J. Saskatchewan Court of Queen's Bench Citation: Toronto Dominion Bank v. Sheppard Date: 1998-08-06 Docket: Estevan Q.B. 169/96 Between: Toronto Dominion Bank, Plaintiff and Bernard Allan Sheppard and Lila Sheppard, Defendants Before: McIntyre J. Appearances: S.G. Segal, for the Toronto Dominion Bank I.D. Wagner, for Bernard Allan Sheppard and Lila Sheppard McIntyre J.: [1] The defendants seek to set aside a default judgment entered by the plaintiff against them and have the plaintiff's claim struck out. The defendants abandoned their alternate claim to be granted leave to file statement of defence. [2] The statement of claim alleges: The defendants received cheque number 70919 dated February 13, 1995, drawn on the plaintiff bank by Tri-Link Resources in the amount of $18,442.39. The defendants carried on business as hauling sub-contractor to Tri-Link Resources. The cheque was subsequently reported as lost by the defendant, Bernard Sheppard. Tri-Link issued cheque number 71066 as replacement cheque. Cheque number 71066 was deposited to the defendants' account at the Royal Bank in Carlyle, Saskatchewan, on February 21, 1995. The defendant, Lila Sheppard, had cheque number 70919 certified at branch of the plaintiff in Calgary, Alberta. On April 10, 1995, cheque number 70919 was deposited to the defendants credit union account. [3] The plaintiff sought judgment against the defendants in the amount of $18,442.39 plus interest. Default judgment against the defendant, Bernard Sheppard, was taken out January 13, 1997. Default judgment against the defendant, Lila Sheppard, was obtained March 24, 1997. [4] Relief is sought pursuant to Queen's Bench Rules 346 and 173(a) which provide: 173 The Court may at any stage of an action order any pleading or any part thereof to be struck out, with or without leave to amend, on the ground that: (a) it discloses no reasonable cause of action or defence, as the case may be; 346 Subject to Rule 271 any judgment by default, whether by reason of non-delivery of defence or non-compliance with any of these rules or with any order of the court, may be set aside or varied by the court upon such terms as to costs or otherwise as the court may think fit. [5] The defendants claim the statement of claim discloses no cause of action and as such any default judgment may be set aside ex debito justitiae; Dyvig v. Adams, 1941 CanLII 116 (SK QB), [1942] W.W.R. 129 (Sask Dist. Ct.) at 137. The defendants further argue that where judgment is set aside ex debito justitiae delay in bringing the application is not factor; Beaver Lumber Co. v. Hopfauf, 1932 CanLII 192 (SK CA), [1932] W.W.R. 357 (Sask. C.A.) at 362. [6] The defendants say the plaintiff has no cause of action as certified cheque is irrevocable; A.E. LePage Real Estate Services Ltd. v. Rattray Publications Ltd. (1994), 1994 CanLII 1506 (ON CA), 120 D.L.R. (4th) 499 (Ont. C.A.). [7] The plaintiff claims it has a cause of action in either conversion or mistake of fact/unjust enrichment. [8] In considering an application under Rule 173(a) the court may only look at the "notice of motion, the attached statement of claim ... and any document which is referred to in the statement of claim upon which the plaintiff must rely for the establishment of the claim". The court must assume that "... all the allegations in the plaintiff's statement of claim are true, and so assuming, determine if such allegations are sufficient to disclose reasonable cause of action against the defendants ..."; Lackmanec v. Hoffman (1982), 1982 CanLII 2585 (SK CA), 15 Sask. R. (Sask. C.A.). [9] The plaintiff cannot maintain claim of conversion as there is nothing in the statement of claim to suggest the defendant bank had property or possessory interest in the cheque at any material time. While cheque may be the subject matter of an action for conversion, only the payee, endorsee or the drawer can maintain an action in conversion; Arrow Transfer Co. v. Royal Bank, 1971 CanLII 986 (BC CA), [1971] W.W.R. 241 (B.C. C.A.), affm. 1972 CanLII 135 (SCC), [1972] S.C.R. 845 (S.C.C). [10] The right of bank to recover money mistakenly paid out on cheque is canvassed in A.E. LePage, supra, by Finlayson J.A. beginning at p. 506: The analysis begins with Barclays Bank v. Simms [[1979] All E.R. 622 (Q.B.)] case on all fours with the one on appeal, save that there was no issue about certification. Goff J. of the English Court of Queen's Bench stated at p. 542: In the light of the above principles, it is plain that in the present case Barclays are entitled to succeed in their claim. First, it is clear that the mistake of the bank, in overlooking the drawer's instruction to stop payment of the cheque, caused the bank to pay the cheque. Second, since the drawer had in fact countermanded payment, the bank was acting without mandate and so the payment was not effective to discharge the drawer's obligation on the cheque, from this it follows that the payee gave no consideration for the payment, and the claim cannot be defeated on that ground. Third, there is no evidence of any actual change of position on the part of either of the defendants or on the part of National Westminster; and, since notice of dishonour is not required in case such as this, the payee is not deemed to have changed his position by reason of lapse of time in notifying them of Barclays' error and claiming repayment. (Emphasis added). Then, Goff J. embarked upon review of authority dealing with the right of recovery of bank that has mistakenly paid out on cheque. He said at p. 535: From this formidable line of authority certain simple principles can, in my judgment, be deduced. 1. If person pays money to another under mistake of fact which causes him to make the payment, he is prima facie entitled to recover it as money paid under mistake of fact. 2. His claim may however fail if: (a) the payer intends that the payee shall have the money at all events, whether the fact be true or false, or is deemed in law so to intend; (b) the payment is made for good consideration, in particular if the money is paid to discharge, and does discharge, debt owed to the payee (or principal on whose behalf he is authorized to receive the payment) by the payer or by third party by whom he is authorised to discharge the debt; (c) the payee has changed his position in good faith, or is deemed in law to have done so. Barclays Bank v. Simms is the accepted authority explaining the obligations of bank to its customer and its redress against the payee of cheque who appears to be taking advantage of an innocent mistake on the part of bank employee. However, it seems to me that it is the result in Barclays Bank v. Simms that payee in Canada seeks to avoid by having the cheque certified. [11] It is these principles the plaintiff relies upon in this instance. The defendants say the principles are inapplicable when certified cheque is involved. Finlayson J.A. dealt with the issue as follows at p. 508: ... do not understand the rationale for the proposition that bank can charge fee to payee for representing that the drawer's cheque is valid and not be held to that representation simpliciter. Why is bank entitled to insist that it can only be held accountable to innocent third parties or in circumstances where the payee has acted to its detriment? [12] The above passage would appear to support the defendants assertion. However, at p. 509 Finlayson J.A. indicates there are exceptions to the irrevocable nature of certified cheque. think the answer to this concern is that there is case law, in addition to Barclays Bank v. Simms, supra, that establishes that where drawee bank honours cheque notwithstanding valid countermand and the effect is to satisfy just debt, the bank may successfully defend an action by its customer/drawer for reimbursement: see J. Reynolds, "Countermand of Cheques" (1981), 15 U.B.C.L. Rev. 341 at pp. 363-5; B. Liggett (Liverpool) Ltd. v. Barclays Bank, Ltd., [1928] K.B. 48; Shapera v. Toronto-Dominion Bank (1970), 1970 CanLII 805 (MB QB), 17 D.L.R. (3d) 122, [1971] W.W.R. 442 (Man. Q.B.). This is so even where the drawee bank made an independent decision to create an overdraft to allow cheque to be certified: see Bank of Nova Scotia v. Organ Fisheries (1984), 51 Nfld. P.E.I.R. 322 (Nfld. Dist. Ct.). Further, in certain circumstances, the bank may have an action in restitution against the holder of certified cheque, where payment does not satisfy just debt: see Reynolds, supra, at pp. 359-63; Toronto-Dominion Bank v. Anker Electric Motor and Equipment Co. (1978), 1978 CanLII 1716 (ON SC), 93 D.L.R. (3d) 510, 22 O.R (2nd) 369 (Co. Ct.); and Royal Bank of Canada v. LVG Auctions Ltd. (1983), 1984 CanLII 1921 (ON CA), D.L.R. (4th) 95, 25 B.L.R. 30, 43 O.R. (2nd) 582 (H.C.J.)... [Emphasis added] [13] The present case is one of those circumstances where the bank has an action in restitution against the holder of certified cheque as payment did not satisfy just debt. The defendants in this instance had already deposited the replacement cheque when the original cheque was presented for certification and subsequently deposited by the defendants. The certified cheque did not satisfy a just debt. The defendants had already received payment for their services. [14] Finlayson J.A. found that the irrevocable nature of certified cheque and the liability of bank to the holder of certified cheque, which it certified at the request of the drawer or holder had the advantage of bringing certified cheque squarely within the framework of the Bills of Exchange Act, R.S.C. 1985, c. B-4 and codified the consequences of certification. In recognizing exceptions to the irrevocable nature of certification the commercial utility of certification at the request of the payee is maintained while providing recourse to bank where payee seeks to unjustly enrich itself and then purport to seek refuge behind the "irrevocable nature" of certified cheque. [15] The defendants motion must be dismissed as the plaintiff's statement of claim adequately discloses a cause of action in mistake of fact/unjust enrichment. [16] The plaintiff shall have its costs of the application. Application dismissed.
The defendants sought to set aside a default judgment and have the plaintiff's claim struck out. The defendants abandoned their alternate claim to be granted leave to file a statement of defence. The defendants, carrying on business as a hauling sub-contractor to Tri-Link, reported a cheque drawn on the plaintiff bank as lost. Tri-Link issued a replacement cheque. The first cheque was certified at a bank branch of the plaintiff in Alberta and deposited to the defendants' credit union account. Default judgments were obtained in January/March 1997 against the defendants who now sought to have them set aside pursuant to Queen's Bench Rules 346 and 173(a). The defendants claimed the statement of claim disclosed no cause of action as a certified cheque is irrevocable and as such any default judgment may be set aside ex debito justitiae, in which case delay in bringing the application is not factor. The plaintiff claims it has a cause of action in either conversion or mistake of fact/unjust enrichment. HELD: The defendants' motion was dismissed as the plaintiff's statement of claim adequately disclosed a cause of action in mistake of fact/unjust enrichment.  1)There are exceptions to the irrevocable nature of a certified cheque. The present case is one of those circumstances where the bank has an action in restitution against the holder of a certified cheque as payment did not satisfy a just debt. The defendants in this instance had already deposited the replacement cheque when the original cheque was presented for certification and subsequently deposited by the defendants. The cerified cheque did not satisfy a just debt. The defendants had already received payment for their services.  2)In recognizing exceptions to the irrevocable nature of certification the commercial utility of certification at the request of the payee is maintained while providing recourse to a bank where a payee seeks to unjustly enrich itself and then purport to seek refuge behind the 'irrevocable nature' of a certified cheque.