares and merchandise and of goods, wares and merchandise used in or procured for the packing of such products or goods, wares and merchandise,

(b) to any person engaged in business as a manufacturer, on 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,

(2) Delivery of a document giving security on property to a bank under the authority of this section vests in the bank in respect of the property therein described

(a) of which the person giving security is the owner at the time of the delivery of the document, or

(b) of which that person becomes the owner at any time thereafter before the release of the security by the bank, whether or not the property is in existence at the time of the delivery,

the following rights and powers, namely,

(c) if the property is property on which security is given under paragraph (1)(a), (b) . . . the same rights and powers as if the bank had acquired a warehouse receipt or bill of lading in which such property was described,

and all such property in respect of which such rights and powers are vested in the bank under this section is for the purposes of this Act property covered by the security.

179. (1) . . .

(7) In the event of non-payment of any debt, liability, loan or advance, as security for the payment of which a bank has . . . taken any security under section 178, 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.

(8) The power of sale referred to in subsection (7) shall, unless the person by whom the security mentioned in that subsection was given has agreed to sale of the property 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,

(10) In connection with any sale of property by a bank pursuant to subsections (7) and (8) or to any agreement between the bank and the person by whom the security was given, the bank shall act honestly and in good faith and shall deal with the property in a timely and appropriate manner having regard to the nature of the property and the interests of the person by whom the security was given and, in the case of a sale pursuant to an agreement, shall give the person by whom the security was given reasonable notice of the sale except where the property is perishable and to do so might result in a substantial reduction in the value of the property.

IV -- Points in Issue

The appellants claim that there is only one issue with respect to the merits of the case and formulate that issue in the following way:

Was the Respondent at fault in failing and refusing to sell for the benefit of the Appellants the latter's merchandise which the Respondent had taken possession of in pledge, and instead, had abandoned it gratuitously to a third party; and did this gross fault, which amounts to fraud, cause the Appellants damages in the sum of $57,701.88, this being the cost price and value of the merchandise?

Croteau J. essentially answered this question in the affirmative.

The Court of Appeal confined its reasons to a consideration of whether the respondent bank's alleged negligence in trying to sell the merchandise in question could be said to have caused the damage claimed by the appellants. As stated earlier, the Court of Appeal did not discuss the legal effect of the "abandonment" of the merchandise to the lessor, Timex. It was in part for this reason that the appellant, Lorac, felt it necessary to apply to the Court of Appeal seeking correction of the first judgment rendered by that court. That motion was dismissed without reasons. Accordingly, the appellants raise a new issue, which they set out as follows:

Was the Appeal Court judgment of September 5, 1989, wrong in fact and in law because it decided on false facts and a false issue which was irrelevant to the true issue in this cause; and was the Appeal Court judgment of November 1, 1989, wrong in refusing to maintain the Appellants' Motion for Correction and summarily dismissing it, in spite of the fact that the errors in its judgment of September 5, 1989, were brought to its attention? In view of the foregoing, should the Appeal Court judgments of September 5, 1989, and November 1, 1989, be set aside as being wrong and constituting a denial of justice, and be replaced by a judgment maintaining Appellants' Cross-Demand in the sum of $57,701.88?

This latter issue is in fact a consequence of the Court of Appeal's treatment of the case. It cannot be viewed as distinct in substance and will necessarily be disposed of in dealing with the main issue. It requires no separate answer.

It is to be noted that from the outset only the appellant Lorac has claimed damages, being the value of its goods. The interest of the appellant Corbeil is as guarantor of any indebtedness of Lorac to NBC. Accordingly, Corbeil wishes to obtain release from his personal obligations to NBC and radiation of the hypothec on his property which NBC holds as collateral security.

V -- Analysis

Lorac rests its claim on the gratuitous abandonment by NBC of its goods to a third party, Timex, the lessor of premises of which Lorac was an occupant with others but not a lessee.

The trial judge, basing himself on the above-quoted letter of December 14, 1983 from the attorneys of NBC to Timex renouncing the bank's rights and on the testimony of NBC's representative, Mr. Saad, found that there was a gratuitous abandonment. The trial judge disbelieved the explanations of Mr. Saad. There was evidence upon which he could make this finding of fact and I do not find any manifest error on his part.

The only explanation given by Mr. Saad by way of justification for his actions was that the goods had been seized by the lessor, Timex, and had no value. He was not concerned whether there were any amounts owing to the lessor but rather with not incurring the further expense of removing the goods elsewhere. Indeed, the seizure made was of goods as belonging to Graco. That seizure had been suspended by the bankruptcy of Graco and the trustee put in possession. The rights to the goods at issue had been determined as between the trustee and NBC by judgment of the Assistant Registrar of the Superior Court, Bankruptcy Division, on October 17, 1983, recognizing NBC's right of ownership in the goods following NBC's motion based, in its words, on its rights as [TRANSLATION] "owner sui generis" pursuant to s. 178 of the Bank Act.

Without it being necessary to define the precise nature and extent of the bank's rights under ss. 178 and 179 of the Bank Act, it is apparent on the very terms of those sections that these rights are limited both in their purpose and exercise and do not further displace or extinguish the rights of the original owner who has provided them as a security for indebtedness.

When NBC decided to renounce its rights in the goods, it also renounced the power to dispose of the goods in the manner described in the Bank Act. NBC could not therefore simply abandon or hand over the goods to a third party. By doing this, NBC acted in complete disregard of Lorac's rights and of its duties towards Lorac. Even if NBC's actions could be viewed as a sale, a view which the trial judge appears to have rejected, it would nonetheless have been governed by s. 179(10) of the Bank Act which bears repeating:

179. . . .

(10) In connection with any sale of property by a bank pursuant to subsections (7) and (8) or to any agreement between the bank and the person by whom the security was given, the bank shall act honestly and in good faith and shall deal with the property in a timely and appropriate manner having regard to the nature of the property and the interests of the person by whom the security was given and, in the case of a sale pursuant to an agreement, shall give the person by whom the security was given reasonable notice of the sale except where the property is perishable and to do so might result in a substantial reduction in the value of the property.

While this section refers expressly to a sale, it must encompass a fortiori a transfer without valuable consideration or a gift. Indeed, its provisions have been described as declaratory of prior law and it reflects the general obligation of good faith in the execution of contracts, an obligation which indeed extends regardless of the existence of a contract where a person is dealing with the property of another.

According to Crawford and Falconbridge Banking and Bills of Exchange (8th ed. 1986), vol. 1, at p. 432:

[Subsection 179(10)] provides that in conducting any sale, whether under the powers of the Act or pursuant to an agreement with its customer, the bank must act honestly and in good faith. This provision was added in 1980, but probably is only declaratory of the prior law. For example, it had been decided variously that the bank was under an implied duty to act in good faith, and reasonably, to effect a provident sale. It need not take all the pains in selling that a reasonably prudent owner would do in his self-interest, but it could not, for example, accept the first offer received merely because it was sufficient to cover the sum owing to the bank. It has been held that the bank must obtain the best price "possible", but that must be understood as meaning the best price possible by a bank acting in accordance with the required standard. It does not establish the standard.

In the circumstances, therefore, it was incumbent upon NBC to respect Lorac's interests and to inform Lorac of its intention to abandon its rights in the goods, and to make clear that the goods were Lorac's to deal with, effectively restoring the situation prior to NBC's taking possession of the goods. Instead, by letter dated November 22, 1983, the attorney for NBC repeated to Corbeil an offer to sell to him the Lorac merchandise for $5,000 and advised that, failing himself or a third party purchasing the equipment for this price by November 30, 1983, it would be abandoned in the hands of the trustee. As Lorac was not bankrupt, the trustee referred to was the one appointed to the bankruptcy of Graco. No offer was ever made to abandon to Lorac nor was Lorac informed of the subsequent abandonment to Timex.

In all this, NBC acted in complete disregard of Lorac's rights and without authority nor compliance with its obligations under s. 179(10) of the Bank Act and under the general law. It abandoned property which it had no right to abandon and thereby deprived Lorac of such property.

Under these circumstances, NBC cannot be heard to claim that it was up to Lorac to seek out the property and attempt to recover it. The obligation to inform the debtor and to restore the situation to the status quo ante remained with NBC. The loss incurred is that of the goods which, in their absence, are represented by their value. The trial judge accepted their value at cost. As the goods were new and in the absence of other direct evidence, I can find no manifest error. Indeed, the only other evidence invoked was the unsuccessful efforts at selling the goods, essentially under distress conditions. The trial judge was clearly not satisfied with the efforts that had been made and Mr. Corbeil testified that he did not have the means to purchase or obtain financing for the purchase. Furthermore, the price obtainable upon a distress or forced sale can reasonably be considered as not representative of true value. In the event, since the value must be established not in the context of a forced sale by NBC in the exercise of its rights but rather in that of a renunciation to these rights and an unlawful abandonment of property, their true value represents the proper measure of damages. This conclusion is consistent with the findings in the case of Provincial Bank of Canada v. Gagnon, 1981 195 (SCC), [1981] 2 S.C.R. 98. In that case, the bank had taken possession of and sold, pursuant to s. 88 of the Bank Act, R.S.C. 1970, c. B-1, property which did not fall within the ambit of that section and the debtor was himself bankrupt. While the circumstances were somewhat different, they called for the application of similar principles. Lamer J., as he then was, wrote at p. 112:

In my view it was for the Bank, once established that it had unlawfully sold the property of another, and not in realization of its security, to prove that the reduction in Air-Tech's estate having regard to the creditors of the bankruptcy was less than in the amount of the value of these items; otherwise, the amount of the compensation should be the value of the items, as determined by the Court of Appeal, and not disputed by the parties, namely the sum of $130,474.26.

As stated above, I find no manifest error in the trial judge's determination.

I would therefore allow the appeal and restore the judgment of the trial judge corrected in accordance with the consent of the parties dated October 6, 1988 and modified:

(1) to take into account the admission dated June 27, 1990 by respondent of receipt of payment of $2,442.78 on August 4, 1986;

(2) to declare nul the deed of collateral hypothec in view of the satisfaction of Lorac's indebtedness to NBC and the admission filed at the hearing by NBC dated September 14, 1990 acknowledging that such deed no longer has any object as regards Chotech, since this company is not indebted to and does no business with NBC;

(3) having regard to the consent of the parties dated October 6, 1988 to set March 1, 1984 as the date from which interest shall run on the principal demand;

(4) to grant the additional indemnity provided under art. 1078.1 C.C.L.C., no reason being shown for its not being granted.

VI -- Disposition

The appeal is allowed, the judgment of the Court of Appeal of September 5, 1989 as corrected by judgment of November 1, 1989 is set aside and the judgment of the Superior Court is restored modified as follows:

-- doth maintain in part the action of plaintiff-respondent;

-- doth declare the defendant-appellant, Lorac, indebted to plaintiff-respondent in the amount of $33,254.94 with interest at the rate of 13.5 per cent per annum from March 1, 1984;

-- doth maintain in part the cross-demand;

-- doth declare the plaintiff-respondent indebted to defendant-appellant, Lorac, in the amount of $57,701.88 with interest at 5 per cent and the additional indemnity provided under art. 1078.1 C.C.L.C. from February 27, 1984;

-- doth declare compensation pro tanto between said amounts after calculation of interest and indemnity as of June 30, 1986;

-- doth accordingly condemn plaintiff-respondent to pay to defendant-appellant, Lorac, the resulting balance with interest thereon and the indemnity under art. 1078.1 C.C.L.C. from June 30, 1986 to which balance shall be added as of August 4, 1986 the sum of $2,442.78;

-- doth annul the deed of collateral hypothec passed on December 2, 1981 before M^e Gilles Legault, notary, between NBC and Corbeil, registered at the Registry Division of Argenteuil on December 8, 1981 under No. 196406, against the following immovable property:

[TRANSLATION] DESCRIPTION

A lot located in the Township of Harrington, in the County of Argenteuil, known and designated as lot number THIRTY-NINE of the official subdivision of original lot number FIFTEEN (15-39) in the Fifth Range, in the official plan and book of reference of the said Township of Harrington, having a surface area of thirteen thousand seven hundred and ninety square feet (13,790 sq. ft.), English measure more or less.

With the property erected thereon, having number 81 Mohawk Drive, Lac Forest, Township of Harrington.

As the whole stands at present, with all active and passive, apparent or covert servitudes attached to the said immovable property, with no exception or reservation by the Party of the Second Part.

and doth order the Registrar of the said Registration Division to radiate the said registration;

-- doth annul the personal guarantee signed by the defendant-appellant, Corbeil, exhibit P-1.

The whole with costs in this Court and the courts below in favour of the appellants.

Appeal allowed with costs.

Solicitors for the appellants: Zimmerman & Blitt, Montréal.

Solicitors for the respondent: Smith, Saint‑Martin & Morin, Montréal.