




CITATION:
Meridian
          Credit Union Limited v. Grenville-Wood Estate
2011 ONCA 512



DATE: 20110712



DOCKET: C51739



COURT OF APPEAL FOR ONTARIO



OConnor A.C.J.O., Cronk and Rouleau JJ.A.



BETWEEN



Meridian Credit Union Limited



Plaintiff (Respondent)



and



(The Estate of) Geoffrey Grenville-Wood



Defendant (Appellant)



Paul Champ, for the appellant



Kelly Charlebois, for the respondent



Heard:
July 5, 2011



On appeal from the judgment of Justice W.J. Loyd Brennan of
          the Superior Court of Justice dated January 19, 2010, with reasons reported
          at
2010 ONSC 485
.
[1]



By the Court:



[1]

This is an appeal from a judgment finding the appellant
    liable for a loss sustained by his bank when the appellant unknowingly
    deposited a materially altered cheque that was then dishonoured by the payor.

[2]

The appellant, the late Mr. Geoffrey Grenville-Wood,
    agreed to facilitate a transfer of funds on behalf of a Taiwanese businessman
    whom he did not know in return for a 5% commission on the transfer.  In accordance with this arrangement, the
    appellant received a cheque payable to him for $57,000.13 in March 2005.  He deposited $2,850 (representing his
    commission) into an existing account at the respondent credit union and the
    remaining $54,150.13 into another account he had just opened with the
    respondent.  As per the instructions he
    received from the Taiwanese businessman, the appellant ordered a wire transfer
    of $41,989.14 US to a company in Tokyo.

[3]

In fact, the cheque was doctored.  It was drawn on the Royal Bank of Canada
    account of Polstar Construction Ltd., a corporation located in Brampton.  The cheque was originally made payable to
    DeMelos Construction in the amount of $355.12 but someone had altered the
    cheque to show the appellant as the payee in the amount of $57,000.13.

[4]

The alteration was discovered and the cheque was
    returned as dishonoured on June 9, 2005.  The respondent reimbursed the Royal Bank of Canada (the drawee bank) and
    then charged the amount back to the appellant.  The respondent seized $12,658.03 from the appellants accounts and
    brought an action against him for the balance of $44,342.10.  The appellant counterclaimed in negligence
    and breach of contract.  In his pleadings
    and during trial, the appellant argued that he was a victim of fraud who did
    not know that the cheque had been altered and so he should not be liable for
    the loss.

[5]

The trial judge found that the cheque had been
    materially altered and, thus, that it was void. Although there was no
    suggestion that the appellant was complicit in the forgery, the respondent had the
    right of charge-back with respect to the materially altered cheque.  As a result, the respondent was entitled to
    reverse the provisional credit given to the appellant upon deposit of the
    fraudulent cheque, debit all the appellants accounts for the full amount of
    the fraudulent cheque, and bring an action for the unrecovered balance.  Although in his reasons the trial judge refers
    to the appellants claim in negligence, he provided no reasons for dismissing
    the claim.

[6]

The appellant argues that the trial judge erred in
    finding that there had only been a provisional credit made to the appellants
    account.  In the appellants view, the credit
    to his account had become final because payment on the cheque had been made to
    the respondent (the collecting bank) by the drawee bank.  The appellant argues that once a drawee bank
    has made the payment and the collecting bank has received the funds, the collecting
    banks right of charge-back is extinguished.

[7]

In particular, The appellant submits that the Supreme
    Court of Canadas decision in
B.M.P.
    Global Distribution
Inc. v. Bank of Nova Scotia
,
    [2009] 1 S.C.R. 504, stands for the proposition that, when the funds are paid
    to the collecting bank and the hold on a cheque is lifted, the credit to the
    account becomes final and the collecting banks right of charge-back is
    extinguished.  Thereafter, the
    respondents only remedy is to sue on the basis of mistake of fact.  In an action based on mistake of fact, the
    appellant can raise the defence of change of position, a defence that,
    according to the appellant, would succeed on the facts of this case.

[8]

We disagree.  In
    our view,
B.M.P.
has no application
    to the present case.
B.M.P.
did not involve the collecting
    banks right of charge-back.  In
B.M.P.
, the drawee bank had no recourse
    against the collecting bank, yet the collecting bank still voluntarily assisted
    the drawee bank in collecting the funds from the payees account. In defending
    the payees action, both banks relied on the payment having been made to the
    payee in mistake of fact.

[9]

The scenario in
    the present case is quite different.  The
    drawee bank dishonoured the cheque the appellant had deposited on the basis
    that it had been materially altered.  The
    drawee bank returned the cheque as dishonoured to the respondent.  The respondent then exercised its right of charge-back
    against the appellants account.

[10]

Charge-back refers to a collecting banks common law
    right to reverse a credit made to a customers account because of some defect
    in the bill of exchange.  This right has
    been recognized by Canadian courts since at least the 1870s; see e.g.
Owens v. The Quebec Bank
(1870), 30 U.C.R.
    382 (Q.B.).

[11]

Although many banks simply provide for this right in
    their contract with the customer, it appears that the respondent had not.  In
Bank
    of Nova Scotia v. Sharp
(1975), 57 D.L.R. (3d) 260 (B.C.C.A.), the British
    Columbia Court of Appeal confirmed that, even absent a provision in the banks agreement
    with its customer, the bank retained the right of charge-back as it was
    inherent in its role as a collecting bank.  A collecting bank acts as a mere agent or
    conduit pipe to receive payment of the cheque from the banker on whom it is
    drawn [i.e. the drawee bank] and holds the proceeds at the disposal of his
    customer:
Sharp
at p. 263, citing
2 Hals., 3rd ed., at pp. 176-8
.

[12]

In our view, the fact that a collecting bank has
    received payment on a cheque from the drawee bank does not mean that the credit
    made to the payees account becomes final in the sense that the collecting bank
    loses its right of charge-back.  The
    collecting bank, in acting as the payees agent, assumes no liability with
    respect to the validity of the bill of exchange.  The collecting bank does not become a
    guarantor of the cheque by virtue of receiving the funds from the drawee bank
    and removing the hold on the payees account.  Although most reported cases involving charge-back are cases of NSF
    cheques where the collecting bank had not yet received the funds from the
    drawee bank, there are nonetheless numerous reported cases involving a
    dishonoured cheque and a charge-back by a collecting bank after the collecting
    bank had received payment from the drawee bank.  See e.g.
National Slag v. Canadian
    Imperial Bank of Commerce et al.
(1982), 140 D.L.R. (3d) 473 (Ont. H.C.),
    affirmed (1985), 19 D.L.R. (4th) 383 (Ont. C.A.); and
Royal Bank of Canada v. Malfara Importing & Exporting Inc.
,
    [2005] O.J. No. 1066 (S.C.).

[13]

As stated by M.H. Ogilvie in her text,
Bank and Customer Law in Canada
(Toronto:
    Irwin Law, 2007), at p. 291:

There would appear to
    be no limitation on the time period within which a charge-back can be made, but
    it should probably be within a reasonable period of time as a matter of equity
    to the customer in knowing the state of the account.

Further, as held by this court in
National Slag
, at p. 383, a delay by the
    collecting bank in notifying the customer does not turn a worthless cheque, by
    some legal legerdemain, into a good one.  It is not suggested in the present case that there was a delay by the
    respondent in advising the appellant once the respondent received notice that
    the cheque had been dishonoured.

[14]

The appellant further submits that the trial judge
    erred in law by failing to allow the appellants counterclaim in negligence.  Specifically, the appellant argues that the respondent
    owed a general duty of care to its customer to exercise the skill and care of a
    reasonable banker, and that it breached this duty.  The appellant argues that the respondent had
    been told of the circumstances surrounding the appellants receipt of the
    cheque as well as the fact that the bulk of the funds would be sent by the
    appellant to Japan.  As a result, the
    appellant maintains that the respondent had a duty to advise the appellant that
    although the cheque had cleared, the credit could not be considered final and might
    later be reversed if the cheque was dishonoured by the drawee bank.

[15]

Unfortunately, the trial judge did not give any reasons
    for dismissing the negligence claim.  However, as noted by the respondent, the focus of the negligence claim
    in the pleadings and at trial was not as the appellant now argues, i.e. the
    duty to advise him of the possibility of a later reversal of the credit.  Rather, the focus in the pleadings and at
    trial was on the respondents failure to discover the material alteration and
    the respondents conduct after it was advised that the cheque had been
    dishonoured.

[16]

In our view, this ground of appeal has no merit.  The respondent had no duty to warn the
    appellant in the circumstances of this case.  The appellant was the person best situated to prevent the loss and to
    make inquiries as to the validity of the cheque purportedly issued to him.  At the appellants request, the respondent
    advised him as to whether there were sufficient funds in the payors
    account.  The respondent did not and
    could not have given further assurances with respect to the validity of the
    cheque nor could it reasonably have known that the cheque would be later
    dishonoured.  There was, therefore, no
    breach of a duty of care by the respondent.

[17]

For these reasons, the appeal is dismissed.  The parties have indicated that they would
    likely be in a position to reach an agreement on costs.  If they are unable to agree, the respondent shall
    submit brief submissions within two weeks hereof and the appellant shall submit
    a brief response two weeks thereafter.

D. OConnor A.C.J.O.

E.A. Cronk J.A.

Paul Rouleau J.A.

RELEASED: July 12, 2011





[1]
The
    style of cause in the proceeding below was
Desjardins
    Credit Union Inc. v. (The Estate of) Geoffrey Grenville-Wood
. By order of
    the Deputy Registrar of the Court of Appeal dated June 28, 2011, the style of
    cause has been changed to
Meridian Credit
    Union Limited v. (The Estate of) Geoffrey Grenville-Wood
by virtue of a
    recent amalgamation agreement between Desjardins Credit Union Inc. and Meridian
    Credit Union Limited.


